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 CONCESSION AGREEMENT FOR


PETROLEUM


EXPLORATION AND EXPLOITATION


.BETWEEN


THE ARAB REPUBLIC OF EGYPT


AND


THE EGYPTIAN GENERAL PETROLEUM


CORPORATION


AND


DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED


AND


TANGANYIKA OIL COMPANY LTD.





IN


WEST GHAR1B AREA


EASTERN DESERT

















EGY L 900 100


 treated separately and independently in all respects, including but not


limited to royalties, taxes and the computation of the net profits of


,Q.4^UR.,.and TANGANYIKA respectively, except where this


Agreement expressly provides to the contrary.








ARTICLE XXIX


APPROVAL OF THE GOVERNMENT








This Agreement shall not be binding upon any of the parties hereto


unless and until a law is issued by the competent authorities of the


A.R.E. authorizing the Minister of Petroleum to sign this Agreement


and giving this Agreement full force and effect of law notwithstanding





any countervailing Governmental enactment, and the Agreement is


signed by the GOVERNMENT, EGPC, and CONTRACTOR





DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITE














TANGANYIKA OIL COMPANY LTD.








BY:





EGYPTIAN GENERAL PETROLEUM CORPORATION

















^ , ARAB REPUBLIC' OF EGYPT


























-74-


 The duration of Operating Company shall be for a period equal to the





nuiat53Djr.;p.f-.$he-reaid-AgreemenJ:,„inpl.udingw,any.(.renewal thereof, unless


otherwise agreed by EGPC and CONTRACTOR.


The Operating Company shall be wound up if the Agreement referred








to above is terminated for any reason as provided for therein.




















By








TANGANYIKA OIL COMPANY LTD.











By











EGYPTIAN GENERAL PETROLEUM CORPORATION





/








By :





















































-8 5-


 r








INDEX





ARTICLE TITLE PAGE


Definitions 2


Annexes to the Agreement 6





HI Grant of Rights and Term 8


IV Work Program and Expenditures 1 8


V During Exploration Period * 25


Mandatory and Voluntary Relinquishments


VI Operations After Commercial Discovery 27


VII Recovery of Costs and Expenses and 30





Vill Production Sharing 50


Title to Assets


IX Bonuses 5 1


X Office and Service of Notices 5 2


Xi Saving of Petroieum and Prevention 53


XI! of Loss 5 4


Customs Exemptions


Xill Books of Account; Accounting and Payments 57


XiV Records, Reports and Inspection 58


XV Responsibility for Damages 60


XVI Privileges of Government Representatives 60


XVII Employment Rights and Training of Arab 6 1


Republic of Egypt Personnel


1S S’ .


li * P.n Sb


ARTICLE TITLE ~ ' ' PAGE™.


XVIII Laws and Regulations 63


s


XIX • Stabilization 64


XX Right of Requisition 65


XXI Assignment 66


XXII Breach of Agreement and Power to Cancel 67


XXIII Force Majeure 69


XXIV Disputes and Arbitration 70


XXV Status of Parties 72


XXVI Local Contractors and Locally 72


Manufactured Materia!


XXVII Arabic Text 73


xxvm Genera) 73


XXIX Approval of the GOVERNMENT 74


ANNEXES TO THE CONCESSION AGREEMENT


Annex "A" Boundary Description of Hie Concession Area 75


Annex "B" Illustrative Map showing Area covered 78


Annex “C” Letter of Guaranty 79


Annex "D" Charter of Operating Company 81


Annex 11E11 Accounting Procedure 86


Annex “F” Map of the National Gas Pipeline Grid . 104


System


 CONCESSION AGREEMENT FOR PETROLEUM


EXPLORATION AND EXPLOITATION


BETWEEN


THE ARAB REPUBLIC OF EGYPT


AND


THE EGYPTIAN GENERAL PETROLEUM CORPORATION


AND


DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED


AND


TANGANYIKA OIL COMPANY LTD.


IN


WEST GHAR1B AREA


EASTERN DESERT


A.R.E.








This Agreement made and entered on this________day of_ , 199 ,


by and between the ARAB REPUBLIC OF EGYPT (hereinafter referred


to variously as “A.R.E." or as the "GOVERNMENT"), the EGYPTIAN


GENERAL PETROLEUM CORPORATION, a legal entity created by Law


No. 167 of 1958 as amended (hereinafter referred to as "EGPC") and


DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED., a company


organized and existing under the laws of the REPUBLIC OF IRELAND,


(hereinafter referred to as “DUBLIN”) and TANGANYIKA OIL


COMPANY LTD., a compnay organized and existing under the laws of


the

/^(DUBLIN and TANGANYIKA shall be hereinafter referred to collectively


as “CONTRACTOR” and individually as “CONTRACTOR MEMBER”.





‘j WITNESSETH


- ’ s **


WHEREAS, all minerals including petroleum, existing in mines and





quarries in A.R.E., including the territorial waters, and in the seabed


subject to its jurisdiction and extending beyond the territorial waters,


are the property of the State; and


4'


WHEREAS, EGPC has applied for an exclusive concession for the


exploration and exploitation of petroleum in and throughout the area


-S>;


>i -1-





V


referred to in Article ii , and described in Annex "A" and shown


approximately on™ Annex^B*? which-* are-attaebed* ■■heeeta.and^matte. part..


hereof (hereinafter referred to as the "Area"); and


WHEREAS, “DUBLIN and TANGANYIKA” agree to undertake their


obligations provided hereinafter as a CONTRACTOR with respect to


the exploration, development and production of petroleum in West


Gharib Area in Eastern Desert ; and


WHEREAS, the GOVERNMENT desires hereby to grant such


Concession; and


WHEREAS, the Minister of Petroleum pursuant to the provisions of


Law No. 86 of 1956, may enter into a concession agreement with


EGPC, and withrDUBLlN and TANGANYIKA as a contractor in the said


Area.


NOW, THEREFORE, the parties hereto agree as follows:


ARTICLE i


DEFINITIONS


(a) "Exploration" shall include such geological, geophysical, aerial


and other surveys as may be contained in the approved Work


Programs and Budgets, and the drilling of such shot holes, core


holes, stratigraphic tests, holes for the discovery of Petroleum or


the appraisal of Petroleum discoveries and other related holes


and wells, and the purchase or acquisition of such supplies,


materials, services and equipment therefor, all as may be


contained in the approved Work Programs and Budgets. The


verb "explore" means the act of conducting Exploration.


(b) "Development" shall include, but not be limited to, all the


operations and activities pursuant to approved Work Programs


and Budgets under this Agreement with respect to:


(i) the drilling, plugging, deepening, side tracking, redrilling,


... completing, equipping of development wells, the changing


......-;-of4he-status .of_a well, and _

.........l\'


(I!)- designr-.engineermgr-construG*i©(v*tos--teUaUo4vsesyicin.g~.aad.....


maintenance of equipment, lines, systems facilities, plants


and related operations to produce and operate said


development wells, taking, saving, treating, handling,


storing,transporting and delivering petroleum, repressuring,


recycling and other secondary recovery projects, and


(iii) transportation,storage and any other work or activities


necessary or ancillary to the activities specified in(i) and (ii).


(c) "Petroleum" means liquid crude oil of various densities, asphalt,


gas, casinghead gas and all other hydrocarbon substances that


may be found in, and produced, or otherwise obtained and


saved from the Area under this Agreement, and all substances


that may be extracted therefrom.


(d) "Liquid Crude Oil" or "Crude Oil" or "OU" means any hydrocarbon


produced from the Area which is in a liquid state at the wellhead


or lease separators or which is extracted from the gas or


casinghead gas In a plant. Such liquid state shall exist at sixty


degrees Fahrenheit (60°F) and atmospheric pressure of 14.65


PSIA. Such term includes distillate and condensate.


(e) "Gas" means natural gas both associated and non-associated,


and all of its constituent elements produced from any well in the


Area (other than Liquid Crude Oil) and all non-hydrocarbon


substances therein. Said term shall include residual gas, that


Gas remaining after removal of LPG.


(f) "LPG" means liquefied petroleum gas, which is a mixture


principally of butane and propane liquefied by pressure and


temperature. 5 5 ^








-3-


(g) A 'Barrel" shall consist of forty-two (42) United States gallons,


liquid--.measure,- corrected-ta. su..temp,,er_ature . of sixty degrees


Fahrenheit (60°F) at atmospheric pressure of 14.65 PSIA.


(h) (1) "Commercial Oil Well" means the first well on any geological


feature which after testing for a period of not more than


thirty (30) consecutive days where practical, but in any


event in accordance with sound and accepted industry


production practices, and verified by EGPC, is found to be


capable of producing at the average rate of not less than


two thousand (2000) Barrels of oil per day (BOPD). The date


of discovery of a "Commercial Oil Well" is the date on which


such well is tested and completed according to the above.


(2) "Commercial Gas Well" means the first well on any


geological feature which after testing for a period of not


more than thirty (30) consecutive days where practical, but


in any event in accordance with sound and accepted


industry production practices and verified by EGPC, is


found to be capable of producing at the average rate of not


less than fifteen million (15,000,000) standard cubic feet of


Gas per day (MMSCFD). The date of discovery of a


"Commercial Gas Well" is the date on which such well is


tested and completed according to the above.


(i) "A.R.E." means ARAB REPUBLIC OF EGYPT.


(j) "Effective Date* means the date on which the text of this


Agreement is signed by the GOVERNMENT, EGPC and


CONTRACTOR, after the relevant Law is issued.


(k) (1) "Year" means a period of twelve (12) months according to


the Gregorian Calendar.








i -4- \


 (








(2) "Calendar Year” means a period of twelve (12) months


the^Qcegoxlaix.Calendar.hejjag^lst.jJaouarv.. to


31st December.


(!) "Financial Year” means the GOVERNMENT'S financial year


according to the laws and regulations of the A.R.E.


(m) "Tax Year" means the period of twelve (12) months according to


the laws and regulations of the A.R.E.


(n) An "Affiliated Company" means a company:


(i) of which the share capital, conferring a majority of votes at


stockholders' meetings of such company, is owned directly


or indirectly by a party hereto; or


(ii) which is the owner directly or indirectly of share capital


conferring a majority of votes at stockholders' meetings of a


party hereto; or


(iii) of which the share capital conferring a majority of votes at


stockholders’ meetings of such company and the share


capital conferring a majority of votes at stockholders’


meetings of a party hereto are owned directly or indirectly


by the same company.


(o) "Exploration Block” shall mean an area, the corner points of


which have to be coincident with three (3) minutes by three(3)


minutes latitude and longitude divisions, according to the


International Grid System where possible or with the existing


boundaries of the Area covered by this Concession Agreement


as set out in Annex "A”.


(p) "Development Block” shall mean an area, the corner points of


which have to be coincident with one (1) minute by one (1)


minute latitude and longitude divisions, according to the


International Grid System where possible or with the existing


 f








boundaries of the Area covered by this Concession Agreement


as sex out in‘ Annex“wAJV '......


(q) "Development Lease(s)" shall mean the.'Development Block or


Blocks covering the geological structure capable of production,


the corner points of which have to be coincident with one (1)


minute by one (1) minute latitude and longitude divisions


according to the International Grid System where possible or


with the existing boundaries of the Area covered by this


Concession Agreement as set out in Annex "A".


(r) ’'Agreement'' shall mean this Concession Agreement and its


Annexes.


(s) "Gas Sales Agreement" shall mean a written agreement between


EGPC and CONTRACTOR (as sellers) and EGPC (as buyer),


which contains the terms and conditions for Gas sales from a


Development Lease entered into pursuant to Article VII (e).


(t) "Standard Cubic Foot" (SCF) is the amount of gas necessary to


fill one (1) cubic foot of space at atmospheric pressure of 14.65


PSIA at a base temperature of sixty degrees Fahrenheit (60° F).


ARTICLE II


ANNEXES TO THE AGREEMENT


Annex “A" is a description of the area covered and affected by this


Agreement, hereinafter referred to as the "Area".


Annex "B" is a provisional illustrative map on the scale of


approximately 1: 600 000 indicating the Area covered and affected by


this Agreement and described in Annex "A".


./ >\ . £s > h


>

-6-


Annex ‘C” is the form of a Letter of Guarantee to be submitted by


COTrTRACT0ft~to~EGPG* one ^t)~ day time...ol.sigj3atui:e., by...


the Minister of Petroleum of this Agreement, for the sum of five million


(5,000,000) U.S. Dollars guaranteeing .. the execution of


CONTRACTOR’S minimum Exploration obligations hereunder for the


initial three (3) year Exploration period. In case CONTRACTOR


extends the initial Exploration Period for two (2) additional periods of


three (3) years and of two (2) years respectively, each in accordance


with Article ill(b) of this Agreement, similar Letters of Guarantee shall


be issued and be submitted by CONTRACTOR on the day the


CONTRACTOR exercises its option to extend. The first such Letter of


Guarantee shall be for the sum of four million (4,000,000) U.S.Dollars


and the second such Letter of Guarantee shall be for the sum of four


million and five hundred thousand (4,500,000) U.S. Dollars less in


both instances any excess expenditure of the preceding Exploration


period permitted for carry forward in accordance with Article IV (b)


third paragraph of this Agreement. Each of the three Letters of


Guarantee shall remain effective for six (6) months after the end of the


Exploration period for which it has been issued except as it may be


released prior to that time in accordance with the terms thereof.


Annex "D" is the form of a Charter of the Operating Company to be


formed as provided for in Article VI.





Annex "E" is the Accounting Procedure.





Annex "F“ is a current map of the National Gas Pipeline Grid System


established by the Government. The point of delivery for gas shah be


agreed upon by EGPC and CONTRACTOR under a Gas Sales


Agreement, which point of delivery shall be located at the flange


connecting the development lease pipeline to the nearest point on the


National Gas pipeline Grid System as depicted in this Annex "F" or as


otherwise agreed upon between EGPC and CONTRACTOR .


s.S-


“x


(


-7-


AnoaxesL.fA.",.!! j3". ."C". "p'V'E”. and MF" to this Agreement are hereby


made part hereof, and they shall be considered as having equal .force


and effect with the provisions of this Agreement.


ARTICLE III





GRANT OF RIGHTS AND TERM





The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to


the terms, covenants and conditions set out in this Agreement, which


insofar as they are contrary to, or inconsistent with any provisions of


Law No. 66 of 1953, as amended, shall have the force of Law, an


exclusive concession in and to the Area described in Annexes "A" and








(a) The GOVERNMENT shall own and be entitled, as hereinafter


provided to a royalty in cash or in kind of ten percent (10%) of


the total quantity of Petroleum produced and saved from the Area


during the development period including renewal. Said royalty


shall be borne and paid by EGPC and shall not be the obligation


of CONTRACTOR, The payment of royalties by EGPC shall not


be deemed to result in income attributable to the CONTRACTOR.


(b) An initial Exploration Period of three (3) years shall start from


the Effective Date. Two (2) successive extensions to the initial


Exploration period of three (3) years and two (2) years


respectively, shall be granted to CONTRACTOR at its option,


upon not less than thirty (30) days prior written notice to EGPC,


such notice to be given not later than the end of the then current


period, as may be extended pursuant to the provisions of Article


V (a), and subject only to its having fulfilled its obligations


hereunder for that period. This Agreement shall be terminated if


neither a Commercial Oil Discovery nor a Commercial Gas


Discovery is established by the end of the eighth (8th) year of


 S"-


l


1;








the Exploration period, as may be extended pursuant to Article V


(a)v ,7rre“efectfon-by "EG-PG- {^undertake-- 3-*s©4©',ds&venture., un.de/... .


paragraph (c) below shall not extend the Exploration Period nor


affect the termination of this Agreement as..to CONTRACTOR.


(c) Commercial Discovery:





(i) A Commercial Discovery - whether of Oil or Gas - may


consist of one producing reservoir or a group of producing


reservoirs which is worthy of being developed commercially.


After discovery of a Commercial Oil or Gas Well


CONTRACTOR shall, unless otherwise agreed upon with


EGPC, undertake as part of its Exploration program the


appraisal of the discovery by drilling one or more appraisal


wells, to determine whether such discovery is worthy of


being developed commercially, taking into consideration the


recoverable reserves, production, pipelines and terminal


facilities required, estimated Petroleum prices, and all other


relevant technical and economic factors.


(ii) The provisions laid down herein postulate the unity and





indivisibility of the concepts of Commercial Discovery and


Development Lease. They shall apply uniformly to Oil and


Gas unless otherwise specified.








(Hi) CONTRACTOR shall give notice of a Commercial Discovery


to EGPC immediately after the discovery is considered by


CONTRACTOR to be worthy of commercial development but


in any event with respect to a Commercial Oil Well not later


than thirty (30) days following the completion of the second


appraisal well or twelve (12) months following the date of


the discovery of the Commercial Oil Well, whichever is


earlier or with aspect to a Commercial Gas Well not later


than twenty four (24) months following the date, of the


discovery of the Commercial Gas Well (unless EGPC agrees


> -9- * Jt/ 55- •


7


that such period may be extended), except that


C C NTR A6T OR- sh aif - ateo- have-- the- right- ta.give„.suc;k.aQ.ttpe1,..


of Commercial Discovery with respect to any reservoir or


reservoirs even if the well or wells thereon are not


"Commercial" within the definition of the "Commercial Well"


if, in its opinion, a reservoir or a group of reservoirs,


considered collectively, could be worthy of commercial


development,


CONTRACTOR may also give a notice of a Commercial Oil


Discovery in the event it wishes to undertake a gas


recycling project.


A notice of Commercial Gas Discovery shall contain all


detailed particulars of the discovery and especially the area


of Gas reserves, the estimated production potential and


profile and field life.


Within sixty (60) days following receipt of a notice of a


Commercial Oil or Gas Discovery, EGPC and CONTRACTOR


shall meet and review all appropriate data with a view to


mutually agreeing upon the existence of a Commercial"


Discovery. The date of Commercial Discovery shall be the


date EGPC and CONTRACTOR jointly agree in writing that a


Commercial Discovery exists,


(iv) If Crude Oil is discovered but is not deemed by


CONTRACTOR to be a Commercial Oil Discovery under the


above provisions of this paragraph (c), EGPC shall one (1)


month after the expiration of the period specified above


within which CONTRACTOR can give notice of a Commercial


Oil Discovery, or thirteen (13) months after the completion


of a well not considered to be a "Commercial Oil Well", have


the right, following sixty (60) days notice in writing to


CONTRACTOR, at its sole cost, risk and expense, to


£? -id- . &





r











develop, produce and dispose of all Crude Oil from the


geological-feature-on-which. .the... weJL. h.as..been drilled. Said


notice shall state the specific area covering said geological


feature to be developed, the wells to be drilled, the


production facilities to be installed and EGPC's estimated


cost thereof. Within thirty (30) days after receipt of said


notice CONTRACTOR may, in writing, elect to develop such


area as provided for in the case of Commercial Discovery


hereunder. In such event all terms of this Agreement shall


continue to apply to the specified area.





