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ADDENDUM TO EXISTING PRODUCTION SHARING AGREEMENT


BETWEEN


GOVERNMENT OF THE UNITED REPUBLIC OF TANZANIA


' AND


TANZANIA PETROLEUM DEVELOPMENT CORPORATION


AND


STATOIL TANZANIA AS


AND


EXXONMOBIL EXPLORATION AND PRODUCTION TANZANIA LIMITED





BLOCK 2


This Addendum (“Addendum") is entered into on 22nd February 2012 (the “Effective Date") ^


by the Government of the United Republic of Tanzania acting through the Ministry of Energy


and Minerals (the "Government''); Tanzania Petroleum Development Corporation a statutory'


Corporation established under the laws of the United Republic of Tanzania ("TPDC"): Statoil


Tanzania AS (“Statoil") a company formed and existing under the laws of Norway and


registered with a branch under the lav/s of the United Republic of Tanzania: and ExxonMobil


Exploration and Production Tanzania Limited ("ExxonMobil") a company existing under the


laws of the Bahamas and registered with a branch under the laws of the United Republic of


Tanzania, in order to facilitate the commercialization of any Natural Gas discovery in the


Contract Area.


Preamble


Whereas, this Addendum shall form pari of the Production Sharing Agreement between


Government, TPDC and Statoil dated 18 April 2007 (the "PSA") and shall be read together


with the PSA. All references to "this Agreement" in the PSA and herein shall mean the PSA


as amended by this Addendum.


Whereas, pursuant to the PSA, TPDC applied for and was granted on 15 June 2007 an


Exploration License over the Contract Area conferring on TPDC the exclusive right to


explore in Block 2 for petroleum and to carry out such operations and execute such works as


necessary;


Whereas, on 10 February 2010 by a F arm-Out Agreement between Statoil and ExxonMobil,


Statoil agreed to transfer to ExxonMobil a 35% Participating Interest in Block 2 and on 9


March 2010 the Government forma ly approved the transfer, leaving Statoil with 65%


Participating interest;


Whereas, ExxonMobil is now a party to the PSA by virtue of the Government approval and is


known together with Statoil as the "Contractor";


Whereas, in accordance with the provisions of the PSA, the Parties desire to further their


respective rights and obligations in respect of the development of a gas commercialization


project; and








2


Whereas, any gas commercialization project shall be structured either through an integrated


or segmented gas value chain, at the Contractors' sole discretion. Prior to making its


decision, Contractor shall consult with TPDC.


NOW, THEREFORE, in consideration of the premises and the mutual covenanfs and


agreements and obligations set out below and to be performed, the Parties agree as follows:


Article 1: Definitions and Interpretation


1.1 Unless otherwise defined in this PSA Addendum, defned terms shall have the same


meaning as that given in the PSA. The provisions of Article 1 of the PSA shall include


(or where such terms are defined in Article 1 of the PSA shall be replaced by) the


following definitions:


(a) "Adjusted Gas Quantity" mears a quantity of Natural Gas produced and saved from


the Contract Area less any Natural Gas used for Production Operations.


(b) “Arm’s Length” means the relationship that exists between two or more entities,


where neither of such entities exerts or is in a position to exert significant influence


on any of the other entities having regard to all relevant factors.


(c) “Associated Gas" shall have the same meaning as Casinghead Gas as defned in the


PSA.


(d) "Btu” (British thermal unit) means the amount of heat required to raise the


temperature of one pound of pure water from fifty-nine degrees Fahrenheit (59V’F) to


sixty degrees Fahrenheit (60°F) at a constant pressure of fourteen decimal six nine


six (14 696) pounds per square inch absolute.


(e) "Cost Gas" shall be as defined in Article 11 of this Addendum.


(f) uCost Petroleum" means the sum of Cost Oil and Cost Gas


(g) "Delivery Point" means the point Freight-On-Board of the Tanzania loading facility at


which Crude Oil reaches the inlet flange of the lifting tankship's intake pipe or such


other point which may be agreed between TPDC and the Contractor, or in the case


of Natural Gas means a location or locations within or outside the Contract Area


proposed by Contractor and agreed to by TPDC.


(h) "Domestic Supply Obligation’ (DSO) for Natural Gas shall be determined in


accordance with Article 8.1(1).


