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 ETHIOPIA





Model Production Sharing Agreement Of 1994


 ETHIOPIA





Model Production Sharing Agreement Of 1994


 TABLE OF CONTENTS








PREAMBLE


SECTION I SCOPE AND DEFINITIONS


LI Scope


1.2 Definitions


SECTION II TERM, SURRENDER AND TERMINATION


2.1 Term


2.2 Exploration Period


2.3 Surrender during Exploration Period


2.4 Development and Production Period


2.5 Termination


SECTION III GENERAL RIGHTS AND OBLIGATIONS OF


THE CONTRACTOR


3.1 Rights of the Contractor


3.2 Obligations in respect of the conduct of Petroleum Operations


3.3 Abandonment and disposal of assets


3.4 Records and reports of Petroleum Operations


3.5 Joint liability and indemnity


3.6 Local employment, training and preference


3.7 Environmental and safety measures


3.8 Registration and office


SECTION IV GENERAL RIGHTS AND OBLIGATIONS OF THE


GOVERNMENT AND THE MINISTER


4.1 Rights of the Government and the Minister


4.2 Obligations of the Government and the Minister


SECTION V WORK OBLIGATIONS, EXPENDITURE AND


BUDGET


5.1 Exploration


5.2 Bank guarantee


5.3 Discovery and appraisal


5.4 Development and production


SECTION VI GOVERNMENT PARTICIPATION


6.1 Government participation


SECTION VII COST RECOVERY AND PRODUCTION SHARING


7.1 Cost recovery


7.2 Production sharing


 TABLE OF CONTENTS








PREAMBLE


SECTION I SCOPE AND DEFINITIONS


LI Scope


1.2 Definitions


SECTION II TERM, SURRENDER AND TERMINATION


2.1 Term


2.2 Exploration Period


2.3 Surrender during Exploration Period


2.4 Development and Production Period


2.5 Termination


SECTION III GENERAL RIGHTS AND OBLIGATIONS OF


THE CONTRACTOR


3.1 Rights of the Contractor


3.2 Obligations in respect of the conduct of Petroleum Operations


3.3 Abandonment and disposal of assets


3.4 Records and reports of Petroleum Operations


3.5 Joint liability and indemnity


3.6 Local employment, training and preference


3.7 Environmental and safety measures


3.8 Registration and office


SECTION IV GENERAL RIGHTS AND OBLIGATIONS OF THE


GOVERNMENT AND THE MINISTER


4.1 Rights of the Government and the Minister


4.2 Obligations of the Government and the Minister


SECTION V WORK OBLIGATIONS, EXPENDITURE AND


BUDGET


5.1 Exploration


5.2 Bank guarantee


5.3 Discovery and appraisal


5.4 Development and production


SECTION VI GOVERNMENT PARTICIPATION


6.1 Government participation


SECTION VII COST RECOVERY AND PRODUCTION SHARING


7.1 Cost recovery


7.2 Production sharing


SECTION XIII PRODUCTION RATE AND MARKETING





8.1 Production rate


8.2 Marketing


SECTION IX UNITIZATION


9.1 Unitization


SECTION X DOMESTIC CONSUMPTION


10.1 Domestic consumption


SECTION XI RENTALS, ROYALTIES AND BONUSES


11.1 Annual rentals


11.2 Royalties


11.3 Production bonuses


SECTION XII VALUATION AND MEASUREMENT


12.1 Valuation


12.2 Measurement


SECTION XIII NATURAL GAS


13.1 Non-associated Natural Gas


13.2 Associated Natural Gas


13.3 Other provisions


SECTION XIV FINANCIAL AND FISCAL MATTERS AND


ACCOUNTING





14.1 Finances


14.2 Taxation


14.3 Foreign exchange control


14.4 Accounting


SECTION XV IMPORTS AND EXPORTS


15.1 Imports


15.2 Exports


SECTION XVI GOVERNING LAW AND DISPUTES


16.1 Governing law





16.2 Arbitration


16.3 Force Majeure


SECTION XVII GENERAL





17.1 Confidentiality


17.2 Waiver


17.3 Notice


17.4 Headings and amendments


APPENDICES


I ACCOUNTING PROCEDURES





II CONTRACT AREA


SECTION XIII PRODUCTION RATE AND MARKETING





8.1 Production rate


8.2 Marketing


SECTION IX UNITIZATION


9.1 Unitization


SECTION X DOMESTIC CONSUMPTION


10.1 Domestic consumption


SECTION XI RENTALS, ROYALTIES AND BONUSES


11.1 Annual rentals


11.2 Royalties


11.3 Production bonuses


SECTION XII VALUATION AND MEASUREMENT


12.1 Valuation


12.2 Measurement


SECTION XIII NATURAL GAS


13.1 Non-associated Natural Gas


13.2 Associated Natural Gas


13.3 Other provisions


SECTION XIV FINANCIAL AND FISCAL MATTERS AND


ACCOUNTING





14.1 Finances


14.2 Taxation


14.3 Foreign exchange control


14.4 Accounting


SECTION XV IMPORTS AND EXPORTS


15.1 Imports


15.2 Exports


SECTION XVI GOVERNING LAW AND DISPUTES


16.1 Governing law





16.2 Arbitration


16.3 Force Majeure


SECTION XVII GENERAL





17.1 Confidentiality


17.2 Waiver


17.3 Notice


17.4 Headings and amendments


APPENDICES


I ACCOUNTING PROCEDURES





II CONTRACT AREA


 MODEL PRODUCTION SHARING





PETROLEUM AGREEMENT


THIS AGREEMENT, made and entered into on this_day of_,


199_by and between:


THE GOVERNMENT OF ETHIOPIA (herein referred to as the "Government"),


represented for the purposes of this Agreement by the Minister of Mines and Energy


(herein referred to as the "Minister"),


and





_, a corporation duly organized and existing under the laws


of _


(herein referred to as the "Contractor"), represented for the purposes of this


Agreement by_, its_.


The Government and the Contractor are herein referred to either individually as


"Party" or collectively as "Parties".








WITHNESSETH:








WHEREAS, the title to all Petroleuiii'existing in its ftaturai'condition on, in or under


the Territory of Ethiopia is vested'In the State.andthe People of Ethiopia; and





WHEREAS, the Government wishes’toopromote the exploration, development and


production of the Petroleum. .on( in or- under the Contract Area and the Contractor


desires to join and assist /the -Government in the exploration, development and


production of potential Petroleum within the Contract Area; and








WHEREAS, the Contractor represents that it has the financial ability, technical


competence and professional skills to carry out the Petroleum Operations herein


described; and





WHEREAS, the Petroleum Operations Proclamation No. 295 of 1986 provides that a


Petroleum Agreement may be entered into between the Government and any person;





NOW, THEREFORE, the Government hereby grants to the Contractor in


consideration of the payments, covenants and agreements contained herein on the


part of the Contractor, the sole right to explore, develop and produce Petroleum in


the Contract Area and to exercise other rights granted by this Agreement, and, further


in consideration of the undertakings and covenants contained herein, the Parties


agree as follows:


 MODEL PRODUCTION SHARING





PETROLEUM AGREEMENT


THIS AGREEMENT, made and entered into on this_day of_,


199_by and between:


THE GOVERNMENT OF ETHIOPIA (herein referred to as the "Government"),


represented for the purposes of this Agreement by the Minister of Mines and Energy


(herein referred to as the "Minister"),


and





_, a corporation duly organized and existing under the laws


of _


(herein referred to as the "Contractor"), represented for the purposes of this


Agreement by_, its_.


The Government and the Contractor are herein referred to either individually as


"Party" or collectively as "Parties".








WITHNESSETH:








WHEREAS, the title to all Petroleuiii'existing in its ftaturai'condition on, in or under


the Territory of Ethiopia is vested'In the State.andthe People of Ethiopia; and





WHEREAS, the Government wishes’toopromote the exploration, development and


production of the Petroleum. .on( in or- under the Contract Area and the Contractor


desires to join and assist /the -Government in the exploration, development and


production of potential Petroleum within the Contract Area; and








WHEREAS, the Contractor represents that it has the financial ability, technical


competence and professional skills to carry out the Petroleum Operations herein


described; and





WHEREAS, the Petroleum Operations Proclamation No. 295 of 1986 provides that a


Petroleum Agreement may be entered into between the Government and any person;





NOW, THEREFORE, the Government hereby grants to the Contractor in


consideration of the payments, covenants and agreements contained herein on the


part of the Contractor, the sole right to explore, develop and produce Petroleum in


the Contract Area and to exercise other rights granted by this Agreement, and, further


in consideration of the undertakings and covenants contained herein, the Parties


agree as follows:


 SECTION I:





SCOPE AND DEFINITIONS





1.1. Scope


This Agreement is a production sharing agreement and it shall cover Petroleum


Operations in the Contract Area. The Contract Area is described and delineated in


Appendix II hereto periodically adjusted in accordance with the provisions of this


Agreement. During the term of this Agreement all Petroleum production resulting


from the conduct of Petroleum Operations shall be divided between the Parties in


accordance with the provisions of Sections VI through XIII hereof.


1.2. Definitions


In this Agreement, unless the context clearly indicates otherwise, words in the


singular include the plural, the plural-indfcates the singular, and words that are not


defined herein, but that are defined m the Petroleurm-Proclamation, shall have the


meanings set forth in that Jaw.\.. *'../"•“* \ V*


1.2.1. "Accounting Procedure^' ''means the:'accounting procedures and reporting


requirements set fofth in Appendix! hereto.


1.2.2. "Affiliate" of any specified.'per^on means any person directly or indirectly controlling


or controlled by or..under direct or indirect common control of another person. For the


purposes of this definition, "control" means the power to direct, administer, or dictate


the management knd policies of such person or the ownership of fifty per cent (50 %)


or more of voting rights in such person; and the terms "controlling" and "controlled"


have meanings correlative to the foregoing.


1.2.3. "Appraisal Area" means the area within the Contract Area subject to an appraisal work


program and budget as set forth in Section 5.3.2.


1.2.4. "Associated Natural Gas" means Natural Gas which exists in a reservoir in solution


with Crude Oil or, as gas-cap gas, in contact with Crude Oil, and is or could be


produced with Crude Oil.


1.2.5. "Barrer means a quantity consisting of 158.984 litres at standard atmospheric pressure


of 1.01325 bar and temperature of fifteen degrees Celsius (15 °C).


1.2.6. "Calendar Quarter" means a period of three (3) consecutive months beginning


January 1, April 1, July 1, or October 1 and ending March 31, June 30, September 30


and December 31, respectively.


1.2.7. "Calendar Year" means a period of twelve (12) consecutive months commencing


January 1 and ending the following December 31, according to the Gregorian


Calendar.








29


 SECTION I:





SCOPE AND DEFINITIONS





1.1. Scope


This Agreement is a production sharing agreement and it shall cover Petroleum


Operations in the Contract Area. The Contract Area is described and delineated in


Appendix II hereto periodically adjusted in accordance with the provisions of this


Agreement. During the term of this Agreement all Petroleum production resulting


from the conduct of Petroleum Operations shall be divided between the Parties in


accordance with the provisions of Sections VI through XIII hereof.


1.2. Definitions


In this Agreement, unless the context clearly indicates otherwise, words in the


singular include the plural, the plural-indfcates the singular, and words that are not


defined herein, but that are defined m the Petroleurm-Proclamation, shall have the


meanings set forth in that Jaw.\.. *'../"•“* \ V*


1.2.1. "Accounting Procedure^' ''means the:'accounting procedures and reporting


requirements set fofth in Appendix! hereto.


1.2.2. "Affiliate" of any specified.'per^on means any person directly or indirectly controlling


or controlled by or..under direct or indirect common control of another person. For the


purposes of this definition, "control" means the power to direct, administer, or dictate


the management knd policies of such person or the ownership of fifty per cent (50 %)


or more of voting rights in such person; and the terms "controlling" and "controlled"


have meanings correlative to the foregoing.


1.2.3. "Appraisal Area" means the area within the Contract Area subject to an appraisal work


program and budget as set forth in Section 5.3.2.


1.2.4. "Associated Natural Gas" means Natural Gas which exists in a reservoir in solution


with Crude Oil or, as gas-cap gas, in contact with Crude Oil, and is or could be


produced with Crude Oil.


1.2.5. "Barrer means a quantity consisting of 158.984 litres at standard atmospheric pressure


of 1.01325 bar and temperature of fifteen degrees Celsius (15 °C).


1.2.6. "Calendar Quarter" means a period of three (3) consecutive months beginning


January 1, April 1, July 1, or October 1 and ending March 31, June 30, September 30


and December 31, respectively.


1.2.7. "Calendar Year" means a period of twelve (12) consecutive months commencing


January 1 and ending the following December 31, according to the Gregorian


Calendar.








29


 1.2.8. "Commercial Discovery" means a discovery or an accumulation of discoveries of


Petroleum that, in the judgment of the Contractor, can be demonstrated to be


producible commercially based on consideration of ail pertinent operating and


financial data as set forth in Section 5.3.5.


1.2.9. "Contract Area" means the area described and delineated in Appendix II





hereto as adjusted in accordance with the provisions of this Agreement


regarding term, surrender and termination.


1.2.10. "Contractor" means the Contractor, its successors or any assignee or


assignees of any interest of the Contractor.


1.2.11. "Crude Oil" means ail hydrocarbons regardless of gravity which are


produced at the wellhead in a liquid state at atmospheric pressure, asphalt


and ozokerites and the liquid hydrocarbons known as distillate, condensate or


natural gas liquids obtained from Natural Gas by condensation or


extraction.


1.2.12 ."Development Area" means an area within the..Contract Area containing a


Commercial Discovery as set forth in Section 5:4:3':-.


1.2.13. "Development and Production Period" means' the perjod seb.forth in Sections 2.1 and





1.2.14. "Effective Date" means "the;'date this Agreement "is signed by the Minister and the


Contractor. . ... \ \ }


1.2.15. "Exploration Period" means.th££eriOd set forth in Sections 2.1, 2.2 and 2.3.


1.2.16. "Minister" means the Minister*of Mines and Energy or any successors in jurisdiction.


1.2.17. "Natural Gas" means hydrocarbons that are in a gaseous phase at atmospheric


conditions of temperature and pressure including wet mineral gas, dry mineral gas,


casing-head gas and residue gas remaining after the extraction or separation of liquid


hydrocarbons from wet gas, and non-hydrocarbon gas produced in association with


liquid or gaseous hydrocarbons.


1.2.18 "Non associated Natural Gas” means Natural Gas other than Associated Natural Gas.


1.2.19. "Operating Agreement" means the agreement set forth in Section 6.1.


1.2.20. "Participating Interest" means the Government's interest in Petroleum Operations for a


particular Development Area as set forth in Section 6.1.


1.2.21 "Petroleum Proclamation" means the "Petroleum Operations Proclamation No. 295 of


1986".


1.2.22 "Petroleum" means Crude Oil and Natural Gas and excludes hydrocarbons produced


from oil shales or tar sands.











30


 1.2.8. "Commercial Discovery" means a discovery or an accumulation of discoveries of


Petroleum that, in the judgment of the Contractor, can be demonstrated to be


producible commercially based on consideration of ail pertinent operating and


financial data as set forth in Section 5.3.5.


1.2.9. "Contract Area" means the area described and delineated in Appendix II





hereto as adjusted in accordance with the provisions of this Agreement


regarding term, surrender and termination.


1.2.10. "Contractor" means the Contractor, its successors or any assignee or


assignees of any interest of the Contractor.


1.2.11. "Crude Oil" means ail hydrocarbons regardless of gravity which are


produced at the wellhead in a liquid state at atmospheric pressure, asphalt


and ozokerites and the liquid hydrocarbons known as distillate, condensate or


natural gas liquids obtained from Natural Gas by condensation or


extraction.


1.2.12 ."Development Area" means an area within the..Contract Area containing a


Commercial Discovery as set forth in Section 5:4:3':-.


1.2.13. "Development and Production Period" means' the perjod seb.forth in Sections 2.1 and





1.2.14. "Effective Date" means "the;'date this Agreement "is signed by the Minister and the


Contractor. . ... \ \ }


1.2.15. "Exploration Period" means.th££eriOd set forth in Sections 2.1, 2.2 and 2.3.


1.2.16. "Minister" means the Minister*of Mines and Energy or any successors in jurisdiction.


1.2.17. "Natural Gas" means hydrocarbons that are in a gaseous phase at atmospheric


conditions of temperature and pressure including wet mineral gas, dry mineral gas,


casing-head gas and residue gas remaining after the extraction or separation of liquid


hydrocarbons from wet gas, and non-hydrocarbon gas produced in association with


liquid or gaseous hydrocarbons.


1.2.18 "Non associated Natural Gas” means Natural Gas other than Associated Natural Gas.


1.2.19. "Operating Agreement" means the agreement set forth in Section 6.1.


1.2.20. "Participating Interest" means the Government's interest in Petroleum Operations for a


particular Development Area as set forth in Section 6.1.


1.2.21 "Petroleum Proclamation" means the "Petroleum Operations Proclamation No. 295 of


1986".


1.2.22 "Petroleum" means Crude Oil and Natural Gas and excludes hydrocarbons produced


from oil shales or tar sands.











30


1.2.23 "Petroleum Operations" means the operations authorized under this Agreement, related


to the exploration, development, extraction, production, field separation treatment (but


excluding refining), storage, transportation of Petroleum up to the Point of Delivery,


and marketing of Petroleum, excluding refining of Crude Oil, but including the


processing of Natural Gas.


1.2.24 "Petroleum Operations Costs" means the costs and expenses incurred and paid by


Contractor for the purposes of conducting Petroleum Operations under this


Agreement, as set forth in Appendix I hereto.


1.2.25. "Point of Delivery" means the point where Petroleum is delivered at the outlet flange


at the point of either exportation from the State or entry into the State domestic system


or any other transfer point mutually agreed between the Parties.


1.2.26. "Commencement of Regular Production” means the commencement of regular


production from the first Development Area developed by the Contractor, starting on


the day of first loading at the Point of Delivery.


1.2.27 "State" means the State of Ethiopia: \


1.2.28 "Subcontractor" meansr' any/ 'person with \wKom the Contractor establishes a


relationship for die provision of services;:, required for performance under this


Agreement. \"y*- "








••••. \ J SECTION n:


TERM, SURRENDER AND TERMINATION








2.1 Term


2.1.1 This Agreement shall consist of an Exploration Period, and a Development


and a Production Period, both of which may run concurrently.


2.1.2 This Agreement shall remain in effect during the initial term of the


Exploration Period and all extensions thereof and shall automatically


terminate in its entirety at the end of the Exploration Period, except as to any


Development Area.


2.1.3. After expiration of the Exploration Period, this Agreement shall remain in


effect as to each Development Area during the Development and Production


Period for the Development Area and shall automatically terminate with


respect to each Development Area upon the expiration of the Development


and Production Period for the relevant Development Area.











31


1.2.23 "Petroleum Operations" means the operations authorized under this Agreement, related


to the exploration, development, extraction, production, field separation treatment (but


excluding refining), storage, transportation of Petroleum up to the Point of Delivery,


and marketing of Petroleum, excluding refining of Crude Oil, but including the


processing of Natural Gas.


1.2.24 "Petroleum Operations Costs" means the costs and expenses incurred and paid by


Contractor for the purposes of conducting Petroleum Operations under this


Agreement, as set forth in Appendix I hereto.


1.2.25. "Point of Delivery" means the point where Petroleum is delivered at the outlet flange


at the point of either exportation from the State or entry into the State domestic system


or any other transfer point mutually agreed between the Parties.


1.2.26. "Commencement of Regular Production” means the commencement of regular


production from the first Development Area developed by the Contractor, starting on


the day of first loading at the Point of Delivery.


1.2.27 "State" means the State of Ethiopia: \


1.2.28 "Subcontractor" meansr' any/ 'person with \wKom the Contractor establishes a


relationship for die provision of services;:, required for performance under this


Agreement. \"y*- "








••••. \ J SECTION n:


TERM, SURRENDER AND TERMINATION








2.1 Term


2.1.1 This Agreement shall consist of an Exploration Period, and a Development


and a Production Period, both of which may run concurrently.


2.1.2 This Agreement shall remain in effect during the initial term of the


Exploration Period and all extensions thereof and shall automatically


terminate in its entirety at the end of the Exploration Period, except as to any


Development Area.


2.1.3. After expiration of the Exploration Period, this Agreement shall remain in


effect as to each Development Area during the Development and Production


Period for the Development Area and shall automatically terminate with


respect to each Development Area upon the expiration of the Development


and Production Period for the relevant Development Area.











31


2.2 Exploration Period








2.2.1 The initial term of the Exploration Period provided by this Agreement


shall be _(_) years, commencing on the Effective Date hereof.


2.2.2 The Contractor shall begin Petroleum Operations within ninety (90) days


after the Effective Date and shall notify the Ministry of the date on which it


has commenced Petroleum Operations.


2.2.3 The Exploration Period shall have a first extension and a second


extension, following the initial term, for successive terms of_(_)


years and_(_) years, respectively, each upon the Contractor's


application to the Minister at least thirty (30) days prior to the termination


date of the current term of the Exploration Period, provided that the


Contractor has fulfilled the exploration work and expenditure obligations set


forth in section 5.1 for the current term under this Agreement.








In order to enable the Contractor to .coiftp'lete drilling* logging, testing or


plugging of any exploratory weh which 'is actu^ly\beiiig* drilled, logged,


tested or plugged at the end of the'second extension of the Exploration


Period, the Minister shall gpaaf a further extension to such second extension


for such a time as he determines may .be reasonable, which in any event shall


not extend the term of the second extension by more than six (6) months.








2.2.4. In order to expeditiously*complete the evaluation of a discovery, the Minister


shall extend the'•••.term of the Exploration Period for an


additional_(_) months term beyond the second extension period for


each area designated as an Appraisal Area upon the Contractor's submission


to the Minister, at least sixty (60) days prior to the termination date of the


second extension, of an appraisal work programme and budget under Section


5.3.2; provided, however, that the Contractor has fulfilled the exploration


work and expenditure obligations set forth in Section 5.1 for the current term


under this Agreement. Thereafter, if the Contractor shall determine that an


Appraisal Area does not contain a Commercial Discovery and if no further


extension is granted under Section 2.2.5, the Exploration Period for the


relevant Appraisal Area shall terminate.


2.2.5. Upon justification by the Contractor and in addition to the extensions set


forth above, the Minister may extend the term of the Exploration Period in


respect to the Appraisal Area of a Natural Gas discovery for a period up to


_(_) years for the purposes of further appraising and evaluating the


Natural Gas discovery and establishing its economic viability as well as


preparing a preliminary development scheme of a Natural Gas project.


2.2 Exploration Period








2.2.1 The initial term of the Exploration Period provided by this Agreement


shall be _(_) years, commencing on the Effective Date hereof.


2.2.2 The Contractor shall begin Petroleum Operations within ninety (90) days


after the Effective Date and shall notify the Ministry of the date on which it


has commenced Petroleum Operations.


2.2.3 The Exploration Period shall have a first extension and a second


extension, following the initial term, for successive terms of_(_)


years and_(_) years, respectively, each upon the Contractor's


application to the Minister at least thirty (30) days prior to the termination


date of the current term of the Exploration Period, provided that the


Contractor has fulfilled the exploration work and expenditure obligations set


forth in section 5.1 for the current term under this Agreement.








In order to enable the Contractor to .coiftp'lete drilling* logging, testing or


plugging of any exploratory weh which 'is actu^ly\beiiig* drilled, logged,


tested or plugged at the end of the'second extension of the Exploration


Period, the Minister shall gpaaf a further extension to such second extension


for such a time as he determines may .be reasonable, which in any event shall


not extend the term of the second extension by more than six (6) months.








2.2.4. In order to expeditiously*complete the evaluation of a discovery, the Minister


shall extend the'•••.term of the Exploration Period for an


additional_(_) months term beyond the second extension period for


each area designated as an Appraisal Area upon the Contractor's submission


to the Minister, at least sixty (60) days prior to the termination date of the


second extension, of an appraisal work programme and budget under Section


5.3.2; provided, however, that the Contractor has fulfilled the exploration


work and expenditure obligations set forth in Section 5.1 for the current term


under this Agreement. Thereafter, if the Contractor shall determine that an


Appraisal Area does not contain a Commercial Discovery and if no further


extension is granted under Section 2.2.5, the Exploration Period for the


relevant Appraisal Area shall terminate.


2.2.5. Upon justification by the Contractor and in addition to the extensions set


forth above, the Minister may extend the term of the Exploration Period in


respect to the Appraisal Area of a Natural Gas discovery for a period up to


_(_) years for the purposes of further appraising and evaluating the


Natural Gas discovery and establishing its economic viability as well as


preparing a preliminary development scheme of a Natural Gas project.


2.3. Surrender during Exploration Period


2.3.1. At or prior to the end of the initial term of the Exploration Period the


Contractor shall surrender at least _ percent (_) of the original


Contract Area.


2.3.2. At or prior to the end of the first extension of the Exploration Period the


Contractor shall surrender at least percent (_) of the original


Contract Area.


2.3.3. When calculating the surrender obligation under Sections 2.3.1. and 2.3.2,


each area then designated as a Development Area shall be deducted from the


original Contract Area.


2.3.4. At or prior to the end of the second extension to the Exploration Period, the


Contractor shall surrender the remainder of the original Contract Area which


is not included within an Appraisal Area or .Development Area.


2.3.5. The Contractor shall have the right..tri -surrender at any time all or part of the


Contract Area not designated .as. 4 Development Arfea^ b.y.-giving the Minister


sixty (60) days prior written hptice."" - \ \*


2.3.6. The location and configuration of any. area to Be surrendered by the Contractor


under this Section--sHall be submitted'-for approval to the Minister which


approval shall not be unreasonably, withheld, sixty (60) days prior to the date


of each surrender and-sh-aiicrinsist, as far as practicable, of a contiguous area


in order to facilitate-further exploration.


2.3.7. No surrender shall'reduce the minimum amount of Contractor's exploration


work and expenditure obligations or the related bank guarantee in respect


thereof as provided in Sections 5.1 and 5.2.


2.3.8. Any surrender under Section 2.3.5 shall be credited toward the Contractor’s


next surrender obligation under Sections 2.3.1 and 2.3.2.


2.4. Development and Production Period


2.4.1 The term of the Development and Production Period provided for by this


Agreement in respect of a Commercial Discovery shall commence on the date


of adoption of the development plan as set forth in Section 5.4.5 and shall


continue for twenty-five (25) years.


2.4.2 If, at the expiration of the Development and Production Period for any


Development Area, commercial production remains economically feasible,


the Minister shall, at the Contractor's request, enter into good faith


negotiations regarding an extension of the Development and Production


Period.





3 3


2.3. Surrender during Exploration Period


2.3.1. At or prior to the end of the initial term of the Exploration Period the


Contractor shall surrender at least _ percent (_) of the original


Contract Area.


2.3.2. At or prior to the end of the first extension of the Exploration Period the


Contractor shall surrender at least percent (_) of the original


Contract Area.


2.3.3. When calculating the surrender obligation under Sections 2.3.1. and 2.3.2,


each area then designated as a Development Area shall be deducted from the


original Contract Area.


2.3.4. At or prior to the end of the second extension to the Exploration Period, the


Contractor shall surrender the remainder of the original Contract Area which


is not included within an Appraisal Area or .Development Area.