If CONTRACTOR elects not to develop such area, the


specific area covering said geological feature shall be set


aside for sole risk operations by EGPC, such area to be


mutually agreed upon by EGPC and CONTRACTOR on the


basis of good petroleum industry practice. EGPC shall be


entitled to perform or in the event Operating Company has


come into existence, to have Operating Company perform


such operations for the account of EGPC and at EGPC's


sole cost, risk and expense. When EGPC has recovered


from the Crude Oil produced from such specific area a


quantity of Crude Oil equal in value to three hundred


percent (300%) of the cost it has incurred in carrying out the


sole risk operations, CONTRACTOR shall have the option,


only in the event there has been a separate Commercial Oil


Discovery, elsewhere within the Area, to share in further


development and production of that specific area upon


paying EGPC one hundred percent (100%) of such costs


incurred by EGPC.





Such one hundred percent (100%) payment shall not be


recovered by CONTRACTOR. Immediately following such


payment the specific area shall either (i) revert to the status


of an ordinary Development Lease under this Agreement


and thereafter shall be operated in accordance with the


 t








terms hereof: or |ii) alternatively, in the event that at such


time™ EGP.C-v_ot.v its... Affiliated____Company is conducting


Development operations in the area at its sole expense and


EGPC elects to continue operating, the area shall remain


set aside and CONTRACTOR shall only be entitled to its


production sharing percentages of the Crude Oil as


specified in Article VII (b). The sole risk Crude Oil shall be


valued in the manner provided in Article VII (c), In the


event of any termination of this Agreement under the


provisions of Article III (b), this Agreement 'Shall, however,


continue to apply to EGPC's operations of any sole risk


venture, hereunder, although such Agreement shall have


been terminated with respect to CONTRACTOR pursuant to


the provisions of Article ill (b) .


(d) Conversion to a Development Lease:


(i) Following a Commercial Oil Discovery or a Commercial Gas


Discovery the extent of the whole area capable of


production to be covered by a Development Lease shall be


mutually agreed upon by EGPC and CONTRACTOR and be


subject to the approval of the Minister of Petroleum. Such


area shall be converted automatically into a Development


Lease without the issue of any additional legal instrument


or permission.


(ii) Following the conversion of an area to a Development


Lease base'd on a Commercial Gas Discovery (or upon the


discovery of Gas in a Development Lease granted following


a Commercial Oil Discovery), EGPC shall endeavor with


diligence to find adequate local markets capable of


absorbing the production of Gas and shall advise


CONTRACTOR of the potential outlets for such Gas, and the


expected annua! schedule of demand. Thereafter, EGPC and


CONTRACTOR shall meet with a view to assessing whether


£$ -1 2- 4/ o e


_ • j-





ip./i


the outlets for such Gas and other relevant factors warrant


the .deve]opmeJ3i~a4id~p*aductfl0n«.aMheL„$5a^ .and in case of


agreement the Gas thus made available shall be disposed of


to EGPC under a long-term Gas . Sales Agreement in


accordance with and subject to the conditions set forth in


Article V1J .


(iii) The Development period of each Development Lease shall


be as follows:


(aa) in respect of a Commercial Oil Discovery, twenty (20)


years from the date of such Commercial Discovery plus


the Optional Extension Period (as defined below)


provided that, in the event that, subsequent to the


conversion of a Commercial Oil Discovery into a


Development Lease, Gas is discovered in the same


Development Lease and is used or is capable of being


used locally or for export hereunder, the period of the


Development Lease shall be extended only with


respect to such Gas, LPG extracted from such Gas and


Crude Oil in the form of condensate produced with


such Gas for twenty (20) years from the date of first


deliveries of Gas locally or for export plus the Optional


Extension Period (as defined below) provided that the


duration of such Development Lease based on a


Commercial Oil Discovery may not be extended beyond


thirty-five (35) years from the date of such Commercial


Oil Discovery, unless otherwise agreed upon between


EGPC and CONTRACTOR and subject to the approval


of the Minister of Petroleum.


CONTRACTOR shall immediately notify EGPC of any


Gas Discovery but shall not be required to apply for a


t'


new Development Lease in respect of such Gas.


.. : : . .......... ...........I Qj> % 33-


-13-


/ s>x


(bb) in respect of a Commercial Gas Discovery, twenty (20)


year.s» frora-iha-date..of. Jirst,deliveries of Gas locally or


for export plus the Optional Extension Period (as


defined below) provided that, .if subsequent to the


conversion of a Commerciai Gas Discovery into a


Development Lease, Crude Oil is discovered in the


same Development Lease, CONTRACTOR'S share of


such Crude Oil from the Development Lease (except


LPG extracted from Gas or Crude Oil in the form of


condensate produced with Gas) and Gas associated


with such Crude Oil shall revert entirely to EGPC upon


the lapse of twenty (20) years from the date of such


Crude Oil Discovery plus the Optional Extension Period


(as defined below).


Notwithstanding, anything to the contrary under this


Agreement, the duration of a Development Lease based


on a Commercial Gas Discovery shall in no case


exceed thirty-five (35) years from the date of such


Commercial Gas Discovery, unless otherwise agreed


upon between EGPC and CONTRACTOR and subject to


the approval of the Minister of Petroleum.


CONTRACTOR shall immediately notify EGPC of any


Oil Discovery but shall not be required to apply for a


new Development Lease in respect of such Crude Oil.


The “Optional Extension Period" shall mean a period of


five (5) years which may be elected by CONTRACTOR


upon six (6) months written notice to EGPC prior to the


expiry of the relevant twenty (20) year period.


(e) Development operations shall upon the issuance of a .


Development Lease granted following a Commercial Oil


Discovery, be started promptly by Operating Company and be


conducted in accordance with good oil field practices and


accepted petroleum engineering principles, until' the. fFeld'" is~


considered to be fully developed, it being understood that if


associated gas is not utilized, EGPC and CONTRACTOR shall


negotiate in good faith to determine the best way to avoid


impairing the production in the interest of the parties.


In the event no Commercial Production of Oil in regular


shipments is established in any Development Block within four


(4) years from the date of the Commercial Oil Discovery, such


Development B!ock shall immediately be relinquished, unless


there is a Commercial Gas discovery on the Development Lease.


Each Development Block in a Development Lease being partly


within the radius of drainage of any producing well in such


Development Lease shall be considered as participating in the


Commercial Production referred to above.








Development operations in respect of Gas and Crude Oil in the


form of condensate or LPG to be produced with or extracted from


such Gas shall, upon the signature of a Gas Sales Agreement or


commencement of a scheme to dispose of the Gas, whether for


export as referred to in Article VII or otherwise, be started


promptly by Operating Company and be conducted in accordance


with good gas field practices and accepted petroleum


engineering principles and the provisions of such Gas Sales


Agreement or scheme, in the event no Commercial Production of


Gas is established in accordance with such Gas Sales Agreement


or scheme, the Development Lease relating to such Gas shall be


relinquished, unless otherwise agreed upon by EGPC.








If, upon application by CONTRACTOR it is recognized by EGPC


that Crude Oil or Gas is being drained from an Exploration block


under this Agreement into a Development Block on an adjoining


concession area held by CONTRACTOR, the Block being drained


-shell --be -considered-~as . ..participating . in .the .Commercial


5*5


 r











Production of the Development Block in question and the Block


b9ing~draiaed-shaU~b^.caiiVfirted~inlotHa*.d&v.eipp„ro.ent Lease with


the ensuing allocation of costs and production (calculated from


the Effective Date or the date such drainage occurs, whichever is


later) between the two Concession Areas. The allocation of such


costs and production under each Concession Agreement shall be


in the same portion that the recoverable reserves in the drained


geological structure underlying each Concession Area bears to


the total recoverable reserves of such structure underlying both


Concession Areas. The production allocated to a concession


area shall be priced according to the concession agreement





covering that; concession area.








(f) CONTRACTOR shall bear and pay all the costs and expenses


required in carrying out all the operations under this Agreement


but such costs and expenses shall not include any interest on


investment. CONTRACTOR shall look only to the Petroleum to


which it is entitled under this Agreement to recover such costs


and expenses. Such costs and expenses shall be recoverable


as provided in Article VII. During the term of this Agreement


and its renewal, the total production achieved in the conduct of


such operations shall be divided between EGPC and


CONTRACTOR in accordance with the provisions of Article VII.





(g) (1) Unless otherwise provided, CONTRACTOR shall be subject


to Egyptian income tax laws and shall comply with the


requirements of such laws with respect to the filing of


returns, the' assessment of tax, and keeping and showing of


books and records.








(2) CONTRACTOR’S annual income for Egyptian Income tax


purposes under this Agreement shall be an amount


calculated as follows: o / ’


p s%' &








-16-


 The total of the sums received by CONTRACTOR from the


sale « other. dispositioju.ol.. aU»,.P,atiAle.u.m. .acquired by


CONTRACTOR pursuant to Article VI! (a) and Article VII (b);





Reduced by:


(i) The costs and expenses of CONTRACTOR;





(ii) The value as determined according to Article Vll


(c), of EGPC's share of the Excess Cost Recovery


Petroleum repaid to EGPC in cash or in kind, if


any,


Plus:





An amount equal to-CONTRACTOR'S Egyptian income taxes


grossed up in the manner shown in Annex E" Article VI.


For purposes of above tax deductions in any Tax Year,


Article Vll (a) shall apply only in respect of classification of


costs and expenses and rates of amortization, without


regard to the percentage limitation referred to in the first


paragraph of Article VII (a) (1). All costs and expenses of


CONTRACTOR in conducting the operations under this


Agreement which are not controlled by Article Vll (a) as


above qualified shall be deductible in accordance with the


provisions of the Egyptian Income Tax Law.


(3) EGPC shall assume, pay and discharge, in the name and


on behalf of CONTRACTOR, CONTRACTOR'S Egyptian


income tax out of EGPC's share of the Petroleum produced


and saved and not used in operations under Article Vll. All


taxes paid by EGPC in the name and on behalf of


CONTRACTOR shall be considered income to


CONTRACTOR. o








-17-


 (4) EGPC shall furnish to CONTRACTOR, the proper official


receipts evidencing ' ine~ • p^yTrreTrt~>- of--- CO-NTHACTOELs...


Egyptian income tax for each Tax Year within ninety (90)


days following the receipt by EGPC .of CONTRACTOR'S tax


declaration for the preceding Tax Year. Such receipts shall


be issued by the proper Tax Authorities and shall state the


amount and other particulars customary for such receipts.








{5) As used herein. Egyptian Income Tax shall be inclusive of


all income taxes payable in the A.R.E. (including tax on tax)


such as the tax on income from movable capital and the tax


on profits from commerce and industry and inclusive of


taxes based on income or profits including ail dividends,


withholding with respect to shareholders and other taxes


imposed by the GOVERNMENT on the distribution of income


or profits by CONTRACTOR.


(6) In calculating its A.R.E. income taxes, EGPC shall be





entitled to deduct all royalties paid by EGPC to the


GOVERNMENT and CONTRACTOR’S Egyptian income taxes


paid by EGPC on CONTRACTOR'S behalf.





ARTICLE IV





WORK PROGRAM AND EXPENDITURES


DURING EXPLORATION PERIOD





(a) CONTRACTOR shall commence Exploration operations hereunder


not later than six (6) months after the Effective Date with


a commitment of reprocessing most of the existing seismic data,


acquire and process three hundred (300) km seismic survey and


fifty (50) sq.km 3D seismic survey. Not later than the end of the


twelfth (12th) month after the Effective Date, CONTRACTOR shall


start Exploratory drilling in the Area during the initial Exploration


7 A* JV n crs.


period with a commitment of drilling three (3) wells. EGPC shall


make - available™ for-CG NTRAOTOft'-s- -use-a4U seismicu... vy.ej Is and.


other Exploration data in EGPC's possession with respect to the


Area as EGPC is entitled to so do.


(b) The initial Exploration period shall be three(3)years.


CONTRACTOR may extend this Exploration period for two (2)


successive extension periods of three (3) years and two (2) years


respectively, in accordance with Article III (b), each of which


upon at least thirty (30) days prior written notice to EGPC, subject


to its expenditure of its minimum Exploration obligations and of


its fulfillment of the drilling obligations hereunder, for the then


current period.


CONTRACTOR shall spend a minimum of five million (5.000.000)


U.S. Dollars on Exploration operations and activities related


thereto during the initial three (3) year Exploration period;


provided that CONTRACTOR shall drill three (3) wells and


reprocessing most of the existing seismic data and acquire and


process three hundred (300) km. seismic survey and fifty (50) sq.


km. 3D seismic survey. For the first three (3) year extension


period that CONTRACTOR elects to extend beyond the initial


Exploration period, CONTRACTOR shall spend a minimum of four


million (4,000,000) U.S. Dollars and acquire and process two


hundred (200) km seismic survey and fifty (50) sq. km 3D seismic


survey and for the second two (2) year extension period that


CONTRACTOR elects to extend beyond the three (3) year first


extension period, CONTRACTOR shall also spend a minimum of


four million and five hundred thousand (4,500,000) U.S. Dollars.


During the first and second extension periods that CONTRACTOR


elects to extend beyond the initial Exploration period,


CONTRACTOR shall drill two (2) wells in the first extension and


three (3) wells in the second extension.


Should CONTRACTOp spend more than the minimum amount


required to be expended or drill more wells than the m.inimum


required to be drilled or acquire more seismic survey than the





-1 9-


r











minimum required during the initial three (3) year Exploration


period, or during any period threre'aften-“'t he-^excess-.may--- ~..


subtracted from the minimum amount of money required to be


expended by CONTRACTOR or minimum number of wells


required to be drilled or minimum kilometres of seismic survey to


be acquired during any succeeding Exploration period (s).as the


case may be.


(n case CONTRACTOR surrenders its Exploration rights under


this Agreement as set forth above before or at the end of the


third (3rd) year of the initial Exploration period, having expended


less than the tc.jl sum of five million (5,000,000) U.S. Dollars, on


Exploration or in the event at the end of the three (3) years,of the


initial Exploration period, CONTRACTOR has expended less than


said sum in the Area, an amount equal to the difference between


the said five million (5,000,000) U.S. Dollars and the amount


actually spent on Exploration shall be paid by CONTRACTOR to


EGPC at the time of surrendering or within three (3) months from


the end of the third (3rd) year of the initial Exploration period, as


the case may be. Any expenditure deficiency by CONTRACTOR


at the end of any additional period for the reasons above noted


shall similarly result in a payment by CONTRACTOR to EGPC of


such deficiency. Provided this Agreement is still in force as to


CONTRACTOR, CONTRACTOR shall be entitled to recover any


such payments as Exploration expenditure in the manner


provided for under Article VII in the event of Commercial


Production.


Without prejudice to Article 111 (b), in case no Commercial Oil





Discovery is established or no notice of Commercial Gas


Discovery is given by the end of the eighth (8th) year, as may be


extended pursuant to Article V (a) or in case CONTRACTOR


surrenders the Area, under this Agreement prior to such time,


EGPC shall not bear any of the aforesaid expenses spent by








-2 0-


(c) At least four (4) months prior to the beginning of each Financial


Year or at such other times as may- intitwaHy-be--- agreed-: touby.™


EGPC- and CONTRACTOR. CONTRACTOR shall prepare an


Exploration Work Program and Budget for. the Area setting forth


the Exploration operations which CONTRACTOR proposes to


carry out during the ensuing Year.


The Exploration Work Program and Budget shaii be reviewed by


a joint committee to be established by EGPC and CONTRACTOR


after the Effective Date of this Agreement. This Committee,


hereinafter referred to as the "Exploration Advisory Committee",


shall consist of six (6) members, three (3) of whom shall be


appointed by EGPC and three (3) by CONTRACTOR. The


Chairman of the Exploration Advisory Committee shall be


designated by EGPC from among the members appointed by it.


The Exploration Advisory Committee shall review and give such


advice as it deems appropriate with respect to the proposed Work


Program and Budget. Following review by the Exploration


Advisory Committee, CONTRACTOR shall make such revisions as


CONTRACTOR deems appropriate and submit the Exploration


Work Program and Budget to EGPC for its approval.


Following such approval, it is further agreed that:


(i) CONTRACTOR shall not substantially revise or modify said


Work Program and Budget nor reduce the approved


budgeted expenditure without the approval of EGPC;


(ii) in the event of emergencies involving danger of loss of lives


or property, CONTRACTOR may expend such additional


unbudgeted amounts as may be required to alleviate such


danger. Such expenditure shall be considered in all aspects


as Exploration expenditure and shall be recovered pursuant


to the provisions of Article VII.


-(d)---COHTMACTOR shall advance all necessary funds for all





-21-


materials, equipment, supplies, personnel . administration and


operations pursuant to the- Expiaratron-'Work Program-anxU. Budget-..,


and EGPC shall not be responsible to bear, or repay any of the


aforesaid costs.


(e) CONTRACTOR shall be responsible for the preparation and


performance of the Exploration Work Program which shall be


implemented in a workmanlike manner and consistent with good


industry practices.


Except as is appropriate for the processing of data, specialized


laboratory engineering and development studies thereon, to be


made in specialized centers outside A.R.E.. all geological and


geophysical studies as well as any other studies related to the


performance of this Agreement, shall be made in the A.R.E.


CONTRACTOR shall entrust the management of Exploration


operations in the A.R.E. to its technically competent General


Manager and Deputy General Manager. The names of such


Manager and Deputy General Manager shall, upon appointment,


be forthwith notified to the GOVERNMENT and to EGPC. The


Genera! Manager and, in his absence, the Deputy General


Manager shall be entrusted by CONTRACTOR with sufficient


powers to carry out immediately all lawful written directions given


to them by the GOVERNMENT or its representative under the


terms of this Agreement. All lawful regulations issued or hereafter


to be issued which are applicable hereunder and not in conflict


with this Agreement shall apply to CONTRACTOR.