(i) "Fair Market Price” means the price at which Crude Oil or Natural Gas of similar


quality could be sold on similar terms at similar times and at a similar location by


parties under no compulsion to buy or sell and are trading on an Ami’s Length basis.





S


(j) “Gas Plant” means a Compressed Natural Gas Plant, Gas-To-Liquids Plant.


Liquefied Natural Gas Plant, Natural Gas Liquids Plant or a plant for any other


products derived from the treatment, conditioning, synthesizing, refining, processing,


separation or conversion of Natural Gas, which may be part of the facilities for the


production of Natural Gas from the Contract Area, whether located within or outside


the Contract Area as agreed by the Contractor and TPDC.


(k.) “Gas Plant Liquids" means any liquids (including condensates, propane, butane and


other liquid petroleum gas fractions) separated at the well head or Gas Plant, and


shall be governed by and marketed in accordance with the Crude Oil terms set out in


the PSA, For the purposes of this definition, Liquefied Natural Gas and the products


resulting from a Gas-to-Liquids process are not considered Gas Plant Liquids.


(l) "MMscf means a million standard cubic feet of Natural Gas.


(m) “Natural Gas Location" the location where a Natural Gas discovery is made.


(n) "Natural Gas Operations" means Petroleum Operations carried out in respect of


Natural Gas.


(o) "Profit Gas" for the purpose of sharing between the Contractor and TPDC, means the


Adjusted Gas Quantity less the amount of Natural Gas available for recovery of


Recoverable Contract Expenses.


(p) “Processing Plant” means a gas processing facility designed to lower the dew point


of the gas, remove impurities, odorize or otherwise prepare the gas for


transportation, shipping or liquefaction, which may be part of the facilities for the


production of Natural Gas from the Contract Area, whether located within or outside


the Contract Area as agreed by the Contractor and TPDC.


(q) "Technical Expert" means a siitably qualified technical expert of international repute


agreed to by the Parties who has the skill and competency necessary to assess the


sub-surface and engineering as well as the economic aspects of any proposed


development and commercialization of an accumulation.


1.2 References to Articles in this Addendum shall (unless otherwise specified) be to


articles of the PSA, and references to Annexes and paragraphs shall be to annexes


of the PSA and paragraphs of those annexes.














4


Article 8 Discovery and Development


The provisions of Article 8 (Discovery and Development) of the PSA shall only apply


to Crude Oil, and the provisions of Article 8.1 shall apply to Natural Gas. The


provisions of Article 8 as applied to Crude Oil shall be amended as follows;


(a) Article 8(f) shall be deleted.


(b) Article 8(i) shall be deleted


(c) Article 8(j) shall be deleted


8.1 Natural Gas


In the case of a Natural Gas discovery, the following provisions shall apply:


(a) In each instance where Natural Gas is discovered in the Contract Area,


Contractor will within thirty (30) days from the date on which evaluated test


results relating to the discovery are submitted to TPDC. inform TPDC by notice in


writing whether or not the discovery is. in the opinion of Contractor of commercial


interest. If the Contractor notifies TPDC that discovery is of commercial interest,


the Contractor will at the same time notify TPDC whether the discovery is of


eventual commercial interest ("Eventual Interest') or of present commercial


interest ("Present Interest"). In making such notification, the Contractor will


provide TPDC with ail information as would be reasonably required, in


accordance with Good Oilfield Practice, to support its submission.


(b) If Contractor informs TPDC that, in its opinion, utilizing Good Oilfield Practice, the


discovery is not of commercial interest as a standalone or as part of an


aggregated production project within or outside the Contract Area then the


Contractor shail, if requested by TPDC, relinquish at the end of the current


Exploration Period the said discovery comprising the geological feature (as


outlined in the relevant technical data) in which the discovery is located.


(c) From the date that the Contractor informs TPDC under sub-article (b) of this


Article that the discovery is not of commercial interest pursuant to sub-article (a)


of this Article, the Minister will in respect of the discovery exempt TPDC (as the


license holder) for the remainder of the Exploration License from the


requirements of Section 32 (2) of the Act.