2.3.5. The Contractor shall have the right..tri -surrender at any time all or part of the


Contract Area not designated .as. 4 Development Arfea^ b.y.-giving the Minister


sixty (60) days prior written hptice."" - \ \*


2.3.6. The location and configuration of any. area to Be surrendered by the Contractor


under this Section--sHall be submitted'-for approval to the Minister which


approval shall not be unreasonably, withheld, sixty (60) days prior to the date


of each surrender and-sh-aiicrinsist, as far as practicable, of a contiguous area


in order to facilitate-further exploration.


2.3.7. No surrender shall'reduce the minimum amount of Contractor's exploration


work and expenditure obligations or the related bank guarantee in respect


thereof as provided in Sections 5.1 and 5.2.


2.3.8. Any surrender under Section 2.3.5 shall be credited toward the Contractor’s


next surrender obligation under Sections 2.3.1 and 2.3.2.


2.4. Development and Production Period


2.4.1 The term of the Development and Production Period provided for by this


Agreement in respect of a Commercial Discovery shall commence on the date


of adoption of the development plan as set forth in Section 5.4.5 and shall


continue for twenty-five (25) years.


2.4.2 If, at the expiration of the Development and Production Period for any


Development Area, commercial production remains economically feasible,


the Minister shall, at the Contractor's request, enter into good faith


negotiations regarding an extension of the Development and Production


Period.





3 3


2.4.3. If, subsequent to the designation of the area encompassing a Commercial


Discover}' as a Development Area, the extent of the area encompassing the


Commercial Discovery is demonstrated to be different than that designated in


the development plan under Section 5.4.5, the Development Area shall be


adjusted accordingly, provided that the area covered shall be entirely within


the original Contract Area and is not subject to any other petroleum


agreement.


2.4.4. If the Contractor makes more than one Commercial Discovery, the term of


the Development and Production Period or extension thereof for each


Development Area embracing a Commercial Discovery shall be determined


for that Development Area in accordance with the foregoing provisions


independently of the term of the Development and Production Period for any


other Development Area.


2.4.5. The Contractor shall have the right to surrender all or part of the area


included within any Development Area upon giving the Minister one hundred


eighty (180) days written notice of its intention to do so.


2.5. Termination . v \


2.5.1. The Contractor may terminate this'} Agreement by-giving • tfie Minister one


hundred eighty (180) days priqr .wfitten notice. •.•.A'suifender of all the area


included in the Contract‘.Afea shall •.• constitute a termination of this


Agreement.


2.5.2. The Minister may terminate this/-Agreement by giving the Contractor prior


written notice for a period’ specified in Section 2.5.3, if any of the following


termination events shaii op'cur:


(a) if the Contractor fails to make any payment required under this


Agreement;


(b) if the Contractor fails to comply with any other material obligation


that it has, assumed under this Agreement;


(c) if the Contractor fails to maintain that same degree of financial ability,


technical competence and professional skill necessary to carry out


Petroleum Operations that it possessed as of the date of the signing of


this Agreement, so as to adversely affect the performance of its


obligations hereunder;


(d) if the Contractor becomes insolvent, makes a composition with


creditors, or goes into liquidation other than for reconstruction or


amalgamation; or


(e) if Petroleum Operations are interrupted for more than one hundred


eighty (180) days.


2.4.3. If, subsequent to the designation of the area encompassing a Commercial


Discover}' as a Development Area, the extent of the area encompassing the


Commercial Discovery is demonstrated to be different than that designated in


the development plan under Section 5.4.5, the Development Area shall be


adjusted accordingly, provided that the area covered shall be entirely within


the original Contract Area and is not subject to any other petroleum


agreement.


2.4.4. If the Contractor makes more than one Commercial Discovery, the term of


the Development and Production Period or extension thereof for each


Development Area embracing a Commercial Discovery shall be determined


for that Development Area in accordance with the foregoing provisions


independently of the term of the Development and Production Period for any


other Development Area.


2.4.5. The Contractor shall have the right to surrender all or part of the area


included within any Development Area upon giving the Minister one hundred


eighty (180) days written notice of its intention to do so.


2.5. Termination . v \


2.5.1. The Contractor may terminate this'} Agreement by-giving • tfie Minister one


hundred eighty (180) days priqr .wfitten notice. •.•.A'suifender of all the area


included in the Contract‘.Afea shall •.• constitute a termination of this


Agreement.


2.5.2. The Minister may terminate this/-Agreement by giving the Contractor prior


written notice for a period’ specified in Section 2.5.3, if any of the following


termination events shaii op'cur:


(a) if the Contractor fails to make any payment required under this


Agreement;


(b) if the Contractor fails to comply with any other material obligation


that it has, assumed under this Agreement;


(c) if the Contractor fails to maintain that same degree of financial ability,


technical competence and professional skill necessary to carry out


Petroleum Operations that it possessed as of the date of the signing of


this Agreement, so as to adversely affect the performance of its


obligations hereunder;


(d) if the Contractor becomes insolvent, makes a composition with


creditors, or goes into liquidation other than for reconstruction or


amalgamation; or


(e) if Petroleum Operations are interrupted for more than one hundred


eighty (180) days.


2.5.3. The period of notice with respect to a termination event under Section 2.5.2


(a) above shall be thirty (30) days, and with respect to any other termination


event specified in Section 2.5.2 shall be ninety (90) days. If, however, the


Contractor remedies the termination event within the period of the notice, the


Minister shall withdraw the notice to the same effect as if the termination


event had not occurred under this Agreement, unless a termination event of


the same type has previously occurred under this Agreement, in which case


the Minister may, but is not required to, withdraw the notice.


2.5.4. If a termination event specified in Section 2.5.2 is the result of Force


Majeure as set forth in Section 16.3, then neither occurrence of the


termination event nor the continuance of it unremedied shall result in


termination of this Agreement for so long as such Force Majeure continues.


2.5.5. When this Agreement is terminated or expires, in whole or in part, the


Contractor shall conclude Petroleum Operations in the area as to which this


Agreement has terminated or expired in aii orderly manner so as to minimize


harm or loss to the State or any person,"in accordance With generally accepted


international petroleum industry pfacti.ce. .. \ \>. ’*•••’*


In the event of surrender df "an Appraisal Are^- or a Development Area or


termination of this'-Agreement, the-Minister may require the Contractor to


continue, for the account of-tferi Government, Petroleum Operations for


properties currendy producjhgxor capable of producing Petroleum until the


right and responsibility' fOr'-cohtinuing such operations have been transferred


to another person oif the. .Government or an agency thereof but for a period


not to exceed one.,hundred eighty (180) days after the date this Agreement


would otherwise terminate with respect to all or any portion of the Contract


Area concerned; provided, however, that the Government:


(a) shall bear all costs, risks and expenses of Petroleum Operations during


such take-over period to the extent this period extends beyond the date


that this Agreement would otherwise terminate and shall be entided


during this same period to all the production and proceeds from the


sale thereof;


(b) shall reimburse the Contractor within thirty (30) days after the


submission of an invoice specifying the costs and expenses of such


operations during such take-over period, such invoices to be


submitted no more than every thirty (30) days.


2.5.6. Termination of this Contract, whatever the reason thereof, shall not relieve


the Contractor of the performance of its obligations outstanding hereunder


prior to, or arising from, the termination.


2.5.3. The period of notice with respect to a termination event under Section 2.5.2


(a) above shall be thirty (30) days, and with respect to any other termination


event specified in Section 2.5.2 shall be ninety (90) days. If, however, the


Contractor remedies the termination event within the period of the notice, the


Minister shall withdraw the notice to the same effect as if the termination


event had not occurred under this Agreement, unless a termination event of


the same type has previously occurred under this Agreement, in which case


the Minister may, but is not required to, withdraw the notice.


2.5.4. If a termination event specified in Section 2.5.2 is the result of Force


Majeure as set forth in Section 16.3, then neither occurrence of the


termination event nor the continuance of it unremedied shall result in


termination of this Agreement for so long as such Force Majeure continues.


2.5.5. When this Agreement is terminated or expires, in whole or in part, the


Contractor shall conclude Petroleum Operations in the area as to which this


Agreement has terminated or expired in aii orderly manner so as to minimize


harm or loss to the State or any person,"in accordance With generally accepted


international petroleum industry pfacti.ce. .. \ \>. ’*•••’*


In the event of surrender df "an Appraisal Are^- or a Development Area or


termination of this'-Agreement, the-Minister may require the Contractor to


continue, for the account of-tferi Government, Petroleum Operations for


properties currendy producjhgxor capable of producing Petroleum until the


right and responsibility' fOr'-cohtinuing such operations have been transferred


to another person oif the. .Government or an agency thereof but for a period


not to exceed one.,hundred eighty (180) days after the date this Agreement


would otherwise terminate with respect to all or any portion of the Contract


Area concerned; provided, however, that the Government:


(a) shall bear all costs, risks and expenses of Petroleum Operations during


such take-over period to the extent this period extends beyond the date


that this Agreement would otherwise terminate and shall be entided


during this same period to all the production and proceeds from the


sale thereof;


(b) shall reimburse the Contractor within thirty (30) days after the


submission of an invoice specifying the costs and expenses of such


operations during such take-over period, such invoices to be


submitted no more than every thirty (30) days.


2.5.6. Termination of this Contract, whatever the reason thereof, shall not relieve


the Contractor of the performance of its obligations outstanding hereunder


prior to, or arising from, the termination.


 SECTION III:





GENERAL RIGHTS AND OBLIGATIONS OF THE CONTRACTOR


3.1. Rights of the Contractor


3.1.1. The Contractor shall:


(a) have the sole and exclusive right to conduct Petroleum Operations in


the Contract Area in accordance with the provisions of this


Agreement;


(b) have the right to enter upon the Contract Area and conduct Petroleum


Operations there, but notwithstanding this provision and the


provisions of Section 3.1.1(a):


(i) permission may be granted to\ other persons to explore for,


develop and produce mfrierals^ift the Costrdct Area other than


Petroleum, so long ' as ' the 'activities- of :su'cK‘‘persons do not


unreasonably ifttefifere'with Petroleuhj Operations; and


(ii) easements'"-^nd rights -.-of-..'ways in the Contract Area of


reasonable scope and duration may be granted to other persons


for the benefit of.land adjacent to the Contract Area;


(c) subject to the"appro.v-dl of the Minister, which approval shall not be


unreasonably'withheld, have access over the Territory of Ethiopia for


the purpose of constructing, laying, operating and maintaining


onshore pipelines, cables and any other facilities required for


Petroleum Operations;


(d) have the right, subject to approval of the Minister, to use water in the


Contract Area for operational purposes, but the Contractor shall not


deprive any land, domestic settlement or livestock watering place of


the water supply to which they are accustomed;


(e) have the right for the purposes of Petroleum Operations to use gravel,


sand, clay and stone in the Contract Area subject to the limitations set


forth in Section 3.1.1 (b); and


(f) have the right, subject to the approval of the concerned authorities, to


install, operate and use telecommunication facilities.


3.1.2. The Contractor shall not carry on Petroleum Operations on any part of the


land in the Contract Area designated for a public purpose but may have


surface access over, on and through such land for the purpose of conducting


Petroleum Operations to the extent such access does not interfere with the


public purpose.


o 6


o


 SECTION III:





GENERAL RIGHTS AND OBLIGATIONS OF THE CONTRACTOR


3.1. Rights of the Contractor


3.1.1. The Contractor shall:


(a) have the sole and exclusive right to conduct Petroleum Operations in


the Contract Area in accordance with the provisions of this


Agreement;


(b) have the right to enter upon the Contract Area and conduct Petroleum


Operations there, but notwithstanding this provision and the


provisions of Section 3.1.1(a):


(i) permission may be granted to\ other persons to explore for,


develop and produce mfrierals^ift the Costrdct Area other than


Petroleum, so long ' as ' the 'activities- of :su'cK‘‘persons do not


unreasonably ifttefifere'with Petroleuhj Operations; and


(ii) easements'"-^nd rights -.-of-..'ways in the Contract Area of


reasonable scope and duration may be granted to other persons


for the benefit of.land adjacent to the Contract Area;


(c) subject to the"appro.v-dl of the Minister, which approval shall not be


unreasonably'withheld, have access over the Territory of Ethiopia for


the purpose of constructing, laying, operating and maintaining


onshore pipelines, cables and any other facilities required for


Petroleum Operations;


(d) have the right, subject to approval of the Minister, to use water in the


Contract Area for operational purposes, but the Contractor shall not


deprive any land, domestic settlement or livestock watering place of


the water supply to which they are accustomed;


(e) have the right for the purposes of Petroleum Operations to use gravel,


sand, clay and stone in the Contract Area subject to the limitations set


forth in Section 3.1.1 (b); and


(f) have the right, subject to the approval of the concerned authorities, to


install, operate and use telecommunication facilities.


3.1.2. The Contractor shall not carry on Petroleum Operations on any part of the


land in the Contract Area designated for a public purpose but may have


surface access over, on and through such land for the purpose of conducting


Petroleum Operations to the extent such access does not interfere with the


public purpose.


o 6


o


3.1.3. The Contractor shall have the right to sell, assign, transfer, convey or


otherwise dispose of all or any part of the rights and interests under this


Agreement to any Affiliate or other person with the prior written consent of


the Minister, which consent shall not be unreasonably withheld.





3.2. Obligations in respect of the conduct of Petroleum Operations


3.2.1. The Contractor shall carry out the Petroleum Operations within the scope of


this Agreement diligently and in accordance with generally accepted


international petroleum industry practice. The Contractor and its employees


shall perform no business activities in Ethiopia outside the scope of this


Agreement without the prior written consent of the Minister.


3.2.2. The Contractor shall, in accordance with generally accepted international


petroleum industry practice, take all necessary steps to:


(a) ensure that all machinery, plant, Qcjuipment and installations used in


Petroleum Operations are of-propM and accepted construction and are


kept in good repair; \ J .. *'*■•***


(b) ensure that allVexp'lpfatory wells With significant shows of Petroleum


are properly, -tested ; ... - -• * ••


(c) use the resources .of the Contract Area as productively as practicable,


prevent damage' 'to\prbducing formations and ensure that Petroleum


discovered;-niud dr any other fluids or substances do not escape or


waste; /


(d) prevent damage to Petroleum and water bearing strata that are


adjacent to a producing formation or formations and prevent water


from entering any strata bearing Petroleum, except where water


injection methods are used for secondary recovery operations or are


intended otherwise in accordance with generally accepted


international petroleum industry practice;


(e) protect the State from loss of production by reason of production on


adjacent areas under the control of authorities other than the State,


including complying with the provisions of Section 9.1;


(f) properly store Petroleum in receptacles constructed for that purpose,


and not store Crude Oil in an earthem reservoir, except temporarily in


an emergency; and


(g) drain waste oil and salt water and place refuse into receptacles


constructed for that purpose and situated at a safe distance from any


tank, well, storage or other facility and dispose of waste oil, salt water


and refuse in accordance with generally accepted international


petroleum industry practice, avoiding pollution.





37


3.1.3. The Contractor shall have the right to sell, assign, transfer, convey or


otherwise dispose of all or any part of the rights and interests under this


Agreement to any Affiliate or other person with the prior written consent of


the Minister, which consent shall not be unreasonably withheld.





3.2. Obligations in respect of the conduct of Petroleum Operations


3.2.1. The Contractor shall carry out the Petroleum Operations within the scope of


this Agreement diligently and in accordance with generally accepted


international petroleum industry practice. The Contractor and its employees


shall perform no business activities in Ethiopia outside the scope of this


Agreement without the prior written consent of the Minister.


3.2.2. The Contractor shall, in accordance with generally accepted international


petroleum industry practice, take all necessary steps to:


(a) ensure that all machinery, plant, Qcjuipment and installations used in


Petroleum Operations are of-propM and accepted construction and are


kept in good repair; \ J .. *'*■•***


(b) ensure that allVexp'lpfatory wells With significant shows of Petroleum


are properly, -tested ; ... - -• * ••


(c) use the resources .of the Contract Area as productively as practicable,


prevent damage' 'to\prbducing formations and ensure that Petroleum


discovered;-niud dr any other fluids or substances do not escape or


waste; /


(d) prevent damage to Petroleum and water bearing strata that are


adjacent to a producing formation or formations and prevent water


from entering any strata bearing Petroleum, except where water


injection methods are used for secondary recovery operations or are


intended otherwise in accordance with generally accepted


international petroleum industry practice;


(e) protect the State from loss of production by reason of production on


adjacent areas under the control of authorities other than the State,


including complying with the provisions of Section 9.1;


(f) properly store Petroleum in receptacles constructed for that purpose,


and not store Crude Oil in an earthem reservoir, except temporarily in


an emergency; and


(g) drain waste oil and salt water and place refuse into receptacles


constructed for that purpose and situated at a safe distance from any


tank, well, storage or other facility and dispose of waste oil, salt water


and refuse in accordance with generally accepted international


petroleum industry practice, avoiding pollution.





37


3.2.3. Prior to commencing the drilling of any well covered by this Agreement or


reentering any well on which work has been discontinued for more than six


(6) months, the Contractor shall give the Minister thirty (30) days written


notice explaining the justification for such drilling and submit a drilling


programme with a well location report. The Minister may, in his discretion,


waive this thirty (30) day notice requirement.


3.2.4. The Contractor shall be entitled to employ any person qualified in the


judgment of the Contractor to undertake Petroleum Operations on the


Contractor's behalf.


Any Subcontractor retained by the Contractor shall have the necessary


professional experience to perform the task to be assigned and the Contractor


shall require that any Subcontractor shall abide by all applicable laws and


regulations of Ethiopia and the relevant provisions of this Agreement. The


Contractor shall notify the Minister in writing of the name and address of any


Subcontractor retained within thirty (30) days of such retention.


The employees of the Contractor and any Subcontractor shall abide by the


applicable laws of Ethiopia and shall respect Iqcial .customs in the country.


3.3. Abandonment and disposal of assets ... \ l-: -.'v’


3.3.1. The Contractor shall not,.except'’where there..is danger'to the safety and health


of human life or a risk of significant damageto the environment or a risk of


significant economic loss, abandon anchor withdraw casing, tubing or


down-hole pumps or other dow^jhofe equipment therefrom or remove surface


equipment used or useful in production therefrom, if any, prior to giving the


Minister (a) thirty (30) days..written notice of such action with respect to a


well that is or has been’ producing within a Development Area and (b)


seventy- two (72) hours written notice of such action with respect to any


other well.


3.3.2. The Contractor shall securely plug and clearly mark any well that it abandons


in accordance with generally accepted international petroleum industry


practice to prevent pollution, sub-sea damage or damage to underground


strata through the entry of water or otherwise.


3.3.3. The Contractor shall state in its notice of abandonment of a well whether the


well is capable of providing a fresh water supply and if required by the


Minister, the Contractor shall complete such well and render it operational for


producing water at its own cost and expense.


3.2.3. Prior to commencing the drilling of any well covered by this Agreement or


reentering any well on which work has been discontinued for more than six


(6) months, the Contractor shall give the Minister thirty (30) days written


notice explaining the justification for such drilling and submit a drilling


programme with a well location report. The Minister may, in his discretion,


waive this thirty (30) day notice requirement.


3.2.4. The Contractor shall be entitled to employ any person qualified in the


judgment of the Contractor to undertake Petroleum Operations on the


Contractor's behalf.


Any Subcontractor retained by the Contractor shall have the necessary


professional experience to perform the task to be assigned and the Contractor


shall require that any Subcontractor shall abide by all applicable laws and


regulations of Ethiopia and the relevant provisions of this Agreement. The


Contractor shall notify the Minister in writing of the name and address of any


Subcontractor retained within thirty (30) days of such retention.


The employees of the Contractor and any Subcontractor shall abide by the


applicable laws of Ethiopia and shall respect Iqcial .customs in the country.


3.3. Abandonment and disposal of assets ... \ l-: -.'v’


3.3.1. The Contractor shall not,.except'’where there..is danger'to the safety and health


of human life or a risk of significant damageto the environment or a risk of


significant economic loss, abandon anchor withdraw casing, tubing or


down-hole pumps or other dow^jhofe equipment therefrom or remove surface


equipment used or useful in production therefrom, if any, prior to giving the


Minister (a) thirty (30) days..written notice of such action with respect to a


well that is or has been’ producing within a Development Area and (b)


seventy- two (72) hours written notice of such action with respect to any


other well.


3.3.2. The Contractor shall securely plug and clearly mark any well that it abandons


in accordance with generally accepted international petroleum industry


practice to prevent pollution, sub-sea damage or damage to underground


strata through the entry of water or otherwise.


3.3.3. The Contractor shall state in its notice of abandonment of a well whether the


well is capable of providing a fresh water supply and if required by the


Minister, the Contractor shall complete such well and render it operational for


producing water at its own cost and expense.


3.3.4. Where the Contractor intends to permanently abandon an exploratory well in


which Petroleum of potentially commercial significance has not been found,


the Minister may request the Contractor to deepen, sidetrack or test that well


subject to the following provisions:


(a) any such additional Petroleum Operations shall be at the sole cost,


risk and expense of the Government, and the Government shall


advance to the Contractor the funds necessary to conduct the drilling


operations;


(b) the Contractor shall not be obligated to undertake such additional


work if it will materially interfere with the conduct of the Contractor's


Petroleum Operations or if it is not technically or operationally


feasible; and


(c) the Government shall keep the \ Contractor informed about such


additional work and in the event that the operations undertaken under


this Section 3.3.4 result jn(a discovery which-Xhe Contractor elects to


evaluate and/or develop..as' a‘ Commercial'T>i'sco very, the Contractor


shall reimburse---the-.-Govemment \ per cent (_%) of the


costs and expense's incurred by the Government for the conduct of the


operations ahd-:such sum shall be-paid within thirty (30) days of such


election made by the Contractor. If the Contractor does not make such


election, the Government may require the Contractor to surrender all


its rights over sudydiscovery.


3.3.5. The Contractor shall within sixty (60) days after termination or expiration of


this Agreement or the surrender of part of the Contract Area, or the expiration


of the take-over period in Section 2.5.5, if later, deliver to the Minister in


good repair and working order, each well within the area covered by the


termination, expiration, or surrender, then producing or capable of producing


Petroleum, together with all casing, tubing and surface or sub-surface


equipment used or useful in the conduct of producing operations, unless the


Minister requires the Contractor to plug the well.


3.3.6. In the case of termination or expiration of this Agreement or the surrender of


an area within the Contract Area pursuant to the terms hereof, if the area, or


part thereof, subject to the termination, expiry or surrender has been


determined to be capable of production or is currently producing or has


previously produced Petroleum commercially, the Contractor shall transfer at


no cost to the Government the plants, appliances and installations in the area


subject to the termination, expiry or surrender. The Minister may decline the


transfer and require the Contractor to remove, in accordance with generally


accepted international petroleum practice, all or some of the plants,


appliances and installations at no cost to the Government.








39


3.3.4. Where the Contractor intends to permanently abandon an exploratory well in


which Petroleum of potentially commercial significance has not been found,


the Minister may request the Contractor to deepen, sidetrack or test that well


subject to the following provisions:


(a) any such additional Petroleum Operations shall be at the sole cost,


risk and expense of the Government, and the Government shall


advance to the Contractor the funds necessary to conduct the drilling


operations;


(b) the Contractor shall not be obligated to undertake such additional


work if it will materially interfere with the conduct of the Contractor's


Petroleum Operations or if it is not technically or operationally


feasible; and


(c) the Government shall keep the \ Contractor informed about such


additional work and in the event that the operations undertaken under


this Section 3.3.4 result jn(a discovery which-Xhe Contractor elects to


evaluate and/or develop..as' a‘ Commercial'T>i'sco very, the Contractor


shall reimburse---the-.-Govemment \ per cent (_%) of the


costs and expense's incurred by the Government for the conduct of the


operations ahd-:such sum shall be-paid within thirty (30) days of such


election made by the Contractor. If the Contractor does not make such


election, the Government may require the Contractor to surrender all


its rights over sudydiscovery.


3.3.5. The Contractor shall within sixty (60) days after termination or expiration of


this Agreement or the surrender of part of the Contract Area, or the expiration


of the take-over period in Section 2.5.5, if later, deliver to the Minister in


good repair and working order, each well within the area covered by the


termination, expiration, or surrender, then producing or capable of producing


Petroleum, together with all casing, tubing and surface or sub-surface


equipment used or useful in the conduct of producing operations, unless the


Minister requires the Contractor to plug the well.


3.3.6. In the case of termination or expiration of this Agreement or the surrender of


an area within the Contract Area pursuant to the terms hereof, if the area, or


part thereof, subject to the termination, expiry or surrender has been


determined to be capable of production or is currently producing or has


previously produced Petroleum commercially, the Contractor shall transfer at


no cost to the Government the plants, appliances and installations in the area


subject to the termination, expiry or surrender. The Minister may decline the


transfer and require the Contractor to remove, in accordance with generally


accepted international petroleum practice, all or some of the plants,


appliances and installations at no cost to the Government.








39


3.4. Records and reports of Petroleum Operations





3.4.1. The Contractor shall record, in an original or reproducible form of good


quality and on tapes where relevant, all geological and geophysical


information and data relating to the Contract Area obtained by the Contractor


in the course of conducting Petroleum Operations thereon and shall deliver a


copy of all such information and data, including, but not limited to, the


interpretations thereof and logs and records of wells, to the Minister as soon


as practicable after the same has come into the possession of the Contractor.


The Government shall have title to all such information and data and the


Contractor may retain copies thereof for the purposes of Petroleum


Operations.


3.4.2. The Contractor shall keep logs and records of the drilling, deepening,


plugging or abandonment of wells consistent with generally accepted


international petroleum industry practice and containing particulars of:


(a) the sub-surface strata through which the well was drilled;





(b)


the casing, tubing and down-hole equipment rqn in the well and


modifications and alterations thereof;-- v- .. \ ...


(c) Petroleum, water and workable minerals encountered; and





(d) any other information reasonably required by the Minister.





3.4.3. The information required by Section 3.4.2 shall be submitted to the Minister


in the form, inter alia, of wencbmpletion reports as soon as practicable.


3.4.4. The Contractor may-.jrerhove, for the purpose of laboratory examination or


analysis, petrological specimens or samples of Petroleum found in the


Contract Area and characteristic samples of the strata or water encountered in


a well and, as soon as practicable, shall give the Minister, without charge, a


representative part of each specimen and sample removed.





3.4.5. The Contractor shall supply to the Minister:


(a) daily reports on drilling operations and weekly reports on geophysical


operations;


(b) within thirty (30) days after the end of each Calendar Quarter, a report


on the progress of Petroleum Operations during the preceding


Calendar Quarter covering:


(i) a detailed description of the Petroleum Operations carried out


and the factual information obtained;


(ii) a description of the area in which the Contractor has operated;








40


3.4. Records and reports of Petroleum Operations





3.4.1. The Contractor shall record, in an original or reproducible form of good


quality and on tapes where relevant, all geological and geophysical


information and data relating to the Contract Area obtained by the Contractor


in the course of conducting Petroleum Operations thereon and shall deliver a


copy of all such information and data, including, but not limited to, the


interpretations thereof and logs and records of wells, to the Minister as soon


as practicable after the same has come into the possession of the Contractor.


The Government shall have title to all such information and data and the


Contractor may retain copies thereof for the purposes of Petroleum


Operations.


3.4.2. The Contractor shall keep logs and records of the drilling, deepening,


plugging or abandonment of wells consistent with generally accepted


international petroleum industry practice and containing particulars of:


(a) the sub-surface strata through which the well was drilled;





(b)


the casing, tubing and down-hole equipment rqn in the well and


modifications and alterations thereof;-- v- .. \ ...