(f) CONTRACTOR shall supply EGPC, within thirty (30) days from


the end of each calendar quarter, with a Statement of Exploration


activity showing costs incurred by CONTRACTOR during such


quarter. CONTRACTOR'S records and necessary supporting


docqments shall be* available for inspection by EGPC at any time


. ...........durtogTeqular working hours for three (3) months from the date of


-2 2- JV s>


receiving each statement.





Within the three {3} months from the date of receiving such


Statement. EGPC shall advise CONTRACTOR in writing if it


considers:


(1) that the record of costs is not correct:


(2) that the costs of goods or services supplied are not in (ine


with the international market prices for goods or services of


similar quality supplied on similar terms prevailing at the


time such goods or services were supplied, provided


however, that purchases made and services performed


within the A.R.E. shall be subject to Article XXVI;


(3) that the condition of the materials furnished by


CONTRACTOR does not tally with their prices; or


(4) that the costs incurred are not reasonably required for


operations.


CONTRACTOR shall confer with EGPC in connection with the


problem thus presented, and the parties shall attempt to reach a


settlement which is mutually satisfactory.


Any reimbursement due to EGPC out of the Cost Recovery


Petroleum as a result of reaching agreement or of an arbitral


award shall be promptly made in cash to EGPC, plus simple


interest at LIBOR plus two and half percent (2.5 %) per annum


from the date on which the disputed amount(s) would have been


paid to EGPC according to Article Vll (a) (2) and Annex "E“ (i.e.,


the date of rendition of the relevant Cost Recovery Statement) to


the date of payment. The LIBOR rate applicable shall be the


average of the figure or figures published by the Financial Times


representing the mid-point of the rates (bid and ask) applicable


..to .one month U.S,Dollars deposits in the London Interbank


n


Eurocurrency Market on each fifteenth (15th) day of each month


occurring- between-.....the~date~cn~Avbich-the..„di.spjuted amount(s)^


would have been paid to EGPC and the date on which it is


settled.


If the LIBOR rate is available on any fifteenth (15th) day but is


not published in the Financial Times in respect of such day for


any reason, the LIBOR rate chosen shall be that offered by


Citibank N.A. to other leading banks in the London Interbank


Eurocurrency Market for one month U.S. Dollar deposits.


If such fifteenth (15th) day is not a day on which LIBOR rates are


quoted in the London Interbank Eurocurrency Market, the LIBOR


rate to be used shall be that quoted on the next following day on


which such rates are quoted.


If within the time limit of the three (3) month period provided for


in this paragraph, EGPC has not advised CONTRACTOR of its


objection to any Statement, such Statement shall be considered


as approved.


(g) CONTRACTOR shall supply all funds necessary for its operations


in the A.R.E. under this Agreement in freely convertible currency


from abroad. CONTRACTOR shall have the right to freely


purchase Egyptian currency in the amounts necessary for its


operations in the A.R.E. from any bank or entity authorized by the


GOVERNMENT to conduct foreign currency exchanges.


(h) EGPC is authorized to advance to CONTRACTOR the Egyptian


currency required for the operations under this Agreement


against receiving from CONTRACTOR an equivalent amount of


U.S. Dollars at the official A.R.E. rate of exchange. Such amount











-24- /


 r











n u.S. Collars snail ce ceposnea in an EGPC account SDroaa


■,v:;h a-'COffe.spondfintvb«3flic-.al.thA.N.aiLpngl,...Bank of Egypt. Cairo.


Withdrawals from said account shall be used for financing


EGPC’s and its Affiliated Companies foreign currency


requirements subject to the approval of the Minister of


Petroleum.





ARTICLE V





MANDATORY AND VOLUNTARY RELINQUISHMENTS





(a) MANDATORY:





At the end of the third (3rd) year after the Effective Date hereof,


CONTRACTOR shall relinquish to the GOVERNMENT a total of


twenty five percent (25%) of the original Area not then converted


to a Development Lease or leases. Such relinquishment shall be


in units of whole Exploration Blocks or parts of Exploration


Blocks not converted to Development Leases so as to enable the


relinquishment requirements to be precisely fulfilled.





At the end of the sixth (6th) year after the Effective Date hereof,


CONTRACTOR shall relinquish to the GOVERNMENT an


additional twenty-five percent (25%) of the original Area not then


converted to a Development Lease or Leases. Such


relinquishment shall be in units of whole Exploration Blocks or


parts of Exploration Blocks not converted to Development Leases


so as to enable the relinquishment requirements to be precisely


fulfilled.


Without prejudice to Articles III and XX1I1 and the last three





paragraphs of this Article V (a), at the end of the eighth (8th) year


of the Exploration - period, CONTRACTOR shall relinquish


 r














the remainder of the Area not then converted to a Development


Lease or Leases.


It is understood that at the time of any relinquishment the areas





to be converted into Development Leases and which are


submitted to the Minister of Petroleum for his approval


according to Article 11! (d) shall, subject to such approval, be


deemed converted to Development Leases.





CONTRACTOR shall not be required to relinquish any


Exploration Block or Blocks on which a Commercial Oil or Gas


Well is discovered before the period of time referred to in Article


Hi (c) given to CONTRACTOR to determine whether such Well is


a Commercial Discovery worthy of Development or to relinquish


an Exploration Block in respect of which a notice of Commercial


Gas Discovery has been given to EGPC subject to EGPC's right


to agree on the existence of a Commercial Discovery pursuant to


Article 111 (c), and without prejudice to the requirements of Article


III (e).





In the event at the end of the initial Exploration period or either


of the two successive extensions of the initial Exploration period,


a well is actually drilling or testing, CONTRACTOR shall be


allowed up to six (6) months to enable it to discover a


Commercial Oi! or Gas Well or to establish a Commercial


Discovery, as the case may be. However, any such extension of


up to six (6) months shall reduce the length of the next


succeeding Exploration Period, as applicable, by that amount.





(b) VOLUNTARY:


4 *


CONTRACTOR may, voluntarily, during any period relinquish all


or anv' part of the Area in whole Exploration Blocks or parts of


A


-2 6-


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Exploration Blocks provided that at the time of such voluntary


reiinqotshTrreTTt-' i t 5 xpl'orati'O n- obligations***- .under... Article. .JY,..(b)......


have been satisfied for such period.


Any relinquishments hereunder shall be credited toward the


mandatory provisions of Article V (a) above.


Following Commercial Discovery, EGPC and CONTRACTOR shall


mutually agree upon any area to be relinquished thereafter,


except for the relinquishment provided for above at the end of


the total Exploration period.


ARTICLE VI


OPERATIONS AFTER COMMERCIAL DISCOVERY


(a) On Commercial Discovery, EGPC and CONTRACTOR shall form in


the A.R.E. an operating company pursuant to Article VI (b) and


Annex (D) (hereinafter referred to as "Operating Company")


which company shall be named by mutual agreement between


EGPC and CONTRACTOR and such name shall be subject to the


approval of the Minister of Petroleum. Said company shall be a


private sector company. Operating Company shall be subject to


the Saws and regulations in force in the A.R.E. to the extent that


such laws and regulations are not inconsistent with the


provisions of this Agreement or the Charter of Operating


Company.





However, Operating Company and CONTRACTOR shall, for the


purpose of this Agreement, be exempted from the following laws


and regulations as now or hereafter amended or substituted:





Law No. 48 of 1978, on the employee regulations of publi<


sector companies; A „ & S-3


*2


v) (7 -2 7- r \


2>&


 r.








Law No. 159 of 1981. promulgating the law on joint stock


uompantesr*'pat tnef-shfp-•••!h,yu skates... .and , limited


liability companies;


Law No. 97 of 1983 promulgating the law concerning public


sector organizations and companies;


Law No. 203 of 1991 promulgating the law on public


business sector companies: and


Law No. 38 of 1994, organizing dealings In foreign


currencies.





(b) The Charter of Operating Company is hereto attached as Annex


"D’\ Within thirty (30) days after the date of Commercial Oil


Discovery or within thirty (30) days after signature of a Gas Sales


Agreement or commencement of a scheme to dispose of Gas


(unless otherwise agreed upon by EGPC and CONTRACTOR), the


Charter shall take effect and Operating Company shall


automatically come into existence without any further procedures.


The Exploration Advisory Committee shall be dissolved forthwith


upon the coming into existence of the Operating Company.


(c) Ninety (90) days after the date Operating Company comes into


existence in accordance with paragraph (b) above, it shall


prepare a Work Program and Budget for further Exploration and


Development for the remainder of the year in which the


Commercial Discovery is made; and not later than four (4) months


before the end of the current Financial Year (or such other date as


may be agreed upon by EGPC and CONTRACTOR) and four (4)


months preceding the commencement of each succeeding


Financial Year thereafter (or such other date as may be agreed


upon by EGPC and CONTRACTOR), Operating Company shall


prepare an annual Production Schedule, Work Program and


Budget for further Exploration and Development for the


succeeding Financial Year. The Production Schedule, Work


Program and Budget shall be submitted to the Board of Directors


for approval M


V ' 2 8


 r








fio |ater than the twentieth i20th) cay ct sacn month. Operating


Ccrap-any-.-sfeail..furmsix Jo... CONTRACTOR a written estimate, of its


total cash requirements for expenditure for the first half and the


second half of the succeeding month expressed in U.S. Dollars


having regard to the approved 3udget. Such estimate shall take


into consideration any cash expected to be on hand at month


end.


Payment for the appropriate period of such month shall be made


to the correspondent bank designated in paragraph (e) below on


the first (1st) day and fifteenth (15th) day respectively, or the next


following business day, if such day is not a business day.


e) Operating Company is authorized to keep at its own disposal


abroad in an account opened with a correspondent bank of the


National Bank of Egypt. Cairo, the foreign funds advanced by


CONTRACTOR. Withdrawals from said account shall be used for


payment for goods and services acquired abroad and for


transferring to a local bank in the A.R.E. the required amount to


meet the expenditures in Egyptian Pounds for Operating


Company in connection with its activities under this Agreement.


Within sixty (60) days after the end of each Financial Year,


Operating Company shall submit to the appropriate exchange


control authorities in the A.R.E. a statement, duly certified by a


recognized firm of auditors, showing the funds credited to that


account, the disbursements made out of that account and the


balance outstanding at the end of the Year.


(f) If and for as long during the period of production operations


there exists an excess capacity in facilities which can not during


the period of such excess be used by the Operating Company,


EGPC and CONTRACTOR will consult together to find a mutually


agreed formula whereby EGPC may use the excess capacity if it


4 '


so desires without any unreasonable financial or unreasonable


operational disadvantage to the CONTRACTOR.


 (7








ARTICLE 711





RECOVERY OF COSTS AND EXPENSES AND


PRODUCTION SHARING





I a) 1 . COST RECOVERY PETROLEUM:





Subject to the auditing provisions under this Agreement.


CONTRACTOR shall recover quarterly all costs, expenses and


expenditures in respect of all the Exploration, Development and


related operations under this Agreement to the extent and out of


thirty percent (30%) of all Petroleum produced and saved from


all Development Leases within the Area hereunder and not used


in Petroleum operations. Such Petroleum is hereinafter referred


to as “Cost Recovery Petroleum".


For the purpose of determining the classification of all costs,


expenses and expenditures for their recovery, the following


terms shall apply:


1. "Exploration Expenditures" shall mean all costs and





expenses for Exploration and the related portion of indirect


expenses and overheads.





2. "Development Expenditures" shall mean all, costs and


expenses for Development (with the exception of Operating


Expenses),.and the related portion of indirect expenses and


overheads.


3. "Operating Expenses" shall mean all costs, expenses and


expenditures made after initial Commercial Production,


which costs, expenses and expenditures are not normally


depreciable,





h


-3 0- (


However. Operating Expenses snaii mciuae workover, repair


and ' maintenance^of-a^sets-biK- 3haW-nQ.t..!acUjd£_...any.,. ctOhe._.


following: sidetracking, redrilling and changing of the status of a


well, replacement of assets or part of, an asset, additions,


improvements, renewals or major overhauling that extend the life


of the asset.


Exploration Expenditures. Development Expenditures and


Operating Expenses shall be recovered from Cost Recovery


Petroleum in the following manner:-


(i) Exploration Expenditures, including those accumulated prior


to the commencement of initial Commercial Production,


which for the purposes of this Agreement shall mean the


date on which the first regular shipment of Crude Oil or the


first deliveries of Gas are made, shall be recoverable at the


rate of twenty-five percent (25 %) per annum starting either


in the Tax Year in which such expenditures are incurred and


paid or the Tax Year in which initial Commercial Production


commences, whichever is the later date.


(ii) Development Expenditures, including those accumulated


prior to the commencement of initial Commercial Production


which for the purposes of this Agreement shall mean the


date on which the first regular shipment of Crude Oil or the


first deliveries of Gas are made, shall be recoverable at


the rate of twenty-five percent (25 %) per annum starting


either in. the Tax Year in which such expenditures are


incurred and paid or the Tax Year in which initial


Commercial Production commences, whichever is the later


date.


(iii) Operating Expenses, incurred and paid after the date of


initial Commercial Production, which for the purposes of this


Agreement shall mean the date on which the first regular


 shipment of Crude Oil or the first deliveries of Gas are


made, shall be recaverairre^sithef* in-t-he- .Tax-Year,Jn.. which


j ,


such costs and expenses are incurred and paid or the Tax


Year in which initial Commercial Production occurs,


whichever is the later date.


(iv) To the extent that, in a Tax Year, costs, expenses or


expenditures recoverable per paragraphs (i), (ii) and (iii)


preceding, exceed the value of all Cost Recovery Petroleum


for such Tax Year, the excess shall be carried forward for


recovery in the next succeeding Tax Year(s) until fully


recovered, but in no case after the termination of this


Agreement, as to CONTRACTOR.


(v) The recovery of costs and expenses, based upon the rates


referred to above, shall be allocated to each quarter


proportionately (one fourth to each quarter). However, any


recoverable costs and expenses not recovered in one


quarter as thus allocated, shall be carried forward for


recovery in the next quarter.


2. Except as provided in Article Vil (a) (3) and Article VII (e) (1),


CONTRACTOR shall each quarter be entitled to take and own all


Cost Recovery Petroleum, which shall be taken and disposed of


in the manner determined pursuant to Article VII (e). To the


extent that the value of all Cost Recovery Petroleum (as


determined in Article VI! (c)) exceeds the actual recoverable


*•


costs and expenditures, including any carry forward under


Article VII (a) (1) (iv), to be recovered in that quarter, then the


value of such Excess Cost Recovery Petroleum shall be split as:


Seventy percent (70%) for EGPC and thirty percent (30%) for


CONTRACTOR and EGPC’s share shall be paid by


CONTRACTOR to EGPC either (i) in cash in the manner set forth


in Article IV of the Accounting Procedure contained in Annex "E”


or (ii) in kind in accordance with Article Vli(a) (3).





-3 2-


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Ninety (yOy'daysr prior to"rthe-com{T*Q’Rcernent-..aLeach.. . Calendar.


Year EGPC shall be entitled to elect by notice in writing to


CONTRACTOR to require payment of up to one hundred percent


(100%) of EGPC’s share of Excess Cost Recovery Petroleum in


kind. Such payment will be in Crude Oil from the Area F.O.B.


export terminal or other agreed delivery point provided that the


amount of Crude Oil taken by EGPC in kind in a quarter shall not


exceed the value of Cost Recovery Crude Oil actually taken and


separately disposed of by CONTRACTOR from- the Area during


the previous quarter. If EGPC’s entitlement to receive payment of


its share df Excess Cost Recovery Petroleum in kind is limited


by the foregoing provision, the balance of such entitlement shall





be paid in cash.





(b) Production Sharing





1. The remaining seventy percent (70%) of the Petroleum shall


be divided between EGPC and CONTRACTOR according to


the following shares: Such shares shall be taken and





disposed of pursuant to Article VII (e):





(i) Crude Oil


Crude Oil produced and saved EGPC CONTRACTOR


under this Agreement and not used SHARE share


in Petroleum operations. Barrels per


day (BOPD) (quarterly average).





That portion or increment (seventy (thirty


up to 5,000 BOPD, percent) percent)


(70 %) (30 %)





That portion or increment In (seventy-two (twenty- seven


excess of 5,000 BOPD and & half percent) & half percent)


up to 10,000 BOPD (72.5 %) (27.5 %)


£.s .





&


r..... 7.


-3 3-


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EG PC CONTRACTOR


SHARE SHARE


That portion or increment in (seventy- five (twenty-five


excess of 10,000 BOPD and percent) percent}


up to 15,000 BOPD (75 %) (25 %)


That portion or increment in (seventy-seven (twenty- two


excess of 15,000 BOPD and & half percent) & half percent)


up to 25,000 BOPD (77.5 %) (22.5 %)


That portion or increment in (eighty (twenty


excess of 25,000 BOPD and percent) percent)


up to 50,000 BOPD (80 %) (20 %)


That portion or increment in (eighty-two (seventeen


excess of 50,000 BOPD and & half percent) & half percent)


up to 100,000 BOPD (82.5 %) (17.5 %)


That portion or increment in (eighty -five (fifteen


excess of 100,000 BOPD percent) percent)


(85 %) (15 %)


(ii) Gas and LPG:


Gas and LPG produced and saved under this Agreement and not


used in petroleum operations Barrels oil equivalent per day


(BOEPD) (Quarterly average)


EGPC CONTRACTOR


SHARE SHARE


That portion or increment up to sixty-five thirty-five


5000 BOEPD percent percent


#* (65%) (35%)


That portion or increment seventy thirty


in excess of 5000 BOEPD percent percent


and up to 10,000 BOEPD (70%) (30%)


That portion or increment seventy-five twenty-five


in excess of 10,000 BOEPD percent percent


and up to 15,000 BOEPD (75%) (25%)


/ ip- A


& •Lj


V I'





-3 4-


 EGPC............CONTRACTOR


SHARE SHARE








That portion or increment eighty twenty


in excess of 15.000 BOEPO percent percent


and up to 25.000 BOEPD (80%) (20%)





That portion or increment eighty^five fifteen


in excess of 25,000 BOEPD percent percent


(85%) (15%)











2. After the end of each contractual year during the term of any Gas


Sales Agreement entered into pursuant to Article Vli (e), EGPC


and CONTRACTOR (as sellers) shall render to EGPC (as buyer) a


statement for an amount of Gas. if any, equal to the amount by


which the quantity of Gas of which EGPC (as buyer) has taken


delivery falls below seventy five percent (75%) of the Contract


quantities of Gas as established by the applicable Gas Sales


Agreement (the "Shortfall"), provided the Gas is available. Within


sixty (60) days of receipt of the statement, EGPC (as buyer)


shall pay EGPC and CONTRACTOR (as sellers) for the


amount of the Shortfall, if any. The Shortfall shall be included in


EGPC's and CONTRACTOR’S entitlement to Gas pursuant to


Article Vll (a) and Article VII (b) in the fourth (4th) quarter of such





contractual year.