(d) If Contractor informs TPDC that, in its opinion, utilizing Good Oilfield Practice, the


discovery is of Eventual Interest then the Minister shall be advised by TPDG to


agree to allow the Contractor to retain each Discovery Block and up to eight


,1


5


adjoining blocks for the longer of four (4) years or the duration of the Exploration


License and any renewal thereof (the "Exploration Period") and the Minister shall


act in accordance with that advice provided that:





(i) the determination of Eventual Interest shall be based on relevant


economic criteria, including but not limited to, potential Petroleum


production rates, Petroleum prices, development costs, sufficiency of the


reserves discovered in the Block to date, operating costs as well as any


other relevant criteria, as established by the Contractor:


(ii) Contractor shall reassess the commerciality of the discovery prior to


the expiry of four (4) years from the date of notification that the discovery


is of Eventual Interest based on the same economic criteria as set out in


sub-article (d)(i) of this Article and in case of further discoveries that could


be tied and developed together as part of an aggregated production


project within or outside the Contract Area in order to make economies of


scale, the Contractor shall inform TPDC accordingly;


(iii) Contractor shai no later than thirty (30) days prior to the latter of the


expiry of the Exploration License or four (4) years from the date of


notification that the discovery is of Eventual Interest inform TPDC


whether, as a result of a re-assessment, it determines the discovery still to


be of (a) Eventual Interest; (b) Present Interest, or (c) no potential


commercial interesl. TPDC shall inform the Minister of the re-assessment


study results;


(iv) If the results of Contractor's re-assessment determine that the


discovery is no longer of potential commercial interest, the provisions of


sub-article (b) and sub-article (c) of this Article shall apply;


(v) If the results of Contractor’s re-assessment determine that the


discovery has become of Present Interest, the provisions of sub-article (f)


and sub-article (rn) of this Article shall apply;


(vi) If the results of Contractor's re-assessment determine that the


discovery is still of Eventual Interest, and TPDC, utilizing Good Oilfield


Practice, agrees with such determination, the Contractor may retain the


discovery for an additional period of eight (8) years for market


development, Appraisal and development planning and sut


this Article shall apply;


 (vii) ff. upon the expiry of four (4) years from the date of notification that


the discovery is of Eventual Interest, the results of Contractor's


reassessment determine that the discovery is still of Eventual Interest


and TPDC, utilizing Good Oilfield Practice, does not agree with such


determination, TPDC may, at any time prior to the expiry of the


Exploration License, dispute the results of the Contractor's reassessment.





If TPDC and the Contractor cannot resolve such dispute within sixty (60)


days of the date on which TPDC informed the Contractor of its opinion,


then the matter shall be referred to the Technical Expert and the


Technical Expert shall determine whether the discovery is of (a) Present


Interest; or (b) Eventual Interest. The Technical Expert shall notify TPDC


and the Contractor of its findings and:


A. where the Technical Expert determines that the discovery is no





longer of potential commercial interest the provisions of sub-article


(b) and sub-article (c) of this Article shall apply;


B. where the Technical Expert determines that the discovery is of


Present Interest and the Contractor agrees with such determination,


the provisions of sub-article (f) and sub-article (m) of this Article shall


apply;


C. where the Technical Expert determines that the discovery is of


Present Interest and the Contractor disagrees with such


determination, then the Contractor shall, unless the Contractor


refers the matter to arbitration under sub-article (e) of this Article , if


requested by TPDC, relinquish said discover,' comprising the


geological feature (as outlined by the relevant seismic data) in which


the discovery is located; or


D. where the Technical Expert determines that the discovery is of


Eventual Interest the Contractor may retain the discovery for an


additional pe'iod of eight (8) years for market development,


Appraisal anc development planning and the provisions of sub¬


article (I) of this Article shall apply.





(e> If one of the Parties disagrees with the findings of the Technical Expert in sub-


article (d) of this Article, that Party may refer the matter to arbitration in


accordance with Article 28 of the PSA.


I


, (f) Where the Contractor has relinquished a discovery pursuant to sub-article


■ (d)(vi)(C) of this Article and TPDC decides to appraise and develop such


discovery, the Parties will meet and discuss ir good faith the development of said


discovery such that it does not interfere with (he exploration, appraisal and


development of the remainder of the Contract Area.


