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PRODUCTION SHARING AGREEMENT

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THIS AGREEMENT, made and entered into this 22ng .J:1~Y.lof January 2001, by and

between the GOVERNMENT OF BELIZE, (hereinafte~J.f6aS-the "Government") acting

,through the Minister of Natural Resources, the Environment, and Industry and

.USCapital Energy Belize, Ltd. (a subsidiary of USCapital Energy Partners, L.P.) a

corporation duly organized under the laws of the British Virgin Islands (hereinafter

referred to as the "Contractor").

WHEREAS, the entire property in, and control over all Petroleum resources in or under

'\

the territory of Belize is vested in the Government on behalf of Belize;

AND WHEREAS, no petroleum operations shall be conducted in Belize by any person

other than the Government unless such person has entered into a contract in

accordance with the Petroleum Act (No. 8 of 1991);

AND WHEREAS, the Government wishes to promote the exploration for and production

of the petroleum resources in and throughout the contract area, and the Contractor

desires to join and assist the Government in accelerating the exploration for and

production of the petroleum resources within the contract area;

AND WHEREAS, the Contractor represents that it has the financial resources, technical

competence and professional skills necessary to carry out the petroleum operations

hereinafter described;



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AND WHEREAS, the Government understands that successful implementation of the

Contractor's obligations hereunder may require the Contractor to move exploration

related equipment and machinery into and out of Belize to and from Guatemala;



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AND WHEREAS, the Government and the Contractor recognize the possibility that

exploration in the contract area may result in the discovery of fields that may extend

cross-border -- Belize I Guatemala;

AND WHEREAS, the Contractor recognizes that if a field is discovered that extends

across the Belize Guatemala border, then a joint development agreement may need to

be executed in order to commercially produce hydrocarbons in said field;

AND WHEREAS, the Government and the Contractor agree that this Agreement is in

compliance with all existinq Belize statutes, regulations and laws which govern or

regulate the exploration, development and production of petroleum in Belize;

AND WHEREAS, the Government and the Contractor agree that this Agreement is

bound by all Belize statutes, regulations and laws which govern or regulate the

exploration, development and production of petroleum in Belize which are in effect at

the time this Agreement was signed, and not by those statutes, regulations and laws

adopted after this agreement was signed;

AND WHEREAS, the Government and the Contractor agree that this Agreement was

freely negotiated at arms length;

AND WHEREAS, Contractor and the Government agree that this Agreement may be

amended, modified or changed, provided that, no such amendment, modification or

change shall be binding unless such amendment, modification or change is in writing

and signed by the Contractor and the Government;

AND WHEREAS, this Agreement resulted, in part, from the relinquishment of the A.S.

Energy - Belize, Ltd. Block 12 PSA dated April 2, 1998 (as amended);

AND WHEREAS, the Government and the Contractor agree that the geographic area

covered under this Agreement is that of Block 19, referenced by coordinates in exhibit

A, attached hereto, and by the map attached hereto as exhibit S.



USCapital Energy Belize, Ltd., PSA

January 22, 2001



NOW, THEREFORE, the parties hereto hereby agree as follows:

ARTICLE I

Definitions



1.1



In this Agreement, the following terms shall have the

following meanings:



1.1.1



"affiliated company" shall mean any entity directly or

indirectly effectively controlling, or effectively controlled by,

or under direct or indirect effective common control with, a

specified entity. For the purposes of this definition, "control",

when used with respect to any specified entity, means the

power to direct, administer and dictate policies of such entity

(it being understood and agreed that it is not necessary to

own directly or indirectly fifty percent (50%) or more of such

entity's voting securities to have effective control over such

entity, but ownership, direct or indirect, of fifty percent (50%)

or more of such entity's voting securities shall automatically

indicate effective control), and the terms "controlling" and

"controlled" have meanings corresponding to the foregoing;



1.1.2



"appraisal well" shall mean a well drilled within the contract

area, following a discovery, for the purpose of delineating

the petroleum reservoir(s) to which the discovery relates in

terms of thickness and lateral extent and estimating the

quantity of recoverable petroleum therein;