Quantities of Gas not taken but to be paid for shall be recorded in


, a separate “Take-or-Pay” account. Quantities of Gas ("Make Up


Gas") which are delivered in subsequent years in excess of


seventy five percent (75%) of the contract quantities of Gas as


established by the applicable Gas Sales Agreement, shall be set


against and reduce quantities of Gas in the (“Take-or-Pay”)


account to the extent thereof and, to that extent, no payment shall


be due in respect of'such Gas. Such Make Up Gas shall not be


--..---.included...in CONTRACTOR'S entitlement to Gas pursuant to Article


% (f £>& -3 5- S-S-


 c-








VI! (a) and Article VI! (b). CONTRACTOR shall, have no rights to


such" Make Up Gas”


The percentages set forth in Article VII (a) hereinabove and 'this


Article VJI (b) in respect of LPG produced from a plant constructed


and operated by or on behalf of EGPC and CONTRACTOR shall


apply to all LPG available for delivery.


(c) VALUATION OF PETROLEUM:


1 - Crude Oil:


(i) The Cos\ Recovery Crude OH to which CONTRACTOR is


entitled hereunder shall be valued by EGPC and


CONTRACTOR at "Market Price" for each calendar quarter.


(ii) "Market Price" shall mean the weighted average prices


realized from sales by EGPC or CONTRACTOR during the


quarter, whichever is higher, provided that the sales to be


used in arriving at the weighted average(s) shall be sales of


comparable quantities on comparable credit terms in freely


convertible currency from F.O.B. point of export sales to non-


affiliated companies at arm's length under all Crude Oil sales


contracts then in effect, but excluding Crude Oil sales


contracts involving barter and,


(1) Sales, whether direct or indirect, through brokers or


otherwise, of EGPC or CONTRACTOR to any Affiliated


Company.


(2) Sales involving a quid pro quo other than payment in a


freely convertible currency or motivated in whole or in part


by considerations other than the usual economic incentives


for commercial arm's length crude oil saies.











-36-


•Jii) It is understood that in me case of C.I.F. sales, appropriate


deductions snan be'made'for~transpoft~~and~msur.ance~ciia£ges_______


to calculate the F.O.B. point of export price; and always taking


into account the appropriate adjustment Tor quality of Crude


Oil. freight advantage or disadvantage of port of loading and


other appropriate adjustments. Market Price shall be


determined separately for each Crude Oil or Crude Oil mix,


and for each port of loading.


(iv) If during any calendar quarter, there are no' such sales by


EGPC and/or CONTRACTOR under the Crude Oil sales


contracts in effect, EGPC and CONTRACTOR shall mutually


agree upon the Market Price of the barrel of Crude Oil to be


used for such quarter, and shall be guided by ail relevant and


available evidence including current prices in freely


convertible currency of leading crude oils produced by major


oil producing countries (in the Arabian Gulf or the


Mediterranean Area), which are regularly sold in the open


market according to actual sales contracts terms but excluding


paper sales and sales promises where no crude oil is


delivered, to the extent that such sales are effected under such


terms and conditions (excluding the price) not significantly


different from those under which the crude oil to be valued,


was sold, and always taking into consideration appropriate


adjustments for crude oil quality, freight advantage or


disadvantage of port of loading and other appropriate


adjustments, as the case may be, for differences in gravity,


sulphur, and other factors generally recognized by sellers and


purchasers, as reflected in crude prices, transportation ninety


(90) days insurance premiums, unusual fees borne by the


seller, and for credit terms in excess of sixty (60) days, and the


cost of loans or guarantees granted for the benefit of the


sellers at prevailing, interest rates.








i


-3 7- f f


 r








it is the intent of the Parties that the value of the Cost


H'Sdbvefy ' Cruder'Off-shal-h reflect -the-prevailing- market.price.......


such Crude Oil.


(v) If either EGPC or CONTRACTOR considers that the Market


Price as determined under sub-paragraph (ii) above does not


reflect the prevailing Market Price or in the event EGPC and


CONTRACTOR fail to agree on Market Price for any Crude Oil


produced under this Agreement for any quarter within fifteen


(15) days after the end thereof, any party ' may eiect at


any time thereafter to submit to a single arbitrator the


question, What single price per barrel, in the arbitrator's


judgment, best represents for the pertinent quarter the Market


Price for the Crude OH in question. The arbitrator shall make


his determination as soon as possible following the quarter in


question. His determination shall be final and binding upon all


the parties. The arbitrator shall be selected in the manner


described below.


In the event EGPC and CONTRACTOR fail to agree on the


arbitrator within thirty (30) days from the date any party


notifies the other that it has decided to submit the


determination of the Market Price to an arbitrator, such


arbitrator shall be chosen by the appointing authority


designated in accordance with Article XXIV (e), or such other


appointing authority with access to such expertise as may be


agreed to between EGPC and CONTRACTOR, with regard to


the qualifications for arbitrators set forth below, upon written


application of one or both of EGPC and CONTRACTOR. Copies


of such application by one of them shall be promptly sent to


the other.


The arbitrator shall be as nearly as possible a person with an


established reputatipn in the international petroleum industry


as an expert in pricing and marketing crude oil in international


commerce. ^


<7.





r


 a»J. GAMM-


p.K





The arbitrator snail not be a citizen ot a country which does


Vjot have diplomatic relations™ with-the- A*R.«£ t h eu,


REP.UBLIC OF IRELAND^ He may not.be. at the time of


selection, employed by. or an arbitrator or consultant on a


continuing or frequent basis to. the American Petroleum


institute. the Organization of the Petroleum Exporting


Countries or the Organization of Arab Petroleum Exporting


Countries, or a consultant on a continuing basis to EGPC.


CONTRACTOR or an Affiliated Company of either, but past


occasional consultation with such companies, with other


petroleum companies, with governmental agencies or


organizations shall not be a ground for disqualification. He


may not have been, at any time during the two (2) years before


selection, an employee of any petroleum company or of any


governmental agency or organization.





Should a selected person decline or be unable to serve as


arbitrator or should the position of arbitrator fall vacant prior to


the decision called for. another person shall be chosen in the


same manner provided in this paragraph. EGPC and


CONTRACTOR shall share equally the expenses of the


arbitrator.








The arbitrator shall make his determination in accordance with


the provisions of this paragraph, based on the best evidence





available to him. He will review oil sales contracts as well as


other sales data and information but shall be free to evaluate


the extent to which any contracts, data or information is


substantiated or pertinent. Representatives of EGPC and


CONTRACTOR shall have the right to consult with the


arbitrator and furnish him written materials provided the


arbitrator may impose reasonable limitations on this right


EGPC and CONTRACTOR each shall cooperate with the


arbitrator to the fullest extent and each shall insure such


coojberation of its trading companies. The arbitrator shall be


ss. V





r


 c








provided access to crude oil sales contracts and related data


and information which'EGP€~ CONTRACTOR-..-or^- thair._______ .


trading companies are able to make available and which in the


judgment of the arbitrator might aid the arbitrator in making a


valid determination.


(vi) Pending Market Price agreement by EGPC and CONTRACTOR


or determination by the arbitrator, as applicable, the Market


Price agreed for the quarter preceding the quarter in question


shall remain temporarily in effect. In the event either EGPC or


CONTRACTOR should incur a loss by virtue of the temporary


continuation of the Market Price of the previous quarter, it shall


promptly be reimbursed such loss by the other party plus


simple interest at the LIBOR plus two and one - half percent


(2.5%) per annum rate provided for in Article IV (f) from the


date on which the disputed amount(s) should have been paid


to the date of payment.


2. Gas and LPG


(i) The Cost Recovery and Production Shares of Gas subject to a


Gas Sales Agreement between EGPC and CONTRACTOR (as


sellers) and EGPC (as buyer) entered into pursuant to Article VII


(e) shall be valued, delivered to and purchased by EGPC at a


price determined monthly according to the following formula:


PG = 0.85 X F X H


/ 42.96 X 10 6


Where:


PG = the value of the Gas in U.S. Dollars per thousand Standard


cubic feet (MSCF).


F = a value in U.S. Dollars per metric ton of the crude oii of


GUlf of Suez Blend "FOB Ras Shukheir* A.R.E.-calculated by


 r








referring to 'Platt's Oilgram Price Report'1 during a month


under'* tfrcrheatKfig'"»?8pot«Crud&~ Rfice-,Assej&snieot,.fo.r. Suez


Blend". This value reflects the total averages' of the


published low and high values for a Barrel during such


month divided by the number of days in such month for


which such values were quoted. The value per metric ton


shall be calculated on the basis of a conversion factor to


be agreed upon annually between EGPC and


CONTRACTOR.





H = the number of British Thermal Units (BTU's) per thousand


standard' cubic feet (MSCF) of the Gas, based on gross


calorific value.


In the event that the value of F cannot be determined because





Platt's Oilgram Price Report is not published at all during a


month, EGPC and CONTRACTOR shall meet and agree the value


of F by reference to other published sources. In the event that


there are no such published sources or if the value of F cannot


be determined pursuant to the foregoing for any other reason,


EGPC and CONTRACTOR shall meet and agree to a value of F.





Such evaluation of Gas under a formula providing for a fifteen


percent (15%) discount is based upon delivery at the delivery


point specified in Article II and Article VII (e) 2 (ii) herinafter, and


is to enable EGPC to finance and maintain the portions of the


pipeline distribution system to be provided by EGPC.





(ii)The Cost Recovery and Production Shares of LPG produced from


a plant constructed and operated by or on behalf of EGPC and


CONTRACTOR shall be separately valued for Propane and


Butane at the outlet of such LPG plant according to the following


formula (unless otherwise agreed between EGPC and


CONTRACTOR)








41 f


C:








PLPG = 0.95 PR - (J X 0.85 X r








Where





PLPG = LPG price (separately determined for Propane


and Butane) in U.S. Dollars per metric ton.





PR The average over a period of a month of the figures


representing the mid-point between the high and


low prices in U.S. Dollars per metric' ton quoted in


"Platt's LPGaswire" during such month for Propane and





Butane FOB Ex-Ref/Stor. West Mediterranean








J BTU's removed from the Gas stream by the LPG plant


per metric ton of LPG produced.





F the same value as F under sub-paragraph (i)


above.





In the event that Platt's LPGaswire is issued on certain day during


a month but not on others, the value of PR shall be calculated


using only those issues which are published during such month.


In the event that the value of PR can not be determined


because Platt's LPGaswire is not published at all during a month,


EGPC and CONTRACTOR shall meet and agree to the value of


PR by reference to other published sources. In the event that there


are no such other published sources or if the value of PR cannot


be determined pursuant to the foregoing for any other reason


EGPC and CONTRACTOR shall meet and agree to the value of PR


by reference to the value of LPG (Propane and Butane) delivered


FOB from the Mediterranean Area.


Such valuation of LPG .is based upon delivery at the delivery point


specified in Article VH (e) (2) (iii) hereinafter.





.42-


• ii'iihe prices of Gas ana i_PG so calculates shall apply aunng the


same*, men ibu^........


(iv)The Cost Recovery and Production Shares of Gas and LPG


disposed of by EGPC and CONTRACTOR other than to EGPC


pursuant to Article VIi (e) hereinafter shall be valued at their


actual realized price.





(d) FORECASTS:


Operating Company shall prepare (not less than ninety (90) days


prior to the beginning of each calendar semester following first


regular production) and furnish in writing to CONTRACTOR and


EGPC a forecast setting out a total quantity of Petroleum that


Operating Company estimates can be produced, saved and


transported hereunder during such calendar semester in


accordance with good oil and gas industry practices.





Operating Company shall endeavor to produce each calendar


semester the forecast quantity. The Crude Oil shall be run to


storage tanks or offshore loading facilities constructed,


maintained and operated according to Government Regulations,


by Operating Company in which said Crude Oil shall be metered


or otherwise measured for royalty, and other purposes required


by this Agreement. Gas shall be handled by Operating Company


in accordance with the provisions of Article Vll (e) . '


(e) DISPOSITION OF PETROLEUM:








(1) EGPC and CONTRACTOR shall have the right and the


obligation to separately take and freely export or otherwise


dispose of, currently ail of the Crude Oil to which each is


entitled under Article Vll (a) and Article Vll (b), Subject to


payment of sums due to EGPC under Article Vll (a) (2) and


'Article IX, CONTRACTOR shall have the right to remit and


C-»T-


4 3- ^ Sb >


/


r


retain aoroaa aii runas acquired by it including the proceeds


fro,m'--tfre"se4e-«qL its«shate ofJP&rqleum,


Notwithstanding anything to the contrary under this


Agreement priority shall be given to meet the requirements


of the A.R.E. market from CONTRACTOR'S share under


Article VI) (b) of the Crude Oil produced from the Area and


EGPC shall have the preferential right to purchase such


Crude Oil at a price to be determined pursuant to Article VII


(c). The amount of Crude Oil so purchased shall be a portion


of CONTRACTOR'S share under Article Vll (b). Such amount


shall be proportional to CONTRACTOR'S share of the total


production of crude oil from the concession areas in the


A.R.E. that are also subject to EGPC's preferential right to


purchase. The payment for such purchased amount shall be


made by EGPC in U.S. Dollars or in any other freely


convertible currency remittable by CONTRACTOR abroad.


It is agreed upon that EGPC shall notify CONTRACTOR, at


least forty-five (45) days prior to the beginning of the


Calendar Semester, of the amount to be purchased during


such semester under this Article Vll (e) (1).


(2) With respect to Gas and LPG produced from the Area:


(i) Priority shall be given to meet the requirements of the


local market as determined by EGPC.


(ii) In the event that EGPC is to be the buyer of Gas, the


disposition of Gas to the local markets as indicated


above shall be by virtue of long term Gas Sales


Agreements to be entered into between EGPC and


CONTRACTOR (as seilersj^and EGPC (as buyer).


t'


EGPC and CONTRACTOR (as sellers) shall have the


obligation to deliver Gas to the following point where








V


 such Gas shall be metered for sales, royalty, and other


purpos^-requited-by-this Agreement:.. .





(a) In the event no LPG plant is constructed to


process such Gas. the delivery point shall be at


the flange connecting the Lease pipeline to the


nearest point on the National Gas Pipeline Grid


System as depicted in Annex "F" hereto, or as


otherwise agreed by EGPC and CONTRACTOR.


(b) In the event an LPG plant is constructed to





process such Gas, such Gas shall, for the


purposes of valuation and sales, be metered at


the inlet to such LPG Plant. However,


notwithstanding the fact that the metering shall


take place at the LPG Plant inlet, CONTRACTOR


shall through the Operating Company build a


pipeline suitable for transport of the processed


Gas from the LPG Plant outlet to the nearest point


on the National Gas Pipeline Grid System as


depicted in Annex "F" hereto, or as otherwise


agreed by EGPC and CONTRACTOR. Such


pipeline shall be owned in accordance with


Article VIII (a) by EGPC, and its cost shall be


financed and recovered by CONTRACTOR as


Development Expenditures pursuant to Article VI).





(Hi) EGP.d and CONTRACTOR shall consult together to


determine whether to build an LPG plant for recovering


LPG from any Gas produced hereunder. In the event


EGPC and CONTRACTOR decide to build such a plant,


the plant shall, as is appropriate,be in the vicinity of the


point of delivery as determined in Article U and Article


V!!(e)2(H) .above. The delivery of LPG for, royalty and


other purposes required by this Agreement shall be at


] -45 M' u





c











the outlet of the LPG plant. The costs of any such LPG


piant-'SbaM-be - - recoverable- la^aacjojcciajipe.. with the


provisions of this Agreement unless the Minister of


Petroleum agrees to accelerated recovery.


(Iv) EGPC (as buyer) shall have the option to elect, by


ninety (90) days prior written notice to EGPC and


CONTRACTOR (as sellers), whether payment for the


Gas which is subject to a Gas Sales Agreement


between EGPC and CONTRACTOR (as sellers) and


EGPC (as buyer) and LPG produced from a plant


constructed and operated by or on behalf of EGPC


and CONTRACTOR, as valued in accordance with


Article VJI (c), and to which CONTRACTOR is entitled


under the Cost Recovery and Production Sharing


provisions of Article VII, shall be made 1) in cash or 2)


in kind.





Payments in cash shall be made by EGPC (as buyer)


at intervals provided for in the relevant Gas Sales


Agreement in U.S.Dollars, remittable by CONTRACTOR


abroad.


Payments in kind shall be calculated by converting the





value of Gas and LPG to which CONTRACTOR is


entitled into equivalent barrels of Crude Oil to be taken


concurrently by CONTRACTOR from the Area, or to the


extent that such Crude Oil is insufficient, Crude Oil from


CONTRACTOR'S other concession areas or such other


areas as may be agreed. Such Crude Oil shall be


added to the Crude Oil that CONTRACTOR is otherwise


entitled to lift under this Agreement. Such equivalent


barrels sjiail be calculated on the basis of the


provisions of Article VII (c) relating to the valuation of


Cost Recoverv Crude Oil. . A


Provided that:








(aa) Payment of the value of Gas and LPG shall


always be made in cash in U.S. Dollars


remittable by CONTRACTOR abroad to the extent


that there is insufficient Crude Oil available for


conversion as provided for above;


(bb) payment of the value of Gas and LPG shall


always be made in kind as provided for above to


the extent that payments in cash are not made by


EGPC.





Payments to CONTRACTOR (whether in cash or kind),


when related to CONTRACTOR'S Cost Recovery


Petroleum, shall be included in CONTRACTOR'S


Statement of Recovery of Costs and of Cost Recovery


Petroleum referred to in Article IV of Annex "E" of this


Agreement.


(v) Should EGPC (as buyer) fail to enter into a long-term





Gas Sales Agreement with EGPC and CONTRACTOR


(as sellers) within five (5) years (unless otherwise


agreed) from a notice of Commercial Gas Discovery


pursuant to Article 111, EGPC and CONTRACTOR shall


have the right to take and freely dispose of the quantity


of Gas and LPG in respect of which the notice of


Commercial Discovery is given by exporting such Gas


and LPG.