(c) Petroleum, water and workable minerals encountered; and





(d) any other information reasonably required by the Minister.





3.4.3. The information required by Section 3.4.2 shall be submitted to the Minister


in the form, inter alia, of wencbmpletion reports as soon as practicable.


3.4.4. The Contractor may-.jrerhove, for the purpose of laboratory examination or


analysis, petrological specimens or samples of Petroleum found in the


Contract Area and characteristic samples of the strata or water encountered in


a well and, as soon as practicable, shall give the Minister, without charge, a


representative part of each specimen and sample removed.





3.4.5. The Contractor shall supply to the Minister:


(a) daily reports on drilling operations and weekly reports on geophysical


operations;


(b) within thirty (30) days after the end of each Calendar Quarter, a report


on the progress of Petroleum Operations during the preceding


Calendar Quarter covering:


(i) a detailed description of the Petroleum Operations carried out


and the factual information obtained;


(ii) a description of the area in which the Contractor has operated;








40


(iii) an account of the expenditure on Petroleum Operations in


accordance with the Accounting Procedures set forth in


Appendix I; and


(iv) a map indicating the location of all wells and other Petroleum


Operations;


(c) within three (3) months of the end of each Calendar Year, an annual


report covering the matters specified in paragraph (b) for the


preceding Calendar Year.


3.4.6. The Contractor shall submit copies of all contracts or agreements with


Subcontractors as soon as practicable after execution of such contracts or


agreements.


3.4.7. The Contractor shall supply any further information concerning the


Petroleum Operations that the Minister may reasonably require.


3.5. Joint liability and indemnity


3.5.1. At any time where the Contractor, consists of more* than one person, their


liability shall be joint and-.seyeraf.' \


The Contractor shid'h supply to the ••Minister a copy of the joint operating


agreement between those persons-as-soon as it is available.


3.5.2. The Contractor shall' obtain" and maintain for the. Petroleum Operations


insurance of the/fype'-and for such reasonable amounts and coverage as may


be approved by-the*Minister, and produce evidence of such insurance once


each year. The said insurance shall, inter alia, cover loss or damage to all


installations and equipment used in Petroleum Operations, pollution, property


insurance and third party liability insurance.


3 5.3. The Contractor shall defend, indemnify and save the State harmless against


all claims, losses and damage of any nature whatsoever, which may be .made


or brought against the Government by any third party, including without


limitation, claims for loss of and damage to property, or death of or injury to


persons, caused by, or resulting from, any operation conducted by or on


behalf of the Contractor under the terms of this Agreement.


3.6. Local employment, training and preference


3.6.1. The Contractor and the Subcontractors shall give preference to the


employment of Ethiopian nationals in all Petroleum Operations to the fullest


extent possible, provided such nationals have the required qualifications and


experience.


3.6.2. The Contractor shall establish a training and employment programme,


approved by the Minister, for Ethiopian nationals.





41


(iii) an account of the expenditure on Petroleum Operations in


accordance with the Accounting Procedures set forth in


Appendix I; and


(iv) a map indicating the location of all wells and other Petroleum


Operations;


(c) within three (3) months of the end of each Calendar Year, an annual


report covering the matters specified in paragraph (b) for the


preceding Calendar Year.


3.4.6. The Contractor shall submit copies of all contracts or agreements with


Subcontractors as soon as practicable after execution of such contracts or


agreements.


3.4.7. The Contractor shall supply any further information concerning the


Petroleum Operations that the Minister may reasonably require.


3.5. Joint liability and indemnity


3.5.1. At any time where the Contractor, consists of more* than one person, their


liability shall be joint and-.seyeraf.' \


The Contractor shid'h supply to the ••Minister a copy of the joint operating


agreement between those persons-as-soon as it is available.


3.5.2. The Contractor shall' obtain" and maintain for the. Petroleum Operations


insurance of the/fype'-and for such reasonable amounts and coverage as may


be approved by-the*Minister, and produce evidence of such insurance once


each year. The said insurance shall, inter alia, cover loss or damage to all


installations and equipment used in Petroleum Operations, pollution, property


insurance and third party liability insurance.


3 5.3. The Contractor shall defend, indemnify and save the State harmless against


all claims, losses and damage of any nature whatsoever, which may be .made


or brought against the Government by any third party, including without


limitation, claims for loss of and damage to property, or death of or injury to


persons, caused by, or resulting from, any operation conducted by or on


behalf of the Contractor under the terms of this Agreement.


3.6. Local employment, training and preference


3.6.1. The Contractor and the Subcontractors shall give preference to the


employment of Ethiopian nationals in all Petroleum Operations to the fullest


extent possible, provided such nationals have the required qualifications and


experience.


3.6.2. The Contractor shall establish a training and employment programme,


approved by the Minister, for Ethiopian nationals.





41


The Contractor shall contribute a minimum of_(_ ) United States


dollars per year during the Exploration Period, increased to a minimum of


_(_)Unifed States dollars per year during the Development and


Production Period, for the training of Ethiopian Government personnel and/or


acquisition of training facilities, identified by the Minister.


3.6.3. The Contractor and the Subcontractors shall give preference to Ethiopian


materials, products and services used in Petroleum Operations where-those


materials, products and services are of comparable quality and are readily


available at competitive prices.


3.6.4. The Contractor shall submit a report on a regular basis detailing the


employment of Ethiopian nationals and the utilization of Ethiopian materials,


products and services in a form to be specified by the Minister. In addition,


the Contractor shall, within thirty (30) days of employing, notify the Minister


the name and the terms and conditions of employment of any Ethiopian


national.





3.7. Environmental and safety measures A ****


3.7.1. The Contractor shall conduct--Petroleum Operations in a safe and proper


manner in accordance with '-generally accepted 'international petroleum


industry practice and shail.dause as little-damage as reasonably practicable to


the general environment-,'including; inter/alia, the surface, air, seas, lakes,


rivers, marine life, animal life.,, plaid life, crops, other natural resources and


property, and shall forthWith\repair any damage caused to the extent


reparable, and shall pay- reasonable compensation for all damage which is


beyond repair. p


3.7.2. In the event of a blow-out, accident or other emergency, the Contractor shall


take immediate steps to bring the emergency situation under control and


protect against loss of life and property and prevent harm to natural resources


and the general environment.


3.7.3. The Minister may, if he reasonably determines that the Petroleum Operations


may endanger persons or property, harm natural resources or the general


environment, cause pollution, harm marine life, animal life or plant life, or


interfere with navigation and fishing order the Contractor to take reasonable


remedial measures and order the Contractor to discontinue Petroleum


Operations pending the implementation of those measures.








3.8 Registration and office


3.8.1. The Contractor shall register to do business with the appropriate Ethiopian


authorities and shall establish and maintain an office in Ethiopia within three


(3) months of the Effective Date.


The Contractor shall contribute a minimum of_(_ ) United States


dollars per year during the Exploration Period, increased to a minimum of


_(_)Unifed States dollars per year during the Development and


Production Period, for the training of Ethiopian Government personnel and/or


acquisition of training facilities, identified by the Minister.


3.6.3. The Contractor and the Subcontractors shall give preference to Ethiopian


materials, products and services used in Petroleum Operations where-those


materials, products and services are of comparable quality and are readily


available at competitive prices.


3.6.4. The Contractor shall submit a report on a regular basis detailing the


employment of Ethiopian nationals and the utilization of Ethiopian materials,


products and services in a form to be specified by the Minister. In addition,


the Contractor shall, within thirty (30) days of employing, notify the Minister


the name and the terms and conditions of employment of any Ethiopian


national.





3.7. Environmental and safety measures A ****


3.7.1. The Contractor shall conduct--Petroleum Operations in a safe and proper


manner in accordance with '-generally accepted 'international petroleum


industry practice and shail.dause as little-damage as reasonably practicable to


the general environment-,'including; inter/alia, the surface, air, seas, lakes,


rivers, marine life, animal life.,, plaid life, crops, other natural resources and


property, and shall forthWith\repair any damage caused to the extent


reparable, and shall pay- reasonable compensation for all damage which is


beyond repair. p


3.7.2. In the event of a blow-out, accident or other emergency, the Contractor shall


take immediate steps to bring the emergency situation under control and


protect against loss of life and property and prevent harm to natural resources


and the general environment.


3.7.3. The Minister may, if he reasonably determines that the Petroleum Operations


may endanger persons or property, harm natural resources or the general


environment, cause pollution, harm marine life, animal life or plant life, or


interfere with navigation and fishing order the Contractor to take reasonable


remedial measures and order the Contractor to discontinue Petroleum


Operations pending the implementation of those measures.








3.8 Registration and office


3.8.1. The Contractor shall register to do business with the appropriate Ethiopian


authorities and shall establish and maintain an office in Ethiopia within three


(3) months of the Effective Date.


3.8.2. The Contractor shall notify the Minister, before Petroleum Operations begin,


the name and address of the person resident in Ethiopia who will supervise


the Petroleum Operations, and prior notice of any subsequent change shall be


given to the Minister.


SECTION IV:


GENERAL RIGHTS AND OBLIGATIONS OF THE


GOVERNMENT AND THE MINISTER


4.1. Rights of the Government and the Minister


4.1.1. The Minister, or a person authorized by him in writing, may at all reasonable


times inspect any Petroleum Operations, and any records of the Contractor


relating thereto, and the Contractor shall provide facilities similar to those


applicable to its own staff for transport, subsistence and accommodation free


of charge and pay all reasonable expenses directly connected with such an


inspection. . ; v \


4.1.2. The Minister may require..tie Contractor, to\peEforin an obligation which the


Contractor has failed td'perform under .this Agreement by giving reasonable


written notice, and. after failure tb.cbmply with that notice, may execute any


necessary works for which -.the • Contractor shall pay forthwith. The Minister


may give notice to the-Cofrtf&etor to perform an obligation hereunder at any


time, but not later, .than nfciety (90) days after the termination or expiration of


this Agreement (or surrender of the part of the Contract Area to which the


obligation related:-Failure of the Minister to provide notice to the Contractor


under this provision shall not constitute a waiver of any other rights the


Minister may have under this Agreement in connection with the performance


of any obligation of the Contractor.


4.2. Obligations of the Government and the Minister


4.2.1. The Government shall not unreasonably refuse to grant or renew any visas,


work and entry or exit permits necessary for personnel employed in the


Petroleum Operations by the Contractor or its Subcontractors and their


dependants; nor shall the Government unreasonably refuse to grant any


necessary rights of way and easements as may be required by the Contractor


or its Subcontractors.


4.2.2. The Minister shall use his best efforts to assist and expedite the execution of


Petroleum Operations carried on hereunder by rendering all necessary


assistance in obtaining visas, work or other permits, authorizations, import or


other licences, and rights of way and easements as may be necessary.








43


3.8.2. The Contractor shall notify the Minister, before Petroleum Operations begin,


the name and address of the person resident in Ethiopia who will supervise


the Petroleum Operations, and prior notice of any subsequent change shall be


given to the Minister.


SECTION IV:


GENERAL RIGHTS AND OBLIGATIONS OF THE


GOVERNMENT AND THE MINISTER


4.1. Rights of the Government and the Minister


4.1.1. The Minister, or a person authorized by him in writing, may at all reasonable


times inspect any Petroleum Operations, and any records of the Contractor


relating thereto, and the Contractor shall provide facilities similar to those


applicable to its own staff for transport, subsistence and accommodation free


of charge and pay all reasonable expenses directly connected with such an


inspection. . ; v \


4.1.2. The Minister may require..tie Contractor, to\peEforin an obligation which the


Contractor has failed td'perform under .this Agreement by giving reasonable


written notice, and. after failure tb.cbmply with that notice, may execute any


necessary works for which -.the • Contractor shall pay forthwith. The Minister


may give notice to the-Cofrtf&etor to perform an obligation hereunder at any


time, but not later, .than nfciety (90) days after the termination or expiration of


this Agreement (or surrender of the part of the Contract Area to which the


obligation related:-Failure of the Minister to provide notice to the Contractor


under this provision shall not constitute a waiver of any other rights the


Minister may have under this Agreement in connection with the performance


of any obligation of the Contractor.


4.2. Obligations of the Government and the Minister


4.2.1. The Government shall not unreasonably refuse to grant or renew any visas,


work and entry or exit permits necessary for personnel employed in the


Petroleum Operations by the Contractor or its Subcontractors and their


dependants; nor shall the Government unreasonably refuse to grant any


necessary rights of way and easements as may be required by the Contractor


or its Subcontractors.


4.2.2. The Minister shall use his best efforts to assist and expedite the execution of


Petroleum Operations carried on hereunder by rendering all necessary


assistance in obtaining visas, work or other permits, authorizations, import or


other licences, and rights of way and easements as may be necessary.








43


 SECTION V:





WORK OBLIGATIONS, EXPENDITURE AND BUDGETS


5.1. Exploration


5.1.1. The Contractor shall carry out the following work obligations and make the


following exploration expenditure during the initial term of the Exploration


Period:


geological and geophysical operations, including :_ (_)


(a)


kilometers of seismic surveys, such shooting to commence within


_(_) months after the Effective Date, with minimum


expenditure of_(_ ) United States dollars for such


seismic operations; and


(b) drill_(_) exploratoty;well(s) to a minimum depth


of_(_) meters per well, jHfe fjist such well to commence


not later than_months affei\the Effective-Pate, with minimum


drilling expenditure of \ ) _J.-Unitbcf States dollars for


each such well. . \ \ \ \


5.1.2. The Contractor shall dafy out the following wbrk obligations and make the


following exploration expenditufes'*.. during the first extension to the


Exploration Period: , v


(a) geological and'geophysical operations, including_(_)


kilometers of...seismic surveys with minimum expenditure of


_(_) United States dollars for such seismic


operations; and


(b) drill_(__) exploratory well(s) to a minimum depth


of_(_)meters per well with minimum drilling expenditure of


_(_)United States dollars for each such well.


5.1.3. The Contractor shall carry out the following work obligations and make the


following exploration expenditures during the second extension to the


Exploration Period:


(a) geological and geophysical operations, including_ (_)


kilometers of seismic surveys with minimum expenditure of


_(_) United States dollars for such seismic operations;


and


(b) drill_(_) exploratory well(s) to a minimum depth of_


(_) meters per well with minimum drilling expenditure of


_(_) United States dollars for each such well.








44


 SECTION V:





WORK OBLIGATIONS, EXPENDITURE AND BUDGETS


5.1. Exploration


5.1.1. The Contractor shall carry out the following work obligations and make the


following exploration expenditure during the initial term of the Exploration


Period:


geological and geophysical operations, including :_ (_)


(a)


kilometers of seismic surveys, such shooting to commence within


_(_) months after the Effective Date, with minimum


expenditure of_(_ ) United States dollars for such


seismic operations; and


(b) drill_(_) exploratoty;well(s) to a minimum depth


of_(_) meters per well, jHfe fjist such well to commence


not later than_months affei\the Effective-Pate, with minimum


drilling expenditure of \ ) _J.-Unitbcf States dollars for


each such well. . \ \ \ \


5.1.2. The Contractor shall dafy out the following wbrk obligations and make the


following exploration expenditufes'*.. during the first extension to the


Exploration Period: , v


(a) geological and'geophysical operations, including_(_)


kilometers of...seismic surveys with minimum expenditure of


_(_) United States dollars for such seismic


operations; and


(b) drill_(__) exploratory well(s) to a minimum depth


of_(_)meters per well with minimum drilling expenditure of


_(_)United States dollars for each such well.


5.1.3. The Contractor shall carry out the following work obligations and make the


following exploration expenditures during the second extension to the


Exploration Period:


(a) geological and geophysical operations, including_ (_)


kilometers of seismic surveys with minimum expenditure of


_(_) United States dollars for such seismic operations;


and


(b) drill_(_) exploratory well(s) to a minimum depth of_


(_) meters per well with minimum drilling expenditure of


_(_) United States dollars for each such well.








44


5.1.4. The required minimum expenditure obligations set forth in Sections 5.1.1, 5.1.2 and


5.1.3 are expressed in constant United States dollars of the month of the Effective Date


and shall be adjusted annually on the anniversary of the Effective Date, so as to reflect


the balance of Contractor's minimum expenditure obligations, as follows:


(a) at the end of each year of the Exploration Period, the minimum expenditure


obligations for the initial term of the Exploration Period, the first extension or


second extension, whichever is applicable, shall be reduced in accordance with


paragraph (b) below by the amount of expenditure actually made during that


year


on seismic and exploratory drilling work;


(b) in determining the amount of expenditure actually made, during a year on


seismic and exploratory drilling work and only for the purposes of making the


adjustment provided for in Sections 5.1.4.(a) and 5.1.5, no amount of


expenditure in excess of the amount specified for each specific work in


Sections 5.1.1, 5.1.2 and 5.1.3 (as .adjusted for inflation, in accordance with


paragraph (c) below, between (i) fe month of the Effective Date and (ii) the


month in the prior year coirespoijding to the month of the Effective Date) shall


be considered, unless otherwise agreed torn Writing by the Minister;


(c) at the end of e.ach’-.yfear of the.Emigration Period, in order to determine the


minimum Expenditure obligations for the remaining years of the initial term of


the Exploration Period,-• the'-fijref‘extension or second extension, whichever is


applicable, the balance' of the minimum expenditure obligations corresponding


to such term aftfre'^rid of the prior year, as reduced for expenditure under the


provisions' of Section 5.1.4 (a), shall be adjusted by multiplying that amount by


the number which is the sum of one (1) and the decimal equivalent of the


percentage change in the monthly index of U.S. Consumer Prices, seasonally


adjusted, as reported in the "International Financial Statistics" of the


International Monetary Fund between (i) the month in the year of the


adjustment corresponding to the month of the Effective Date and (ii) the month


in the prior year corresponding to the month of the Effective Date.


Note: Where the minimum expenditure obligations are already expressed in current United


States dollars, the provisions of Article 5.1.4. have to be amended accordingly.


5.1.5. If, during the initial Exploration Period or the first extension thereof, the Contractor


exceeds the work obligations for such period by carrying out work forming part of the


work obligations for the following extension, then such excess work and


corresponding expenditure shall be credited toward the work and corresponding


expenditure obligations for the following extension of the Exploration Period.


5.1.6. The fulfilment of any work obligations shall relieve the Contractor of the


corresponding expenditure obligations but the fulfilment of any expenditure


obligations shall not relieve the Contractor of the corresponding work obligations.


5.1.4. The required minimum expenditure obligations set forth in Sections 5.1.1, 5.1.2 and


5.1.3 are expressed in constant United States dollars of the month of the Effective Date


and shall be adjusted annually on the anniversary of the Effective Date, so as to reflect


the balance of Contractor's minimum expenditure obligations, as follows:


(a) at the end of each year of the Exploration Period, the minimum expenditure


obligations for the initial term of the Exploration Period, the first extension or


second extension, whichever is applicable, shall be reduced in accordance with


paragraph (b) below by the amount of expenditure actually made during that


year


on seismic and exploratory drilling work;


(b) in determining the amount of expenditure actually made, during a year on


seismic and exploratory drilling work and only for the purposes of making the


adjustment provided for in Sections 5.1.4.(a) and 5.1.5, no amount of


expenditure in excess of the amount specified for each specific work in


Sections 5.1.1, 5.1.2 and 5.1.3 (as .adjusted for inflation, in accordance with


paragraph (c) below, between (i) fe month of the Effective Date and (ii) the


month in the prior year coirespoijding to the month of the Effective Date) shall


be considered, unless otherwise agreed torn Writing by the Minister;


(c) at the end of e.ach’-.yfear of the.Emigration Period, in order to determine the


minimum Expenditure obligations for the remaining years of the initial term of


the Exploration Period,-• the'-fijref‘extension or second extension, whichever is


applicable, the balance' of the minimum expenditure obligations corresponding


to such term aftfre'^rid of the prior year, as reduced for expenditure under the


provisions' of Section 5.1.4 (a), shall be adjusted by multiplying that amount by


the number which is the sum of one (1) and the decimal equivalent of the


percentage change in the monthly index of U.S. Consumer Prices, seasonally


adjusted, as reported in the "International Financial Statistics" of the


International Monetary Fund between (i) the month in the year of the


adjustment corresponding to the month of the Effective Date and (ii) the month


in the prior year corresponding to the month of the Effective Date.


Note: Where the minimum expenditure obligations are already expressed in current United


States dollars, the provisions of Article 5.1.4. have to be amended accordingly.


5.1.5. If, during the initial Exploration Period or the first extension thereof, the Contractor


exceeds the work obligations for such period by carrying out work forming part of the


work obligations for the following extension, then such excess work and


corresponding expenditure shall be credited toward the work and corresponding


expenditure obligations for the following extension of the Exploration Period.


5.1.6. The fulfilment of any work obligations shall relieve the Contractor of the


corresponding expenditure obligations but the fulfilment of any expenditure


obligations shall not relieve the Contractor of the corresponding work obligations.


 If ihe continuation of any drilling activity is precluded for justifiable technical reasons,


prior to reaching the minimum depth herein specified, the Minister shall authorize the


Contractor to terminate such activity and may specify an appropriate and reasonable


substitute work obligation or deem the Contractor to have met the work obligation in


respect of that well.


5.1.7. The Contractor shall prepare and submit to the Minister for discussion, thirty (30)


days after the Effective Date, the following:


(a) a general statement of exploration work and budget for each year of the


Exploration Period; and


(b) a detailed statement of the exploration work programme and budget for the





first year of the initial term of the Exploration Period.


5.1.8. The Contractor shall prepare and submit to the Minister for discussion, ninety (90)


days before the end of each year in the Exploration Period, the following:


(a)


revisions, if any, to the general statement of exploration work and budget for


the remaining years of the Exploration Period; and


(b) a detailed statement of the--exploration work-..programme and budget for the


next year in the Exploratioit-.Period. . \ \ •





5.1.9. The Contractor may makeV'changes to...the. detailed statement of exploration work


programme and budget'-.therefor for-.any-year of the Exploration Period, if those


changes do not materially affect-;'the original objectives of the statement. The


Contractor shall notify the Mini's.fef-o'f such changes as soon as practicable.


5.2. Bank guarantee ;





5.2.1. The Contractor shall provide to the Minister at the commencement of the initial term


of the Exploration Period and each extension thereof, an irrevocable and unconditional


bank guarantee for the minimum work obligations set forth herein for the applicable


term of the Exploration Period, as adjusted under Sections 5.1.4 and 5.1.5, from an


institution and in a form acceptable to the Minister, and in an amount which shall be


equal to the corresponding expenditure obligations.


5.2.2. If, at the end of the initial term of the Exploration Period, any extension thereof or


upon the date of expiration or termination of this Agreement, the Contractor has not


made the minimum work obligations required during the initial term of the


Exploration Period or any applicable extension thereof, the Contractor or its guarantor


shall immediately pay the amount corresponding to the unfulfilled work obligations to


the Government.




















4-6


 If ihe continuation of any drilling activity is precluded for justifiable technical reasons,


prior to reaching the minimum depth herein specified, the Minister shall authorize the


Contractor to terminate such activity and may specify an appropriate and reasonable


substitute work obligation or deem the Contractor to have met the work obligation in


respect of that well.


5.1.7. The Contractor shall prepare and submit to the Minister for discussion, thirty (30)


days after the Effective Date, the following:


(a) a general statement of exploration work and budget for each year of the


Exploration Period; and


(b) a detailed statement of the exploration work programme and budget for the





first year of the initial term of the Exploration Period.


5.1.8. The Contractor shall prepare and submit to the Minister for discussion, ninety (90)


days before the end of each year in the Exploration Period, the following:


(a)


revisions, if any, to the general statement of exploration work and budget for


the remaining years of the Exploration Period; and


(b) a detailed statement of the--exploration work-..programme and budget for the


next year in the Exploratioit-.Period. . \ \ •





5.1.9. The Contractor may makeV'changes to...the. detailed statement of exploration work


programme and budget'-.therefor for-.any-year of the Exploration Period, if those


changes do not materially affect-;'the original objectives of the statement. The


Contractor shall notify the Mini's.fef-o'f such changes as soon as practicable.


5.2. Bank guarantee ;





5.2.1. The Contractor shall provide to the Minister at the commencement of the initial term


of the Exploration Period and each extension thereof, an irrevocable and unconditional


bank guarantee for the minimum work obligations set forth herein for the applicable


term of the Exploration Period, as adjusted under Sections 5.1.4 and 5.1.5, from an


institution and in a form acceptable to the Minister, and in an amount which shall be


equal to the corresponding expenditure obligations.


5.2.2. If, at the end of the initial term of the Exploration Period, any extension thereof or


upon the date of expiration or termination of this Agreement, the Contractor has not


made the minimum work obligations required during the initial term of the


Exploration Period or any applicable extension thereof, the Contractor or its guarantor


shall immediately pay the amount corresponding to the unfulfilled work obligations to


the Government.




















4-6


5.2.3. The amount of any bank guarantee for the initial term of the Exploration Period or any


extension thereof shall be adjusted annually to reflect the amount of the expenditure


actually made on seismic and exploratory drilling work (and the inflation adjustment),


all as determined under the provisions of Sections 5.1.4 and 5.1.5.


5.2.4. The Contractor shall provide to the Minister a bank guarantee as specified in Section


5.2.1. within 90 (ninty) days after signature of this Contract.


5.2.5. The Contract will be void if the Contractor does not provide the said bank guarantee


within the terms specified in Section 5.2.4.


5.3. Discovery and appraisal


5.3.1. The Contractor shall notify the Minister as -soon as practicable, but in no event later


than (48) hours, after the discovery of Petroleum within the Contract Area. This notice


shall include all available details-'of‘‘the'• discovery 'and particulars on any testing


programme to be undertaken-;ih\ order to allow- the\Mirifster to send a representative


during testing operations. \ \


5.3.2. Within ninety (90).;days after the .date*\of. the notice of the discovery under Section


5.3.1, if the Contractor considers that a discovery merits appraisal, the Contractor shall


submit to the Minister a detailed appraisal work programme and budget to evaluate as


expeditiously as possible whether the discovery is a Commercial Discovery.


This work programme shall include an indication of the location, nature and size of the


discovery, with a designation of the area to be included in the evaluation, which area


shall be designated as an Appraisal Area. The appraisal work programme shall also


include all drilling, testing and evaluation to be conducted in the Appraisal Area and


the preparation of all technical and economic studies related to recovery, treatment and


transportation of Petroleum from the Appraisal Area. The duration of this appraisal


work programme shall not exceed_(_) months unless otherwise agreed in


writing by the Minister and, in any event, it shall not exceed the remaining term of the


Exploration Period as provided in Section 2.2 of this Agreement. Performance of the


obligations under an appraisal work programme and budget shall not satisfy all or any


part of the exploration work and expenditure obligations for the Exploration Period set


forth in Section 5.1, as those obligations are separate and independent.


5.3.3. If the Minister does not request in writing any changes to the appraisal work


programme and budget for any Appraisal Area within thirty (30) days after receipt


thereof, the programme shall be deemed approved and adopted by the Minister.


If the Minister requests any changes to the appraisal work programme and budget for


any Appraisal Area, then the Contractor and the Minister shall meet within fifteen (15)


days after the Minister's written notification as to these requested changes to agree on


47


5.2.3. The amount of any bank guarantee for the initial term of the Exploration Period or any


extension thereof shall be adjusted annually to reflect the amount of the expenditure


actually made on seismic and exploratory drilling work (and the inflation adjustment),


all as determined under the provisions of Sections 5.1.4 and 5.1.5.