1.1.3



"barrel" shall mean a quantity or unit of crude oil equal to

158.9874 liters (forty-two (42) United States gallons) at a

temperature of sixty (60) degrees Fahrenheit (15.56 degrees

Centigrade) under one atmosphere of pressure;



1.1.4



"calendar year" shall mean a period of twelve (12)

consecutive months, according to the Gregorian Calendar,

starting with the 1st of January and ending with the 31st of

December;



1.1.5



"calendar month" or "month" shall mean any of the twelve

(12) months of the calendar year;



1.1.6



"commercial discovery" means a discovery of petroleum

which can be exploited commercially in accordance with

accepted practices in the international petroleum industry;



1.1.7



"continental shelf' shall mean the part of the seabed and

subsoil of the submarine areas adjacent to the coast of

Belize, but outside the territorial waters, over which Belize is

entitled by international law to exercise sovereign rights for

the purposes of exploring and exploiting its natural

resources;



1.1.8



"contract area" means a geographical area which is covered

by the contract; and includes the whole of, or such part or

parts of, the original area awarded to a Contractor and shall

remain at the disposal of such Contractor from time to time

pursuant to the terms of the contract;



1.1.9



"contract year" shall mean a period of twelve (12)

consecutive calendar months, counted from the first day of

the first calendar month follOWing the effective date of this

Agreement or from the anniversary of such first day of such



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USCapital Energy Belize, Ltd., PSA

January 22, 2001



month;

1.1.10



"Contractor" shall mean any person with whom the

Government enters into a contract and includes Contractor's

agents, representatives and assignees;



1.1.11



"crude oil" shall mean petroleum which is in liquid state at

the well head or gas/oil separator or which is extracted from

natural gas, including distillate and condensate;



1.1.12



"day" shall mean a calendar day unless otherwise provided

herein;



1.1.13



"delivery point" shall mean the FOB point of export in Belize

or such other point which may be agreed by the Government

and the Contractor;



1.1.14



"development and production operations" means operations

for or in connection with the production of petroleum;



1.1.15



"development and production period" shall mean the period

referred to in paragraph 3.4;



1.1.16



"discovery" in relation to petroleum, shall mean petroleum

not previously known to have existed, recovered at the

surface in a flow measurable by conventional petroleum

industry testing methods;



1.1.17



"effective date" shall mean the date first above written;



1.1.18



"exploration expenditures" shall mean expenditures made in

conducting exploration operations hereunder, but excluding

expenditures made within the area of a field after a

commercial discovery has been declared.

These

expenditures shall be determined in accordance with the

Income Tax (Amendment) Act (No.9 of 1991) as amended

(No. 7 of 1999);



1.1.19



"exploration operations" means operations

connection with exploration for petroleum;



1.1.20



"exploration period" shall mean the period referred to in

paragraph 3.1;



1.1.21



"exploration well" shall mean a well other than an appraisal

well drilled in the course of exploration operations;



1.1.22



"field" shall mean an area, as designated by agreement

between the Government and the Contractor, where a

commercial discovery of crude oil or natural gas has been

declared;



1.1.23



"Government" shall mean the current government of Belize

and any and all future governments which claim any right,

title or interest in petroleum or oil and gas that is the subject

of this Agreement;



1.1.24



"gross revenues" shall mean the sum of all proceeds of

sales and the monetary equivalent of the value of other

dispositions of petroleum produced and saved and not used

in petroleum operations and any other proceeds derived



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for



or



in



USCapital Energy Belize, Ltd., PSA

January 22, 2001



from petroleum operations;

1.1.25



"income tax" shall mean that tax imposed on net income

pursuant to the Income Tax Act (Cap 46, as amended and in

effect from time to time);



1.1.26



"initial commercial production" shall mean the date on which

the first regular shipment of crude oil or natural gas, or both,

is made from a field under a program of regular production

and sale;



1.1.27



"Inspector" shall mean the Inspector of Petroleum appointed

under section 4 of the Petroleum Act (No.8 of 1991);



1.1.28



"maximum efficient rate" shall mean the maximum rate of

production of crude oil in a field, without excessive rate of

decline of production or excessive loss of reservoir pressure,

and in accordance with generally accepted practices in the

international petroleum industry and the provisions of

paragraph 6.3;