(vi) The proceeds of sale of CONTRACTOR'S share of Gas


and LPG disposed of pursuant to the above sub-


paragraph (v) may be freely remitted or retained abroad


hv CONTRACTOR,











-4 7-


(vii) (n the event EGPC ana CONTRACTOR agree to accept


new-'Gas"*- and- bPG --produce*®-1 ©~. j oifu. in^aa.onqqlna^


export project, such producers shall have to contribute


a fair and equitable share of the.' investment made.


(viii) (a a) Upon the expiration of the five (5) year period


referred to in Article VI! (e) (2) (v) above.


CONTRACTOR shall have the obligation to exert


its reasonable efforts to find an export market for


Gas reserves.


(bb) In the event at the end of the five (5) year period


referred to under Article Vll (e) (2)


(v)above. CONTRACTOR and EGPC have not


entered into a Gas Sales Agreement,


CONTRACTOR shail retain its rights to such Gas


reserves for a further period of up to seven (7)


years, subject to Article Vll (e) (2) (viii) (cc)


below, during which period EGPC shall attempt to


find a market for the Gas reserves.


(cc) In the event that CONTRACTOR is not exporting


the Gas and CONTRACTOR has not entered into a


Gas Sales Agreement pursuant to Article VH (e)


(2) prior to the expiry of twelve (12) years from


CONTRACTOR'S notice of Commercial Gas


Discovery, CONTRACTOR shail surrender the Gas


.- reserves in respect of which such notice has been


given. It being understood that CONTRACTOR


shall, at any time prior to the expiry of such twelve


(12) year period, surrender the Gas reserves, if


CONTRACTOR is not exporting the Gas and


CONTRACTOR does not accept an offer of a Gas


Sales Agreement from EGPC within six (6) months


from the date such offer is made provided that the


 Gas Sales Agreement offered to CONTRACTOR


srraffwtake“mtO'censlderation<-the-ceieviaotwt£,chJ)icaL..


and economic factors to enable a commercial


contract including :


A sufficient delivery rate.


Delivery pressure to enter the National Gas


Pipeline Grid System at the point of delivery.


- Delivered Gas quality specifications not more


stringent than those imposed or required for the


Naitonal Gas Pipeline Grid System.


- The Gas prices as specified in this Agreement.


(ix) CONTRACTOR shall not be obligated to surrender a


Development Lease based on a Commercia) Gas


Discovery, if Crude Oil has been discovered in commercial


quantities in the same Development Lease and vice versa.


(f) Operations:


If following the reversion to EGPC of any rights to Crude Oil


hereunder, CONTRACTOR retains rights to Gas in the same


Development Lease, or if, following surrender of rights to Gas


hereunder, CONTRACTOR retains rights to Crude Oil in the same


Development Lease, operations to explore for or exploit the


Petroleum,the rights to which have reverted or been surrendered


(Oil or Gas as the case may be) may only be carried out by


Operating Company which shall act on behalf of EGPC alone,


unless CONTRACTOR and EGPC agree otherwise.


>*


(g) Tanker Scheduling:


At a reasonable time prior to the commencement of Commercial


Production EGPC and CONTRACTOR shall meet and agree upon


a procedure for scheduling tanker liftings from the agreed upon


point of export- £

vl ^


r /


-4 9-


 ARTICLE VIII


inTE"TCr ASSETS-








(a) EGPC shall become the owner of all CONTRACTOR acquired and


owned assets which assets were charged to Cost Recovery by


CONTRACTOR in connection with the operations carried out by


CONTRACTOR or Operating Company in accordance with the


following:


(1) Land shall become the property of EGPC as soon as it is


purchased.


(2) Title to fixed and moveable assets shall be transferred


automatically and gradually from CONTRACTOR to EGPC as


they become subject to recovery in accordance with the


provisions of Article VII; however the full title to fixed and


movable assets shall be transferred automatically from


CONTRACTOR to EGPC when its total cost has been recovered


by CONTRACTOR in accordance with the provisions of Article


VI) or at the time of termination of this Agreement with respect


to all assets chargeable to the operations whether recovered


or not, whichever first occurs.


The book value of the assets created during each calendar


quarter shall be communicated by CONTRACTOR to EGPC or by


Operating Company to EGPC and CONTRACTOR within thirty (30)


days of the end of each quarter.


(b) During the tercrt of this Agreement and the renewal period EGPC,


CONTRACTOR and Operating Company are entitled to the full


use and enjoyment of all fixed and movable assets referred to


above in connection with operations hereunder or under any


other Petroleum concession agreement entered into by the


Parties. Proper accounting adjustment shall be made.


CONTRACTOR and EGPC shall not dispose of the same except


.......■WJth-.agreement^of-the.ntfier. .. .... .....r*.c\... */• a


-5 0


[C) CO NTftACTCf^'--3mH3peratmg~ Company- may4Feei.y-.import.inta. tile_____


A.R.E., .use therein and freely export at th.e end of such ’use.


machinery and equipment which they either rent or lease in


accordance with good industry practices, including but not limited


to the lease of computer hardware and software.








ARTICLE IX


BONUSES








(a) CONTRACTOR shall pay to EGPC as a signature bonus the sum


of seven hundred and fifty thousand (750,000) U.S.Dollars on


the Effective Date.





(b) CONTRACTOR shall pay to EGPC the sum of two million


(2,000.000) U.S. Dollars as a production bonus when the total


average daily production from the Area first reaches the rate of


twenty five thousand (25,000) Barrels per day for a period of


thirty (30) consecutive producing days. Payment will be made


within fifteen (15) days thereafter.


(c) CONTRACTOR shall also pay to EGPC the additional sum of three





million (3,000,000) U.S. Dollars as a production bonus when the


total average daily production from the Area first reaches the


rate of fifty thousand (50,000) barrels per day for a period of thirty


(30) consecutive producing days. Payment will be made within


fifteen (15) days thereafter.


(d) CONTRACTOR shall also pay to EGPC the additional sum of five


million (5,000,000) U.S. Dollars as a production bonus when the


total average daily production from the Area first reaches the


rate of one-hundred thousand (100,000) barrels per day for a


period of thirty (30) consecutive producing days. Payment will be


made, within fifteen (15) days thereafter.


*


f


-51-


(e) AirtHe above"rTTenttoTie-d~bomjses-*shaft"in-no* event*fee--- recovered--.


by CONTRACTOR.


(f) In the event that EGPC elects to develop any part of the Area


pursuant to the sole risk provisions of Article 11! (c) (iv),


production from such sole risk area shall be considered for the


purposes of this Article IX only if CONTRACTOR exercises its


option to share in such production, and only from the initial date


of sharing.


(g) Gas shall be' taken into account for the purposes of determining


the total average daily production from the Area under Article IX


(b-d) by converting daily Gas delivered into equivalent barrels of


daily Crude Oil production in accordance with the following


formula:








MSCF x H x 0.136 = equivalent barrels of Crude Oil


where


MSCF = one thousand Standard Cubic Feet of Gas.


H = the number of million British Thermal Units (BTU’s


per MSCF).





ARTICLE X








OFFICE AND SERVICE OF NOTICES


CONTRACTOR shall maintain an office in A.R.E. at which notices shall


be validly served.





The General Manager and Deputy General Manager shall be entrusted


by CONTRACTOR with sufficient power to carry out immediately all


local written directions given to them by the Government or its


representatives under the terms of this Agreement. AH lawful


.IV. sC


-5 2- t*/- .....


r


regulations issued or hereafter :o oe issued which are applicable


hereunder ana nor in"conflict-with'this•‘A-greerrve-fit--sfraM-’apply-to-the.,


duties and . activities of the Genera! Manager and Deputy General


Manager.


Al! matters and notices shall be deemed to be validly served which are


delivered to the office of the General Manager or which are sent to


him by registered mail to CONTRACTOR'S office in the A.R.E.


AM matters and notices shall be deemed to be validly served which are





delivered to the office of the Chairman of EGPC or which are sent to


him by registered mail at EGPC's main office in Cairo.





ARTICLE XI








SAVING OF PETROLEUM AND PREVENTION OF LOSS





(a) Operating Company shall take all proper measures, according to


generally accepted methods in use in the oil and gas industry to


prevent loss or waste of Petroleum above or under the ground in


any form during drilling, producing, gathering, and distributing or


storage operations. The GOVERNMENT has the right to prevent


any operation on any well that it might reasonably expect would


result in loss or damage to the well or the Oil or Gas field.


(b) Upon completion of the drilling of a productive well, Operating


Company shall ..inform the GOVERNMENT or its representative of


the time when the well will be tested and the production rate


ascertained.


(c) Except in instances where multiple producing formations in the


same well can only be produced economically through a single


tubing string, Petroleum shall not be produced from multiple oil


bearing zones through one string of tubing at tbe same time,


xj' 83 .... OC-.


5 3 /


\





except with the prior approval of the GOVERNMENT or iis


r epresentativer" wfc-ioh-s h-aU- not- be- - ■ ■ u rtfcas onahi,y„. wi.thU.e I d■


(d) Operating Company shall record data regarding the quantities of


Petroleum and water produced monthly from each Development


Lease. Such data shall be sent to the GOVERNMENT or its


representative on the special forms provided for that purpose


within thirty (30) days after the data are obtained. Daily or weekly


statistics regarding the production from the Area shall be


available at all reasonable times for examination by authorized


representatives of the GOVERNMENT.


(e) Daily drilling records and the graphic logs of wells must show the


quantity and type of cement and the amount of any other


materials used in the well for the purpose of protecting


Petroleum, gas bearing or fresh water strata.


(f) Any substantial change of mechanical conditions of the well after


its completion shall be subject to the approval of the


representative of the GOVERNMENT.





ARTfCLE XI!


CUSTOMS EXEMPTIONS





(a) EGPC, CONTRACTOR, and Operating Company shall be


permitted to import and shall be exempted from customs duties,


any taxes, levies or fees (including fees imposed by Ministerial


Decision No. 254 of 1993 issued by the Minister of Finance, as


now or hereafter amended or substituted) of any nature (except


where an actual service has been rendered to CONTRACTOR by


a competent authority), and from the importation rules with


respect to the importation of machinery, equipment, appliances,


materials, items, means of transport and transportation (the


exemption from taxes and duties for cars shall only apply, to cars


...to .be used in ..operations), electric appliances, air“ conditioners


-54-


 r








for offices, field housing ana facilities, electronic appliances,


computer'hsrdvfare -arKi-softwar-er-as-Ave4^-as-.sp.a4:a^parts..Le.q!uice.d


for any of the imported items, all subject, to a duly approved


certificate issued by the responsible representative nominated by


EGPC for such purpose, which states that the imported items are


required for conducting the operations pursuant to this


Agreement . Such certificate shall be final and binding and shall


automatically result in the importation and the exemption without


any further approval, delay or procedure.





(b) Machinery, equipment, appliances and means of transport and


transportation imported by EGPC’s, CONTRACTOR’S and


Operating Company's contractors and sub-contractors


temporarily engaged in any activity pursuant to the operations


which are the subject of this Agreement, shall be cleared under


the "Temporary Release System11 without payment of customs


duties, any taxes, levies or fees (including fees imposed by


Ministerial Decision No. 254 of 1993 issued by the Minister of


Finance, as now or hereafter amended or substituted) of any


nature (except where an actual service has been rendered to


CONTRACTOR by a competent authority), upon presentation of a


duly approved certificate issued by an EGPC responsible


representative nominated by EGPC for such purpose which


states, that the imported items are required for conducting the


operations pursuant to this Agreement. Items (excluding cars not


to be used in operations) set out in Article Xli (a) imported by


EGPCs, CONTRACTOR'S and Operating Company's contractors


and sub-contractors for the aforesaid operations, in order to be


installed or used permanently or consumed shall meet the


conditions for exemption set forth in Article XII (a) after being


duly certified by an EGPC responsible representative to be used


for conducting operations pursuant to this Agreement,


(c) The expatriate employees of CONTRACTOR, Operating Company


and their contractors and sub-contractors shall not be entitled to





-55-


any exemptions from customs auties and other ancillary taxes


ancHcharges-e-xcept- wiihin~the»>!Untts~.Ql.th&. provisions of the laws


and regulations applicable in the A.R.E. However. personal


household goods and furniture (including one (1) car) for each


expatriate employee of CONTRACTOR and/or Operating company


shall be cleared under the "Temporary Release System" (without


payment of any customs duties and other ancillary taxes) upon


presentation of a letter to the appropriate customs authorities by


CONTRACTOR or Operating Company approved by an EGPC


responsible representative that the imported items are imported


for the sole use of the expatriate employee and his family, and


that such imported items shall be re-exported outside the A.R.E.


upon the repatriation of the concerned expatriate employee.


(d) Items imported into the A.R.E. whether exempt or not exempt


from customs duties and other ancillary taxes and charges


hereunder, may be exported by the importing party at any time


after obtaining EGPC's approval, which approval shall not be


unreasonably withheld, without any export duties, taxes or


charges or any taxes or charges from which such items have


been already exempt, being applicable. Such items may be sold


within the A.R.E. after obtaining the approval of EGPC which


approval shall not be unreasonably withheld. In this event, the


purchaser of such items shall pay ail applicable customs duties


and other ancillary taxes and charges according to the condition


and value of such items and the tariff applicable on the date of


sale, unless such items have already been sold to an Affiliated


Company of CONTRACTOR, if any, or EGPC, having the same


exemption, or unless title to such items (excluding cars not used


in operations) has passed to EGPC. In the event of any such sale


under this paragraph (d), the proceeds from such sale shall be


divided in the following manner:


CONTRACTOR shall be entitled to reimbursement of its


f*


unrecovered cost, if.any, in such items and the excess, if any,


 r








^ej The exemption provided for in Article XII (a) shall not apply to


any imported items wnen kerns'of^he-same-or-substantially-.the.,


same -kind and quality are manufactured locally meeting


CONTRACTOR'S and/or Operating Company's specifications for


quality and safety and are available for timely purchase and


delivery in the A.R.E. at a price not higher than ten percent (10%)


of the cost of the imported item, before customs duties but after


freight and insurance costs, if any, have been added.





(f) CONTRACTOR, EGPC and their respective buyers shall have the


right to freely export the Petroleum produced from the Area


pursuant to this Agreement; no license shall be required, and


such petroleum shall be exempted from any customs duties, any


taxes, levies or any other imposts in respect of the export of


Petroleum hereunder.


ARTICLE XIII





BOOKS OF ACCOUNT : ACCOUNTING AND PAYMENTS





(a) EGPC, CONTRACTOR and Operating Company shall each


maintain at their business offices in the A.R.E. books of account,


in accordance with the Accounting Procedure in Annex "E" and


accepted accounting practices generally used in the petroleum


industry, and such other books and records as may be necessary


to show the work performed under this Agreement, including the


amount and value of all Petroleum produced and saved


hereunder. CONTRACTOR and Operating Company shall keep


their books of'account and accounting records in United States


Dollars





Operating Company shall furnish to the GOVERNMENT or its


representatives monthly returns showing the amount of


Petroleum produced end saved hereunder. Such returns shall be


prepared in the form required by the GOVERNMENT, or Us


'revpre^entative'a'rKJ-’5hiaII‘-be‘'SV9n&d'^fey-the-Genera!-Manager or by


57-


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ihe Deputy General Manager or a duiy designated deputy and


d slivered->•So^he^-G-GVERNMENX* ojlits.rep££s.en.tative.. within .thirty


(30) days after the end of the month covered in the return.





(b) The aforesaid books of account and other books and records


referred to above shall be available at all reasonable times for


inspection by duly authorized representatives of the


GOVERNMENT.





(c) CONTRACTOR shall submit to EGPC a Profit and'Loss Statement


of its Tax Year not later than four (4) months after the


commencement of the following Tax Year to show its net profit or


loss from the Petroleum operations under this Agreement for such


Tax Year.





CONTRACTOR shall at the same time submit a year-end Balance


Sheet for the same Tax Year to EGPC. The Balance Sheet and


financial statements shall be certified by an Egyptian certified


accounting firm.


ARTICLE XIV





RECORDS, REPORTS AND INSPECTION








(a) CONTRACTOR and/or Operating Company shall prepare and, at


ail times while this Agreement is in force, maintain accurate and


current records of its operations in the Area. CONTRACTOR


and/or Operating Company shall furnish the GOVERNMENT or its


representative, in conformity with applicable regulations or as


the GOVERNMENT or its representative may reasonably require


information and data concerning its operations under this


Agreement. Operating Company will perform the functions


indicated in this Article XIV in accordance with its respective role











-5 8-


 (b) uOTTrR'AC'TOR''A'anrifor*"Opefa^^g-. Company.,.afta.ll. saye and keep


for a reasonable period of time a representative portion of each


sample of cores and cuttings taken from.-drilling wells, to be


disposed of, or forwarded to the GOVERNMENT or its


representative in the manner directed by the GOVERNMENT. All


samples acquired by CONTRACTOR and/or Operating Company


for their own purposes shall be considered available for


inspection at any reasonable time by the GOVERNMENT or its


representatives.


(c) Unless otherwise agreed to by EGPC, in case of exporting any


rock samples outside A.R.E., samples equivalent in size and


quality shall, before such exportation, be delivered to EGPC as


representative of the GOVERNMENT.


(d) Originals of records can only be exported with the permission of


EGPC; provided, however, that magnetic tapes and any other data


which must be processed or analyzed outside the A.R.E. may be


exported if a monitor or a comparable record, if available, is


maintained in the A.R.E. and provided that such exports shall be


repatriated to A.R.E. promptly following such processing or


analysis on the understanding that they belong to EGPC.


(e) During the period CONTRACTOR is conducting the Exploration


operations, EGPCs duly authorized representatives or


employees shall have the right to full and complete access to the


Area at all reasonable times with the right to observe the


operations being conducted and to inspect all assets, records


and data kept by CONTRACTOR. EGPC's representative, in


exercising its rights under the preceding sentence of this


paragraph

operations. CONTRACTOR shall provide EGPC with copies of any


and all data (including, but not limited to, geological and


. _____________^geophysical reports, logs and well surveys) Information and





-59*


 interpretation of such data, and other information in


C C N'TRACTOJfcs*- possession......