5.2.4. The Contractor shall provide to the Minister a bank guarantee as specified in Section


5.2.1. within 90 (ninty) days after signature of this Contract.


5.2.5. The Contract will be void if the Contractor does not provide the said bank guarantee


within the terms specified in Section 5.2.4.


5.3. Discovery and appraisal


5.3.1. The Contractor shall notify the Minister as -soon as practicable, but in no event later


than (48) hours, after the discovery of Petroleum within the Contract Area. This notice


shall include all available details-'of‘‘the'• discovery 'and particulars on any testing


programme to be undertaken-;ih\ order to allow- the\Mirifster to send a representative


during testing operations. \ \


5.3.2. Within ninety (90).;days after the .date*\of. the notice of the discovery under Section


5.3.1, if the Contractor considers that a discovery merits appraisal, the Contractor shall


submit to the Minister a detailed appraisal work programme and budget to evaluate as


expeditiously as possible whether the discovery is a Commercial Discovery.


This work programme shall include an indication of the location, nature and size of the


discovery, with a designation of the area to be included in the evaluation, which area


shall be designated as an Appraisal Area. The appraisal work programme shall also


include all drilling, testing and evaluation to be conducted in the Appraisal Area and


the preparation of all technical and economic studies related to recovery, treatment and


transportation of Petroleum from the Appraisal Area. The duration of this appraisal


work programme shall not exceed_(_) months unless otherwise agreed in


writing by the Minister and, in any event, it shall not exceed the remaining term of the


Exploration Period as provided in Section 2.2 of this Agreement. Performance of the


obligations under an appraisal work programme and budget shall not satisfy all or any


part of the exploration work and expenditure obligations for the Exploration Period set


forth in Section 5.1, as those obligations are separate and independent.


5.3.3. If the Minister does not request in writing any changes to the appraisal work


programme and budget for any Appraisal Area within thirty (30) days after receipt


thereof, the programme shall be deemed approved and adopted by the Minister.


If the Minister requests any changes to the appraisal work programme and budget for


any Appraisal Area, then the Contractor and the Minister shall meet within fifteen (15)


days after the Minister's written notification as to these requested changes to agree on


47


an appraisal work programme and budget. The work programme and budget shall be


approved and adopted by the Minister after such agreement has been reached, and, in


any event, shall be deemed approved and adopted by the Minister thirty (30) days after


written notification of the requested changes.


5.3.4. After adoption of the appraisal work programme and budget, the Contractor shall


diligently continue to evaluate the discovery without undue interruptions until the


Contractor determines whether the discovery is a Commercial Discovery.


Within thirty (30) days after the evaluation is completed, but in any event prior to the


expiration of the Exploration Period, the Contractor shall notify and report to the


Minister whether the Appraisal Area or any part thereof contains a Commercial


Discovery. Such report shall include all relevant technical and economic data relating


thereto.


5.3.5. For the purposes of this Section, the Contractor shall make a determination as to


whether a discovery is a Commercial Discovery on the basis of whether that discovery


can be produced commercially after consideration of all pertinent operating and


financial data collected during the performance-of the appraisal work programme and


otherwise, including but not limited to Crude Oil..or Natural Gas recoverable reserves,


sustainable production levels and other*.. Movant technical and economic factors,


according to generally accepted international petroleum industry practice..


5.4. Development and production-. . ;.


5.4.1. If the Contractor reports* that the.dis'cdyery for any Appraisal Area is a Commercial


Discovery under Sections 5.3.4.,aiicJ 5.3.5, a development plan shall be prepared and


submitted to the Ministeiy'withki six (6) months after the completion of the appraisal


work programme. .-* "*** . '


5.4.2. The development plan shall be prepared on the basis of sound engineering and


economic principles in accordance with generally accepted international petroleum


industry practice, shall ensure that the Petroleum deposits do not suffer an excessive


rate of decline of production or an excessive loss of reservoir pressure and shall adopt


the optimum economic well spacing appropriate for the development of those


Petroleum deposits.


5.4.3. The development plan shall contain:


(a) details and the extent of the proposed development area relating to the


Commercial Discovery, which area shall correspond as closely as possible to


the geographical extension of the Commercial Discovery in the Contract Area,


and shall be designated as the Development Area for the Commercial


Discovery concerned;


(b) proposals relating to the spacing, drilling and completion of wells, the


production and storage installations, and transportation and delivery facilities


required for the production, storage and transportation of Petroleum;


(c) proposals relating to necessary infrastructure investments, training and


employment of Ethiopian nationals, and plans to maximize the use of


an appraisal work programme and budget. The work programme and budget shall be


approved and adopted by the Minister after such agreement has been reached, and, in


any event, shall be deemed approved and adopted by the Minister thirty (30) days after


written notification of the requested changes.


5.3.4. After adoption of the appraisal work programme and budget, the Contractor shall


diligently continue to evaluate the discovery without undue interruptions until the


Contractor determines whether the discovery is a Commercial Discovery.


Within thirty (30) days after the evaluation is completed, but in any event prior to the


expiration of the Exploration Period, the Contractor shall notify and report to the


Minister whether the Appraisal Area or any part thereof contains a Commercial


Discovery. Such report shall include all relevant technical and economic data relating


thereto.


5.3.5. For the purposes of this Section, the Contractor shall make a determination as to


whether a discovery is a Commercial Discovery on the basis of whether that discovery


can be produced commercially after consideration of all pertinent operating and


financial data collected during the performance-of the appraisal work programme and


otherwise, including but not limited to Crude Oil..or Natural Gas recoverable reserves,


sustainable production levels and other*.. Movant technical and economic factors,


according to generally accepted international petroleum industry practice..


5.4. Development and production-. . ;.


5.4.1. If the Contractor reports* that the.dis'cdyery for any Appraisal Area is a Commercial


Discovery under Sections 5.3.4.,aiicJ 5.3.5, a development plan shall be prepared and


submitted to the Ministeiy'withki six (6) months after the completion of the appraisal


work programme. .-* "*** . '


5.4.2. The development plan shall be prepared on the basis of sound engineering and


economic principles in accordance with generally accepted international petroleum


industry practice, shall ensure that the Petroleum deposits do not suffer an excessive


rate of decline of production or an excessive loss of reservoir pressure and shall adopt


the optimum economic well spacing appropriate for the development of those


Petroleum deposits.


5.4.3. The development plan shall contain:


(a) details and the extent of the proposed development area relating to the


Commercial Discovery, which area shall correspond as closely as possible to


the geographical extension of the Commercial Discovery in the Contract Area,


and shall be designated as the Development Area for the Commercial


Discovery concerned;


(b) proposals relating to the spacing, drilling and completion of wells, the


production and storage installations, and transportation and delivery facilities


required for the production, storage and transportation of Petroleum;


(c) proposals relating to necessary infrastructure investments, training and


employment of Ethiopian nationals, and plans to maximize the use of


Ethiopian materials, products and services in accordance with Section 3.6


herein:


(d) a production forecast and a detailed estimate of the investment and expenses


involved: and


(e) an estimate of the time required to complete each phase of the development


plan.


5.4.4. The Minister may require the Contractor to provide within a specified time period such


further information as the Minister may reasonably need to evaluate the development


plan for any Development Area.


The Minister may also require that the Contractor, makes such revisions to the


development plan as are reasonable to contribute to the efficient development of


Ethiopian infrastructure and to assist other national needs, without impairing the


economic viability of the development of the Development Area.


5.4.5. If the Minister does not require in writing any changes to the development plan within


ninety (90) days after receipt thereof, the-.plan shall be deemed approved and adopted


by the Minister. •••**


If the Minister requires any. changes to the deyeibptfient plan, then the Contractor and


Minister shall meet within..fifteen (15) days'-of 'lhe'Ministefs written notification as to


these requested chaages;'to‘- agree on a'development plan. The plan shall be approved


and adopted by the-’-.Mmister after such agreement has been reached and, in any event,


shall be deemed approved arid- adopted by the Minister sixty (60) days after written


notification of the requested -changes.


5.4.6. After the development plan has been adopted by the Minister, the Contractor shall


submit to the Minister for discussion ninety (90) days before the end of each Calendar


Year in the Development and Production Period a detailed statement of the


development work programme and budget therefor for the following year, provided,


however, that a detailed statement of the development work programme and the


budget therefor for the first full Calendar Year of the Development and Production


Period and the portion of the year preceding the first full Calendar Year, shall be


submitted within ninety (90) days after the date of adoption by the Minister of the


development plan under Section 5.4.5.


Each such annual detailed statement of the development work programme and budget


therefor shall be consistent with the development plan adopted by the Minister under


Section 5.4.5.


5.4.7. The Contractor may submit, during the term of the Development and Production


Period, revisions to any development plan. These revisions shall be consistent with the


provisions of Section 5.4.2 and shall be subject to the approval procedure set forth in


Sections 5.4.5.


5.4.8. The Contractor shall commence development work not later than six (6) months after


the date of adoption of the development plan under Section 5.4.5. and shall continue


development operations with due diligence in accordance with such development plan.


Ethiopian materials, products and services in accordance with Section 3.6


herein:


(d) a production forecast and a detailed estimate of the investment and expenses


involved: and


(e) an estimate of the time required to complete each phase of the development


plan.


5.4.4. The Minister may require the Contractor to provide within a specified time period such


further information as the Minister may reasonably need to evaluate the development


plan for any Development Area.


The Minister may also require that the Contractor, makes such revisions to the


development plan as are reasonable to contribute to the efficient development of


Ethiopian infrastructure and to assist other national needs, without impairing the


economic viability of the development of the Development Area.


5.4.5. If the Minister does not require in writing any changes to the development plan within


ninety (90) days after receipt thereof, the-.plan shall be deemed approved and adopted


by the Minister. •••**


If the Minister requires any. changes to the deyeibptfient plan, then the Contractor and


Minister shall meet within..fifteen (15) days'-of 'lhe'Ministefs written notification as to


these requested chaages;'to‘- agree on a'development plan. The plan shall be approved


and adopted by the-’-.Mmister after such agreement has been reached and, in any event,


shall be deemed approved arid- adopted by the Minister sixty (60) days after written


notification of the requested -changes.


5.4.6. After the development plan has been adopted by the Minister, the Contractor shall


submit to the Minister for discussion ninety (90) days before the end of each Calendar


Year in the Development and Production Period a detailed statement of the


development work programme and budget therefor for the following year, provided,


however, that a detailed statement of the development work programme and the


budget therefor for the first full Calendar Year of the Development and Production


Period and the portion of the year preceding the first full Calendar Year, shall be


submitted within ninety (90) days after the date of adoption by the Minister of the


development plan under Section 5.4.5.


Each such annual detailed statement of the development work programme and budget


therefor shall be consistent with the development plan adopted by the Minister under


Section 5.4.5.


5.4.7. The Contractor may submit, during the term of the Development and Production


Period, revisions to any development plan. These revisions shall be consistent with the


provisions of Section 5.4.2 and shall be subject to the approval procedure set forth in


Sections 5.4.5.


5.4.8. The Contractor shall commence development work not later than six (6) months after


the date of adoption of the development plan under Section 5.4.5. and shall continue


development operations with due diligence in accordance with such development plan.


5.4.9. Where the Minister and the Contractor agree that a mutual economic benefit can be


achieved by constructing and operating common facilities (including, but not limited


to, roads, pipelines and other transportation, communication and storage facilities), the


Contractor shall use its best efforts to reach agreement with other producers on the


construction and operation of such common facilities.





Other producers may use the facilities of the Contractor where there exists excess


capacity and on payment of a reasonable compensation which includes a reasonable


return on investment to the Contractor and provided such use does not materially


interfere with the Contractor’s Petroleum Operations.





SECTION VI:


GOVERNMENT PARTICIPATION








6.1. Government participation .y


6.1.1 The Government may participate.:ift--. fhe .Petroleum- Operations in any Development


Area and acquire a Participating) Ihterest not to-.,excee&:__per cent (_)


therein. The Government unay. acquire suchy'interest either directly or through a


specialized Govemmeritentky.





6.1.2. The Government shall notify ^he'-.Cpntfactor in writing of its decision to participate


within one hundred t wenty(120. days after the date of adoption by the Minister of the


development plan unddr Section 5.4.5 for the particular Development Area concerned.


The notice shall specifyjtMe percentage interest to be acquired by the Government and


the identity of the Government entity that will hold the interest if other than the


Government itself.


6.1.3. If the Government elects to participate with respect to any particular Development


Area, then:


(a) the Government's participation shall be effective from the date of adoption of


the development plan under Section 5.4.5 for the particular Development Area


concerned;


(b) the Government or the Government entity, whichever is specified, and the


Contractor shall within _(_) months after the Government


participation is effective enter into an Operating Agreement in a mutually


acceptable form consistent with generally accepted international petroleum


industry practice and this Operating Agreement shall not create or be


considered as a partnership or any other similar entity;











50


5.4.9. Where the Minister and the Contractor agree that a mutual economic benefit can be


achieved by constructing and operating common facilities (including, but not limited


to, roads, pipelines and other transportation, communication and storage facilities), the


Contractor shall use its best efforts to reach agreement with other producers on the


construction and operation of such common facilities.





Other producers may use the facilities of the Contractor where there exists excess


capacity and on payment of a reasonable compensation which includes a reasonable


return on investment to the Contractor and provided such use does not materially


interfere with the Contractor’s Petroleum Operations.





SECTION VI:


GOVERNMENT PARTICIPATION








6.1. Government participation .y


6.1.1 The Government may participate.:ift--. fhe .Petroleum- Operations in any Development


Area and acquire a Participating) Ihterest not to-.,excee&:__per cent (_)


therein. The Government unay. acquire suchy'interest either directly or through a


specialized Govemmeritentky.





6.1.2. The Government shall notify ^he'-.Cpntfactor in writing of its decision to participate


within one hundred t wenty(120. days after the date of adoption by the Minister of the


development plan unddr Section 5.4.5 for the particular Development Area concerned.


The notice shall specifyjtMe percentage interest to be acquired by the Government and


the identity of the Government entity that will hold the interest if other than the


Government itself.


6.1.3. If the Government elects to participate with respect to any particular Development


Area, then:


(a) the Government's participation shall be effective from the date of adoption of


the development plan under Section 5.4.5 for the particular Development Area


concerned;


(b) the Government or the Government entity, whichever is specified, and the


Contractor shall within _(_) months after the Government


participation is effective enter into an Operating Agreement in a mutually


acceptable form consistent with generally accepted international petroleum


industry practice and this Operating Agreement shall not create or be


considered as a partnership or any other similar entity;











50


(c) the Government shall, within thirty (30) days after the end of the Calendar


Quarter in which it elected to participate, reimburse the Contractor, without


interest, for the Government pro-rata share of expenditure incurred by the


Contractor in conducting Petroleum Operations in the Development Area


concerned from the date of adoption of the development plan under Section


5.4.5 to the date of payment;


(d) the person acting as operator shall remain as operator of the Development Area


in accordance with the rights, authorities and obligations of the operator under


the Operating Agreement;


(e) the Government, as a party under the Operating Agreement, shall in respect of


the Development Area concerned:


(i) have the right to vote in proportion to its Participating Interest on all


decisions made under an Operating Agreement which permit a vote by


a party;


(ii) separately take and .dispose Qf- its Participating Interest share of all


Petroleum'produced and saved; \ '


(iii) pay\it$ proportionate'p'ajt--of the expenditure incurred in conducting


Petroleum Operation's-in accordance with the Operating Agreement and


accountin^prpcedures attached thereto;


(iv) ovm' a> Participating Interest share in all materials and equipment


acquired for use under the Operating Agreement;


(v) have the right in common with all other parties to carry out sole risk


operations in accordance with the provisions of the Operating


Agreement; and


(f) the Government may, upon reasonable written notice, require the Contractor to


lend to the Government up to_ per cent (_%) of the funds required


to pay the Government's pro-rata share of expenditure. The loan shall bear


interest at per cent. The Government shall make repayments of the loan on a


quarterly basis in an amount equal to_per cent (_) of the difference


between the gross receipts attributable to the Government’s Participating


Interest in the Development Area and the costs and expenses, including royalty


but excluding income taxes, attributable to the Government’s Participating


Interest in the Development Area for Petroleum Operations. Repayments of the


loan shall be applied first to accrued and unpaid interest and the balance shall


be applied in reduction of the outstanding principal balance.











51


(c) the Government shall, within thirty (30) days after the end of the Calendar


Quarter in which it elected to participate, reimburse the Contractor, without


interest, for the Government pro-rata share of expenditure incurred by the


Contractor in conducting Petroleum Operations in the Development Area


concerned from the date of adoption of the development plan under Section


5.4.5 to the date of payment;


(d) the person acting as operator shall remain as operator of the Development Area


in accordance with the rights, authorities and obligations of the operator under


the Operating Agreement;


(e) the Government, as a party under the Operating Agreement, shall in respect of


the Development Area concerned:


(i) have the right to vote in proportion to its Participating Interest on all


decisions made under an Operating Agreement which permit a vote by


a party;


(ii) separately take and .dispose Qf- its Participating Interest share of all


Petroleum'produced and saved; \ '


(iii) pay\it$ proportionate'p'ajt--of the expenditure incurred in conducting


Petroleum Operation's-in accordance with the Operating Agreement and


accountin^prpcedures attached thereto;


(iv) ovm' a> Participating Interest share in all materials and equipment


acquired for use under the Operating Agreement;


(v) have the right in common with all other parties to carry out sole risk


operations in accordance with the provisions of the Operating


Agreement; and


(f) the Government may, upon reasonable written notice, require the Contractor to


lend to the Government up to_ per cent (_%) of the funds required


to pay the Government's pro-rata share of expenditure. The loan shall bear


interest at per cent. The Government shall make repayments of the loan on a


quarterly basis in an amount equal to_per cent (_) of the difference


between the gross receipts attributable to the Government’s Participating


Interest in the Development Area and the costs and expenses, including royalty


but excluding income taxes, attributable to the Government’s Participating


Interest in the Development Area for Petroleum Operations. Repayments of the


loan shall be applied first to accrued and unpaid interest and the balance shall


be applied in reduction of the outstanding principal balance.











51


 SECTION VII:





COST RECOVERY AND PRODUCTION SHARING





7.1. Cost recovery


7.1.1 The Contractor shall be entitled to recover its Petroleum Operations Costs from Crude


Oil produced within the Contract Area and that is not used in Petroleum Operations, to


the extent permitted by the provisions of this Section 7.1 and Appendix I.


7.1.2 The Contractor shall retain and dispose, in each Calendar Year, of that volume of


Crude Oil (hereinafter referred to as "Cost Oil") the value of which is equal to the


recoverable Petroleum Operations Costs for that Calendar Year, limited to an amount


not exceeding _ per cent (_ %) of average daily production from the


Contract Area.


7.1.3. To the extent that the recoverable Petroleum Operations Costs for any Calendar Year


exceed the value of the maximum amount.pf.Crudd Oil available under Section 7.1.2,


the excess shall be carried forward for-fecovety' in the nejxt'Succeeding Calendar Year


or Calendar Years. 5 \ V"


7.1.4. For the purpose of valuation. bf.Cost Oil, the-provisions of Section 12.1 shall apply.


7.2. Production sharing \


7.2.1. The balance of Crude'OiL.rejctiaining in any Calendar Year after deduction of the


royalty payments under Section 11.2 and after recoverable Petroleum Operations Costs


have been satisfied to the extent and in the manner aforesaid in Section 7.1, shall be


referred to as "Profit Oil" and shall be shared, taken and disposed of between the


Government and the Contractor according to the following incremental scale:





Average daily production Government's Contractor's


from the Contract Area share share


First 20,000 Barrels/day % %





Next 20,000 Barrels/day % %


Next 30,000 Barrels/day % %





Next 30,000 Barrels/day % %





Any volume over first


100,000 Barrels/day % %











52


 SECTION VII:





COST RECOVERY AND PRODUCTION SHARING





7.1. Cost recovery


7.1.1 The Contractor shall be entitled to recover its Petroleum Operations Costs from Crude


Oil produced within the Contract Area and that is not used in Petroleum Operations, to


the extent permitted by the provisions of this Section 7.1 and Appendix I.


7.1.2 The Contractor shall retain and dispose, in each Calendar Year, of that volume of


Crude Oil (hereinafter referred to as "Cost Oil") the value of which is equal to the


recoverable Petroleum Operations Costs for that Calendar Year, limited to an amount


not exceeding _ per cent (_ %) of average daily production from the


Contract Area.


7.1.3. To the extent that the recoverable Petroleum Operations Costs for any Calendar Year


exceed the value of the maximum amount.pf.Crudd Oil available under Section 7.1.2,


the excess shall be carried forward for-fecovety' in the nejxt'Succeeding Calendar Year


or Calendar Years. 5 \ V"


7.1.4. For the purpose of valuation. bf.Cost Oil, the-provisions of Section 12.1 shall apply.


7.2. Production sharing \


7.2.1. The balance of Crude'OiL.rejctiaining in any Calendar Year after deduction of the


royalty payments under Section 11.2 and after recoverable Petroleum Operations Costs


have been satisfied to the extent and in the manner aforesaid in Section 7.1, shall be


referred to as "Profit Oil" and shall be shared, taken and disposed of between the


Government and the Contractor according to the following incremental scale:





Average daily production Government's Contractor's


from the Contract Area share share


First 20,000 Barrels/day % %





Next 20,000 Barrels/day % %


Next 30,000 Barrels/day % %





Next 30,000 Barrels/day % %





Any volume over first


100,000 Barrels/day % %











52


7.2.2. For the purpose of this Section, Cost Oil and Profit Oil calculations shall be done for


each Calendar Quarter on an accumulative basis. To the extent that actual quantities,


prices and expenses are not known on the date of said calculations, provisional


estimates shall be made based on the annual development work programme and


budget submitted to the Minister under Section 5.4.6. Within thirty (30) days of the


end of each Calendar Quarter, adjustments shall be made based on actual quantities,


prices and expenses in relation to such Quarter.


Within sixty (60) days of the end of each Calendar Year, a final calculation of Cost Oil





and Profit Oil based on actual data pertaining to that Year shall be prepared and any


necessary adjustments shall be made.





7.2.3. The Government may elect to take in kind all or any part of the total Government's


share of Profit Oil under this Section 7.2 or direct the Contractor to lift and market all


or any part of such Crude Oil, all in accordance with the provisions of Section 8.2.





7.2.4. If the Government elects not to take-*and- fe'6eive in kind all or part of the Government's


share of Profit Oil, the Contrac.tbj' shall make- payihehf'to the Government for the


Government's share of Profit Oll not taken in kind within thirty (30) days following


the date of each lifting.V'x .





, • VIII:





production rate and marketing








8.1. Production rate


8.1.1. The Contractor shall produce Petroleum at the maximum economic efficient rate


having consideration for generally accepted international petroleum industry practice


and international standards for the conservation of Petroleum resources. The


Contractor shall submit ninety (90) days before the start of each Calendar Year an


estimated production schedule for each Development Area.


8.1.2. The Contractor shall submit Petroleum production reports on a regular basis and in a


form to be designated by the Minister.








8.2. Marketing


8.2.1. The Contractor, if so directed by the Government, shall be obligated to market all or


any part of the Petroleum produced and saved from the Contract Area subject to the


provisions of this Agreement.








53


7.2.2. For the purpose of this Section, Cost Oil and Profit Oil calculations shall be done for


each Calendar Quarter on an accumulative basis. To the extent that actual quantities,


prices and expenses are not known on the date of said calculations, provisional


estimates shall be made based on the annual development work programme and


budget submitted to the Minister under Section 5.4.6. Within thirty (30) days of the


end of each Calendar Quarter, adjustments shall be made based on actual quantities,


prices and expenses in relation to such Quarter.


Within sixty (60) days of the end of each Calendar Year, a final calculation of Cost Oil





and Profit Oil based on actual data pertaining to that Year shall be prepared and any


necessary adjustments shall be made.





7.2.3. The Government may elect to take in kind all or any part of the total Government's


share of Profit Oil under this Section 7.2 or direct the Contractor to lift and market all


or any part of such Crude Oil, all in accordance with the provisions of Section 8.2.





7.2.4. If the Government elects not to take-*and- fe'6eive in kind all or part of the Government's


share of Profit Oil, the Contrac.tbj' shall make- payihehf'to the Government for the


Government's share of Profit Oll not taken in kind within thirty (30) days following


the date of each lifting.V'x .





, • VIII:





production rate and marketing








8.1. Production rate


8.1.1. The Contractor shall produce Petroleum at the maximum economic efficient rate


having consideration for generally accepted international petroleum industry practice


and international standards for the conservation of Petroleum resources. The


Contractor shall submit ninety (90) days before the start of each Calendar Year an


estimated production schedule for each Development Area.


8.1.2. The Contractor shall submit Petroleum production reports on a regular basis and in a


form to be designated by the Minister.








8.2. Marketing


8.2.1. The Contractor, if so directed by the Government, shall be obligated to market all or


any part of the Petroleum produced and saved from the Contract Area subject to the


provisions of this Agreement.








53


8.2.2. Except to the extent the provisions of Section 6.1 with respect to Government


participation or Section 10.1 relating to domestic consumption are applicable, or to the


extent the Minister elects to take in kind all or any part of the royalty production under


Section 11.2 or the Government's share of Profit Oil under Section 7.2, the Contractor


shall be entitled to take and receive and freely export Petroleum produced under this


Agreement.


8.2.3. Title to Petroleum produced to which the Contractor is entitled under this Agreement


shall pass to the Contractor at the Point of Delivery. The Contractor shall, however,


take out all necessary insurance policies in order to cover all damage or loss caused by,


or resulting from, Petroleum Operations, including, but not limited to, production and


transportation of all Petroleum to the Point of Delivery.


8.2.4. One hundred and eighty (180) days prior to the estimated date of commencement of


regular production from the first Development Area, the Minister shall notify the


Contractor in writing whether it elects to take in kind all or any part of the royalty


production under Section 11.2 or the Government's share of Profit Oil under Section


7.2.


This election shall be effective until the Minister elects in writing to change its


election with respect to taking in kind ^For/ahy part of the royalty production or the


Government's share of Profit Oil in'which/case the pe.w ^lecti'on shall be effective one


hundred eighty (180) days afteh the'date the Mi bister '-gives written notice of such


election; provided, however,-..that' such election-.'shall not interfere with the proper


performance of any sales'agreement for'Crude- Oil produced within the Contract Area


that the Contractor has executed pridr to the notice of such election.


Failure by the Minister .-to‘'-give ' timely notice of its original election shall be


conclusively deemed to'evidence the Minister’s election not to take in kind all or any


part of the royalty production or the Government’s share of Profit Oil. Any sale by the


Contractor of the royalty production or the Government’s share of Profit Oil shall not


be for a term of more than twelve (12) months without the written consent of the


Minister.


8.2.5. The Minister shall take, at the Point of Delivery, regular delivery at reasonable


intervals during the period of its election to take Crude Oil in kind as provided in


Section 8.2.4.


At a reasonable time prior to the date of commencement of regular production from a


Development Area, the Parties shall agree on procedures covering the scheduling,


storage and lifting of produced Crude Oil from the Point of Delivery.


8.2.6. If the Minister elects not to take and receive in kind all or any part of the royalty


production or the Government’s share of Profit Oil, then the Minister may direct the


Contractor to market or itself buy such production, whichever the Contractor shall


elect to do, and the price paid to the Government for such production shall not be less


than the value for that Petroleum determined in accordance with Section 12.1. In such


event, the Contractor shall pay the royalty and Government's share of Profit Oil in


accordance with the provisions of Sections 7.2, 11.2 and 14.1.2.