1.1.29



"Minister" shall mean the Minister for the time being

responsible for petroleum affairs in the Government of

Belize;



1.1.30



"natural gas" shall mean all petroleum which at atmospheric

conditions of temperature and pressure is in a gaseous

state, and includes wet mineral gas, dry mineral gas, wet

gas and residue gas remaining after the extraction,

processing or separation of liquid petroleum from wet gas,

as well as non-petroleum gas or gases produced in

association with liquid or gaseous petroleum;



1.1.31



"net petroleum" shall mean the value of the total quantity of

petroleum produced and saved in a given calendar year and

not used in petroleum operations after deduction of the

value of the royalties made in such calendar year and after

recovery of petroleum operations expenditures pursuant to

paragraph 9.1;



1.1.32



"net taxable income" shall mean net taxable income as

determined in accordance with the provisions of the Income

Tax (Amendment) Act (No.9 of 1991) as amended (No.7 of

1999).



1.1.33



"petroleum" means all natural organic substances composed

of carbon and hydrogen; and includes crude oil and natural

gas, and all other mineral substances,· products, by-products

and derivatives that are found in conjunction with petroleum;



1.1.34



"Petroleum Act" shall mean the Petroleum Act (No. 8 of

1991) and any subsidiary legislation made thereunder;



1.1.35



"petroleum operations" means the operations related to the

exploration, development, extraction, production, field

separation, transportation, storage, sale or disposal of

petroleum; but does not include any transportation or other

operations (i) beyond the point of export; or (ii) in the case of

petroleum which is processed within Belize, beyond the

point of entry into a refinery or liquefaction or natural gas



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USCapital Energy Belize, Ltd., PSA



January 22, 2001



treatment plant;

1.1.36



"petroleum

operations

expenditures"

shall

mean

expenditures incurred in conducting petroleum operations

hereunder, determined in accordance with the Income Tax

(Amendment) Act, (No.9 of 1991) as amended (No.7 of

1999);



1.1.37



"royalty" shall mean the royalty or production payment

described in Article VIII;



1.1.38



"quarter" shall mean a period of three (3) consecutive

months commencing with the first day of January, April, July

and October, respectively, of each calendar year;



1.1.39



"well" means any opening in the ground made or being

made by drilling or boring, or in any other manner, in

connection with exploration operations or development and

production operations, other than a seismic hole;



1.1.40



"work programme" shall mean an itemized statement of the

petroleum operations to be carried out in the contract area in

each calendar year, or to be carried out for specific activities

such as drilling of exploration wells and appraisal wells and

development programmes, all in a form acceptable to the

Government;



1.1.41



"work programme budget" shall mean the estimate of the

costs of all items included in the corresponding work

programme, including both capital and operating budgets, all

in a form acceptable to the Government.

ARTICLE II



Grant of Rights to

the Contractor



2.1



The Government grants to the Contractor, subject to the

terms and conditions set forth in this Agreement, the

exclusive right to conduct petroleum operations within the

contract area for the term of this Agreement. Except as

provided in paragraph 11.3, the Contractor shall have the

right, during the term of this Agreement, to freely lift, dispose

of and export its share of the petroleum produced

hereunder.



2.2



Title to petroleum to which the Contractor is entitled

hereunder shall pass to the Contractor at the well head

subject to Clause 8 of this Agreement.



2.3



The Contractor shall, except as expressly otherwise

provided in this Agreement, conduct all petroleum

operations hereunder at his sole risk, cost and expense.

The Contractor shall look only to the petroleum to which he

is entitled under this Agreement to recover such costs and

expenses, and such petroleum shall be the Contractor's sole

source of compensation thereunder.



2.4



The Contractor shall be responsible to the Government for

the execution of all petroleum operations in accordance with

the provisions of this Agreement. Without prejudice to the

Contractor's position as an independent contractor

hereunder, the extent and character of such work to be done

by the Contractor shall be subject to the general supervision,



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USCapital Energy Belize, Ltd., PSA

January 22, 2001



review and. approval of the Government to which the

Contractor shall report and be responsible as herein set

forth. Government approval, as required pursuant to any

provision of this Agreement, shall not be unreasonably

withheld.