■ (g) Where. Contractor pursuant to sub-article (a) of this Article , has informed TPDC


that, in its opinion the discovery' is of Present Interest, or pursuant to sub-article


(d)(vi)(B) of this Article the Contractor agrees with the determination of the


Technical Expert that the discovery is of Present Interest, the following shall


apply:


m (i) As soon as practicable thereafter, the Contractor shall submit to


TPDC: for the review of the Advisory Committee, its proposals for an


Appraisal programme to meet the requirements of Section 32 (2) of the


Act.


(ii) Pending submission of the proposals referred to in sub-article (g)(i) of


this Article, the Contractor shall provide to TPDC such information as is


available to it from time to time in relation to the chemical composition and


■ physical qualities of the Natural Gas discovered.


" (iii) TPDC may within ninety (90) days of receipt of the Contractor’s


m Appraisal programme, make proposals or amendments on the


Contractor's Appraisal programme to the extent that the Appraisal


programme does not meet the requirements of Section 32 (2) of the Act.


(iv) Where the Advisory Committee has reviewed an Appraisal programme


submitted by Com actor as aforesaid or on a revision thereof, and a


Natural Gas Location has been declared, the Minister snail, to the extent


necessary, extend the period within which an application may be made by


TPDC for a Development License, when TPDC, at the request of the


* Contractor, applies in that behalf, for a period of eight (8) years in the


■ case of a Natural Gas Location, so as to ensure that the Appraisal


■ programme can be carried out and the results thereof assessed before


the said period expires.


(v) During the conduct of the Appraisal programme, the Contractor shall


promptly provide TPDC with al! information enabling it to make a detailed


I examination of the data relating to the discovery so as to make an





8


ongoing assessment in full understanding of the facts as to whether or not


the discovery is likely to be capable of being commercially exploited.


(h) Where Contractor has requested TPDC to make an application for a


Development license, TPDC shall make such application provided that the


proposals accompanying such application pursuant to paragraph (a) of Section


36 of the Act shall:


(i) be drawn up by Contractor after consultation with TPDC;


(ii) be timed and designed to ensure the recovery from the Development


Area of the maximum quantity of Petroleum which the economics of the


development shall justify;


(iii) be in compliance with Good Oilfield Practice; and the Contractor shall


include


A. a copy of the environmental impact assessment certificate, issued


by the ministry responsible for the environment; and


B. the proposed project and financing requirements for Natural Gas


operations.


(i) When an application for a Development License in respect of a Natural Gas


Location is made in accordance with sub-article (g) of this Article and the Act


then, unless the Contractor is in Default at the time of such application, the


Minister shall grant the Development License applied for pursuant to paragraph


(1 )(a) of Section 37 of the Act, on such conditions as are necessary to give effect


to the Development License. The Development License so granted shall, in full


satisfaction of the requirements of Section 40(2) of the Act, incorporate by


reference the obligations of the Contractor as set out in Article 16 (“Lifting,


Marketing and Domestic Supply Obligation") of this Addendum.


In circumstances where the Parties determine to undertake a gas export


commercialization project in accordance with the terms and conditions set out in


this Agreement, the Contractor shall prepare a reserve assessment report to


determine the:


(i) proven and certified Natural Gas reserves in the Block ("Proven


Reserves"), and


(he minimum amount of Natural Gas required for a gas export
commercialization project.

Following TPDC's receip: of such report, (he Contractor shall notify the
Government and TPDC in writing of the Proven Reserves of Natural Gas that are
to be dedicated for supply to the gas export commercialization project from_the
Block {the "Accessible Proven Reserves"). The maximum amount of Proven
Reserves of Natural Gas available for the Domestic Supply ObligationjpSO)
shali be determined by the: Parties prior to submission of a Development Plan.
The Domestic Supply Obligation shall be taken from the proven reserves in
%exces$,of the Accessible Proven Reserves. The Domestic Supply Obligation shali
not exceed 10% of the Proven Reserves and shall not exceed 10% of the
projected production rate unless otherwise mutually agreed by the Parties.
Contractor shall provide TPDC with at least 60 _days-pr4er-wit^erK-aotice before
-*----------
dedicating to a thirdj>arfy availabte_capacity in the pipeline, or Processing-Plant
that would have the effect of excluding TPDC's ability to transport or process all
or any portion of the Domestic Supply Obligation through the pipeline or
Processing Plant.