54


8.2.2. Except to the extent the provisions of Section 6.1 with respect to Government


participation or Section 10.1 relating to domestic consumption are applicable, or to the


extent the Minister elects to take in kind all or any part of the royalty production under


Section 11.2 or the Government's share of Profit Oil under Section 7.2, the Contractor


shall be entitled to take and receive and freely export Petroleum produced under this


Agreement.


8.2.3. Title to Petroleum produced to which the Contractor is entitled under this Agreement


shall pass to the Contractor at the Point of Delivery. The Contractor shall, however,


take out all necessary insurance policies in order to cover all damage or loss caused by,


or resulting from, Petroleum Operations, including, but not limited to, production and


transportation of all Petroleum to the Point of Delivery.


8.2.4. One hundred and eighty (180) days prior to the estimated date of commencement of


regular production from the first Development Area, the Minister shall notify the


Contractor in writing whether it elects to take in kind all or any part of the royalty


production under Section 11.2 or the Government's share of Profit Oil under Section


7.2.


This election shall be effective until the Minister elects in writing to change its


election with respect to taking in kind ^For/ahy part of the royalty production or the


Government's share of Profit Oil in'which/case the pe.w ^lecti'on shall be effective one


hundred eighty (180) days afteh the'date the Mi bister '-gives written notice of such


election; provided, however,-..that' such election-.'shall not interfere with the proper


performance of any sales'agreement for'Crude- Oil produced within the Contract Area


that the Contractor has executed pridr to the notice of such election.


Failure by the Minister .-to‘'-give ' timely notice of its original election shall be


conclusively deemed to'evidence the Minister’s election not to take in kind all or any


part of the royalty production or the Government’s share of Profit Oil. Any sale by the


Contractor of the royalty production or the Government’s share of Profit Oil shall not


be for a term of more than twelve (12) months without the written consent of the


Minister.


8.2.5. The Minister shall take, at the Point of Delivery, regular delivery at reasonable


intervals during the period of its election to take Crude Oil in kind as provided in


Section 8.2.4.


At a reasonable time prior to the date of commencement of regular production from a


Development Area, the Parties shall agree on procedures covering the scheduling,


storage and lifting of produced Crude Oil from the Point of Delivery.


8.2.6. If the Minister elects not to take and receive in kind all or any part of the royalty


production or the Government’s share of Profit Oil, then the Minister may direct the


Contractor to market or itself buy such production, whichever the Contractor shall


elect to do, and the price paid to the Government for such production shall not be less


than the value for that Petroleum determined in accordance with Section 12.1. In such


event, the Contractor shall pay the royalty and Government's share of Profit Oil in


accordance with the provisions of Sections 7.2, 11.2 and 14.1.2.








54


 SECTION IX:





UNITIZATION








9.1 Unitization


9.1.1. If commercially producible deposits extend beyond the Contract Area into other parts


of the Territory of Ethiopia in which other persons have contracts for the exploration


and production of Petroleum, or in which another contract has been granted to the


Contractor, the Minister may require that the Contractor develop and produce


Petroleum therefrom in co-operation with such other contractors. The Minister may


require the Contractor to adopt similar arrangement for other areas within the Contract


Area where those areas, if developed and produced in connection with Petroleum


deposits in any adjacent areas, would be commercially producible.


9.1.2. If the Minister so requires, the Contractor--shall co-operate with other contractors in


preparing a proposal for joint development arid production of such Petroleum deposits.


This proposal shall be submitted for) approval of the "Minister within six (6) months


after the Contractor's receipt of-the Minister’s-■notification, which approval shall not be


unreasonably withheld.*... V'*”- ' '•


9.1.3. If the proposal is lioEsubmitted within the period so stated or if the Minister does not


approve that proposal, the Minister may prepare or cause to be prepared in accordance


with the generally acqeptdd'ihternational petroleum industry practice and at the cost of


the Contractor and*, the other contractors involved, a plan for joint development and


production. ;


If the Minister adopts such a plan, the Contractor shall comply with all the conditions


contained therein, provided that those conditions do not reduce the economic benefit to


the Contractor under this Agreement.


9.1.4. The provisions of Sections 9.1.1, 9.1.2 and 9.1.3 shall be applicable to deposits of


Petroleum within the Contract Area that extend to areas outside the boundaries of the


State; provided, however, that in these cases the Minister shall be empowered to


impose the special rules and conditions which may be necessary to comply with the


general principles of international law and satisfy obligations under an agreement with


an adjacent state with respect to the production of such Petroleum deposits.


 SECTION IX:





UNITIZATION








9.1 Unitization


9.1.1. If commercially producible deposits extend beyond the Contract Area into other parts


of the Territory of Ethiopia in which other persons have contracts for the exploration


and production of Petroleum, or in which another contract has been granted to the


Contractor, the Minister may require that the Contractor develop and produce


Petroleum therefrom in co-operation with such other contractors. The Minister may


require the Contractor to adopt similar arrangement for other areas within the Contract


Area where those areas, if developed and produced in connection with Petroleum


deposits in any adjacent areas, would be commercially producible.


9.1.2. If the Minister so requires, the Contractor--shall co-operate with other contractors in


preparing a proposal for joint development arid production of such Petroleum deposits.


This proposal shall be submitted for) approval of the "Minister within six (6) months


after the Contractor's receipt of-the Minister’s-■notification, which approval shall not be


unreasonably withheld.*... V'*”- ' '•


9.1.3. If the proposal is lioEsubmitted within the period so stated or if the Minister does not


approve that proposal, the Minister may prepare or cause to be prepared in accordance


with the generally acqeptdd'ihternational petroleum industry practice and at the cost of


the Contractor and*, the other contractors involved, a plan for joint development and


production. ;


If the Minister adopts such a plan, the Contractor shall comply with all the conditions


contained therein, provided that those conditions do not reduce the economic benefit to


the Contractor under this Agreement.


9.1.4. The provisions of Sections 9.1.1, 9.1.2 and 9.1.3 shall be applicable to deposits of


Petroleum within the Contract Area that extend to areas outside the boundaries of the


State; provided, however, that in these cases the Minister shall be empowered to


impose the special rules and conditions which may be necessary to comply with the


general principles of international law and satisfy obligations under an agreement with


an adjacent state with respect to the production of such Petroleum deposits.


 SECTION X:





DOMESTIC CONSUMPTION








10.1. Domestic consumption


10.1.1. The Minister may require the Contractor by written notice given one hundred eighty


(180) days in advance to supply Crude Oil to the State to meet the State's domestic


consumption needs. Such Crude Oil shall be supplied from the Crude Oil to which the


Contractor is otherwise entitled under this Agreement.


10.1.2. The maximum amount of Crude Oil that the Contractor shall be obligated to supply to


the State to meet its domestic consumption needs under Section 10.1.1 shall be equal


to the difference between:


(a) the total domestic consumption needs..jmulxlplied by a fraction the numerator of


which is the total Crude Oil**'production from, the Contract Area and the


denominator is the total Cmdfe‘Oil-production m tile Territory of Ethiopia; and


(b) the amount of Crude-Oil from the-Contract Area to which the Government is


entitled under’This* Agreement', 'including royalties in kind, Government


participation production and Government's share of Profit Oil.


Such determination shall be rriade on a quarterly basis.


10.1.3. If the Contractor suppli.es Crude Oil for domestic consumption, the price paid to the


Contractor shall be calculated in accordance with Section 12.1 and paid in United


States dollars or any other currencies mutually agreed within sixty (60) days from the


date of receipt of invoice.


10.1.4. The Contractor may comply with Section 10.1.1, upon the written consent of the


Minister, by importing Crude Oil and exporting the same amount, with adjustments to


be made in price and volume to reflect transportation costs, differences in quality,


gravity and the terms of the sale.
































56


 SECTION X:





DOMESTIC CONSUMPTION








10.1. Domestic consumption


10.1.1. The Minister may require the Contractor by written notice given one hundred eighty


(180) days in advance to supply Crude Oil to the State to meet the State's domestic


consumption needs. Such Crude Oil shall be supplied from the Crude Oil to which the


Contractor is otherwise entitled under this Agreement.


10.1.2. The maximum amount of Crude Oil that the Contractor shall be obligated to supply to


the State to meet its domestic consumption needs under Section 10.1.1 shall be equal


to the difference between:


(a) the total domestic consumption needs..jmulxlplied by a fraction the numerator of


which is the total Crude Oil**'production from, the Contract Area and the


denominator is the total Cmdfe‘Oil-production m tile Territory of Ethiopia; and


(b) the amount of Crude-Oil from the-Contract Area to which the Government is


entitled under’This* Agreement', 'including royalties in kind, Government


participation production and Government's share of Profit Oil.


Such determination shall be rriade on a quarterly basis.


10.1.3. If the Contractor suppli.es Crude Oil for domestic consumption, the price paid to the


Contractor shall be calculated in accordance with Section 12.1 and paid in United


States dollars or any other currencies mutually agreed within sixty (60) days from the


date of receipt of invoice.


10.1.4. The Contractor may comply with Section 10.1.1, upon the written consent of the


Minister, by importing Crude Oil and exporting the same amount, with adjustments to


be made in price and volume to reflect transportation costs, differences in quality,


gravity and the terms of the sale.
































56


 SECTION XI:





BONUSES, RENTALS, ROYALTIES AND PAYMENTS





11.1 Annual rentals


11.1.1. The Contractor shall pay to the Minister during the term of the Exploration Period the


following annual rentals for all unsurrendered parts of the Contract Area that have not


been designated as a Development Area:


(a) during the initial term of the Exploration Period_(_) United States


dollars per square kilometer;


(b) during the first extension to the Exploration Period ___(_) United


States dollars per square kilometer; ...


(c) during the second extension.tp'fhe-^xpforation Period_(_) United


States dollars per s qu are .kilometer; and . \


(d) during any other, extension to the Exploration Period_(_) United


States dollgrS;.per:sqUare kilometer. \


11.1.2. The Contractor shall pay to ‘'the Minister during the term of the Development and


Production Period an amiii'.al-.rental of_(_) United States dollars per square


kilometer for each part of the Contract Area that is designated as a Development Area.


11.1.3. The first annual-rental payment shall be made within thirty (30) days after the


Effective Date of this Agreement. Ail subsequent annual rental payments shall be


made within thirty (30) days after the anniversary of the Effective Date and shall be


calculated on the basis of the length of time during the year that any part of the


Contract Area was being held by the Exploration Period or the Development and


Production Period. If during any year a change occurs with regard to the Contract Area


that results in an increase in the annual rental payment due, the payment for the


following year shall be adjusted to compensate for the difference.








11.2. Royalties


11.2.1. The Contractor shall pay, within ten (10) days after the end of each calendar month, to


the Minister a royalty at a rate depending on the total daily production in a


Development Area of all Crude Oil and Natural Gas produced and saved and not used


in Petroleum Operations, and determined according to the following incremental scale:

















57


 SECTION XI:





BONUSES, RENTALS, ROYALTIES AND PAYMENTS





11.1 Annual rentals


11.1.1. The Contractor shall pay to the Minister during the term of the Exploration Period the


following annual rentals for all unsurrendered parts of the Contract Area that have not


been designated as a Development Area:


(a) during the initial term of the Exploration Period_(_) United States


dollars per square kilometer;


(b) during the first extension to the Exploration Period ___(_) United


States dollars per square kilometer; ...


(c) during the second extension.tp'fhe-^xpforation Period_(_) United


States dollars per s qu are .kilometer; and . \


(d) during any other, extension to the Exploration Period_(_) United


States dollgrS;.per:sqUare kilometer. \


11.1.2. The Contractor shall pay to ‘'the Minister during the term of the Development and


Production Period an amiii'.al-.rental of_(_) United States dollars per square


kilometer for each part of the Contract Area that is designated as a Development Area.


11.1.3. The first annual-rental payment shall be made within thirty (30) days after the


Effective Date of this Agreement. Ail subsequent annual rental payments shall be


made within thirty (30) days after the anniversary of the Effective Date and shall be


calculated on the basis of the length of time during the year that any part of the


Contract Area was being held by the Exploration Period or the Development and


Production Period. If during any year a change occurs with regard to the Contract Area


that results in an increase in the annual rental payment due, the payment for the


following year shall be adjusted to compensate for the difference.








11.2. Royalties


11.2.1. The Contractor shall pay, within ten (10) days after the end of each calendar month, to


the Minister a royalty at a rate depending on the total daily production in a


Development Area of all Crude Oil and Natural Gas produced and saved and not used


in Petroleum Operations, and determined according to the following incremental scale:

















57


 Average Crude Oil production from a


Development Area Royalty





First 10,000 Barrels/day %


Between 10,000 and 20,000 Barrels/day %


Greater than 20,000 Barrels/day %





Average Natural Gas production from a


Development Area Royalty





First 50 million cubic feet/day _%


Between 50 and 100 million cubic feet/day _%


Greater than 100 million cubic feet/day __%





11.2.2. The Minister may elect to take all or any part of the royalty in kind from any


Development Area in accordance with the provisions of Section 8.2. and, unless the


Minister elects to take royalty in kind as provided in this Section, .the royalty shall be


paid in cash.


11.2.3. The royalty taken in cash shall be valued .at £hip Point of Delivery in accordance with


the appropriate provisions of Section 12.T.\ '' \





11.3. Production bonuses \ ;:-


11.3.1. The Contractor shall pay to the Minister the following sums when production of Crude


Oil from the Contract Area attaihs\the following levels for the specified periods of


time: \ \


(a) _( ) United States dollars after daily production averages_


(_) barrels per day for a period of thirty (30) consecutive days; and


(b) _ (_) United States dollars after daily production averages


_(__) barrels per day for a period of thirty (30) consecutive days.


11.3.2. The payment under Section 11.3.1 shall be made within thirty (30) days after the last


day of the applicable thirty (30) day period.


11.3.3. Production bonuses shall be deductible for income tax purposes but are not part of


recoverable Petroleum Costs.


 Average Crude Oil production from a


Development Area Royalty





First 10,000 Barrels/day %


Between 10,000 and 20,000 Barrels/day %


Greater than 20,000 Barrels/day %





Average Natural Gas production from a


Development Area Royalty





First 50 million cubic feet/day _%


Between 50 and 100 million cubic feet/day _%


Greater than 100 million cubic feet/day __%





11.2.2. The Minister may elect to take all or any part of the royalty in kind from any


Development Area in accordance with the provisions of Section 8.2. and, unless the


Minister elects to take royalty in kind as provided in this Section, .the royalty shall be


paid in cash.


11.2.3. The royalty taken in cash shall be valued .at £hip Point of Delivery in accordance with


the appropriate provisions of Section 12.T.\ '' \





11.3. Production bonuses \ ;:-


11.3.1. The Contractor shall pay to the Minister the following sums when production of Crude


Oil from the Contract Area attaihs\the following levels for the specified periods of


time: \ \


(a) _( ) United States dollars after daily production averages_


(_) barrels per day for a period of thirty (30) consecutive days; and


(b) _ (_) United States dollars after daily production averages


_(__) barrels per day for a period of thirty (30) consecutive days.


11.3.2. The payment under Section 11.3.1 shall be made within thirty (30) days after the last


day of the applicable thirty (30) day period.


11.3.3. Production bonuses shall be deductible for income tax purposes but are not part of


recoverable Petroleum Costs.


 SECTION XII:





VALUATION AND MEASUREMENT





12.1. Valuation


12.1.1. The value of Crude Oil for all purposes shall be:


(a) if the Crude Oil is sold by the Contractor to third parties in arm's length


transactions, the net realized price (i.e., after deducting commissions and


brokerages) for that sale, at the F.O.B. Point of Delivery;


(b) where Crude Oil is sold by the Contractor other than to third parties in arm’s


length transactions, that Crude Oil shall be valued at the following applicable


price:


(i) if there have been sales of Crude Oil by the Contractor to third parties


in arm’s length transactions during the three (3) months preceding that


sale, the weighted average .per unit price paid in these sales, net of


commissions and brokerages*/ at the F.O.B. point of exportation,


adjusted for qualityT'graife, quantify,'-.transportation costs and any


special circumstances., unless less than*tw'enty-five per cent (25 %) by


volume of *Crifde Oil sales during this period are made to third parties,


in which bv.ent Crude Oil sold other than to third parties in arm’s length


transactions shall be.valued-according to paragraph (b) (ii) below;


(ii) if there have, been ho sales of Crude Oil by the Contractor to third


parties/'in**-;drmvs length transactions during the three (3) months


pi^cedihg-fhat sale, the average per unit price for the prior three (3)


month's, net of commissions and brokerages, paid in arm’s length


transactions of sales of Crude Oils of a similar quality, grade, and


quantity in the same international markets as those which the Ethiopian


Crude Oil would normally be sold, adjusted at the F.O.B. point of


exportation for quality, grade, quantity, transportation costs and any


special circumstances;


(iii) provided that, if as a result of rapid fluctuations in prices during the


three (3) months period, or any other reason, the price determined under


(i) or (ii) above is not fair and equitable, the market value shall be


determined by reference to prices during such period as may be


appropriate.


(c) If the Minister and the Contractor cannot reach agreement on the value of


Crude Oil within thirty (30) days, such determination shall be made by an


internationally recognized expert appointed by the Contractor and the Minister,


but if they fail to agree within thirty (30) days on the appointment of such


expert, then such appointment shall be made by the International Chamber of


Commerce. The expert shall report his determination within twenty (20) days


of his appointment and his determination shall be final and binding upon the


Government and the Contractor.





59


 SECTION XII:





VALUATION AND MEASUREMENT





12.1. Valuation


12.1.1. The value of Crude Oil for all purposes shall be:


(a) if the Crude Oil is sold by the Contractor to third parties in arm's length


transactions, the net realized price (i.e., after deducting commissions and


brokerages) for that sale, at the F.O.B. Point of Delivery;


(b) where Crude Oil is sold by the Contractor other than to third parties in arm’s


length transactions, that Crude Oil shall be valued at the following applicable


price:


(i) if there have been sales of Crude Oil by the Contractor to third parties


in arm’s length transactions during the three (3) months preceding that


sale, the weighted average .per unit price paid in these sales, net of


commissions and brokerages*/ at the F.O.B. point of exportation,


adjusted for qualityT'graife, quantify,'-.transportation costs and any


special circumstances., unless less than*tw'enty-five per cent (25 %) by


volume of *Crifde Oil sales during this period are made to third parties,


in which bv.ent Crude Oil sold other than to third parties in arm’s length


transactions shall be.valued-according to paragraph (b) (ii) below;


(ii) if there have, been ho sales of Crude Oil by the Contractor to third


parties/'in**-;drmvs length transactions during the three (3) months


pi^cedihg-fhat sale, the average per unit price for the prior three (3)


month's, net of commissions and brokerages, paid in arm’s length


transactions of sales of Crude Oils of a similar quality, grade, and


quantity in the same international markets as those which the Ethiopian


Crude Oil would normally be sold, adjusted at the F.O.B. point of


exportation for quality, grade, quantity, transportation costs and any


special circumstances;


(iii) provided that, if as a result of rapid fluctuations in prices during the


three (3) months period, or any other reason, the price determined under


(i) or (ii) above is not fair and equitable, the market value shall be


determined by reference to prices during such period as may be


appropriate.


(c) If the Minister and the Contractor cannot reach agreement on the value of


Crude Oil within thirty (30) days, such determination shall be made by an


internationally recognized expert appointed by the Contractor and the Minister,


but if they fail to agree within thirty (30) days on the appointment of such


expert, then such appointment shall be made by the International Chamber of


Commerce. The expert shall report his determination within twenty (20) days


of his appointment and his determination shall be final and binding upon the


Government and the Contractor.





59


Pending the determination of the value of Crude Oil for a given period, the value of


Crude Oil determined for the preceding Calendar Quarter will be provisionally applied


to make calculation and payment until the applicable value for that period is finally


determined. Any adjustment to provisional calculation and payment, if necessary, will


be made within thirty (30) days after such applicable value is finally determined.


12.1.2. The value of Natural Gas for all purposes shall be:


(a) where Natural Gas is sold by the Contractor to third parties in arm's length


transactions, the net realized price obtained for such Natural Gas at the point


where title and risk pass to the buyer;


(b) where Natural Gas is sold by the Contractor other than to third parties in arm's


length transactions or is sold to the Government, that Natural Gas shall be


valued at a price and in a currency to be determined by agreement between the


Minister and the Contractor.


12.1.3. For the purposes of this Section 12.1, a sale of Petroleum is a sale at "arm's length" if


the following conditions are satisfied: \.....}





(i) the price is the sole.eorfsidefation for the sale;’*.--*'





(ii) the terms ofi-the-.-sale' are not,affected-by any commercial relationship,


other than-fhat created by-the-contract of sale itself, between the seller


or an Affiliate, and the buyer or’an Affiliate; and





(iii) the seller or.an-Affiliate do not have, directly or indirectly, an interest in


the subsequent; rdsale or disposal of the Petroleum or any product


derived therefrom.





12.2. Measurement


12.2.1. The volume and quality of Petroleum produced and saved by the Contractor shall be


measured by methods and appliances in accordance with generally accepted


international petroleum industry practice, which shall be approved by the Minister.


12.2.2. The Minister may inspect the appliances used for measuring the volume and


determining the quality of Petroleum and may appoint an inspector to supervise the


measurement of volume and determination of quality.


12.2.3. Where the method of measurement, or the appliances used therefor, have caused an


overstatement or understatement of royalties or share of the production, the error shall


be presumed to have existed since the date of the last calibration of the measurement


devices, unless the contrary is shown, and an appropriate adjustment shall be made at


the average value for the period of the error, or by an adjustment in deliveries in kind


over an equivalent period.











60


Pending the determination of the value of Crude Oil for a given period, the value of


Crude Oil determined for the preceding Calendar Quarter will be provisionally applied


to make calculation and payment until the applicable value for that period is finally


determined. Any adjustment to provisional calculation and payment, if necessary, will


be made within thirty (30) days after such applicable value is finally determined.


12.1.2. The value of Natural Gas for all purposes shall be:


(a) where Natural Gas is sold by the Contractor to third parties in arm's length


transactions, the net realized price obtained for such Natural Gas at the point


where title and risk pass to the buyer;


(b) where Natural Gas is sold by the Contractor other than to third parties in arm's


length transactions or is sold to the Government, that Natural Gas shall be


valued at a price and in a currency to be determined by agreement between the


Minister and the Contractor.


12.1.3. For the purposes of this Section 12.1, a sale of Petroleum is a sale at "arm's length" if


the following conditions are satisfied: \.....}





(i) the price is the sole.eorfsidefation for the sale;’*.--*'





(ii) the terms ofi-the-.-sale' are not,affected-by any commercial relationship,


other than-fhat created by-the-contract of sale itself, between the seller


or an Affiliate, and the buyer or’an Affiliate; and





(iii) the seller or.an-Affiliate do not have, directly or indirectly, an interest in


the subsequent; rdsale or disposal of the Petroleum or any product


derived therefrom.





12.2. Measurement


12.2.1. The volume and quality of Petroleum produced and saved by the Contractor shall be


measured by methods and appliances in accordance with generally accepted


international petroleum industry practice, which shall be approved by the Minister.


12.2.2. The Minister may inspect the appliances used for measuring the volume and


determining the quality of Petroleum and may appoint an inspector to supervise the


measurement of volume and determination of quality.


12.2.3. Where the method of measurement, or the appliances used therefor, have caused an


overstatement or understatement of royalties or share of the production, the error shall


be presumed to have existed since the date of the last calibration of the measurement


devices, unless the contrary is shown, and an appropriate adjustment shall be made at


the average value for the period of the error, or by an adjustment in deliveries in kind


over an equivalent period.











60


12.2.4. The Contractor and the Minister shall determine the points at which production shall


be measured.





SECTION XIII:


NATURAL GAS








13.1. Non-associated Natural Gas


13.1.1. If Non-associated Natural Gas is discovered, the Contractor and the Minister shall


engage in good faith discussions to determine whether the Natural Gas discovery


should be appraised with a view to its eventual development and production. Such


discussions shall take into consideration among other things the following factors:


(a) priority uses for Natural Gas will be (i) its use in Petroleum Operations, (ii) its


utilization in Ethiopia, and (iii) its:sale for export projects, depending on the


existence or potential of the.r.e'speetjve''markets;


(b) the quality, minimum-., quantities and-cos'ts Vof facilities required to produce,


develop, transport WLjftarket the Natural Gas;


(c) the pricing of.the Natural.Gas for. domestic utilization at levels that will ensure


the economic viability ..of-., the project and the economic utilization of the


Natural Gas for-eaCh^articular use, including reference to the value of the


energy it mayilispjace;


(d) the willingness of the Government to enter into long term sales arrangements


with adequate safeguards for and from the Contractor in order to promote and


develop the use of indigenous resources of Natural Gas in Ethiopia, as well as


to develop on a timely basis the necessary downstream components of the


project


13.1.2. If the Contractor, after discussions with the Minister under Section 13.1.1, considers


that the Non-associated Natural Gas discovery merits appraisal, the Contractor shall


proceed with the appraisal programme as stipulated under Section 5.3 and, if


necessary, the provisions of Section 2.2.5 shall apply.


13.1.3. If the Contractor and the Minister agree, after discussions under 13.1.1 and the


completion of the appraisal programme, that the Non-associated Natural Gas discovery


constitutes a Commercial Discovery the Contractor could proceed with its


development and production through submission of a development plan in accordance


with the provisions of Section 5.4. The Contractor and the Minister shall enter into


good faith negotiations for detailed separate agreements to govern the development,


processing, utilization and disposition or sale of the Natural Gas concerned.











61


12.2.4. The Contractor and the Minister shall determine the points at which production shall


be measured.





SECTION XIII:


NATURAL GAS








13.1. Non-associated Natural Gas


13.1.1. If Non-associated Natural Gas is discovered, the Contractor and the Minister shall


engage in good faith discussions to determine whether the Natural Gas discovery


should be appraised with a view to its eventual development and production. Such


discussions shall take into consideration among other things the following factors:


(a) priority uses for Natural Gas will be (i) its use in Petroleum Operations, (ii) its


utilization in Ethiopia, and (iii) its:sale for export projects, depending on the


existence or potential of the.r.e'speetjve''markets;


(b) the quality, minimum-., quantities and-cos'ts Vof facilities required to produce,


develop, transport WLjftarket the Natural Gas;


(c) the pricing of.the Natural.Gas for. domestic utilization at levels that will ensure


the economic viability ..of-., the project and the economic utilization of the


Natural Gas for-eaCh^articular use, including reference to the value of the


energy it mayilispjace;


(d) the willingness of the Government to enter into long term sales arrangements


with adequate safeguards for and from the Contractor in order to promote and


develop the use of indigenous resources of Natural Gas in Ethiopia, as well as


to develop on a timely basis the necessary downstream components of the


project


13.1.2. If the Contractor, after discussions with the Minister under Section 13.1.1, considers


that the Non-associated Natural Gas discovery merits appraisal, the Contractor shall


proceed with the appraisal programme as stipulated under Section 5.3 and, if


necessary, the provisions of Section 2.2.5 shall apply.


13.1.3. If the Contractor and the Minister agree, after discussions under 13.1.1 and the


completion of the appraisal programme, that the Non-associated Natural Gas discovery


constitutes a Commercial Discovery the Contractor could proceed with its


development and production through submission of a development plan in accordance


with the provisions of Section 5.4. The Contractor and the Minister shall enter into


good faith negotiations for detailed separate agreements to govern the development,


processing, utilization and disposition or sale of the Natural Gas concerned.