For the purpose of obtaining new offers, the GOVERNMENT


and/or EGPC may, after the eighth (8^) year of the Exploration


period or the date of termination of this Agreement, whichever is





the earlier, show any other party uninterpreted basic geophysical


and geological data (such data to be not less than one (1) year


old unless CONTRACTOR agrees to a shorter period, which


agreement shall not be unreasonably withheld) 'with respect to


the Area, provided that the GOVERNMENT andhr EGPC may at


any time show another party such data directly obtained over or


acquired from those parts of the Area which CONTRACTOR has


relinquished as long as such data is at least one (1) year old.








ARTICLE XV


RESPONSIBILITY FOR DAMAGES





CONTRACTOR shall entirely and solely be responsible in law toward


third parties for any damage caused by CONTRACTOR’S Exploration


operations and shall indemnify the GOVERNMENT and/or EGPC


against all damages for which they may be held liable on account of





any such operations.





ARTICLE XVI


PRIVILEGES OF GOVERNMENT REPRESENTATIVES








Duly authorized representatives of the GOVERNMENT shall have


access to the Area covered by this Agreement and to the Operations


conducted thereon. Such representatives may examine the books,


registers and records of EGPC, CONTRACTOR and Operating


Company and make a reasonable number of surveys, drawings and


tests for the purpose of enforcing this Agreement. They shall, for this


purpose,' be entitled to make reasonable use of the machinery and


*60- ^





instruments of CONTRACTOR or Operating Company on the condition


that no aanger or impediment-to- the--- o^eraUo^s-.h£aemde£.,.shai.l ,..a r i se


directly or indirectly from such use. Such representatives shall be


given reasonable assistance by the agents and employees of


CONTRACTOR or Operating Company so that none of the activities


shall endanger or hinder the safety or efficiency of the operations.


CONTRACTOR or Operating Company shall offer such representatives


all privileges and facilities accorded to its own employees in the field


and shall provide them, free of charge, the use of reasonable office


space and of adequately furnished housing while they are in the field


for the purpose of facilitating the objectives of this Article. Without


prejudice to Article XIV (e) any and all information obtained by the


GOVERNMENT or its representatives under this Article XVI shall be


kept confidential with respect to the Area.








ARTICLE XVII








EMPLOYMENT RIGHTS AND TRAINING OF


ARAB REPUBLIC OF EGYPT PERSONNEL





(a) It is the desire of EGPC and CONTRACTOR that operations


hereunder be conducted in a business-like and efficient manner.





(1) The expatriate administrative, professional and technical


personnel employed by CONTRACTOR or Operating


Company and the personnel of its contractors for the





conduct ot the operations hereunder, shall be granted a


residence as provided for in Law No. 89 of 1960 as


amended and Ministerial Order No. 280 of 1981 as


amended, and CONTRACTOR agrees that ail immigration,


passport, visa and employment regulations of the A.R.E.,


shall be applicable to ail alien employees of CONTRACTOR


working in the AIR.E. i








*( ^ S?£


-61-


 r








.2) A minimum of twenty-five percent (25%) of the combined


s2

professional and technical personnel employed by


CONTRACTOR or Operating Company .shall be paid monthly


in Egyptian Currency.


(b) CONTRACTOR and Operating Company shall each select its


employees and determine the number thereof, to be used for


operations hereunder.


(c) CONTRACTOR, shall after consultation with EGPC, prepare and


carry out specialized training programs for all its A.R.E.


employees engaged in operations hereunder with respect to


applicable aspects of the petroleum industry. CONTRACTOR and


Operating Company undertake to replace gradually their non¬


executive expatriate staff by qualified nationals as they are


available.


(d) During any of the Exploration phases, CONTRACTOR shall give


mutually agreed numbers of EGPC employees an opportunity to


attend and participate in CONTRACTOR'S and CONTRACTOR'S


Affiliated Companies training programs relating to Exploration


and Development operations. In the event that the total cost of


such programs is less than fifty thousand (50,000) United States


Dollars in any Financial Year during such period, CONTRACTOR


shall pay EGPC the amount of the shortfall within thirty (30) days


following the end of such Financial Year. However, EGPC shall


have the right/that said amount (U.S.$50,000) allocated for


training, be paid directly to EGPC for such purpose.

















-6 2-


 r








ARTICLE XVIII





LAWS AND REGULATIONS.





(a) CONTRACTOR and Operating Company shall be subject to Law


No. 66 of 1953 (excluding Article 37 thereof) as amended by Law


No. 86 of 1956 and the regulations issued for the implementation


thereof, including the regulations for the safe and efficient


performance of operations carried out for the execution of this


Agreement and for the conservation of the petroleum resources


of the A.R.E. provided that no regulations, or modification or


interpretation thereof, shall be contrary to or inconsistent with the


provisions of this Agreement.


(b) Except as provided in Article ill (g) for Income Taxes, EGPC,


CONTRACTOR and Operating Company shall be exempted from


all taxes and duties, whether imposed by the GOVERNMENT or


municipalities including among others, Sales Tax, Value Added


Tax and Taxes on the Exploration, Development, extracting,


producing, exporting or transporting of Petroleum and LPG as


well as any and all withholding taxes that might otherwise be


imposed on dividends, interest, technical service fees, patent and


trademark royalties, and similar items. CONTRACTOR shall also


be exempted from any tax on the liquidation of CONTRACTOR, or


distributions of any income to the shareholders of CONTRACTOR,


and from any tax on capital.


(c) The rights and obligations of EGPC and CONTRACTOR under,


and for the effective term of this Agreement shall be governed by


and in accordance with the provisions of this Agreement and can


only be altered or amended by the written mutual agreement of


the said contracting parties.


4'


(d) The contractors and sub-contractors of CONTRACTOR and


...... ....Operating Company shall be subject to the provisions of this


6 3


 r








Agreement which affect them. Insofar as ail regulations which are


duiy"-is’Stieth-fay*’'tfie'^- appiy.from.time.,, .to, .time and


are not in accord with the provisions of this Agreement, such





regulations shall not apply to CONTRACTOR, Operating Company


and their respective contractors and sub-contractors, as the case


may be.





(e) EGPC, CONTRACTOR, Operating Company and their respective


contractors and sub-contractors shall for the purposes of this


Agreement be exempted from ail professional stamp duties,


imposts and levies imposed by syndical laws with respect to their


documents and activities hereunder.


(f) AH the exemptions from the application of the A.R.E. laws or





regulations granted to EGPC, CONTRACTOR, the Operating


Company, their contractors and sub-contractors under this


Agreement shall include such laws and regulations as presently


in effect or hereafter amended or substituted.





ARTICLE XIX








STABILIZATION








In case of changes in existing legislation or regulations applicable to


the conduct of Exploration, Development and production of Petroleum,


which take place after the Effective Date, and which significantly affect


the economic interest of this Agreement to the detriment of


CONTRACTOR or which imposes on CONTRACTOR an obligation to


remit to the A.R.E. the proceeds from sales of CONTRACTOR'S


Petroleum, CONTRACTOR shall notify EGPC of the subject legislative


or regulatory measure, in such case, the Parties shall negotiate


possible modifications to this Agreement designed to restore the


economic balance thereof which existed on the Effective Date.








1---7


-64-


 r





The Parties shall use their best efforts to agree on amendments to this


Agree’roentn--withirrninety^days--fcom,.af.ocesa'.d- notice.


These amendments to this Agreement shall not,in any event diminish


or increase the rights and obligations of CONTRACTOR as these were


agreed on the Effective Date.


Failing agreement between the Parties during the period referred to


above in this Article XIX , the dispute may be submitted to arbitration,


as provided in Article XXIV of this Agreement.


ARTICLE XX


RIGHT OF REQUISITION


(a) in case of national emergency due to war or imminent


expectation of war or internal causes, the GOVERNMENT may


requisition ail or part of the production from the Area obtained


hereunder and require Operating Company to increase such


production to the utmost possible maximum. The GOVERNMENT


may also requisition the Oil and/or Gas field itself and, if


necessary, related facilities.


(b) in any such case, such requisition shall not be effected except


after inviting EGPC and CONTRACTOR or their representative by


registered letter, with acknowledgement of receipt, to express


their views with ,respect to such requisition.


»• *


(c) The requisition of production shall be effected by Ministerial


Order. Any requisition of an Oil and/or Gas field, or any related


facilities shall be effected by a Presidential Decree duly notified


to EGPC and CONTRACTOR. *











-6 5-


'^) In the event of any requisition as provided above, the


GOV£^ME-HT"'3ha^md^fnntf^‘in-fiih-EG^C-and.....CONTRACTOR.


for the period during which the requisition is maintained,


including:


(1) All damages which result from such requisition; and





(2) Full repayment each month for ail Petroleum extracted by


the GOVERNMENT less the royalty share of such


production.


However, any damage resulting from enemy attack is not within





the meaning of this paragraph (d). Payment hereunder shall be


made to CONTRACTOR in U.S. Dollars remittable abroad. The


price paid to CONTRACTOR for Petroleum taken shall be


calculated in accordance with Article VI! (c).


ARTICLE XXI





ASSIGNMENT








(a) Neither EGPC nor CONTRACTOR may assign to a person, firm or


corporation, in whole or in part, any of its rights, privileges,


duties or obligations under this Agreement without the written


consent of the GOVERNMENT.


(b) To enable consideration to be given to any request for such





consent, the following conditions must be fulfilled;


(1) The obligations of the assignor deriving from this


Agreement must have been duly fulfilled as of the date such


request Is made.





(2) The instrument' Of assignment must include provisions


stating precisely that the assignee is bound by alt


. ..covenants, contained,, in . this. ^Agreement and any


% •66- b . J-5-




 f








modifications or additions m writing that up to such time


may''" irav«*'-b-ew' madei-*' A~- draft*.of.-. such.«. insttumaat...,o.fv.....


assignment shall be submitted to EGPC for review and


approval before being formally executed.





ic) Notwithstanding the provisions of Article XXI (a), CONTRACTOR


may assign ail or any of its rights, privileges, duties or


obligations under this Agreement to an Affiliated Company,


provided that CONTRACTOR shall advise the GOVERNMENT and


EGPC in writing of the assignment.


(d) Any assignment, sale, transfer or other such conveyance made





pursuant to the provisions of this Article XXI shall be free of any


transfer, capital gains taxes or related taxes, charges or fees


including without limitation, all Income Tax. Sales Tax, Value


Added Tax. Stamp Duty, or other Taxes or similar payments.





(e) As long as the assignor shall hold any interest under this


Agreement, the assignor together with the assignee shall be


jointly and severally liable for all duties and obligations of


CONTRACTOR under this Agreement.





ARTICLE XXII


BREACH OF AGREEMENT AND POWER TO CANCEL





(a) The GOVERNMENT shall have the right to cancel this Agreement


by Order or presidential Decree, with respect to CONTRACTOR,


in the following instances:


(1) If it knowingly has submitted any false statements to the


GOVERNMENT which were of a material consideration for


the execution of this Agreement;





(2) ,. if it assigns* any interest hereunder contrary ■ to the


provisions ,«©f-Article *XXi;


 ;3T" idctjtrdicatect'*bankrupt---by. .a «,couct,.o.f ..a... competent


jurisdiction:





(4) If it does not comply with any final decision reached as the


result of court proceedings conducted under Article XXiV(a);


(5) If it intentionally extracts any mineral other than Petroleum


not authorized by this Agreement or without the authority of


the GOVERNMENT, except such extractions as may be


unavoidable as the result of the operations conducted


hereunder in accordance with accepted petroleum industry


practice and which shall be notified to the GOVERNMENT or


its representative as soon as possible; and


(6) If it commits any material breach of this Agreement or of the


provisions of Law No. 66 of 1953, as amended by Law No.


86 of 1956, which are not contradicted by the provisions of


this Agreement.


Such cancellation shall take place without prejudice to any


rights which may have accrued to the GOVERNMENT


against CONTRACTOR in accordance with the provisions of


this Agreement, and, in the event of such cancellation,


CONTRACTOR, shall have the right to remove from the Area


ail its personal property.


If the GOVERNMENT deems that one of the aforesaid causes


(b)


(other than a force majeure cause referred to in Article XXIII)


hereof exists to cancel this Agreement, the GOVERNMENT shall


give CONTRACTOR ninety (90) days written notice personally


served on CONTRACTOR'S General Manager in the legally


official manner and receipt of which is acknowledged by him or


by his legal agents, ..to remedy and remove such cause; but if for


any reason such service is impossible due to unrjotified


 change of address, puolicauon jn the Official Journal of the


GOVSR-N'ME-MT- -of-siish - notice- si3aJJ...b£,„ considered.. as - valid


service upon CONTRACTOR, if at the end of the said ninety (90)


day notice period such cause has not .been remedied and


removed, this Agreement may be canceled forthwith by Order or


Presidential Decree as aforesaid: provided however, that if such


cause, or the failure to remedy or remove such cause, results


from any act or omission of one party, cancellation of this


Agreement shall be effective only against that party and not as


against any other party hereto.





ARTICLE XXill





FORCE MAJEURE





(a) The non-performance or delay in performance by EGPC and


CONTRACTOR, or either of them of any obligation under this


Agreement shall be excused if, and to the extent that, such non¬


performance or delay is caused by force majeure. The period of


any such non-performance or delay, together with such period as


may be necessary for the restoration of any damage done during


such delay, shall be added to the time given in this Agreement for


the performance of such obligation and for the performance of


any obligation dependent thereon and consequently, to the term


of this Agreement, but only with respect to the block or blocks


affected.


(b) ’’Force Majeure" within the meaning of this Article XXIII, shall be


any order, regulation or direction of the GOVERNMENT of the


__. ARAB REPUBLIC OF EGYPT, or the Government of the REPBULIC


^orii^ OF IRELAND? with respect to CONTRACTOR whether promulgated


^14^4 in the form of a law or otherwise or any act of God, insurrection,


riot, war, strike, and .other labor disturbance, fires, floods or any


cause not due to the fault or negligence of EGPC and


^ '(9- '-CONTRACTOR or either of them, whether or not similar to the


foregoing, provided ihat any such cause is beyond the


reasonable--- control---of- E G P C~ and».CONTRAC.ZQ.R,... or. either of


them.





(c) Without prejudice to the above and except as may be otherwise


provided herein, the GOVERNMENT shall incur no responsibility


whatsoever to EGPC and CONTRACTOR, or either of them for any


damages, restrictions or loss arising in consequence of such


case of force majeure except a force majeure caused by the


order, regulations or direction of the GOVERNMENT.


(d) if the force- majeure event occurs during the initial Exploration


period or any extension thereof and continues in effect for a


period of six (6) months CONTRACTOR shall have the option


upon ninety (90) days prior written notice to EGPC to terminate its


obligations hereunder without further liability of any kind.





ARTICLE XXIV


DISPUTES AND ARBITRATION





(a) Any dispute, controversy or claim arising out of or relating to this


Agreement or the breach, termination or invalidity thereof,


between the GOVERNMENT and the parties shall be referred to


the jurisdiction of the appropriate A.R.E. Courts and shall be


finally settled by such Courts.





(b) Any dispute, controversy or claim arising out of or relating to this


Agreement, or breach, termination or invalidity thereof between


EGPC and CONTRACTOR shall be settled by arbitration in


accordance with the Arbitration Rules of the* Cairo Regional


Center for International Commercial Arbitration (the Center) in


effect on the date of this Concession Agreement. The award of


the arbitrators shall b.e final and binding on the parties.





(c) The number of arbitrators shall be three (3).


70-


(d) Each party shall appoint one arbitrator. If, within thirty (30) days


after*receipt’of~the-clawRant-s-notificaiion,ottha.app..oi.Dtment of a n


arbitrator the respondent has not notified the claimant in writing


of the name of the arbitrator he appoints, the claimant may


request the Center to appoint the second arbitrator.





(e) The two arbitrators thus appointed shall choose the third


arbitrator who will act as the presiding arbitrator of the tribunal. If





within thirty (30) days after the appointment of the second


arbitrator, the two arbitrators have not agreed upon the choice of


the presiding arbitrator, then either party may request the


Secretary General of the Permanent Court of Arbitration at the


Hague to designate the appointing authority. Such appointing


authority shall appoint the presiding arbitrator in the same way as A?





$ a sofe arbitrator would be appointed under Article 6.3 of the


UNCITRAL Arbitration Rules. Such presiding arbitrator shall fc>e^


person of a nationality other than the A.R.E. or IRELAND^and of a


country which has diplomatic relations with the A.R.E., ■&&&


IRELAND? and who shall have no economic interests in the


Petroleum business of the signatories hereto.


Unless otherwise agreed by the parties to the arbitration, the


arbitration, including the making of the award, shall take place in


Cairo, A.R.E.


The decision of a majority of the arbitrators shall be final and


binding upon the Parties and the arbitral award rendered shall be


final and conclusive. Judgment on the arbitral award rendered,


may be entered in any court having Jurisdiction or application


may be made in such court for a judicial acceptance of the award


and for enforcement, as the case may be.


(h) Egyptian Law shall apply to the dispute except that in the event of


any conflict between Egyptian Laws and this Agreement the


provisions of this Agreement (including the arbitration provision)


shall prevail. The arbitration shall be conducted in the English


language.





(i) EGPC and CONTRACTOR agree that if, for whatever reason,





-71- S6-


A


 arbitration in accordance with the above procedure cannot take


piacey ot“ is~ iike-fry---to- taKe-place-..under.. ..circumstances for


CONTRACTOR which could prejudice CONTRACTOR'S right to


fair arbitration, all disputes, controversies.. or claims arising out


of or relating to this Agreement or the breach, termination or


invalidity thereof shall be settled by ad hoc arbitration in


accordance with the UNC1TRAL Rules in effect on the Effective


Date,


ARTICLE XXV


STATUS OF PARTIES





(a) The rights, duties, obligations and liabilities in respect of EGPC


and CONTRACTOR hereunder shall be several and not joint or


collective, it being understood that this Agreement shall not be


construed as constituting an association or corporation or


partnership.


(b) Each CONTRACTOR MEMBER shall be subject to the laws of the


place where it is incorporated regarding its legal status or


creation, organization, charter and by-laws, shareholding, and


ownership. Each CONTRACTOR MEMBER'S shares of capital


which are entirely held abroad shall not be negotiable in the


A.R.E. and shall not be offered for public subscription nor shall


be subject to the stamp tax on capital shares nor any tax or duty


in the A.R.E. CONTRACTOR shall be exempted from the


application of Law No. 159 of 1981 as amended.


(c) All CONTRACTOR MEMBERS shall be jointly and severally liable


for the performance of the obligations of CONTRACTOR under


this Agreement.