(j) Where a Location has been declared, the Minister shall not, without the prior
agreement of Contractor, g ve any direction to TPDC pursuant to Section 34(1) of
the Act; provided hovveve* that if an application is made for a Development
License in respect of any EBIock nothing in this sub-article (k) shall be construed
as limiting the scope of any notice which the Minister may give to TPDC pursuant
to Section 37(2) of the Act.
 
(k) Where the Exploration License is due to expire during the period allowed by the
Minister for application for a Development License under sub-article (g) (iv) of this
Article, then the Minister shall prior to the expiry' of the Exploration License grant
to TPDC for such period necessary for the granting of a Development License, a
new Exploration License on the requisite terms as may be appropriate to enable
TPDC to apply, upon request of Contractor, for a Development License as per
sub-article (g)(iv) of this Article related to the Blocks forming the Location.
F








(l) When TPDC, upon request of Contractor, makes an application for a


Development License as per sub-article (I) of this Article, in respect of a Block or


Blocks forming the Location as per sub-article (g)(iv) of this Article, then the


Minister shall grant the Development license, on such conditions as are


necessary to give effect to the applied for Development license.





(m) This Addendum amends the provisions of the PSA in relation to Petroleum


Operations relating to Natural Gas and related matters as provided in this


Addendum, in all other respects the PSA will apply to Natural Gas. For the


avoidance of doubt, unless otherwise stated, this Addendum does not amend the


PSA in respect of Crude Oil.





(n) Any gas commercialization project shall be structured either through an


integrated or segmented gas value chain, at the Contractors' sole discretion.


Prior to making its decision Contractor shall consult with TPDC.


11 Recovery of Costs and Expenses and Production Sharing








11.1 In respect of Natural Gas and Natural Gas Operations, recovery of costs and


expenses and production sharing shall be governed by the following provisions.





(a) Subject to sub-article (c) cf this Article 11.1, ail Contract Expenses incurred by


the Contractor and where Joint Operations have been established by TPDC. shall


be recovered for Natural Gas. from a quantity of Natural Gas produced and


saved from the Contract Area less any Natural Gas used for Production


Operations (the "Adjusted Gas Quantity") (hereinafter referred to as "Cost Gas")


and shall in any Calendar Year be equal to the lesser of (i) seventy per cent


(70%) of the total Adjusted Gas Quantity produced from the Contract Area and (ii)


1 the quantity of Cost Gas with a value equai to the remaining outstanding


Recoverable Contract Expenses. If there is not sufficient Cost Gas available in





any Calendar Year equal :o seventy per cent (70%) of the total Adjusted Gas


Quantity produced from the Contract Area to recover the remaining outstanding


Recoverable Contract Expenses, Cost Oil (as the term is defined in sub-article (a)


of Article 11,1 may be utilized to recover Recoverable Contract Expenses


provided that there is sufficient Cost Oil available from the Contract Area so as


n c\i)


11 // Yp


Y


 not to exceed seventy per cent (70%) or total Crude Oil production from die


Contract Area in the Calendar Year.





(b) Contract Expenses which pursuant to the provision of Annex D of the PSA (as


amended herein) may be recovered from Cost Gas and Cost Oil are


hereinafter referred to ns "Recoverable Contract Expenses". Such expenses


may be recovered as from the date they have been incurred. To the extent


that in any Calendar Year the Recoverable Contract Expenses exceed the


Cost Gas and Cost Oil available under sub-article (a) of this Article, the


unrecovered excess shall be carried forward for recovery in the next


succeeding Calendar Year and, to the extent not then recovered in the


subsequent Calendar Year or Years.


(c) Where, additionally, Joint Operations have been established:


(i) No Contract Expenses incurred by TPDC pursuant to Article 8.1 of this


Addendum shall be recovered from the Cost Gas or Cost Oil unless there


is production from a Development Area in respect of which there are Joint


Operations:


(ii) The available Cost Gas and Cost Oil shall be applied to the Contractor


(which for the avoidance of doubt includes TPDC once it has exercised its


rights pursuant to Alicle 9(b)):


A. first to recover Operating Expenses:


B. after recovery of Operating Expenses any excess Cost Gas or Cost


Oil available for distribution shall be applied to recover Exploration


Expenses:


C. after recovery of Exploration Expenses and Operating Expenses any


excess Cost Gas or Cost Oil available for distribution shali be


applied to recover Development Expenses any unrecovered


Contract Expenses shall be recovered out of the Cost Gas or Cost


Oil available in the next succeeding Calendar Year or Years in the


same manner as set out herein: and


D. any remaining Cost Gas or Cost Oil once all recoverable Natural


Gas costs nave been paid will be put into the Profit Gas and Profit


Oil pools and distributed to the Contractor (which for the avoidance


12 A


 of doubt includes TPDC once it has exercised its rights pursuant to


Article 9 of the PSA) and TPDC (as the recipient of the Profit Gas


and Profit Oil; via the Profit Gas system as described in sub-article


(e) and sub-article (f) of this Agreement and the Profit Oil system


described in sub-articles (f) and (g) of Article 11 of the PSA,








(d) Subject to the limitations set out in sub-article (a) of this Article, the quantity of


Cost Gas Which the Contractor and, if Joint Operations have been


established, TPDC actually require and shall be entitled to in any Calendar


Quarter will be established with respect to Cost Gas on the basis of the Fair


Market Price agreed by the Parties for any Gas Commercialization Project.


(f) Profit Gas'


(i) For the purpose of sharing Profit Gas between the Contractor and


TPDC, the balance of Natural Gas available in any Calendar Quarter shall


be divided based cn tranches of daily total production rates (MMscf per


Day) in all producing fields in the Contract Area. Where there is


aggregated produclion project within or outside the Contract Area, each


tranche of daily total production rates in each of the contract areas shall


be calculated on the basis of each of the parties share of total produclion


allocated to the Cor tract Area.


(ii) The tranches o! production referred to in sub-article (f) of this Article


shall be specified in terms of average daily production rates. The average


daily production rates shall be determined for each Calendar Quarter and


shall be calculated by dividing the total Adjusted Gas Quantity produced


and saved from the Contract Area during any Quarter by the total number


of days during which Natural Gas was produced in such Quarter.


(iii) The quantity of Cost Gas required to satisfy Recoverable Contract


Expenses in any Calendar Quarter shall be allocated to each of the


applicable tranches of production in the same proportion as the total


production in each tranche of production bears to total production from the


Contract Area.


(iv) After allocation of Cost Gas for the recovery of Recoverable Contract


Expenses in accordance with sub-article (e) of this Article, for any gas


commercialization orojecf, the resulting Profit Gas shall be shared


13


 proportionally in accordance with the tranches set out in the table below in


accordance with the ratio of the quantity of Natural Gas per MMscf:











Tranches of daily total production rates in the DC Share ok Contractor Share


Contract Area (MMscf per Day) / Profit Gas ' \ of Profit Gas


0 299.999 / 30.0 % \ 70.0 %


300 599.999 I 35.0% \ 65.0%


600 899.999 37.5% 62.5%


900 1199.999 40.0 % 60.0 %


1200 1499.999 45.0 % J 55.0 %


1500 Above \ 50.0 % y / 50.0 %








(g) With respect to this Article 11.1, Cost Gas and Profit Gas calculations shall be


done for each Calendar Quarter and the Natural Gas provisionally shared


accordingly. To the extent that actual quantities, expenses and prices are not


known, provisional estimates of such data based cn the approved Annual


Work Programme, Budget and any other relevant documentation or


information shall be used. Within sixty (60) days of the end of each Calendar


Year a final calculation of Cost Gas and Profit Gas based on actual Natural


Gas quantities, prices and recoverable costs and expenses in respect of that


Calendar Quarter shall be prepared and any necessary adjustments to the


Natural Gas sharing shall be agreed upon between the Contractor and TPDC


and made as soon as is practicable.








(h) Subject to the provisions relating to Domestic Supply Obligation of the


Contractor, the Contractor will be free to commercialize any Natural Gas


received by the Contractor pursuant to this Article 11.1 and to retain the


proceeds of the sale of such Natural Gas outside the United Republic of


Tanzania.