61


For the purpose of expediting the execution of a domestic Gas development project, a


Gas development advisory committee shall be established with representatives of the


Government and the Contractor to coordinate all upstream and downstream


components of the project and facilitate its evaluation and implementation.


Unless otherwise agreed, the adoption of the relevant development plan under Section


5.4 shall be made only once ail agreements for the disposition or sale of the Natural


Gas concerned have been concluded.


13.1.4. If the Contractor elects not to develop a Non-associated Natural Gas discovery which


has been appraised and found of potential commercial interest in accordance with the


provisions of Section 13.1.3, the Government shall have the right to proceed with the


development and production of the discovery at its sole risk, cost and expense, and


shall reimburse the Contractor the certified costs and expenses directly attributable to


the appraisal of such discovery provided, however, that:


(a) the Contractor surrenders all its rights under this Agreement in respect of the


area corresponding to the Non-associated Natural Gas discovery;


(b) the appraisal programme was approved -M.writing by the Minister;


(c) the Contractor and the Government' agree, with>.th'e. assistance of specialized


third parties when necessary,'-that sufficient\ebOiid'mically recoverable gas


reserves have been proved-, to support 'the\ demand for and the economic


viability of a pre-identifled domestic;Natural Gas project for a period of at least


twenty five (25) years under thepri'cmgprinciples specified under Section 13.1


and taking into account the 'reimbursement included herein; and


(d) such reimbursement to': the Contractor shall be made in__(_) years,


without interest, in equal quarterly instalments starting six (6) months after the


date of adoption--by the Minister of the development plan for the particular


Natural Gas discovery concerned. The Government may elect to make


reimbursements either in cash or in Crude Oil valued pursuant to the provisions


of Section 12.1.


13.1.5. If the Contractor decides, after discussions under Section 13.1.1 and the completion of


the appraisal programme, that the Non-associated Natural Gas discovery is not a


Commercial Discovery, the Government shall have the right to proceed with further


appraisal and development of the reservoirs corresponding to the Natural Gas


discovery at its sole risk, cost and expense. The Government may develop, produce,


take, process and utilize or sell the Non-associated Natural Gas without compensation


to the Contractor provided, however, that:


(a) the Government shall bear all costs for any new fixtures and installations


required for the development, production, transportation, processing and


utilization thereof;


(b) the production of Natural Gas shall not materially interfere with other


Petroleum Operations; and


For the purpose of expediting the execution of a domestic Gas development project, a


Gas development advisory committee shall be established with representatives of the


Government and the Contractor to coordinate all upstream and downstream


components of the project and facilitate its evaluation and implementation.


Unless otherwise agreed, the adoption of the relevant development plan under Section


5.4 shall be made only once ail agreements for the disposition or sale of the Natural


Gas concerned have been concluded.


13.1.4. If the Contractor elects not to develop a Non-associated Natural Gas discovery which


has been appraised and found of potential commercial interest in accordance with the


provisions of Section 13.1.3, the Government shall have the right to proceed with the


development and production of the discovery at its sole risk, cost and expense, and


shall reimburse the Contractor the certified costs and expenses directly attributable to


the appraisal of such discovery provided, however, that:


(a) the Contractor surrenders all its rights under this Agreement in respect of the


area corresponding to the Non-associated Natural Gas discovery;


(b) the appraisal programme was approved -M.writing by the Minister;


(c) the Contractor and the Government' agree, with>.th'e. assistance of specialized


third parties when necessary,'-that sufficient\ebOiid'mically recoverable gas


reserves have been proved-, to support 'the\ demand for and the economic


viability of a pre-identifled domestic;Natural Gas project for a period of at least


twenty five (25) years under thepri'cmgprinciples specified under Section 13.1


and taking into account the 'reimbursement included herein; and


(d) such reimbursement to': the Contractor shall be made in__(_) years,


without interest, in equal quarterly instalments starting six (6) months after the


date of adoption--by the Minister of the development plan for the particular


Natural Gas discovery concerned. The Government may elect to make


reimbursements either in cash or in Crude Oil valued pursuant to the provisions


of Section 12.1.


13.1.5. If the Contractor decides, after discussions under Section 13.1.1 and the completion of


the appraisal programme, that the Non-associated Natural Gas discovery is not a


Commercial Discovery, the Government shall have the right to proceed with further


appraisal and development of the reservoirs corresponding to the Natural Gas


discovery at its sole risk, cost and expense. The Government may develop, produce,


take, process and utilize or sell the Non-associated Natural Gas without compensation


to the Contractor provided, however, that:


(a) the Government shall bear all costs for any new fixtures and installations


required for the development, production, transportation, processing and


utilization thereof;


(b) the production of Natural Gas shall not materially interfere with other


Petroleum Operations; and


(c) rights of the Contractor under this Agreement in respect of reservoirs other


than the identified Non-associated Natural Gas reservoirs will remain


unaffected.


13.1.6. If after good faith discussions with the Minister under Section 13.1.1, the Contractor


decides that there is no merit in appraising the Non-associated Natural Gas discovery,


the Contractor shall submit to the Minister a report justifying its decision on the basis


of at least the following factors:


(a) evaluation of possible reserves taking into account test results of the discovery


well and any other relevant information;


(b) market alternatives considered for the Non-associated Natural Gas;


(c) investment and cost estimates; and


(d) economic reserves under different price assumptions. -


If the Contractor fails to comply with this requirement within a period of one (1) year


after the date of the discovery, the Minister may at his discretion terminate the rights


of the Contractor in respect of the area corresponding-, tp the Non-associated Natural


Gas discovery. \ V








13.2. Associated Natur&i. &hs





13.2.1. Associated Natural Gas, which is not required for use in Petroleum Operations and the


development, pfoductionj processing and utilization or sale of which the Contractor


concludes is not--economical, shall be returned to the subsurface structure, but the


Contractor has the right to flare such Natural Gas in accordance with generally


accepted international petroleum industry practice, provided the Contractor


demonstrates that the flaring is required for technical and economic reasons and the


Minister approves the flaring, which approval shall not be unreasonably withheld.


If the Contractor determines to flare such Natural Gas, the Government has the right to


take such gas at no cost except to compensate the Contractor for the additional costs to


deliver the Natural Gas to the Government


13.2.2. If the Contractor and the Minister agree that the Associated Natural Gas that is not


required for Petroleum Operations may be economically processed and utilized or sold


other than in gas recycling, reservoir pressure maintenance, gas lift or secondary


recovery operations, the Contractor and the Minister shall enter into good faith


negotiations for a separate agreement to govern the processing, utilization and


disposition or sale of the Natural Gas concerned.














63


(c) rights of the Contractor under this Agreement in respect of reservoirs other


than the identified Non-associated Natural Gas reservoirs will remain


unaffected.


13.1.6. If after good faith discussions with the Minister under Section 13.1.1, the Contractor


decides that there is no merit in appraising the Non-associated Natural Gas discovery,


the Contractor shall submit to the Minister a report justifying its decision on the basis


of at least the following factors:


(a) evaluation of possible reserves taking into account test results of the discovery


well and any other relevant information;


(b) market alternatives considered for the Non-associated Natural Gas;


(c) investment and cost estimates; and


(d) economic reserves under different price assumptions. -


If the Contractor fails to comply with this requirement within a period of one (1) year


after the date of the discovery, the Minister may at his discretion terminate the rights


of the Contractor in respect of the area corresponding-, tp the Non-associated Natural


Gas discovery. \ V








13.2. Associated Natur&i. &hs





13.2.1. Associated Natural Gas, which is not required for use in Petroleum Operations and the


development, pfoductionj processing and utilization or sale of which the Contractor


concludes is not--economical, shall be returned to the subsurface structure, but the


Contractor has the right to flare such Natural Gas in accordance with generally


accepted international petroleum industry practice, provided the Contractor


demonstrates that the flaring is required for technical and economic reasons and the


Minister approves the flaring, which approval shall not be unreasonably withheld.


If the Contractor determines to flare such Natural Gas, the Government has the right to


take such gas at no cost except to compensate the Contractor for the additional costs to


deliver the Natural Gas to the Government


13.2.2. If the Contractor and the Minister agree that the Associated Natural Gas that is not


required for Petroleum Operations may be economically processed and utilized or sold


other than in gas recycling, reservoir pressure maintenance, gas lift or secondary


recovery operations, the Contractor and the Minister shall enter into good faith


negotiations for a separate agreement to govern the processing, utilization and


disposition or sale of the Natural Gas concerned.














63


13.3. Other provisions





13.3.1. The development and production of Natural Gas, whether associated or non


associated, shall be subject to this Agreement and the Accounting Procedures attached


hereto as Appendix I as well as any special agreement entered into between the


Minister and the Contractor pursuant to the provisions of Sections 13.1 and 13.2.


However, the Minister and the Contractor may engage in good faith negotiations to


modify the provisions of Section VII on cost recovery and production sharing in


respect of Natural Gas, if the Minister determines that special circumstances relating to


Natural Gas development and production exist which warrant such modification.


13.3.2. Except as otherwise agreed, the provisions of this Agreement shall apply mutatis


mutandis to a production of Natural Gas and considering that six thousand (6000)


cubic feet of Natural Gas at a temperature of fifteen degrees Celsius (15°C) and


standard atmospheric pressure of 1.01325 bar shall be deemed to be equivalent to one


(1) Barrel of Crude Oil.


For production sharing purposes, LPG shall be treated as Natural Gas.


13.3.3. The value of Natural Gas for all purposes ’shall be determine d in accordance with the


provisions of Section 12.1. \>.V‘








\>kCTION.XIV?'\,-


FINANCIAL AND FISCAL-MATTERS AND ACCOUNTING





14.1. Finances


14.1.1. The Contractor shall provide all funds necessary to conduct Petroleum Operations,


shall bear the sole financial risk in carrying out such Petroleum Operations, and shall


therefore have an economic interest in the development and production of Petroleum


from the Contract Area, except otherwise provided in this Agreement.


14.1.2. All payments under this Agreement by the Contractor to the Government or the


Minister shall be made in United States dollars unless the Minister and the Contractor


shall agree upon payment in other freely convertible foreign currency. Any delayed


payments shall bear interest at_per cent (_) per year.


14.1.3. Charges for services requested by the Contractor and actually rendered by the


Government or its administrative or political subdivisions shall be made at generally


applicable rates for such services.


13.3. Other provisions





13.3.1. The development and production of Natural Gas, whether associated or non


associated, shall be subject to this Agreement and the Accounting Procedures attached


hereto as Appendix I as well as any special agreement entered into between the


Minister and the Contractor pursuant to the provisions of Sections 13.1 and 13.2.


However, the Minister and the Contractor may engage in good faith negotiations to


modify the provisions of Section VII on cost recovery and production sharing in


respect of Natural Gas, if the Minister determines that special circumstances relating to


Natural Gas development and production exist which warrant such modification.


13.3.2. Except as otherwise agreed, the provisions of this Agreement shall apply mutatis


mutandis to a production of Natural Gas and considering that six thousand (6000)


cubic feet of Natural Gas at a temperature of fifteen degrees Celsius (15°C) and


standard atmospheric pressure of 1.01325 bar shall be deemed to be equivalent to one


(1) Barrel of Crude Oil.


For production sharing purposes, LPG shall be treated as Natural Gas.


13.3.3. The value of Natural Gas for all purposes ’shall be determine d in accordance with the


provisions of Section 12.1. \>.V‘








\>kCTION.XIV?'\,-


FINANCIAL AND FISCAL-MATTERS AND ACCOUNTING





14.1. Finances


14.1.1. The Contractor shall provide all funds necessary to conduct Petroleum Operations,


shall bear the sole financial risk in carrying out such Petroleum Operations, and shall


therefore have an economic interest in the development and production of Petroleum


from the Contract Area, except otherwise provided in this Agreement.


14.1.2. All payments under this Agreement by the Contractor to the Government or the


Minister shall be made in United States dollars unless the Minister and the Contractor


shall agree upon payment in other freely convertible foreign currency. Any delayed


payments shall bear interest at_per cent (_) per year.


14.1.3. Charges for services requested by the Contractor and actually rendered by the


Government or its administrative or political subdivisions shall be made at generally


applicable rates for such services.


14.2. Taxation





14.2.1. The Contractor and the Subcontractors shall be subject to, and comply with, all income


tax laws and regulations of Ethiopia.


Unless otherwise agreed by the Parties, the provisions of Section 14.1.2 shall apply to


income tax payments.


14.2.2. The salaries and other benefits in cash or in kind of expatriate employees of the


Contractor and the Subcontractors derived from activities required for performance


under this Agreement shall be exempt from personal income tax.


*


14.3. Foreign exchange control


14.3.1. The Contractor shall comply with the procedures and formalities required by the


legislation and regulations relating to foreign exchange in force from time to time in


Ethiopia, provided, however, that the Contractor shall have the right:


(a) to open and keep one or more transferable or non-transferable Birr accounts


with the Commercial B ank' of Ethiopia. Suph’Birr accounts shall be credited


with: \ \


(i) the .proceeds of the conversion into Birr pursuant to paragraph (c)


belOW rdf funds deposited in the external accounts referred to in


paragraph (b).below;-an‘d


(ii) amounts received in Birr, subject to approval of the National Bank of


Ethiopia, as'to the source or origin;


(b) to open and keep foreign currency account with the Commercial Bank of


Ethiopia and freely dispose of the sums deposited therein. Such account shall


be credited only with sums deposited in convertible currencies;


(c) to convert to Birr the foreign convertible currencies acceptable to Ethiopian


banks at rates of exchange quoted by commercial banks operating in Ethiopia.


Such rates shall not be less favourable to the Contractor than the effective rate


applicable for similar transactions undertaken by any private or state enterprise


on the date of the transaction;


(d) to open and freely maintain foreign bank accounts outside Ethiopia. Said bank


accounts may be credited, with funds from any source, except that such


accounts shall not be credited with the proceeds of the sale of Birr without the


prior approval of the National Bank of Ethiopia. Save in respect of funds


needed by the Contractor to discharge its obligations in Ethiopia under this


Agreement, the Contractor shall have the right to retain abroad all proceeds and


payments under this Agreement received in said bank accounts, including but


not limited to the proceeds of sales of Petroleum hereunder, and to dispose


freely of the same without any obligation to repatriate the same or any part


thereof to Ethiopia;


14.2. Taxation





14.2.1. The Contractor and the Subcontractors shall be subject to, and comply with, all income


tax laws and regulations of Ethiopia.


Unless otherwise agreed by the Parties, the provisions of Section 14.1.2 shall apply to


income tax payments.


14.2.2. The salaries and other benefits in cash or in kind of expatriate employees of the


Contractor and the Subcontractors derived from activities required for performance


under this Agreement shall be exempt from personal income tax.


*


14.3. Foreign exchange control


14.3.1. The Contractor shall comply with the procedures and formalities required by the


legislation and regulations relating to foreign exchange in force from time to time in


Ethiopia, provided, however, that the Contractor shall have the right:


(a) to open and keep one or more transferable or non-transferable Birr accounts


with the Commercial B ank' of Ethiopia. Suph’Birr accounts shall be credited


with: \ \


(i) the .proceeds of the conversion into Birr pursuant to paragraph (c)


belOW rdf funds deposited in the external accounts referred to in


paragraph (b).below;-an‘d


(ii) amounts received in Birr, subject to approval of the National Bank of


Ethiopia, as'to the source or origin;


(b) to open and keep foreign currency account with the Commercial Bank of


Ethiopia and freely dispose of the sums deposited therein. Such account shall


be credited only with sums deposited in convertible currencies;


(c) to convert to Birr the foreign convertible currencies acceptable to Ethiopian


banks at rates of exchange quoted by commercial banks operating in Ethiopia.


Such rates shall not be less favourable to the Contractor than the effective rate


applicable for similar transactions undertaken by any private or state enterprise


on the date of the transaction;


(d) to open and freely maintain foreign bank accounts outside Ethiopia. Said bank


accounts may be credited, with funds from any source, except that such


accounts shall not be credited with the proceeds of the sale of Birr without the


prior approval of the National Bank of Ethiopia. Save in respect of funds


needed by the Contractor to discharge its obligations in Ethiopia under this


Agreement, the Contractor shall have the right to retain abroad all proceeds and


payments under this Agreement received in said bank accounts, including but


not limited to the proceeds of sales of Petroleum hereunder, and to dispose


freely of the same without any obligation to repatriate the same or any part


thereof to Ethiopia;


(e) pay directly outside Ethiopia foreign Subcontractors for purchases of goods


and services necessary to carry out Petroleum Operations hereunder; and


(f) freely repatriate abroad all proceeds from Contractor’s Petroleum Operations


within Ethiopia.


Foreign Subcontractors of the Contractor shall have the same rights and obligations


specified above as the Contractor.


14.3.2. Any foreign Subcontractor of the Contractor and any of the expatriate personnel of the


Contractor or of any of its Subcontractors, shall be entitled to receive outside Ethiopia


the whole or any part of his compensation provided, however, that such foreign


Subcontractor and expatriate personnel shall be required to bring into Ethiopia such


freely convertible currencies to meet payments of Ethiopian taxes, living and other


expenses.


14.3.3. The payment of principal, interest and/or costs due on funds and loans in foreign


currency shall not be made out of funds deposited in the accounts opened and kept


under Section 14.3.1 (a) above. \ *.....**.


14.3.4. The Contractor and the Subcontractors shall/ within .thfrty‘(3-Q) days after the end of


each Calendar Quarter, submifc t-0'the..Naiional Batik ofvEthiopia, with a copy to the


Minister, a summary of all. currency received,/imported, remitted and maintained


abroad pursuant to Section, i'4.3.1 during.the..relevant quarter.


14.3.5. Except as otherwise provided herein, expatriate employees of the Contractor and the


Subcontractors shall comply yfrith applicable foreign exchange legislation and


regulations. .-•••. \ }


14.4. Accounting


14.4.1. The Contractor shall keep in Addis Ababa complete financial accounts and records in


English and in United States dollars reflecting all Petroleum Operations.


If payments are made in other than United States dollars, such payments shall be


recorded in United States dollars based on the exchange rate for the currency in which


the payments are made, as quoted by_on the date of the actual transfer of


funds.


Such accounts and records shall be prepared and maintained in accordance with


generally accepted international petroleum industry practice and as prescribed in


Appendix I to this Agreement and as may be prescribed in regulations issued pursuant


to the Petroleum Proclamation.


14.4.2. The Contractor shall prepare on a Calendar Year basis an annual balance sheet and


profit and loss statement in accordance with the Accounting Procedures set forth in


Appendix I hereto and the generally applicable laws of Ethiopia. Such accounts and


the reports to the Minister derived therefrom shall be certified by an independent





66


(e) pay directly outside Ethiopia foreign Subcontractors for purchases of goods


and services necessary to carry out Petroleum Operations hereunder; and


(f) freely repatriate abroad all proceeds from Contractor’s Petroleum Operations


within Ethiopia.


Foreign Subcontractors of the Contractor shall have the same rights and obligations


specified above as the Contractor.


14.3.2. Any foreign Subcontractor of the Contractor and any of the expatriate personnel of the


Contractor or of any of its Subcontractors, shall be entitled to receive outside Ethiopia


the whole or any part of his compensation provided, however, that such foreign


Subcontractor and expatriate personnel shall be required to bring into Ethiopia such


freely convertible currencies to meet payments of Ethiopian taxes, living and other


expenses.


14.3.3. The payment of principal, interest and/or costs due on funds and loans in foreign


currency shall not be made out of funds deposited in the accounts opened and kept


under Section 14.3.1 (a) above. \ *.....**.


14.3.4. The Contractor and the Subcontractors shall/ within .thfrty‘(3-Q) days after the end of


each Calendar Quarter, submifc t-0'the..Naiional Batik ofvEthiopia, with a copy to the


Minister, a summary of all. currency received,/imported, remitted and maintained


abroad pursuant to Section, i'4.3.1 during.the..relevant quarter.


14.3.5. Except as otherwise provided herein, expatriate employees of the Contractor and the


Subcontractors shall comply yfrith applicable foreign exchange legislation and


regulations. .-•••. \ }


14.4. Accounting


14.4.1. The Contractor shall keep in Addis Ababa complete financial accounts and records in


English and in United States dollars reflecting all Petroleum Operations.


If payments are made in other than United States dollars, such payments shall be


recorded in United States dollars based on the exchange rate for the currency in which


the payments are made, as quoted by_on the date of the actual transfer of


funds.


Such accounts and records shall be prepared and maintained in accordance with


generally accepted international petroleum industry practice and as prescribed in


Appendix I to this Agreement and as may be prescribed in regulations issued pursuant


to the Petroleum Proclamation.


14.4.2. The Contractor shall prepare on a Calendar Year basis an annual balance sheet and


profit and loss statement in accordance with the Accounting Procedures set forth in


Appendix I hereto and the generally applicable laws of Ethiopia. Such accounts and


the reports to the Minister derived therefrom shall be certified by an independent





66


auditor acceptable to the Minister and shall be submitted, along with the auditor's


report, to the Minister and other appropriate authorities within ninety (90) days after


the end of the Calendar Year to which they pertain.


14.4.3. The Government shall have the right, at its cost and expense, to carry out additional


audits of the Contractor's books, records and accounts relating to this Agreement for


each Calendar Year within five (5) Years from the end of such Year.








SECTION XV:


IMPORTS AND EXPORTS








15.1 Imports


15.1.1. Subject to the local purchase obligations of Section 3.6, the Contractor and each


Subcontractor shall be entitled to import into Ethiopia any and all drilling, geological,


geophysical, production, treating, processing,'^transportation and other machinery and


equipment necessary for Petroleum--pperktions, including aircraft, vessels, vehicles


and other transportation equipment and parts therefor, (other than sedan cars and fuel


therefor), fuels, chemicals'} lubricants, films;-..seismic tapes, house trailers, office


trailers, disassembled\'pr6fabricated structures' and other materials necessary for


Petroleum Operations free of import -hexes, '• charges, duties, levies and imposts of any


kind, provided, however, that\this-: shall not preclude the Contractor and the


Subcontractor from paying.charges to the Government for services actually rendered


by any appropriate Government agency.


15.1.2. Other than as specified in this Agreement and the Petroleum Proclamation, all other


imports by the Contractor, each Subcontractor and their employees shall be subject to


all generally applicable import duties and taxes of Ethiopia.


15.1.3. Each expatriate employee of the Contractor and Subcontractors may, in accordance


with prevailing regulations, import household goods and personal effects including


one (1) sedan car per employee, within six (6) months of the employee's arrival, free of


import taxes, charges, duties, levies and imposts of any kind, provided, however, that


such properties are imported for the sole use of the employee and his family.








15.2. Exports


15.2.1. All items imported under Section 15.1, and taken out from Ethiopia shall be exempt


from export duties and other taxes and duties levied on exports, provided, however,


that if these items are disposed of within Ethiopia, the Contractor, Subcontractors and


expatriate employees, as the case may be, shall pay customs duties and taxes in


accordance with the applicable laws.


auditor acceptable to the Minister and shall be submitted, along with the auditor's


report, to the Minister and other appropriate authorities within ninety (90) days after


the end of the Calendar Year to which they pertain.


14.4.3. The Government shall have the right, at its cost and expense, to carry out additional


audits of the Contractor's books, records and accounts relating to this Agreement for


each Calendar Year within five (5) Years from the end of such Year.








SECTION XV:


IMPORTS AND EXPORTS








15.1 Imports


15.1.1. Subject to the local purchase obligations of Section 3.6, the Contractor and each


Subcontractor shall be entitled to import into Ethiopia any and all drilling, geological,


geophysical, production, treating, processing,'^transportation and other machinery and


equipment necessary for Petroleum--pperktions, including aircraft, vessels, vehicles


and other transportation equipment and parts therefor, (other than sedan cars and fuel


therefor), fuels, chemicals'} lubricants, films;-..seismic tapes, house trailers, office


trailers, disassembled\'pr6fabricated structures' and other materials necessary for


Petroleum Operations free of import -hexes, '• charges, duties, levies and imposts of any


kind, provided, however, that\this-: shall not preclude the Contractor and the


Subcontractor from paying.charges to the Government for services actually rendered


by any appropriate Government agency.


15.1.2. Other than as specified in this Agreement and the Petroleum Proclamation, all other


imports by the Contractor, each Subcontractor and their employees shall be subject to


all generally applicable import duties and taxes of Ethiopia.


15.1.3. Each expatriate employee of the Contractor and Subcontractors may, in accordance


with prevailing regulations, import household goods and personal effects including


one (1) sedan car per employee, within six (6) months of the employee's arrival, free of


import taxes, charges, duties, levies and imposts of any kind, provided, however, that


such properties are imported for the sole use of the employee and his family.








15.2. Exports


15.2.1. All items imported under Section 15.1, and taken out from Ethiopia shall be exempt


from export duties and other taxes and duties levied on exports, provided, however,


that if these items are disposed of within Ethiopia, the Contractor, Subcontractors and


expatriate employees, as the case may be, shall pay customs duties and taxes in


accordance with the applicable laws.


15.2.2. The Contractor may export from Ethiopia, exempt of all export duties and other taxes


levied on exports, the Petroleum produced from the Contract Area to which the


Contractor is entitled in accordance with the provisions of this Agreement.


15.2.3. Notwithstanding any other provision of this Agreement, the Contractor shall not make


shipments of Petroleum produced from Petroleum Operations in Ethiopia to or through


countries whose export destinations are proscribed by the State.


SECTION XVI:


GOVERNING LAW AND DISPUTES








16.1. Governing law





16.1.1. This Agreement shall be governed by, interpreted and construed in accordance with


the laws of Ethiopia. .





16.1.2. The Contractor agrees that it will abide'by‘"all laws... and regulations in force in


Ethiopia. '•





16.1.3. In the event that after the.Effectrve‘Date of this'Agreement the economic benefits to be


derived by a Party frprfcri the Petroleum"'. Operations under this Agreement are


substantially affected by' the promulgation of new laws and regulations or of any


amendments to the applicable:-laVs.. and regulations of Ethiopia and if the affected


Party so requests, the Parties-shall agree to make the necessary adjustments to the


relevant provisions of tiiis'-Agreement, in order to ensure that the affected Party is


restored to the same economic condition it would have been in if such change in the


applicable laws had not taken place.








16.2. Arbitration


16.2.1. Except as otherwise provided in this Agreement, if, during the term of this Agreement


or thereafter, any difference or dispute arises with respect to the construction, meaning


or effect of this Agreement or arising out of or related or in connection with this


Agreement or concerning the rights and obligations hereunder, which difference or


dispute cannot be mutually resolved by the Parties within ninety (90) days, either Party


shall have the right to submit the difference or dispute to a formal settlement process


under this Section 16.2.


16.2.2. The difference or dispute referred to under Section 16.1.1 shall be finally settled by


arbitration in accordance with the Arbitration Rules of the United Nations


Commission on International Trade Law.


15.2.2. The Contractor may export from Ethiopia, exempt of all export duties and other taxes


levied on exports, the Petroleum produced from the Contract Area to which the


Contractor is entitled in accordance with the provisions of this Agreement.


15.2.3. Notwithstanding any other provision of this Agreement, the Contractor shall not make


shipments of Petroleum produced from Petroleum Operations in Ethiopia to or through


countries whose export destinations are proscribed by the State.