ARTICLE XXVI


LOCAL CONTRACTORS AND


LOCALLY MANUFACTURED MATERIAL








CONTRACTOR or Operatirig Company, as the case may be, and their


contractors shall:


... i.


(a) Give priority to local contractors and sub-contractors, including


cGPC'sr- Affiliated-- Sompani es - as-Jong^ .as^.thak,. perfprmance i s


comparable with Internationa) performance and the prices of their


services are not higher than the prices of., other contractors and


sub-contractors by more than ten percent (10%).


(b) Give preference to locally manufactured material, equipment,


machinery and consumables so long as their quality and time of


delivery are comparable to internationally available materia),


equipment, machinery and consumables. However, such material,


equipment, machinery and consumables may be imported for


operations conducted hereunder if the local price of such items


at CONTRACTOR’S or Operating Company's operating base in


A.R.E. is more than ten percent (10%) higher than the price of


such imported items before customs duties, but after


transportation and insurance costs have been added.


ARTICLE XXVll


ARABIC TEXT





The Arabic version of this Agreement shall, before the courts of A.R.E.


be referred to in construing or interpreting this Agreement; provided


however, that in any arbitration pursuant to Article XXIV herein


between EGPC and CONTRACTOR the English and Arabic versions


shall both be referred to as having equal force in construing or


interpreting the Agreement.


ARTICLE XXVIII


GENERAL








The headings or titles to each of the Articles to this Agreement are


solely for the convenience of the parties hereto and shall not be used


with respect to the interpretation of said Articles.


Nothing in this Agreement shall be constructed as constituting any


relationship to any petroleum concession agreement heretofore


entered into by the parties and each of these agreements shall be


. A fV s.v


-7 3-


 ANNEX "A"


cmCESSTOTr1'AGREEftfLEffT' '■■■•


BETWEEN


THE ARAB REPUBLIC OF EGYPT


AND


EGYPTIAN GENERAL PETROLEUM CORPORATION.


AND


DUBLIN INTERNA1TONAL PETROLEUM (EGYPT) LIMITED


AND


TANGANYIKA OIL COMPANY LTD.


IN


WEST GHAR1B AREA


EASTERN DESERT


A.R.E.





BOUNDARY DESCRIPTION OF THE CONCESSION AREA


Annex "B"is a provisional illustrative map at an approximate scale of


(1: 600,000) showing the Area covered and affected by this


Agreement.


The Area measure approximately (two thousand five hundred and


thirty (2530) square kilometers).


it is to be noted that the delineation lines of the Area in Annex "B"


are intended to be only illustrative and provisional and may not


show accurately their true position in relation to existing


monuments and geographical features.


Coordinates of the corner points of the Area are given in the


following table which forms an integral part of Annex "A":-














-7 5-


 BOUNDARY COORDINATES OF





WEST" GHAftfB-’AfTEAj'iN" BA-STEF^N-'D&SSRT'-■ -





POINT.NO LAT. NORTH LONG. EAST








28° 42' 00.000" Intersection of Lat 28’ 42’


with shore line of west bank


of G.O.S.to point 2





2 28c 33' 39.510" 32° 55' 3.55"


3 28° 32' 03.980" 32° 531 13.490


4 28° 18' 00.000" 33° 04' 21.400"


5 28° 18' 00.000" 33° 03' 13.600"





6 28° 18' 26.980" 33° 02’ 55.940"


7 28° 16' 59.050" 32° 58' 27.000"


28° 10‘ 37.560" 33° 02' 03.880"


8


9 28° 12’ 55.380" 33° 06' 32.660"


10 28° 10’ 58.950" 33° 07' 48.650"


11 28° 11' 34.698" 33° 08' 58.460“


28° 09' 02.779" 33° 10' 58.484"


12


13 28° 08' 24.000" 33° 09' 55.990"


14 28° 03' 58.000" 33° 13* 25.990"


1 5 28° 03' 00.000“ 33° 12‘ 00.000"





1 6 27° 56’ 00.000" 33° 12’ 00.000"


17 27° 52' 02.417" 33° 15' 14"


27° 47' 11.821“ 33° 10' 04.354"


1 8


1 9 28° 08’ 22.463" 32° 47- 25.847"


20 28° 11' 18.722" 32° 50' 37.709"


21 ** 28° 20' 25.584" 32° 41' 16.940“


28° 21.485" 32° 42' 13.658“


22 211


23 28° 30‘ 57.046" 32° 32' 33.338“


24 28° 42* 00.000" 32° 45' 06.944“


Jl ^ / '




















-7 6'


EXCLUDED DEVELOPMENT LEASE AREA DELINEATED BY POINTS :














POINT.NO. LAT. NORTH LONG. EAST








1 28° 27' 00.000” 32° 54' 45.000


o


2 CO 23’ 30.000” 32° 54' 45.000


CM


3 o 23' 30.000” 32° 53' 30.000


CO


CM


4 28° 23‘ 00.000" 32° 53' 30.000


5 ‘ 28° 23‘ 00.000” 32° 56' 30.000





6 28° 20‘ 30.000" 32° 56' 30.000


7 28° 20' 30.000” 32° 53' 30.000





8 28° 21' 00.000” 32° 53’ 30.000


9 28° 21' 00.000" 32° 50' 30.000





10 28° 27’ 00.000" 32° 50‘ 30.000











V n


A










































































-7 7-


 ' r'


ANNEXiB)










































































































































































CONCESSION AGREEMENT FOR PETROLEUM


" ■-!j JJJ-*'UI (>c «ii lj.tl.ttl


EXPLORATION AND EXPLOITATION


BETWEEN





ARAB REPUBLIC OF EGYPT


AND


EGYPTIAN GENERAL PETROLEUM CORPORATION 5-UJI


AND


DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED


AND


TANGANYIKA OIL COMPANY LTD.


...................... 'wm cs-» fjS Jl UU:Ujg ISjA


WEST GHARIB AREA

EASTERN DESERT V* jLe. cjjx 3.1L 1.


A.R.E Sf^^>Akil »lj »• • }|


SCALE-1 :600,000 t-r-£ tl o


V.


: ' f-**^J* u-Ljl-*


- 78 -


 ANNEX "C”





LETTER OF GUARANTEE





Letter of Guarantee No. Cairo.


EGYPTIAN GENERAL PETROLEUM CORPORATION.


Gentlemen.


The undersigned, National Bank of Egypt, as Guarantor, hereby


guarantees to the EGYPTIAN GENERAL PETROLEUM CORPORATION


(hereinafter referred to as "EGPC") to the limit, of five million


(5,000,000) U.S. Dollars, the performance by "DUBLIN


INTERNATIONAL PETROLEUM (EGYPT) LIMITED." and TANGANYIKA


OIL COMPANY LTD., (hereinafter referred to as "CONTRACTOR") of


their obligations required for Exploration operations to spend a


minimum of five million (5,000,000) U.S. Dollars during the initial


three (3) years of the Exploration period under Article IV of that


certain Concession Agreement (hereinafter referred to as the


"Agreement") covering that Area described in Annexes "A" and ”BU of


said Agreement, by and between the Arab Republic of Egypt


(hereinafter referred to as {"A.R.E.”), EGPC and CONTRACTOR, dated








It is understood that this Guarantee and the liability of the Guarantor


hereunder shall be reduced quarterly, during the period of expenditure


of said five million (5,000,000) U.S. Dollars by the amount of money


expended by CONTRACTOR for such Exploration operations during


each such quarter. Each such reduction shall be established by the


joint written statement of CONTRACTOR and EGPC.


in the event of a claim by EGPC of non-performance or surrender of


the Agreement on the part of CONTRACTOR prior to fulfillment of said


minimum expenditure obligations under Article IV of the Agreement,


there shall be no liability on the undersigned Guarantor for payment


to EGPC unless and untii such liability has been established by written


statement of EGPC setting forth the amount due under the Agreement.


It is a further condition of this Letter of Guarantee that:


(1)Thts Letter of Guarantee will become available only provided that


the Guarantor will have been informed in writing by CONTRACTOR


and EGPC that the Agreement between CONTRACTOR, A.R.E. and


EGPC has become effective according to its terms, and said


Guarantee shall become effective on the Effective Date of said


Agreement 2-5-


A 7





-7 9-


 r

















(2) This Letter of Guarantee shaii in any event automaticaily expire:


(a) Three (3) years and Six (6) months after the date it becomes


effective, or


(b) At such time as the total of the amounts shown on quarterly


joint statements of EGPC and CONTRACTOR equals or


exceeds the amount of said minimum expenditure obligation,


whichever is earlier.


(3) Consequently, any claim, in respect thereof should be made to the


Guarantor prior to either of said expiration dates at the latest


accompanied by EGPC's written statement, setting forth the


amount of under-expenditure by CONTRACTOR to the effect that:


(a) CONTRACTOR has failed to perform its expenditure


obligations referred to in this Guarantee, and


(b) CONTRACTOR has failed to pay the expenditure deficiency to


EGPC.


Please return to us this Letter of Guarantee in the event it does not


become effective, or upon the expiry date.








Yours Faithfully,





BY





ACCOUNTANT :





MANAGER:

















-8 0-


 ANNEX "D





CHARTER OF OPERATING COMPANY


ARTICLE 1


A joint stock company having the nationality of the ARAB REPUBLIC


OF EGYPT shall be formed with the authorization of the


GOVERNMENT in accordance with the provisions of this Agreement


referred to below and of this Charter.


The Company shall be subject to all laws and regulations in force in


the A.R.E. to the extent that such laws and regulations are not


inconsistent with the provisions of this Charter and the Agreement


referred to below,


ARTICLE II


The name of the Operating Company shall be mutually agreed upon


between EGPC and CONTRACTOR on the date of the Commercial


Discovery and shall be subject to the approval of the Minister of


Petroleum.


ARTICLE 111


The Head Office of Operating Company shall be in the A.R.E. in Cairo.


ARTICLE IV


The object of Operating Company is to act as the agency through


which EGPC and CONTRACTOR, carry out and conduct the


Development operations required in accordance with the provisions


of the Agreement signed • orr the^------' day''--------by- and-


between the. ARAB REPUBLIC OF EGYPT, THE EGYPTIAN GENERAL


PETROLEUM CORPORATION and CONTRACTOR covering Petroleum


operations in West Gharib Area in Eastern Desert described therein.


Operating Company shall be the agency to carry out and conduct


Exploration operations after the date of Commercial Discovery


pursuant to Work Programs and Budgets approved in accordance with


the Agreement.


Operating Company shall keep account of all costs, expenses and


expenditures for such operations under the terms of the Agreement


and Annex "E" thereto.





Operating Company shall not engage in any business or undertake


any activity beyond the performance of said operations unless


otherwise agreed upon by EGPC and CONTRACTOR.





ARTICLE V





The authorized capita! of Operating Company is twenty thousand


Egyptian Pounds divided into five thousand shares of common stock


with a value of four Egyptian Pounds per share having equal voting


rights, fully paid and non-assessable.





EGPC and CONTRACTOR shall each pay for, hold and own, throughout


the ..life of Operating Company, one half (1/2) of the capital stock of


Operating Company provided that only in the event that either party


should transfer or assign the whole or any percentage of its ownership


interest in the entirety of the Agreement, may such transferring or


assigning party transfer or assign any of the capital stock of Operating


Company and, in that event, such transferring or assigning party (and


its successors and assignees) must transfer and assign a stock


/ . AA V**





-8 2-


interest in Operating' cbrhpany • equar* to**the^transfeTretHor*-assigned*'-'-


whole or percentage of its ownership interest in the entirety of the said


Agreement.





ARTICLE VI





Operating Company shall not own any right, title, interest or estate in


or under the Agreement or any Development Lease created


thereunder or in any of the Petroleum produced from any Exploration





Block or Development Lease thereunder or in any of the assets,


equipment or other property obtained or used in connection therewith,


and shall not be obligated as a principal for the financing or


performance of any of the duties or obligations of either EGPC or


CONTRACTOR under the Agreement. Operating Company shall not


make any profit from any source whatsoever.





ARTICLE VII








Operating Company shall be no more than an agent for EGPC and


CONTRACTOR. Whenever it is indicated herein that Operating


Company shall decide, take action or make a proposal and the like, it


is understood that such decision or judgment is the result of the


decision or judgment of EGPC, CONTRACTOR or EGPC and


CONTRACTOR, as may be required by the Agreement.





ARTICLE VIII








Operating Company shall have a Board of Directors consisting of


eight (8) members, four (4) of whom shall be designated by EGPC and


the other four (4) by CONTRACTOR. The Chairman shall be


designated by EGPC and shall also be a Managing Director.


CONTRACTOR shall designate the General Manager who shall also be


a Managing Director.


 ARTICLE IX





Meetings of the Board of Directors shaii be valid if a majority of the


Directors are present and any decision taken at such meetings must


have the affirmative vote of five (5) or more of the Directors: provided,


however, that any Director may be represented and vote by proxy held


by another Director.





ARTICLE X





General meetings of the Shareholders shall be valid if a majority of


the capital stock'of Operating Company is represented thereat. Any


decision taken at such meetings must have the affirmative vote of


Shareholders owning or representing a majority of the capita! stock.


ARTICLE X!








The Board of Directors shall approve the regulations covering the


terms and conditions of employment of the personnel of Operating


Company employed directly by Operating Company and not assigned


thereto by CONTRACTOR and EGPC.


The Board shall, in due course, draw up the By-Laws of Operating


Company, and such By-Laws shall be effective upon being approved


by a General Meeting of the Shareholders, in accordance with the


provisions of Article X hereof.


ARTICLE XII





Operating Company shall come into existence within thirty (30) days


after the date of Commercial Oil Discovery or within thirty (30) days


after signature of a Gas Sales Agreement or commencement of a


scheme to dispose of Gas/as provided for in the Agreement {unless


otherwise agreed by EGPC and CONTRACTOR). r


... : ................./8" q; a


 ANNEX "E:l








ACCOUNTING PROCEDURE








ARTICLE I





GENERAL PROVISIONS





(a) Definitions:


The definitions contained in Article I of the Agreement shall apply


to this Accounting Procedure and have the same meanings.


(b) Statements of activity:


(1) CONTRACTOR shall, pursuant to Article IV of this Agreement,


and until the coming into existence of the Operating Company


- in accordance with Article VI of the Agreement - render to


EGPC within thirty (30) days of the end of each calendar


quarter a Statement of Exploration Activity reflecting all


charges and credits related to the Exploration operations for


that quarter summarized by appropriate classifications


indicative of the nature thereof.


(2) Following its coming into existence, Operating Company shall


render to EGPC and CONTRACTOR within fifteen (15) days of


the end of each calendar quarter a Statement of Development


and Exploration Activity reflecting all charges and credits


related to the Development and Exploration operations for that


quarter summarized by appropriate classifications indicative of


the nature thereof, except that items of controllable material


and unusual charges and credits shall be detailed.


r


«cj Adjustments and Audits:





(1) Each quarterly Statement of Exploration Activity pursuant to


Article l (b) (1) of this Annex shall conclusively be presumed


to be true and correct after three (3) months following the


receipt of each Statement by EGPC unless within the said


three (3) months EGPC takes written exception thereto


pursuant to Article IV (f) of the Agreement. During the said


three (3) month period supporting documents will be available


for inspection by EGPC during all working hours.


CONTRACTOR will have the same audit rights on Operating


Company Statements as EGPC under this sub-paragraph.





(2) All Statements of Development and Exploration Activity for any


calendar quarter pursuant to Article i (b) (2) of this Annex, shall


conclusively be presumed to be true and correct three (3)


months following the receipt of such Statement, unless within


the said three (3) months period EGPC or CONTRACTOR takes


written exception thereto. Pending expiration of said three (3)


months EGPC or CONTRACTOR or both of them shall have the


right to audit Operating Company accounts, records and


supporting documents for such quarter in the same manner as


provided in Article IV (f) of the Agreement.


(d) Currency Exchange:





CONTRACTOR'S books for Exploration and Operating Company's





books for Development and Exploration, if any, shall be kept in


the A.R.E. in U.S. Dollars. Ail U.S. Dollar expenditures shall be


charged in the amount expended. All Egyptian Pounds


expenditures shall be converted to U.S. Dollars at the applicable


fate of exchange issued by the Central Bank of Egypt on the first











s:


 aay of the month in which expenditures are recorded, and all other


non-U.$7' uGftar expenditures- shall- be«- tfanstete^MO'-UvS^- Doilais-ai..,


the buying rate of exchange for such currency as quoted by


National Westminster Bank Limited, London-at 10.30 a.m. G.M.T..


on the first day of the month in which expenditures are recorded.


A record shall be kept of the exchange rates used in translating


Egyptian Pounds or other non-U.S Dollar expenditures to U.S.


Dollars.


(e) Precedence of Documents:





In the event of any inconsistency or conflict between the


provisions of this Accounting Procedure and the provisions of the


Agreement treating the same subject differently, then the


provisions of the Agreement shall prevail.





(f) Revision of Accounting Procedure:


By mutual agreement between EGPC and CONTRACTOR, this





Accounting Procedure may be revised in writing from time to time


in the light of future arrangements.


(g) No Charge for Interest on investment:





Interest on investment or any bank fees, charges or commissions


related to any bank guarantees shall not at any time be charged as


recoverable costs under the Agreement.





ARTICLE !1








COSTS, EXPENSES AND EXPENDITURES








Subject to the provisions of the Agreement, CONTRACTOR shall alone


bear and,, directly or through Operating Company, pay the following





-8 8-


 /■





costs and expenses, which costs ana expenses shall be classified and


diiocat^dwto-’'ihe'-acttviiie9' aee-3rd{n-g-to*sound,.and™..generally, ,acc.ep.t.e.d..


accounting principles and treated and recovered in accordance with


Article VfI of this Agreement:


(a) Surface Rights:


AH direct cost attributable to the acquisition, renewal or


relinquishment of surface rights acquired and maintained in force


for the Area.


(b) Labor and Related Costs:


(1) Salaries and Wages of CONTRACTOR'S or Operating


Company’s employees, as the case may be. directly engaged in


the various activities under the Agreement including salaries


and wages paid to geologists and other employees who are


temporarily assigned to and employed in such activities. Such


salaries and wages to be certified by a certified public


accounting firm.