(i) All Gas Plant Liquids shall, for the purposes of cost recovery and allocation of





profit hydrocarbons be classified as oil and the cost oil and profit oil splits set


out in the PSA shall be applicable to such liquids. Such liquids shall not be


taken into account when calculating Naturai Gas price class threshold. ^





14


12. Valuation of Crude Oil and Natural Gas


The provisions of Article 12 (Valuation of Crude Oil) cf the PSA shall only apply to


Crude Oil and Article 12.1 of this Addendum shall apply to valuation of Natural Gas.


12.1 Valuation of Natural Gas


(a) The Fair Market Price of Natu'al Gas determined at the Delivery Point shall be the


price in United States dollars at which an independent third party paid for such


Natural Gas, on an Arm’s Length basis.


(b) For Natural Gas sales transactions that are not at Arm’s Length, the following


considerations shall apply in determining the value of Natural Gas:


i) the market destination of the Natural Gas;


ii) the price of the Natural Gas at the final destination;


lit) reflect international pricing;


iv) regasification costs;


v) shipping costs;


vi) liquefaction costs;


vii) pipeline transport costs;


viii) publicly available values outside Tanzania; and


ix) other relevant considerations.


(c) Natural Gas supplied to a domestic market shall be subject to periodic review, no


more frequently than every three (3) years, and the following principles shall apply in


determining the value of Natural Gas:


i) pricing shall be at parity witn the fair market value of alternate fuels at the burner


tip after consideration of the differential investment in the gas based application,


15


differential operating costs, differential thermal efficiency and any environmental


credits;


ii) pricing shall assume sound marketing practices; and


iii) pricing shall assume efficient operations.


Subject to the provisions of this Article 12.1, in the event of any dispute between


Minister and Contractor concerning the Fair Market Price of Natural Gas, such


dispute may be referred by ether Party for final determination in accordance with


Article 28 of the PSA.


13. Natural Gas


Article 13 shall be deleted arid replaced with the following provision:


“Subject to the provisions of the Act, Natural Gas associated with Crude Oil may be


commercialized by the Contractor. Produced Natural Gas not commercialized or


used in Petroleum Operations shall be treated and disposed in accordance with


Contractors HSE standards and Good Oilfield Practices and the costs thereof shall


be cost recoverable. TPDC may elect to off take, free of charge, at the outlet flange


of the receiving and processing facility and use for domestic requirements such


Natural Gas that would otherwise be treated and disposed in accordance with


Contractors HSE standards, provided that all costs associated with TPDC's utilization


of the Natural Gas shall be borne by TPDC. It is understood that such off take


should not be detrimental to the prompt conduct of oil field operations according to


Good Oilfield Practices.1'


14. Taxation and Royalty


Article 14(c) of the PSA shall be deleted replaced with the following provision;


"TPDC shall fulfill its obligation to pay royalty under Section 81 of the Act or any


Amendments thereof, in respect of Crude Oil and Natural Gas obtained from the


Development Area by delivery' of TPDC to the Government of the minimum share of


Profit Oil and Profit Gas received by TPDC pursuant to Article 11 of this Agreement,


and (in the case of Crude Oil being equivalent at all times to five per cent (5%) of the


total production from the Development Area, and in the case of Natural Gas being


16


equivalent at all times to five per cent (5%) of total Adjusted Gas Quantity, by-


payment of a cash equivalent of such quantity, based upon the Gas Price) at such


location as the Minister may direct, and the Government may require TPDC to


dispose of such royalty otherwise to be delivered to the Government in such a


manner as the Minister may direct. For the avoidance of doubt Contractor shall have


no obligation or liability whatsoever in respect of TPDC’s obligations to pay royalty


hereunder."


16. Lifting, Marketing and Domestic Supply Obligation


The provisions of Article 16 cl the PSA, shall also apply to Natural Gas, except for


the following sub-articie (c) and sub-article (d) of Article 16 of the PSA which shall be


replaced with the following provisions in the case of Natural Gas:


Article 16(c) shall be replaced with:


“The Contractor shall, if requested by the Minister one hundred and eighty (180) days


prior to first lifting of Natural Gas, market abroad all or part of TPDC's lifting


entitlement subject to payment by TPDC of direct costs normally borne by a seller in


such transactions as may be agreed by TPDC but excluding any commission or


marketing fee in respect of such service. In order to maintain a stable lifting^


continuity, the Contractor shall have the right to purchase TPDC’s share of NaturaI