SECTION XVI:


GOVERNING LAW AND DISPUTES








16.1. Governing law





16.1.1. This Agreement shall be governed by, interpreted and construed in accordance with


the laws of Ethiopia. .





16.1.2. The Contractor agrees that it will abide'by‘"all laws... and regulations in force in


Ethiopia. '•





16.1.3. In the event that after the.Effectrve‘Date of this'Agreement the economic benefits to be


derived by a Party frprfcri the Petroleum"'. Operations under this Agreement are


substantially affected by' the promulgation of new laws and regulations or of any


amendments to the applicable:-laVs.. and regulations of Ethiopia and if the affected


Party so requests, the Parties-shall agree to make the necessary adjustments to the


relevant provisions of tiiis'-Agreement, in order to ensure that the affected Party is


restored to the same economic condition it would have been in if such change in the


applicable laws had not taken place.








16.2. Arbitration


16.2.1. Except as otherwise provided in this Agreement, if, during the term of this Agreement


or thereafter, any difference or dispute arises with respect to the construction, meaning


or effect of this Agreement or arising out of or related or in connection with this


Agreement or concerning the rights and obligations hereunder, which difference or


dispute cannot be mutually resolved by the Parties within ninety (90) days, either Party


shall have the right to submit the difference or dispute to a formal settlement process


under this Section 16.2.


16.2.2. The difference or dispute referred to under Section 16.1.1 shall be finally settled by


arbitration in accordance with the Arbitration Rules of the United Nations


Commission on International Trade Law.


16.2.3. The arbitration, including the rendering of the award, shall take place in


_and shall be in English. The decision of a majority of the


arbitrators shall be final and binding upon the Parties.


Any judgement upon the award of the arbitrators may be entered in any court having


jurisdiction thereof.


16.2.4. The number of arbitrators shall be three (3) and shall be appointed as follows:


(a) each Party shall appoint one (1) arbitrator and so notify the other Party of such


appointment and those two (2) arbitrators shall appoint the third arbitrator;


(b) if any of the arbitrators shall not have been appointed within thirty (30) days


after receipt of written request to do so, either Party may request in writing the


Secretary-General of the International Centre for Settlement of Investment


Disputes to appoint the arbitrator or arbitrators not yet appointed and to


designate an arbitrator to be the Chairman of the arbitral tribunal. The


Secretary-General shall forthwith sejid a copy of that request to the other Party.


The Secretary-General shaU.eqihgly,*\vith the. request within thirty (30) days


from the receipt thereof 6r such longer .period. #s the Parties may agree and


shall promptly notify'•-the.. Parties of ahy appointment or designation made by


him pursuant to-.the.-aforesaid request:-..


(c) if the arbitrator fails or is. iinable-to act, his successor shall be appointed in the


same manner as the arbitrator‘whom he succeeds.


16.3. Force Majeure .... : } ’*•


16.3.1. In this Agreement-'"Force Majeure" means an occurrence beyond the reasonable


control of the Contractor, the Minister or the Government, which prevents any of them


from performing their obligations under this Agreement, including but not limited to


occurrences such as riots, strikes, wars (declared or undeclared), insurrections,


rebellions, terrorist acts, civil disturbances, orders of any governmental authority,


whether such authority be actual or assumed, natural phenomena or calamities;


provided, however, that the inability to obtain equipment, supplies, or fuel shall not be


a cause of Force Majeure, and provided further that if any failure to comply with the


provisions of this Agreement is occasioned by a law, regulation or order of the


Government, and the Contractor is operating in accordance with generally accepted


international petroleum industry practice in the Contract Area and is making


reasonable efforts to comply with such law, regulation or order, the occurrence shall


be deemed beyond the reasonable control of the Contractor.


16.3.2. If the Contractor, the Minister or the Government is prevented from complying with


this Agreement, in whole or in part, by Force Majeure, the Party claiming Force


Majeure shall give written notice, along with details providing evidence of the nature


and cause of such Force Majeure, to the other Party as soon as practicable after its


occurrence and the obligations of the affected person which are directly related to the


Force Majeure shall be suspended in respect of the area affected during the


continuance of the Force Majeure.


69


16.2.3. The arbitration, including the rendering of the award, shall take place in


_and shall be in English. The decision of a majority of the


arbitrators shall be final and binding upon the Parties.


Any judgement upon the award of the arbitrators may be entered in any court having


jurisdiction thereof.


16.2.4. The number of arbitrators shall be three (3) and shall be appointed as follows:


(a) each Party shall appoint one (1) arbitrator and so notify the other Party of such


appointment and those two (2) arbitrators shall appoint the third arbitrator;


(b) if any of the arbitrators shall not have been appointed within thirty (30) days


after receipt of written request to do so, either Party may request in writing the


Secretary-General of the International Centre for Settlement of Investment


Disputes to appoint the arbitrator or arbitrators not yet appointed and to


designate an arbitrator to be the Chairman of the arbitral tribunal. The


Secretary-General shall forthwith sejid a copy of that request to the other Party.


The Secretary-General shaU.eqihgly,*\vith the. request within thirty (30) days


from the receipt thereof 6r such longer .period. #s the Parties may agree and


shall promptly notify'•-the.. Parties of ahy appointment or designation made by


him pursuant to-.the.-aforesaid request:-..


(c) if the arbitrator fails or is. iinable-to act, his successor shall be appointed in the


same manner as the arbitrator‘whom he succeeds.


16.3. Force Majeure .... : } ’*•


16.3.1. In this Agreement-'"Force Majeure" means an occurrence beyond the reasonable


control of the Contractor, the Minister or the Government, which prevents any of them


from performing their obligations under this Agreement, including but not limited to


occurrences such as riots, strikes, wars (declared or undeclared), insurrections,


rebellions, terrorist acts, civil disturbances, orders of any governmental authority,


whether such authority be actual or assumed, natural phenomena or calamities;


provided, however, that the inability to obtain equipment, supplies, or fuel shall not be


a cause of Force Majeure, and provided further that if any failure to comply with the


provisions of this Agreement is occasioned by a law, regulation or order of the


Government, and the Contractor is operating in accordance with generally accepted


international petroleum industry practice in the Contract Area and is making


reasonable efforts to comply with such law, regulation or order, the occurrence shall


be deemed beyond the reasonable control of the Contractor.


16.3.2. If the Contractor, the Minister or the Government is prevented from complying with


this Agreement, in whole or in part, by Force Majeure, the Party claiming Force


Majeure shall give written notice, along with details providing evidence of the nature


and cause of such Force Majeure, to the other Party as soon as practicable after its


occurrence and the obligations of the affected person which are directly related to the


Force Majeure shall be suspended in respect of the area affected during the


continuance of the Force Majeure.


69


The Party affected by Force Majeure shall take all reasonable measures to remove such


Party's inability to fulfill its obligations hereunder with a minimum of delay.


Obligations other than those concerned by Force Majeure shall continue to be


performed in accordance with the provisions of this Agreement.


16.3.3. Subject to Section 16.3.4., the term of this Agreement shall be extended for the period


of Force Majeure but only in respect of the area affected.


16.3.4. If an obligations is suspended by Force Majeure for more than one (1) year, the


Contractor and the Minister may enter into good faith negotiations on the continuation


of this Agreement.





SECTION XVII:





GENERAL








17.1. Confidentiality





17.1.1. Any information and data (referred-to herein as ••'mformation") which the Contractor


may supply to the Ministef-uhdef-this Agreeitteht shall be supplied at the expense of


the Contractor and the'MkuSter shall, except with the consent of the Contractor, which


shall not be unreasonably withheld;- keep such information confidential, and shall not


disclose such information other than to a person employed by or on behalf of the


Government. \ ’’**•





17.1.2. Notwithstanding the . provisions of Section 17.1.1, the Minister may use any


information supplied, for the purpose of preparing and publishing any reports and


returns required by law, and for the purpose of preparing and publishing reports and


surveys of a general nature.


17.1.3. The Minister may publish any information which relates to a surrendered area at any


time after the surrender, and in any other case, three(3) years after the information was


received unless the Minister determines, after representations by the Contractor, that a


longer period shall apply.


17.1.4. The Minster may disclose any information obtained pursuant to this Agreement as


required by lending institutions, consultants and Government entities as may need to


be made aware thereof.





17.1.5. The Contractor shall not trade or disclose to third parties during the term of this


Agreement and for a period of ten (10) years thereafter any information obtained


pursuant to this Agreement without the consent of the Minister, which consent shall


not be unreasonably withheld.


The Party affected by Force Majeure shall take all reasonable measures to remove such


Party's inability to fulfill its obligations hereunder with a minimum of delay.


Obligations other than those concerned by Force Majeure shall continue to be


performed in accordance with the provisions of this Agreement.


16.3.3. Subject to Section 16.3.4., the term of this Agreement shall be extended for the period


of Force Majeure but only in respect of the area affected.


16.3.4. If an obligations is suspended by Force Majeure for more than one (1) year, the


Contractor and the Minister may enter into good faith negotiations on the continuation


of this Agreement.





SECTION XVII:





GENERAL








17.1. Confidentiality





17.1.1. Any information and data (referred-to herein as ••'mformation") which the Contractor


may supply to the Ministef-uhdef-this Agreeitteht shall be supplied at the expense of


the Contractor and the'MkuSter shall, except with the consent of the Contractor, which


shall not be unreasonably withheld;- keep such information confidential, and shall not


disclose such information other than to a person employed by or on behalf of the


Government. \ ’’**•





17.1.2. Notwithstanding the . provisions of Section 17.1.1, the Minister may use any


information supplied, for the purpose of preparing and publishing any reports and


returns required by law, and for the purpose of preparing and publishing reports and


surveys of a general nature.


17.1.3. The Minister may publish any information which relates to a surrendered area at any


time after the surrender, and in any other case, three(3) years after the information was


received unless the Minister determines, after representations by the Contractor, that a


longer period shall apply.


17.1.4. The Minster may disclose any information obtained pursuant to this Agreement as


required by lending institutions, consultants and Government entities as may need to


be made aware thereof.





17.1.5. The Contractor shall not trade or disclose to third parties during the term of this


Agreement and for a period of ten (10) years thereafter any information obtained


pursuant to this Agreement without the consent of the Minister, which consent shall


not be unreasonably withheld.


 However, the Contractor may disclose information without obtaining such consent:


(a) to such extent as may be required to be disclosed to any authority having


jurisdiction on it by law;


(b) subject to obtaining confidentiality undertakings from the recipients, to its


Affiliates, consultants, any lending institution or any bona fide potential


assignee of an interest in this Agreement.





17.2. Waiver


17.2. 1. Any waiver of an obligation of the Contractor shall be in writing and signed by the


Minister. No waiver shall be implied if the Minister does not exercise a remedy under


this Agreement.


17.3. Notice C~.


17.3.1. Any and all notices, requests/’demahdS and other, communications required or


permitted to be made or given under'this Agreehient shall be in writing and shall be


deemed to have been duly, rhade or given. if-delivered by hand, mail, cable or telex as


follows:


(a) If to the Minister: . -.' \ V'_


(b) If to the Contractor:'--. _


Either Party may ..designate in writing, in conformance with the above, another address


at which it should receive all future notices, requests, demands and other


communications required or permitted to be made or given under this Agreement.


17.3.2. All notices, requests, demands and other communications required or permitted to be


made or given under this Agreement shall be in English. All reports, agreements, or


other documents produced by the Contractor in connection with this Agreement shall


be in English.


17.3.3. A notice shall be effective upon receipt.





























71


 However, the Contractor may disclose information without obtaining such consent:


(a) to such extent as may be required to be disclosed to any authority having


jurisdiction on it by law;


(b) subject to obtaining confidentiality undertakings from the recipients, to its


Affiliates, consultants, any lending institution or any bona fide potential


assignee of an interest in this Agreement.





17.2. Waiver


17.2. 1. Any waiver of an obligation of the Contractor shall be in writing and signed by the


Minister. No waiver shall be implied if the Minister does not exercise a remedy under


this Agreement.


17.3. Notice C~.


17.3.1. Any and all notices, requests/’demahdS and other, communications required or


permitted to be made or given under'this Agreehient shall be in writing and shall be


deemed to have been duly, rhade or given. if-delivered by hand, mail, cable or telex as


follows:


(a) If to the Minister: . -.' \ V'_


(b) If to the Contractor:'--. _


Either Party may ..designate in writing, in conformance with the above, another address


at which it should receive all future notices, requests, demands and other


communications required or permitted to be made or given under this Agreement.


17.3.2. All notices, requests, demands and other communications required or permitted to be


made or given under this Agreement shall be in English. All reports, agreements, or


other documents produced by the Contractor in connection with this Agreement shall


be in English.


17.3.3. A notice shall be effective upon receipt.





























71


17.4. Headings and amendments


17.4.1. Headings are inserted in this Agreement for convenience only and shall not affect the


construction or interpretation hereof.


17.4.2. This Agreement shall not be amended, modified or supplemented except by an


instrument in writing signed by the Parties.


SIGNED on the day and year first before written:








The Contractor








The Minister










































































72


17.4. Headings and amendments


17.4.1. Headings are inserted in this Agreement for convenience only and shall not affect the


construction or interpretation hereof.


17.4.2. This Agreement shall not be amended, modified or supplemented except by an


instrument in writing signed by the Parties.


SIGNED on the day and year first before written:








The Contractor








The Minister










































































72


 APPENDIX I





ACCOUNTING PROCEDURES


Section I: Introduction and definitions





1.1. Purpose


1.1.1. The Contractor shall maintain a separate set of accounts and records for its Petroleum


Operations under the Agreement to which this Appendix is attached, in accordance


with generally accepted international petroleum industry practice as more particularly,


but not exclusively, set out in these Accounting Procedures. Accounts and records are


required for several purposes, including, but not limited to:


(a) reporting to the Minister expenditure and receipts;


(b) reporting actual expenditures to the Minister for comparison with minimum


exploration obligations;


(c) calculating royalties; \*.....\


(d) calculating cost recovery and'p.tOduction sharing as set forth in the relevant


Sections of the Agreement; ; ... V>.


(e) calculating incomp tax'es';- . **‘\ \:-


(f) preparation of the "ahiiual balance shejet and profit and loss account required by


the relevant provisions of the-Agreement; and


(g) any other requirements-under the' Agreement.


1.1.2. The Contractor may/act-.as"agent for the Government or for any other party in a


number of matters.\In.-;such cases the Minister shall separately determine, as


appropriate, in consultation with the Contractor, the requisite accounting procedures.


Such cases may include, but not be limited to, sales of Petroleum on behalf of the


Government.


1.2. Definitions


1.2.1. The definitions set forth in Section 1.2 of the Agreement shall apply to this Appendix


I. In the event of any inconsistency or conflict between the provisions of this Appendix


and the Agreement, the provisions of the Agreement shall prevail. Subject to this and


for the purpose of the Agreement and these Accounting Procedures, the following


terms shall have the meanings set forth below.


1.2.2. "The Account" means the accounts and records maintained for the Petroleum


Operations.





1.2.3. Party" means each legal entity constituting the Contractor.


 APPENDIX I





ACCOUNTING PROCEDURES


Section I: Introduction and definitions





1.1. Purpose


1.1.1. The Contractor shall maintain a separate set of accounts and records for its Petroleum


Operations under the Agreement to which this Appendix is attached, in accordance


with generally accepted international petroleum industry practice as more particularly,


but not exclusively, set out in these Accounting Procedures. Accounts and records are


required for several purposes, including, but not limited to:


(a) reporting to the Minister expenditure and receipts;


(b) reporting actual expenditures to the Minister for comparison with minimum


exploration obligations;


(c) calculating royalties; \*.....\


(d) calculating cost recovery and'p.tOduction sharing as set forth in the relevant


Sections of the Agreement; ; ... V>.


(e) calculating incomp tax'es';- . **‘\ \:-


(f) preparation of the "ahiiual balance shejet and profit and loss account required by


the relevant provisions of the-Agreement; and


(g) any other requirements-under the' Agreement.


1.1.2. The Contractor may/act-.as"agent for the Government or for any other party in a


number of matters.\In.-;such cases the Minister shall separately determine, as


appropriate, in consultation with the Contractor, the requisite accounting procedures.


Such cases may include, but not be limited to, sales of Petroleum on behalf of the


Government.


1.2. Definitions


1.2.1. The definitions set forth in Section 1.2 of the Agreement shall apply to this Appendix


I. In the event of any inconsistency or conflict between the provisions of this Appendix


and the Agreement, the provisions of the Agreement shall prevail. Subject to this and


for the purpose of the Agreement and these Accounting Procedures, the following


terms shall have the meanings set forth below.


1.2.2. "The Account" means the accounts and records maintained for the Petroleum


Operations.





1.2.3. Party" means each legal entity constituting the Contractor.


1.2.4. "Operator" means the Party appointed to carry out the Petroleum Operations on behalf


of the other Parties.





Section II:


General principles of entries to the accounts








2.1.1. Receipts from sales or disposals of Petroleum shall not be credited to The Account.


Each Party shall advise the Operator of such revenues, and of any other matter


required, in sufficient detail to allow the Operator to maintain a memorandum record


thereof in order to meet the legal and contractual reporting requirements under the


Agreement. -


2.1.2. Each Party shall account individually to the Government for income tax.


2.1.3. The Contractor shall account to the Government for royalties as set forth in the


relevant provisions of the Agreement.


2.1.4. The Contractor shall charge to The Accoiihi Only those expenditure incurred for


Petroleum Operations. The application }or this principle.. *to specific Petroleum


Operations Costs is set forth in-Secti-on IV of these 'Accqunting Procedures.


2.1.5. The Operator shall deaf jatfarm’s length, .whenever possible, and the price in dealings


not at arm’s length shall be no less .favourable than if such dealings were conducted at


arm's length. . \\* *'-• v


2.1.6. The Operator shall not mike a* profit or loss from the diligent exercise of his duties as


Operator and, in particular, the Operator shall charge to Petroleum Operations Costs:


(a) an equitable proportion of the costs of services provided by the Operator;


(b) a rental for use of the assets of the Operator; and


(c) administrative overhead, either as a fee approved in the annual budget, or as an


agreed percentage of direct costs or by charging an equitable proportion of


each element of cost incurred.


2.1.7. The Contractor shall maintain accounts in a single language and a single currency


which shall be English and United States dollars respectively.


2.1.8. Accounts shall be maintained on an accrual basis whereby entries are recorded in the


period in which title or liability passes without the need to distinguish whether cash is


disbursed or received in connection with the transaction.


2.1.9. The Operator may dispose of minor assets and credit the proceeds to The Account;


provided, however, that Petroleum or major equipment, the disposal of which would


jeopardise the Petroleum Operations, shall not be considered a minor asset.











74


1.2.4. "Operator" means the Party appointed to carry out the Petroleum Operations on behalf


of the other Parties.





Section II:


General principles of entries to the accounts








2.1.1. Receipts from sales or disposals of Petroleum shall not be credited to The Account.


Each Party shall advise the Operator of such revenues, and of any other matter


required, in sufficient detail to allow the Operator to maintain a memorandum record


thereof in order to meet the legal and contractual reporting requirements under the


Agreement. -


2.1.2. Each Party shall account individually to the Government for income tax.


2.1.3. The Contractor shall account to the Government for royalties as set forth in the


relevant provisions of the Agreement.


2.1.4. The Contractor shall charge to The Accoiihi Only those expenditure incurred for


Petroleum Operations. The application }or this principle.. *to specific Petroleum


Operations Costs is set forth in-Secti-on IV of these 'Accqunting Procedures.


2.1.5. The Operator shall deaf jatfarm’s length, .whenever possible, and the price in dealings


not at arm’s length shall be no less .favourable than if such dealings were conducted at


arm's length. . \\* *'-• v


2.1.6. The Operator shall not mike a* profit or loss from the diligent exercise of his duties as


Operator and, in particular, the Operator shall charge to Petroleum Operations Costs:


(a) an equitable proportion of the costs of services provided by the Operator;


(b) a rental for use of the assets of the Operator; and


(c) administrative overhead, either as a fee approved in the annual budget, or as an


agreed percentage of direct costs or by charging an equitable proportion of


each element of cost incurred.


2.1.7. The Contractor shall maintain accounts in a single language and a single currency


which shall be English and United States dollars respectively.


2.1.8. Accounts shall be maintained on an accrual basis whereby entries are recorded in the


period in which title or liability passes without the need to distinguish whether cash is


disbursed or received in connection with the transaction.


2.1.9. The Operator may dispose of minor assets and credit the proceeds to The Account;


provided, however, that Petroleum or major equipment, the disposal of which would


jeopardise the Petroleum Operations, shall not be considered a minor asset.











74


2.1.10. The accounts of the individual operations shall be maintained in a separable form, with


reasonable allocations of common costs where necessary, in order to meet the several


purposes of such accounts and to allow changes in the relationships between the


Parties to be accounted for equitably and in particular to allow:


(a) the consideration for transfers or participating interests to be determined;


(b) the costs of sole risk operations to be determined; and


(c) the costs associated with different Development Areas to be identified.


2.1.11. If Petroleum Operations are to be abandoned, the Operator shall prepare a plan for the


disposal of assets and an equitable settlement for the approval of the Parties.


2.1.12. The Contractor shall appoint an auditor, approved by the Minister, to audit annually


the accounts and records, including production records, of the Petroleum Operations


and report thereon. The cost of such audit shall be borne by the Contractor.








Section III:. \


Accounting treatmeht aiid specific purposes





3.1. Reports of revenues expenditure to the Minister





Reports to the Minister .shall; show all required items, without special adjustment,


whether these items coVer:\ '":'-'


(a) receipts; i ;





(b) Petroleum Operations Costs;


(c) cost recovery;


(d) production sharing;


(e) taxes, royalties and bonuses; or


(f) other transactions.


3.2. Reports concerning exploration obligations


3.2.1. Reports of actual expenditure on seismic and exploratory drilling work shall be as


recorded in The Account with adjustments according to Sections 5.1 and 5.2 of the


Agreement shown separately.


3.2.2. Records shall be maintained in a separable form to allow reporting and verification


thereof by individual obligation.


2.1.10. The accounts of the individual operations shall be maintained in a separable form, with


reasonable allocations of common costs where necessary, in order to meet the several


purposes of such accounts and to allow changes in the relationships between the


Parties to be accounted for equitably and in particular to allow:


(a) the consideration for transfers or participating interests to be determined;


(b) the costs of sole risk operations to be determined; and


(c) the costs associated with different Development Areas to be identified.


2.1.11. If Petroleum Operations are to be abandoned, the Operator shall prepare a plan for the


disposal of assets and an equitable settlement for the approval of the Parties.


2.1.12. The Contractor shall appoint an auditor, approved by the Minister, to audit annually


the accounts and records, including production records, of the Petroleum Operations


and report thereon. The cost of such audit shall be borne by the Contractor.








Section III:. \


Accounting treatmeht aiid specific purposes





3.1. Reports of revenues expenditure to the Minister





Reports to the Minister .shall; show all required items, without special adjustment,


whether these items coVer:\ '":'-'


(a) receipts; i ;





(b) Petroleum Operations Costs;


(c) cost recovery;


(d) production sharing;


(e) taxes, royalties and bonuses; or


(f) other transactions.


3.2. Reports concerning exploration obligations


3.2.1. Reports of actual expenditure on seismic and exploratory drilling work shall be as


recorded in The Account with adjustments according to Sections 5.1 and 5.2 of the


Agreement shown separately.


3.2.2. Records shall be maintained in a separable form to allow reporting and verification


thereof by individual obligation.


3.2.3. Only Petroleum Operations Costs incurred in connection with seismic and exploratory


drilling work shall be included for purposes of meeting minimum exploration


expenditure obligations. Costs incurred on appraisal, development or production


activity shall be excluded for purposes of meeting minimum exploration expenditure


obligations.





3.3. Royalty


The Contractor shall account to the Government for royalties.








3.4. Reports concerning cost recovery


The Contractor shall submit quarterly reports to the Minister containing the following


information:


(a) recoverable Petroleum Operations Costs carried forward from the previous


Calendar Quarter, if any; \:.......


(b) recoverable Petroleum Operations. Gp$t$ incurred and paid during the Calendar


Quarter in question; ..... ( ; . *♦*... \.. -


(c) total recoverable Petroleum-^Operations Costs, for the Calendar Quarter in


question; v-.. \


(d) quantity and vtiiiae-Vof* Cost Oil., takeri*. and separately disposed of by the


Contractor for the.Calendar..Qu.ai$er;ih 'question;


(e) Petroleum Operations Cpsts'*-r6c®v^recl for the Calendar Quarter in question and


total cumulative amtfUift'bf- Petroleum Operations Costs recovered up to the


end of the Calendar-.Quarter, and


(f) amount of recoverable Petroleum Operations Costs to be carried forward into


the next Calendar Quarter, if any.








3.5. Income tax


The accounts and records of the Petroleum Operations shall be made available to the


Parties to allow them to complete their individual income tax returns in compliance


with applicable legislation relating thereto.








3.6. Other purposes of accounts


The accounts and records of the Contractor shall be maintained in accordance with


these Accounting Procedures. Specific adjustments to meet other purposes shall be


shown separately in the reports prepared.

















76


3.2.3. Only Petroleum Operations Costs incurred in connection with seismic and exploratory


drilling work shall be included for purposes of meeting minimum exploration


expenditure obligations. Costs incurred on appraisal, development or production


activity shall be excluded for purposes of meeting minimum exploration expenditure


obligations.





3.3. Royalty


The Contractor shall account to the Government for royalties.








3.4. Reports concerning cost recovery


The Contractor shall submit quarterly reports to the Minister containing the following


information:


(a) recoverable Petroleum Operations Costs carried forward from the previous


Calendar Quarter, if any; \:.......


(b) recoverable Petroleum Operations. Gp$t$ incurred and paid during the Calendar


Quarter in question; ..... ( ; . *♦*... \.. -


(c) total recoverable Petroleum-^Operations Costs, for the Calendar Quarter in


question; v-.. \


(d) quantity and vtiiiae-Vof* Cost Oil., takeri*. and separately disposed of by the


Contractor for the.Calendar..Qu.ai$er;ih 'question;


(e) Petroleum Operations Cpsts'*-r6c®v^recl for the Calendar Quarter in question and


total cumulative amtfUift'bf- Petroleum Operations Costs recovered up to the


end of the Calendar-.Quarter, and


(f) amount of recoverable Petroleum Operations Costs to be carried forward into


the next Calendar Quarter, if any.








3.5. Income tax


The accounts and records of the Petroleum Operations shall be made available to the


Parties to allow them to complete their individual income tax returns in compliance


with applicable legislation relating thereto.








3.6. Other purposes of accounts


The accounts and records of the Contractor shall be maintained in accordance with


these Accounting Procedures. Specific adjustments to meet other purposes shall be


shown separately in the reports prepared.

















76


 Section IV:





Charges and credits to Petroleum Operations Costs








4.1. General


4.1.1. The principles of charges to Petroleum Operations Costs shall be interpreted as set out


in this Section IV for the specific cases covered. Transactions not covered by this


Section shall be treated in accordance with the general principles of these Accounting


Procedures.


4.1.2. The identified costs of goods and services provided by the Contractor or by third


parties for the purposes of conducting Petroleum Operations under, this Agreement, to


be included in Petroleum Operation Costs, are set out in the remaining articles of this


Section IV.