Reasonable revisions of such salaries and wages shall be


effected to take into account changes in CONTRACTOR'S


policies and amendments of laws applicable to salaries. For the


purpose of this Article I! (b) and Article II (c), salaries and


wages shall mean the assessable amounts for A.R.E. Income


Taxes, including the salaries during vacations and sick leaves,


but excluding, all the amounts of the other items covered by the


percentage fixed under (2) below.


(2) For expatriate employees permanently assigned to Egypt:


1. All allowances applicable to salaries and wages;


2. Cost of established plans; and “


•*/ . Ali travel ana relocation costs of such expatriate


©nrp'ioyeres'’ and- thef*- families -to., and - /torn, tfia« emgiayejals...


country or point of origin at the time of employment, at the •


time of separation, or as a resuit of transfer from one


location to another and for vacation (transportation costs


for employees and their families transferring from the


A.R.E. to another location other than their country of origin


shall not be charged to A.R.E. Operations).








Costs under this Article 1! (b) (2) shall be deemed to be equal to


fourty seven percent (47%) of basic salaries and wages paid for


such expatriate personnel including those paid during vacations


and sick leaves as established in CONTRACTOR'S international


policies, chargeable under Article II (b) (1), Article ll (i), Article


II (k) (1) and Article II (k)(3) of this Annex.


However, salaries and wages during vacations, sick leaves and


disability are covered by the foregoing percentage. The


percentage outlined above shall be deemed to reflect


CONTRACTOR'S actual costs as of the Effective Date with


regard to the following benefits, allowances and costs


1. Housing and Utilities Allowance.


2. Commodities and Services Allowance.


3. Special Rental Allowance.


4. Vacation Transportation Allowance.


5. Vacation Travel Expense Allowance.


6. Vacation "Excess Baggage Allowance.


7. Education Allowances (Children of Expatriate


Employees).


8. Hypothetical U.S. Tax Offset (which results in a


reduction of the chargeable percentage).


9. Storage of Personal Effects.


10. Housing Refurbishment Expense.


11. Property Management Service Fees. * (1 ^





9 0


12. Recreation Allowance.


13:- Retfremettfr"Pteffcr.......


14. Group Life Insurance.


15. Group Medical Insurance.


16. Sickness and Disability.


17. Vacation Plans Paid (excluding Allowable Vacation


Travel Expenses).


1 8. Savings Plan.


19. Educational Assistance.


20. Military Service Allowance.


21 . F.l.C.A.


22. Workman's Compensation.


23. Federal and State Unemployment Insurance.


24. Personnel Transfer Expense.


25. National Insurance.


26. Any other Costs, Allowances and Benefits of a like nature


as established in CONTRACTOR'S International Policies.


The percentages outlined above shall be reviewed at


intervals of three (3) years from the Effective Date and at


such time CONTRACTOR and EGPC will agree on new


percentages to be used under this paragraph.


Revisions of the percentages will take into consideration


variances in costs and changes in CONTRACTOR'S


international policies which change or exclude any of the above


allowances and benefits.


**


The revised percentages will reflect as nearly as possible


CONTRACTOR'S actual costs of all its established allowances


and benefits and of personnel transfers.


(3) For expatriate employees temporarily assigned to Egypt all


allowances, costs of established plans and all travel relocation


costs for such expatriates as paid in accordance with


CONTRACTOR'S international policies. Such costs shall not


 /•








include any administrative overhead other than what is


mentioned in Artfdie ii(^'ot'thts*'Anne)6 ' •


(4) Costs of expenditure or contributions made pursuant to iaw or


assessment imposed by Governmental authority which are


applicable to labor cost of salaries and wages as provided under


Article 11 (b) (1), Article 11 (b) (2), Article U (i), Article 11 (k) (I) and


Article II (k) (3) of this Annex.


(c) Benefits, allowances and related costs of national employees


Bonuses, overtime, customary allowances and benefits on a basis


similar to that prevailing for oil companies operating in the A.R.E.,


ail as chargeable under Article 11 (b) (1), Article ll (i), Article II (k)


(1) and Article i! (k) (3) of this Annex. Severance pay will be


charged at a fixed rate applied to payrolls which will equal an


amount equivalent to the maximum liability for severance payment


as required under the A.R.E. Labor Law.


(d) Material


Material, equipment and supplies purchased or furnished as such


by CONTRACTOR or Operating Company.


(1) Purchases:


Material, equipment and supplies purchased shall be at the


price paid by CONTRACTOR or Operating Company plus any


related cost and after deduction of all discounts actually


received.





(2) Material Furnished by CONTRACTOR:





Material required -for operations shall be purchased directly


whenever practicable, except that CONTRACTOR may furnish


.such .-material from CONTRACTOR’S or CONTRACTOR’S





Vl m -9 2-


Affiliated Companies stocks outside the. A.R.E. under the


following" conditions-;......


1 . New Material {Condition "A")


New Material transferred from CONTRACTOR'S or


CONTRACTOR'S Affiliated Companies warehouse or other


properties shall be priced at cost, provided that the cost of


material supplied is not higher than international prices for


material of similar quality supplied on* similar terms,


prevailing at the time such material was supplied.


2. Used Material {Conditions "B" and "C")


a) Materia! which is in sound and serviceable condition


and is suitable for reuse without reconditioning shall


be classed as Condition "B" and priced at seventy - five


percent (75%) of the price of new material.


b) Material which cannot be classified as Condition "B"


but which is serviceable for original function but


substantially not suitable for reconditioning, shall be


classed as Condition “C" and priced at fifty percent


(50%) of the price of new material.


c) Material which cannot be classified as Condition "B" or


Condition "C" shall be priced at a value commensurate


with. Its use.


d) Tanks, buildings and other equipment involving


erection costs shall be charged at applicable


percentage of knocked - down new price.


3-.S-








-9 3-


(3) Warranty of Materials Furnished by CONTRACTOR


CONTRACTOR- dees- not*-warrant-the*m-aterjaL.furj3jsb.ed-....bey.p.nd


or back of the dealer's or manufacturer’s Guarantee; and in


case of defective material, credit shall .not be recorded until


adjustment has been received by CONTRACTOR from


manufacturers or their agents.


(e) Transportation and Employee Relocation Costs:


(1) Transportation of equipment, materials and supplies necessary


for the conduct of CONTRACTOR'S or Operating Company's


activities.


(2) Business travel and transportation expenses to the extent


covered by established policies of CONTRACTOR or with regard


to expatriate and national employees, as incurred and paid by,


or for, employees in the conduct of CONTRACTOR'S or Operating


Company's business.


(3) Employees transportation and relocation costs for national


employees to the extent covered by established policies.


(f) Services:


(1) Outside services. The costs of contracts for consultants, services


and utilities procured from third parties.


(2) Cost of services performed by EGPC or by CONTRACTOR, or


#•


their Affiliated Companies in facilities inside or outside the


A.R.E. Regular, recurring, routine services, such as interpreting


magnetic tapes and/or other analyses, shall be performed and


charged by EGPC and/or CONTRACTOR or their Affiliated


Companies at an agreed contracted price. Major projects


involving engineering and design services shall be performed


by EGPC and/or CONTRACTOR or their Affiliated Companies at


........a . negotiated contract amount. n


^ 1 7


 f








.3) Use of EGPC's, CONTRACTOR'S or their Affiliated Companies'


whoffy"--owrrad---3'q

commensurate with the cost of ownership a.nd operation, but not


in excess of competitive rates currently prevailing in the A.R.E.





(4) CONTRACTOR'S and CONTRACTOR’S Affiliated Companies'


rates shall not include any administrative or overhead costs


other than what is mentioned in Article II (k) (2).


(g) Damages and Losses:








All costs or expenses, necessary to replace or repair damages or


losses incurred by fire, flood, storm, theft, accident or any other


cause not controllable by CONTRACTOR or Operating Company


through the exercise of reasonable diligence. CONTRACTOR or


Operating Company shall furnish EGPC and CONTRACTOR written


notice of damages or losses incurred in excess of ten thousand


(S10.000) U.S. Dollars per occurrence, as soon as practicable


after report of the same has been received by CONTRACTOR or


Operating Company.


(h) Insurance and Claims:


The cost of any public liability, property damages and other


insurance against liabilities of CONTRACTOR, Operating


Company and/or the parties or any of them to their employees


and/or outsiders as may be required by the laws, rules and


regulations of t*he GOVERNMENT or as the parties may agree


upon. The proceeds of any such insurance or claim collected, less


the actual cost of making a claim, shall be credited against


operations.


ff no insurance is carried for a particular risk, in accordance with


good international. oil field practices, all related actual


expenditures incurred and paid by CONTRACTOR or Operating





9 5


Company in settlement of any and all losses, claims, damages,


judgments' arrti~any~othef'--expen-s©s«--including-. !egaL..aar.yic.es,.:;


(i) Indirect Expenses:


Camp overhead and facilities such as shore base, warehouses,


water systems, road systems, salaries and expenses of field


supervisory personnel, field clerks, assistants, and other general


employees indirectly serving the Area.


(j) Legal Expenses:


All costs and expenses of litigation, or legal services otherwise


necessary or expedient for the protection of the Area, including


attorney's fees and expenses as hereinafter provided, together


with ail judgments obtained against the parties or any of them on


account of the operations under the Agreement, and actual


expenses incurred by any party or parties hereto in securing


evidence for the purpose of defending against any action or claim


prosecuted or urged against the operations or the subject matter


of the Agreement. In the event actions or claims affecting the


interests hereunder shall be handled by the legal staff of one or


more of the parties hereto, a charge commensurate with cost of


providing and furnishing such services may be made to


operations.





(k) Administrative Overhead and General Expenses:


(1) While CONTRACTOR is conducting Exploration operations, the


cost of staffing and maintaining CONTRACTOR'S head office in


the A.R.E. and/or other offices established in the A.R.E. as


appropriate other than field offices which will be charged as


provided in Article II (i), and excepting salaries of employees of


CONTRACTOR who,, are temporarily assigned to and directly


serving on the Area, which will be charged as provided in


.........Article .II . (b) of this Annex. /fe o ^ A *


h "<5v .


Z>£ -9 6- V


(2) CONTRACTOR'S administrative overhead outside the A.R.E.


sppHcabie-to-Exploration,..operations. in the A.R.E. during the


period prior to the formation of the Operating Company shall be


charged each month at the rate of five : percent (5%) of total


Exploration expenditures, where CONTRACTOR’S Explorations


operations are carried out by CONTRACTOR itself, provided


that no administrative overhead of CONTRACTOR outside the


A.R.E. applicable to A.R.E. Exploration operations wiii be


charged while Exploration operations are being conducted


following the formations of the Operating Company. No other


direct charges as such for CONTRACTOR'S administrative


overhead outside the A.R.E. will be applied against the


Exploration obligations. Examples of the type of costs


CONTRACTOR is incurring and charging hereunder due to


activities under the Agreement and covered by said percentage


are:


1. Executive - Time of executive officers.


2. Treasury - Financial and exchange problems.


3. Purchasing - Procuring materials, equipment and supplies.


4. Exploration and Production-Directing, advising and


controlling the entire project.


5. Other departments such as legal, comptroller and


engineering which contribute time, knowledge and


experience to the operations.


The foregoing does not preclude charging for direct service


under Article II (f) (2) of this Annex.


(3) While Operating Company is conducting operations, Operating


Company's personnel engaged in general clerical and office


work, supervisors and officers whose time is generally spent in


the main office and not the field, and all employees generally


considered as general and administrative and not charged to


other types of expense will be charged to operations. Such


expenses shall .be allocated each month between Exploration


and Development operations according to sound and practicable


accounting methods.


(i/'Tawsr---.....


All taxes, duties or levies paid in the A.R.E. by CONTRACTOR or


Operating Company with respect to this Agreement other than


those covered by Article 111 (g) (1) of this Agreement.


(m) Continuing CONTRACTOR Costs:


Costs of CONTRACTOR activities required under the Agreement


and incurred exclusively in the A.R.E. after Operating Company


is formed. No sales expenses incurred outside or inside the


A.R.E. may be recovered as a cost.


(n) Other Expenditures:


Any costs, expenses or expenditures, other than those which are


covered and dealt with by the foregoing provisions of this Article


Uf incurred by CONTRACTOR or Operating Company under


approved Work Programs and Budgets.





ARTICLE HI


INVENTORIES





(a) Periodic Inventories, Notice and Representation:


At reasonable intervals as agreed upon by EGPC and


CONTRACTOR inventories shall be taken by Operating Company


of the operations materials, which shall include all such


materials, physical assets and construction projects. Written


notice of intention to take inventory shall be given by Operating


Company to EGPC and CONTRACTOR at least thirty (30) days


before any inventory is to begin so that EGPC and


CONTRACTOR may be represented when any inventory is taken.





-9 8- ?'





raiiure of EGPC ana/or CONTRACTOR to be. represented at an


irive-nt-o-ry---sh-aU'-bind- themv.to^ accept,..the inventory taken by


Operating Company, who shall in that event .furnish the party not


represented with a copy thereof.


(b) Reconciliation and Adjustment of Inventories:


Reconciliation of inventory shall be made by CONTRACTOR and


EGPC, and a list of overages and shortages shall be jointly


determined by Operating Company and CONTRACTOR and


EGPC. and the inventory adjusted by Operating Company.








ARTICLE IV


COST RECOVERY





(a) Statements of Recovery of Costs and of Cost Recovery Petroleum:


CONTRACTOR shall, pursuant to Article VI! of the Agreement,


render to EGPC as promptly as practicable but not later than


fifteen (15) days after receipt from Operating Company of the


Statements for Development and Exploration Activity for the


calendarquarter a Statement for that quarter showing:


1. Recoverable costs carried forward from the previous quarter,


if any.


2. Recoverable costs incurred and paid during the quarter.


3. Total recoverable costs for the quarter (1) + (2).


4. Value of Cost Recovery Petroleum taken and separately


disposed of by CONTRACTOR for the quarter.


5. Amount of costs recovered for the quarter.


6. Amount of recoverable costs carried into the succeeding


quarter, if any.


7. Excess, if any, oftherva!ue of Cost Recovery Petroleum taken


and separately disposed of by CONTRACTOR over costs


. ..recovered, for the quarter.


ii -9 9-


{ 3?/e


(b) Payments:








If such Statement shows an amount due to EGPC. payment of that


amount shall be made in U.S. Dollars by CONTRACTOR with the


rendition of such Statement. If CONTRACTOR fails to make any


such payment to EGPC on the date when such payment is due.


then CONTRACTOR shall pay an interest of two and one half


percent (2.5%) per annum higher than the London Interbank


Borrowing Offered Rate (LIBOR) for three (3) months U.S.


Dollars deposits prevailing on the date such interest is calculated.


Such interest payment shall not be recoverable.


(c) Settlement of Excess Cost Recovery Petroleum:


EGPC has the right to take its entitlement of Excess Cost Recovery


Petroleum under Article VI! (a) of the Agreement in kind during


the said quarter . A settlement shall be required with the rendition


of such Statements in case CONTRACTOR has taken more than its


own entitlement of such Excess Cost Recovery Petroleum.


(d) Audit Right:


EGPC shall have a period of twelve (12) months from receipt of


any Statement under this Article IV in which to audit and raise


objection to any such Statement. EGPC and CONTRACTOR shall


agree on any required adjustments. Supporting documents and


accounts will be available to EGPC during said twelve (12) month


period. CP

















-10 0-


 ARTICLE V








CONTROL AND MAJOR ACCOUNTS





(a) Exploration Obligation Control Accounts:


CONTRACTOR will establish an Exploration Obligation Control


Account and an offsetting contra account to control therein the


total amount of Exploration expenditures reported on Statements


of activity prepared per Article f (b) (1), less any reductions


agreed to by EGPC and CONTRACTOR following written


exceptions taken by a non-operator pursuant to Article I (c)


(1) of this Annex, in order to determine when minimum Exploration


obligations have been met.


(b) Cost Recovery Control Account:


CONTRACTOR will establish a Cost Recovery Control Account and


an off-setting contra account to control therein the amount of cost


remaining to be recovered, if any, the amount of cost recovered


and the value of Excess Cost Recovery Petroleum, if any.


(c) Major Accounts:


For the purpose of classifying costs, expenses and . expenditures


for Cost Recovery as well as for the purpose of establishing when


the minimum Exploration obligations have been met, costs,


v expenses and .expenditures shall be recorded in major accounts


including the following:


Exploration Expenditures;


Development Expenditures other than Operating Expenses;


Operating Expenses; ~"


Necessary sub-accounts shall be used.





. 1


V


-101-


 -.r














Revenue-., accounts*.,s.halj ..be maintained by CONTRACTOR to the


extent necessary for the control of recovery of costs and the


treatment of Cost Recovery Petroleum.


ARTICLE VI


TAX IMPLEMENTATION PROVISIONS


It is understood that CONTRACTOR shall be subject to Egyptian


Income Tax Laws except as otherwise provided in the Agreement, that


any A.R.E. Income Taxes paid by EGPC on CONTRACTOR'S behalf


constitute additional income to CONTRACTOR, and this additional


income is also subject to A.R.E. income tax, that is "grossed up".


CONTRACTOR'S annual income, as determined in Article 111 (g) (2) of


this Agreement, less the amount equal to CONTRACTOR'S grossed-up


Egyptian income tax flability, shah be CONTRACTOR’S "Provisional


Income".











The "gross-up value" is an amount added to Provisional Income to


give "Taxable Income", such that the grossed-up value is equivalent


to the A.R.E. Income Taxes.





THEREFORE:





TaxaMe Income a Provisional Income plus Grossed-up Value


and


Grossed-up Value = A.R.E. income Tax on Taxable Income.





If the "A.R.E. Income Tax rate", which means the effective or


composite tax rate due to the various A.R.E. taxes levied on


income or profits, is. constant and not dependent on the level of





p:i


fi -102


income, then:





Grossed-up Value = A.R.E. income tax rate TIMES Taxable


Income.


Combining the first and last equations above





Grossed-up Value= Provisional income X Tax Rate





1 - Tax Rate








where the tax rate is expressed as a decimal.





The above computations are illustrated by the following numerical


example. Assuming that the Provisional Income is $10 and the


A.R.E. Income Tax rate is forty percent (40%), then the Grossed-up


Value is equal to:








$ 10 X 0.4 s $ 6.67


1 - 0.4


Therefore:








Provisional income $10.00


Plus Grossed-up Value 6.67





Taxable income $16.67


Less: A.R.E. Income Taxes at 40% 6.67








CONTRACTOR'S'Income after taxes $ 10.00


^ -


%


V














-103-


 ANNEX"F















































































































































/