Gas at the Delivery Point!---


Article 16(d) shall be replaced with:


Subject to sub-article (i) of Article 8.1, if there is a domestic demand in excess of


fields currently in production at the time of execution of this Addendum, then the


Conlractor and TPDC on commencement of production may be required to sell


Natural Gas in Tanzania cn a pro rata basis with other producers in Tanzania


according to the projected annual production rate of Natural Gas of each producer at


the time of the Contractor submission of the Development Plan. Contractor and


TPDC shall use its current share of Profit Gas in accordance with the tranches set


out in sub-article (f) (iv) of Article 11.1 to satisfy the Domestic Supply Obligation and


the price shall be determined n accordance with sub-article (c) of Article 12.1 The


Natural Gas quantity for the domestic market and Natural Gas for the gas


commercialization project shall be lifted at the Delivery Point proportionately, subject


to normal operational requirements, it being understood that lifting shall be consistent


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with (he Natural Gas lifting schedule for the gas commercialization project and shall


take into account the delivery obligations of the gas commercialization project."


Article 16(e) shall be replaced with:


“Natural Gas sold pursuant to sub-article (d) of Article 16 of this Addendum shall be


paid for in convertible foreign exchange at a price determined in accordance with


Article 12.1 of this Addendum Such payment shall be made within one (1) month


after delivery of the Natural Gas. In the event of default in such payment further


deliveries of Natural Gas to TPDC snail be suspended until the payment of due


amount plus an interest charged at LIBOR plus four percent (4%) from the delivery


date of Natural Gas."


19. Title to Assets


The provisions of Article 19 ol the PSA relating to title to assets shall also apply to


Natural Gas Operations and for the purposes of this Clause all references to "Cost


Oil” therein shall be read as including "Cost GasK.


21. Site Cleaning and Abandonment


The provisions in Article 21 of the PSA relating to site cleaning and abandonment of


assets and facilities shall also apply to all Natural Gas Operations except that for the


purposes of this Clause all reference to "Cost Oil"' therein shall be read as “Cost


Gas".


Annex D: Accounting Procedure


Annex D of the PSA shall be amended as follows:


(a) For the purposes of this Clause all references in Annex D to "Profit Oil" shall


be read as "Profit Gasr and all references to "Cost Oil” therein shall be read


as "Cost Petroleum."


(b) The fourth sentence of paragraph 1.5(a) of the Annex D of the PSA shail be


amended to read as follows: "Metric units, Barrels and standard cubic fee!


(scf) shall be employed for measurements required under this Agreement and


this Annex D."








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 The references to "Cost Oil" in paragraph 11.3 of Annex D shall be replaced


with "Cost Petroleum".





The references to "Crude Oil” in Section 6 shall be read as including “Natural


Gas1’.


Section 2.2 (d) shall be deleted and replaced with the following:








"(d) the cost of petroleum production, storage and transport facilities such as


pipelines, flow lines, production and treatment units, wellhead equipment,


subsurface equipment, enhanced recovery systems, offshore platforms, platform


storage facilities, access roads for production activities and Gas Plants."


(f) Section 2.3 shall be deleted and replaced with the following:


"Operating Expenses are all expenditures incurred in the Petroleum Operations


after the start of commercial production which are other than Exploration


Expenses. Development Expenses, General and Administrative Costs and


Service Costs directly incurred on operating activities and identifiable as such, as


well as the balance of general and Administrative Costs and Service Costs.


General and Administrative Costs and Service Costs not allocated to Exploration


Expenses or Development Expenses shall be allocated to Operating Expenses.


The tariff on Gas Plant services and transportation shall be included as Operating


Expenses."
































19


f








IN WITNESS whereof this Agreement has been duly executed by the Parties, the day and


year first hereinbefore written.





Signed for and on behalf of the


GOVERNMENT OF THE UNITED REPUBLIC


OF TANZANIA Minister for Energy and Minerals


'MlJ.-,_i___








Witnessed by














Signed for and on behalf of


TANZANIA PETROLEUM DEVELOPMENT


CORPORATION




















Signed for and on behalf of


STATOIL TANZANIA AS


Managing Director











Witnessed' by








Signed for and on behalf of


EXXONMOBIL EXPLORATION AND


PRODUCTION TANZANIA LIMITED








Witnessed by











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