4.2. Goods and services provided by the Parties.


4.2.1. The goods and services required fpr the purposes. ofeqrfcying out Petroleum Operations


may be supplied by third parties:.or the Contractor-. When supplied by third parties the


costs included in Petroleum-Operation Costs shali be those actually incurred by the


Contractor. Where; supplied’by the Contractor the cost to be included may be either:


(a) an agreed total charge'deterifiihed within a competitive bidding process; or


(b) the identified costs..'to'.the Contractor plus a mark up or apportionment of the


Contractor’s, adminis’trative overhead costs.


4.2.2. Any mark up or apportionment of overhead costs shall not exceed three per cent (3 %)


of identified costs and shall be determined on a basis agreed in advance in the budget


each year.


4.3. Labour and related costs


4.3.1. The costs of salaries and wages of the Party’s employees for the portion of their time


directly employed in Petroleum Operations whether:


(a) carrying out managerial, administrative, legal, accounting, treasury, auditing,


tax, planning, personnel, data processing, engineering, purchasing, geological,


geophysical or other functions for the benefit of the Petroleum Operations;


(b) such functions are carried out in Ethiopia or another country;


(c) the employee is assigned temporarily or permanently to Petroleum Operations.

















77


 Section IV:





Charges and credits to Petroleum Operations Costs








4.1. General


4.1.1. The principles of charges to Petroleum Operations Costs shall be interpreted as set out


in this Section IV for the specific cases covered. Transactions not covered by this


Section shall be treated in accordance with the general principles of these Accounting


Procedures.


4.1.2. The identified costs of goods and services provided by the Contractor or by third


parties for the purposes of conducting Petroleum Operations under, this Agreement, to


be included in Petroleum Operation Costs, are set out in the remaining articles of this


Section IV.


4.2. Goods and services provided by the Parties.


4.2.1. The goods and services required fpr the purposes. ofeqrfcying out Petroleum Operations


may be supplied by third parties:.or the Contractor-. When supplied by third parties the


costs included in Petroleum-Operation Costs shali be those actually incurred by the


Contractor. Where; supplied’by the Contractor the cost to be included may be either:


(a) an agreed total charge'deterifiihed within a competitive bidding process; or


(b) the identified costs..'to'.the Contractor plus a mark up or apportionment of the


Contractor’s, adminis’trative overhead costs.


4.2.2. Any mark up or apportionment of overhead costs shall not exceed three per cent (3 %)


of identified costs and shall be determined on a basis agreed in advance in the budget


each year.


4.3. Labour and related costs


4.3.1. The costs of salaries and wages of the Party’s employees for the portion of their time


directly employed in Petroleum Operations whether:


(a) carrying out managerial, administrative, legal, accounting, treasury, auditing,


tax, planning, personnel, data processing, engineering, purchasing, geological,


geophysical or other functions for the benefit of the Petroleum Operations;


(b) such functions are carried out in Ethiopia or another country;


(c) the employee is assigned temporarily or permanently to Petroleum Operations.

















77


4.3.2. The costs of holidays, sickness, living and housing allowances, travel time, bonuses,


personal expenses incurred, pension contributions and social security benefits which


are customarily granted to the Party’s employees and their families engaged on similar


ventures in similar conditions together with the costs of any amounts imposed by


government authorities applicable to such employments.


4.3.3. Relocation costs to the Contract Area vicinity of the employees of a Party permanently


or temporarily assigned to the Petroleum Operations. Relocation costs from the


Contract Area vicinity, except when an employee is reassigned to another location


classified as a foreign location by the Party. Such costs include transportation of


employees’ families and their personal and household effects and ail other relocation


costs in accordance with the usual practice of the Party.


4.3.4. The costs of such transportation of employees of the Party as is required in the conduct


of Petroleum Operations.





4.4. Materials


4.4.1. Material costs will be charged to Petroleum Operations Costs when consumed from


inventory. Material costs shall be calculated.off a FIFO (first in first out) basis.


4.4.2. The costs of purchases of materials-,'-equipment, machines, tools and any other goods


of a similar nature shall be charged io inventory-subject to the following:


(a) Acquisition - the..Operator shall only- purchase materials for use in Petroleum


Operations that may be ’used in the foreseeable future. The accumulation of


surplus stocks and inventory shall be avoided. Inventory levels shall, however,


take into account the .time lag for replacement, emergency needs and similar


consideration's. }


(b) Components of Costs - in addition to the invoice price the costs of materials


purchased by the Operator may include freight, transportation and related costs


such as expediting, crating, dock charges, forwarders charges, customs


clearance fees, inspection costs, insurance (provided that such costs are


included in the invoice price), customs duties, taxes and other items that may


be charged to imported materials or to materials purchased in Ethiopia.


(c) Supply of materials by the Parties - materials supplied by the Parties shall be


charged to inventory at prices no higher than the prices for comparable material


purchased on a competitive basis from third party suppliers. This criterion shall


apply to both new and used materials.


(d) Inventories - the Operator shall maintain both a physical and accounting


inventory of all materials in stock in accordance with generally accepted


practices in the international petroleum industry and shall take a physical


inventory of all such materials at least twice in any Calendar Year.


4.3.2. The costs of holidays, sickness, living and housing allowances, travel time, bonuses,


personal expenses incurred, pension contributions and social security benefits which


are customarily granted to the Party’s employees and their families engaged on similar


ventures in similar conditions together with the costs of any amounts imposed by


government authorities applicable to such employments.


4.3.3. Relocation costs to the Contract Area vicinity of the employees of a Party permanently


or temporarily assigned to the Petroleum Operations. Relocation costs from the


Contract Area vicinity, except when an employee is reassigned to another location


classified as a foreign location by the Party. Such costs include transportation of


employees’ families and their personal and household effects and ail other relocation


costs in accordance with the usual practice of the Party.


4.3.4. The costs of such transportation of employees of the Party as is required in the conduct


of Petroleum Operations.





4.4. Materials


4.4.1. Material costs will be charged to Petroleum Operations Costs when consumed from


inventory. Material costs shall be calculated.off a FIFO (first in first out) basis.


4.4.2. The costs of purchases of materials-,'-equipment, machines, tools and any other goods


of a similar nature shall be charged io inventory-subject to the following:


(a) Acquisition - the..Operator shall only- purchase materials for use in Petroleum


Operations that may be ’used in the foreseeable future. The accumulation of


surplus stocks and inventory shall be avoided. Inventory levels shall, however,


take into account the .time lag for replacement, emergency needs and similar


consideration's. }


(b) Components of Costs - in addition to the invoice price the costs of materials


purchased by the Operator may include freight, transportation and related costs


such as expediting, crating, dock charges, forwarders charges, customs


clearance fees, inspection costs, insurance (provided that such costs are


included in the invoice price), customs duties, taxes and other items that may


be charged to imported materials or to materials purchased in Ethiopia.


(c) Supply of materials by the Parties - materials supplied by the Parties shall be


charged to inventory at prices no higher than the prices for comparable material


purchased on a competitive basis from third party suppliers. This criterion shall


apply to both new and used materials.


(d) Inventories - the Operator shall maintain both a physical and accounting


inventory of all materials in stock in accordance with generally accepted


practices in the international petroleum industry and shall take a physical


inventory of all such materials at least twice in any Calendar Year.


4.5. Technical services





4.5.1. The costs of technical services (whether or not associated with the ancilliary supply of


goods) such as, but not limited to, the provision, construction, maintenance or


operation of:


(a) utilities and auxiliaries - workshops, power and water facilities, warehouses,


field roads, crude oil jetties and anchorages, treating plants and equipment,


secondary recovery systems, Natural Gas plants and steam systems;


(b) production facilities - wellhead equipment, subsurface lifting equipment,


production tubing, sucker rods, surface pumps, flow lines, gathering


equipment, delivery lines and storage facilities;


(c) movables - surface and subsurface drilling and production tools, equipment and


instruments, barges, floating craft, automotive equipment, aircraft, construction


equipment, furniture and office equipment and miscellaneous equipment;


(d) development and production drilling'. - labour, materials and services used in


drilling wells with the object..of•.penetrating a proven reservoir, including the


drilling of delineation wells as weil as redrilling, deepening or recompleting


wells, and access roads, if any; leading.directly'td'wells;


(e) exploration, drift ihg*v labour, materials':and services used in the drilling of wells


with the objdct :of finding unproven reservoirs of Crude Oil and Natural Gas,


and access roads, if any’ leading directly to wells;


(f) surveys - labour/-, materials and services used in aerial, geological,


topographicak'geophysical and seismic surveys, and core hole drilling; and


(g) interpretation - laboratory analysis, drafting, geophysical and geological


interpretation, engineering, and related data processing.


4.5.2. The costs included in Petroleum Operations Costs shall be:


(a) ..... in the case of technical services performed by third parties directly


subcontracted, including outside consultants, contractors and utilities, the price


paid by the Operator, provided that such prices are no higher than the prices


charged by other suppliers for comparable work and services;


(b) in the case of technical services performed by the Parties, prices which are no


higher than the most favourable prices charged to or by third parties for


comparable services;


4.5. Technical services





4.5.1. The costs of technical services (whether or not associated with the ancilliary supply of


goods) such as, but not limited to, the provision, construction, maintenance or


operation of:


(a) utilities and auxiliaries - workshops, power and water facilities, warehouses,


field roads, crude oil jetties and anchorages, treating plants and equipment,


secondary recovery systems, Natural Gas plants and steam systems;


(b) production facilities - wellhead equipment, subsurface lifting equipment,


production tubing, sucker rods, surface pumps, flow lines, gathering


equipment, delivery lines and storage facilities;


(c) movables - surface and subsurface drilling and production tools, equipment and


instruments, barges, floating craft, automotive equipment, aircraft, construction


equipment, furniture and office equipment and miscellaneous equipment;


(d) development and production drilling'. - labour, materials and services used in


drilling wells with the object..of•.penetrating a proven reservoir, including the


drilling of delineation wells as weil as redrilling, deepening or recompleting


wells, and access roads, if any; leading.directly'td'wells;


(e) exploration, drift ihg*v labour, materials':and services used in the drilling of wells


with the objdct :of finding unproven reservoirs of Crude Oil and Natural Gas,


and access roads, if any’ leading directly to wells;


(f) surveys - labour/-, materials and services used in aerial, geological,


topographicak'geophysical and seismic surveys, and core hole drilling; and


(g) interpretation - laboratory analysis, drafting, geophysical and geological


interpretation, engineering, and related data processing.


4.5.2. The costs included in Petroleum Operations Costs shall be:


(a) ..... in the case of technical services performed by third parties directly


subcontracted, including outside consultants, contractors and utilities, the price


paid by the Operator, provided that such prices are no higher than the prices


charged by other suppliers for comparable work and services;


(b) in the case of technical services performed by the Parties, prices which are no


higher than the most favourable prices charged to or by third parties for


comparable services;


 (c) in the case of equipment and facilities being furnished by a Party the rates


charged shall be commensurate with the cost of ownership, or rental, and the


cost of operation thereof, but such rates shall not exceed those currently


prevailing in the general vicinity of the Contract Area.





4.6. Insurance


4.6.1. Premiums for insurance required by the Parties and actual expenditures incurred in the


settlement of all losses, claims, damages, judgments, and other expenses for the


benefit of the Petroleum Operations.


4.6.2. Credits for settlements received from insurance companies in connection with the


insurance required by the Parties.


4.6.3. Where insurance is not compulsory under the laws of Ethiopia a Party may opt not to


participate in insurance. A Party so opting shall not share in either the costs of or


settlements for the insurance.





4.7. Legal expenses ... ;*





All costs or expenses of litigation.pr^gaf-sefvices otherwise hecessary or expedient


for the protection of the Petrqle.uiiCQperations or-other-interest of the Parties under


this Agreement, including but-.-notUimited to jthe-,fees of legal representatives, court


costs, costs of investigation or procuring .evidence and amounts paid in settlement or


satisfaction of any such litigation or claims^ but excluding any costs incurred in


arbitration or litigation between the Piirftes on the terms of this Agreement.








4.8. Other goods and services


4.8.1. The cost of all services and goods (other than materials purchased for inventory)


purchased for proper use in Petroleum Operations shall be charged directly to


Petroleum Operations Costs.


4.8.2. Such purchases may include, inter alia, the costs of establishing, maintaining and


operating any offices, suboffices, camps, warehouses, shore bases, water power and


communications systems, roads, bridges, housing, recreational and other facilities


directly serving the Petroleum Operations and where such facilities also serve other


operations the costs shall be allocated to the operations served on an equitable basis.


4.9. General and administrative expenses


General and administrative expenses of the Contractor attributable to the Petroleum


Operations under this Agreement shall be recoverable Petroleum Operation Costs,


subject to the limitations set forth in the Petroleum Operations Income Tax


Proclamation.











so


 (c) in the case of equipment and facilities being furnished by a Party the rates


charged shall be commensurate with the cost of ownership, or rental, and the


cost of operation thereof, but such rates shall not exceed those currently


prevailing in the general vicinity of the Contract Area.





4.6. Insurance


4.6.1. Premiums for insurance required by the Parties and actual expenditures incurred in the


settlement of all losses, claims, damages, judgments, and other expenses for the


benefit of the Petroleum Operations.


4.6.2. Credits for settlements received from insurance companies in connection with the


insurance required by the Parties.


4.6.3. Where insurance is not compulsory under the laws of Ethiopia a Party may opt not to


participate in insurance. A Party so opting shall not share in either the costs of or


settlements for the insurance.





4.7. Legal expenses ... ;*





All costs or expenses of litigation.pr^gaf-sefvices otherwise hecessary or expedient


for the protection of the Petrqle.uiiCQperations or-other-interest of the Parties under


this Agreement, including but-.-notUimited to jthe-,fees of legal representatives, court


costs, costs of investigation or procuring .evidence and amounts paid in settlement or


satisfaction of any such litigation or claims^ but excluding any costs incurred in


arbitration or litigation between the Piirftes on the terms of this Agreement.








4.8. Other goods and services


4.8.1. The cost of all services and goods (other than materials purchased for inventory)


purchased for proper use in Petroleum Operations shall be charged directly to


Petroleum Operations Costs.


4.8.2. Such purchases may include, inter alia, the costs of establishing, maintaining and


operating any offices, suboffices, camps, warehouses, shore bases, water power and


communications systems, roads, bridges, housing, recreational and other facilities


directly serving the Petroleum Operations and where such facilities also serve other


operations the costs shall be allocated to the operations served on an equitable basis.


4.9. General and administrative expenses


General and administrative expenses of the Contractor attributable to the Petroleum


Operations under this Agreement shall be recoverable Petroleum Operation Costs,


subject to the limitations set forth in the Petroleum Operations Income Tax


Proclamation.











so


 General and administrative expenses incurred outside Ethiopia in respect of the


Petroleum Operations under this Agreement shall not exceed an amount determined


by applying the following percentage rates to the increments of Petroleum


Operations Costs in each Calendar Year:





Petroleum Operations Costs Percentage rate





First US$ 1 million %


Next US$ 4 million %


Next US$ 5 million %


Next US$ 10 million %


Above US$ 20 million %





4.10. Interest payments





Interest payments on loans raised by the Contractor for the purpose of conducting


Petroleum Operations under this Agreement other than exploration shall be


recoverable Petroleum Operations Costs, subject :tb the limitations set forth in the


Petroleum Operations Income Tax Proclamation. \ ,J





. 4.11. Payments to the GovernmeiHbf Ethiopia. ; \


4.11.1. Contract, licence prpdrrrut payments'necessary to acquire and maintain rights to the


Contract Area shali be recoverable •Petroleum Operations Costs.


4.11.2. All duties, taxes, fee^Caiiid-- government assessments, but excluding income tax,


production bonuses,\ royalties and Government’s share of Profit Oil, shall be


recoverable Petrbleuin Operations Costs.





4.12. Miscellaneous transactions


4.12.1. All costs or expenses necessary for the repair or replacement of the property used in





Petroleum Operations resulting from uninsured damages or losses incurred by fire,


flood, storm, accident, or any other cause.





4.12.2. Any gain or loss in the currency of account caused by the holding of balances of


foreign exchange shall be entered to Petroleum Operations Costs although excessive


such balances shall not be maintained.


4.12.3 The net proceeds of the following transactions shall be credited to Petroleum


Operations Costs:


(a) the net proceeds of any insurance or claim in connection with the Petroleum





Operations or any assets charged to Petroleum Operations Costs;











81


 General and administrative expenses incurred outside Ethiopia in respect of the


Petroleum Operations under this Agreement shall not exceed an amount determined


by applying the following percentage rates to the increments of Petroleum


Operations Costs in each Calendar Year:





Petroleum Operations Costs Percentage rate





First US$ 1 million %


Next US$ 4 million %


Next US$ 5 million %


Next US$ 10 million %


Above US$ 20 million %





4.10. Interest payments





Interest payments on loans raised by the Contractor for the purpose of conducting


Petroleum Operations under this Agreement other than exploration shall be


recoverable Petroleum Operations Costs, subject :tb the limitations set forth in the


Petroleum Operations Income Tax Proclamation. \ ,J





. 4.11. Payments to the GovernmeiHbf Ethiopia. ; \


4.11.1. Contract, licence prpdrrrut payments'necessary to acquire and maintain rights to the


Contract Area shali be recoverable •Petroleum Operations Costs.


4.11.2. All duties, taxes, fee^Caiiid-- government assessments, but excluding income tax,


production bonuses,\ royalties and Government’s share of Profit Oil, shall be


recoverable Petrbleuin Operations Costs.





4.12. Miscellaneous transactions


4.12.1. All costs or expenses necessary for the repair or replacement of the property used in





Petroleum Operations resulting from uninsured damages or losses incurred by fire,


flood, storm, accident, or any other cause.





4.12.2. Any gain or loss in the currency of account caused by the holding of balances of


foreign exchange shall be entered to Petroleum Operations Costs although excessive


such balances shall not be maintained.


4.12.3 The net proceeds of the following transactions shall be credited to Petroleum


Operations Costs:


(a) the net proceeds of any insurance or claim in connection with the Petroleum





Operations or any assets charged to Petroleum Operations Costs;











81


 (b) revenue received from other persons for the use of properly or asscu ch.-ngcd m


Petroleum Operations Costs;


(c) proceeds from all sales of material or assets charged to Petroleum Operations


Costs;


(d) any rentals, refunds, adjustments or other credits received by the Contractor


which apply to any charge which has been made to Petroleum Operations


Costs.





4.13. Recoverability and deductibility of Petroleum Operations Costs


4.13.1. The determination of whether the costs and expenses set forth herein are recoverable


Petroleum Operations Costs shall apply only to the purpose of cost recovery underthi^


Agreement, and shall not be interpreted to preclude.the Contractor from dcdiuamg.»j4


amounts in computing its taxable income under the''applicable laws of Ethiopia.


4.13.2. For the purpose of cost recovery under (his Agreement, np';dep-r£ciation shall apply fo


recoverable Petroleum Operations-.Gpsts,'"as such .Costs'-ai^e, subject to the maximum


percentage limit specified invSectibn'7.1 of this,-Agreement, recoverable either in The


Calendar Year in whicjpthese*- ‘Costs arc'••incurred or the Calendar Year of TH*


Commencement of Regufai:-Ffoducfion;\>Vbioh‘ever is the later.











APPENDIX II





CONTRACT AREA

















ANNEX D


MAPS AND COORDINATES OF THE OPEN BLOCKS























8 2


 (b) revenue received from other persons for the use of properly or asscu ch.-ngcd m


Petroleum Operations Costs;


(c) proceeds from all sales of material or assets charged to Petroleum Operations


Costs;


(d) any rentals, refunds, adjustments or other credits received by the Contractor


which apply to any charge which has been made to Petroleum Operations


Costs.





4.13. Recoverability and deductibility of Petroleum Operations Costs


4.13.1. The determination of whether the costs and expenses set forth herein are recoverable


Petroleum Operations Costs shall apply only to the purpose of cost recovery underthi^


Agreement, and shall not be interpreted to preclude.the Contractor from dcdiuamg.»j4


amounts in computing its taxable income under the''applicable laws of Ethiopia.


4.13.2. For the purpose of cost recovery under (his Agreement, np';dep-r£ciation shall apply fo


recoverable Petroleum Operations-.Gpsts,'"as such .Costs'-ai^e, subject to the maximum


percentage limit specified invSectibn'7.1 of this,-Agreement, recoverable either in The


Calendar Year in whicjpthese*- ‘Costs arc'••incurred or the Calendar Year of TH*


Commencement of Regufai:-Ffoducfion;\>Vbioh‘ever is the later.











APPENDIX II





CONTRACT AREA

















ANNEX D


MAPS AND COORDINATES OF THE OPEN BLOCKS























8 2


ETHIOPIA - Acreage delineation























S3


ETHIOPIA - Acreage delineation























S3


THE BLOCKS OPENED FOR BIDDING ARE THE FOLLOWING BY AREA:


1. OGADEN(See MAP I)














Blocks Points Latitutde(Nortli) Longitudc(Easl)


(area in sq.km)


6 8° 30' 00" 42° 20' 00"


OG-4 10 7° 00' 00" 42° 20' 00"


(15,700) 11 7° 00' 00" 43° 40' 00"


12 7° 20’ 00" 43° 40' 00"


7 8° 00' 00" 42° 00' 00"


OG-5 8 8° 00’ 00" 41° 00* 00"


(16,000) 9 7° 00’ 00" 41° 00'00"


10 7° 00’00" \ 42° 20' 00"


9 7° 00’-O'O’} b-4


O


O


o


o


o


OG-6 10 :J°’W-0

(16,000) 28 00'00" ' 42° 20' 00"


30 • ' 6° 00/GO" V'- '' i


o


o


0


<---<


10 .'•7.°*60' 00" 42° 20' 00"


11 7° 00'00" 43° 40’ 00"


24 6° 20’ 00" 43° 40' 00"


OG-7 25 6° 13' 00" 43° 40’ 00"


(14,800) 26 6° 13' 00" 43° 30' 00"


27 6° 00 ’00" -


28 6° 00 ’00" 42° 20' 00"


13 7° 20 ’00" 44° 55’ 00”


14 7° 20 ’00" 46° 20’ 00"


22 7° 00 ’00" 46° 20’ 00"


OG-9 21 7° 00 ’00" 46° 00' 00"


(15,200) 20 6° 30 ’00" 46° 00’ 00"


19 6° 30 ’00" 45° 30' 00"


18 6° 00 ’00" 45° 30' 00"


40 6° 00 ’00" 44° 55’ 00"








84





THE BLOCKS OPENED FOR BIDDING ARE THE FOLLOWING BY AREA:


1. OGADEN(See MAP I)














Blocks Points Latitutde(Nortli) Longitudc(Easl)


(area in sq.km)


6 8° 30' 00" 42° 20' 00"


OG-4 10 7° 00' 00" 42° 20' 00"


(15,700) 11 7° 00' 00" 43° 40' 00"


12 7° 20’ 00" 43° 40' 00"


7 8° 00' 00" 42° 00' 00"


OG-5 8 8° 00’ 00" 41° 00* 00"


(16,000) 9 7° 00’ 00" 41° 00'00"


10 7° 00’00" \ 42° 20' 00"


9 7° 00’-O'O’} b-4


O


O


o


o


o


OG-6 10 :J°’W-0

(16,000) 28 00'00" ' 42° 20' 00"


30 • ' 6° 00/GO" V'- '' i


o


o


0


<---<


10 .'•7.°*60' 00" 42° 20' 00"


11 7° 00'00" 43° 40’ 00"


24 6° 20’ 00" 43° 40' 00"


OG-7 25 6° 13' 00" 43° 40’ 00"


(14,800) 26 6° 13' 00" 43° 30' 00"


27 6° 00 ’00" -


28 6° 00 ’00" 42° 20' 00"


13 7° 20 ’00" 44° 55’ 00”


14 7° 20 ’00" 46° 20’ 00"


22 7° 00 ’00" 46° 20’ 00"


OG-9 21 7° 00 ’00" 46° 00' 00"


(15,200) 20 6° 30 ’00" 46° 00’ 00"


19 6° 30 ’00" 45° 30' 00"


18 6° 00 ’00" 45° 30' 00"


40 6° 00 ’00" 44° 55’ 00"








84





Blocks Points Latitutde(Norlh) Longitude(Last)


(area in sq.km)


15 7° 15 ’00" 46° 20* 00"


16 Intersection of Lat.7° 15 1 with international border


Between 16 and 1.7, along international border


17 Intersection of Lat. 6° 00' with international border


OG-IO 18 6° 00 '00" 45° 30’ 00"


(12,300) 19 6° 30’ 00" 45° 30' 00"


20 6° 30' 00" o


o


5b


21 7° 00’ 00" 46° 00* 00"


22 7° 00' 00" 46° 20’ 00"


40 6° 00 00" :C., 44° 55’00"


17 Intersection of Lat. ,6° .00'ivt.th international border


Between 17 aHd'41-.alphg internat-rohafborder


41 Intersection q£ Lbng.44° 00' -.with international border


OG-11 36 Infeirsection of Long.44a -.00’ with Gov.reserved area


(12,200) 37 '•••• ' 5° 27’ Q0"\\J 44° 34’ 00"


38 ..5°^6b'Gi)" -


39 \ 5y3& 00" 44° 55' 00"


40 6° 00'00" 44° 55’ 00"


29 6° 00’ 00" 42° 15’ 00"


27 Intersection of Lat. 6° 00’ with Gov. reserved area


OG-12 35 5° 56* 00" 42° 49’ 00"


(13,700) 34 5° 03* 00" 43° 28' 00"


32 5° 03’ 00" 42° 15'00"


33 5° 03’ 00" 42° 30’ 00"


34 5° 03’ 00" 43° 28’ 00"


OG-15 36 - 44° 00’ 00"


(7,000) 41 Intersection of Long. 44‘ 3 00' with international border


42 Intersetion of Long. 42° 30' with international border


Blocks Points Latitutde(Norlh) Longitude(Last)


(area in sq.km)


15 7° 15 ’00" 46° 20* 00"


16 Intersection of Lat.7° 15 1 with international border


Between 16 and 1.7, along international border


17 Intersection of Lat. 6° 00' with international border


OG-IO 18 6° 00 '00" 45° 30’ 00"


(12,300) 19 6° 30’ 00" 45° 30' 00"


20 6° 30' 00" o


o


5b


21 7° 00’ 00" 46° 00* 00"


22 7° 00' 00" 46° 20’ 00"


40 6° 00 00" :C., 44° 55’00"


17 Intersection of Lat. ,6° .00'ivt.th international border


Between 17 aHd'41-.alphg internat-rohafborder


41 Intersection q£ Lbng.44° 00' -.with international border


OG-11 36 Infeirsection of Long.44a -.00’ with Gov.reserved area


(12,200) 37 '•••• ' 5° 27’ Q0"\\J 44° 34’ 00"


38 ..5°^6b'Gi)" -


39 \ 5y3& 00" 44° 55' 00"


40 6° 00'00" 44° 55’ 00"


29 6° 00’ 00" 42° 15’ 00"


27 Intersection of Lat. 6° 00’ with Gov. reserved area


OG-12 35 5° 56* 00" 42° 49’ 00"


(13,700) 34 5° 03* 00" 43° 28' 00"


32 5° 03’ 00" 42° 15'00"


33 5° 03’ 00" 42° 30’ 00"


34 5° 03’ 00" 43° 28’ 00"


OG-15 36 - 44° 00’ 00"


(7,000) 41 Intersection of Long. 44‘ 3 00' with international border


42 Intersetion of Long. 42° 30' with international border


ETHIOPIA - OGADEN - Acreage delination □ Block available SapI


ETHIOPIA - OGADEN - Acreage delination □ Block available SapI