2.5



The Contractor is authorized to construct pipelines, bridges,

ferries, landing fields, radio, telephone and related

communication systems as may be necessary for petroleum

operations but subject to the laws in force in Belize from

time to time for the regulation and control of such

installations and their construction.



2.6



The Government reserves the right to grant licenses to

others to prospect for, explore for and mine minerals other

than petroleum within the contract area, and further reserves

to itself the right to so prospect, explore and mine directly, all

subject to the provisions of paragraph 5.3.

ARTICLE '"



Term



3.1



The Contractor is authorized to conduct exploration

operations during an exploration period which shall be

comprised of (i) an initial exploration period of two (2)

contract years ("Initial Exploration Period"), and (ii) subject to

the conditions hereinafter provided, three (3) successive

renewal periods ("First Renewal Period", "Second Renewal

Period" and "Third Renewal Period") of two (2) years each.

Such renewal periods shall be granted to the Contractor

upon the Contractor's request delivered to the Government

in writing not later than ninety (90) days prior to the

expiration of the then current period, subject to the

Contractor having fulfilled his obligations hereunder for the

then current period, including the relinquishment provisions

of Article IV, and having submitted with such application a

work programme and work programme budget for the period

of renewal which is consistent with the undertakings set forth

in paragraph 6.1.



3.2



If at the end of the exploration period, no commercial

discovery has been made in any part of the contract area,

this Agreement shall automatically terminate in its entirety,

provided, however, that the Government undertakes to grant

an extension for such period, and for such area as may be

necessary, in the opinion of the Government and the

Contractor, (i) for the Contractor to complete the drilling,

testing, appraisal or plugging of any well actually being

drilled, tested, appraised or plugged at the end of the

exploration period and (ii) for the Government and the

Contractor to determine that a discovery resulting from such

a well is a commercial discovery pursuant to paragraphs

under 6.2.



3.3



If a commercial discovery is made in any portion of the

contract area during the exploration period, the Contractor

will commence development and product operations in that

particular portion of the contract area.



3.4



In the event of a commercial discovery, the extent of the

area capable of production of petroleum from the formation



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US Capita/ Energy Belize, Ltd., PSA

January 22, 2001



or formations so identified shall be determined in

accordance with the provisions of the paragraphs under 6.2

or Article XIV. The area so determined shall thereupon be

converted automatically into a field, with effect from the date

of the declaration of the commercial discovery. The term of

the development and production period for each field shall

extend for twenty-five (25) contract years from the first day

of the calendar year commencing after the date of the

declaration of the commercial discovery in said field. If

Contractor performs in all material respects with its

obligations under this Agreement to the satisfaction of the

Government, the Contractor shall be entitled to a renewal of

this Agreement consistent with the Laws of Belize. In the

event of a new commercial discovery as a result of new

drilling in formations that underlie and overlie each other in

an existing field, such formations shall constitute a single

field and the field shall be redefined as necessary to

incorporate all underlying and overlying formations, the term

of the development and underlying and overlying formations,

and the term of the development and production period for

such redefined field shall extend for twenty-five (25) contract

years from the first day of the first calendar year

commencing after the date of the declaration of the latest

commercial discovery therein.

ARTICLE IV

Relinquishment



4.1



On or before the end of the initial exploration period, the

Contractor shall relinquish twenty-five percent (25%) of the

original contract area.



4.1.2



On or before the end of the first renewal period the

Contractor shall relinquish an additional twenty-five percent

(25%) of the original contract area.



4.2



On or before the end of the second renewal period the

Contractor shall relinquish an additional area equal to

twenty-five percent (25%) of the original contract area.



4.3



At the end of the exploration period, the Contractor shall

relinquish the remainder of the original contract area not

then converted to a field.



4.4



The size and shape of the portion or portions to be

relinquished shall be determined by the Contractor, provided

however, that (a) the Contractor shall advise the

Government at least ninety (90) days in advance of the date

of relinquishment of the description and area of the portion

or portions to be relinquished, (b) the Contractor shall

consult with the Government regarding the shape and size

of each individual portion of the areas being relinquished, (c)

the area being relinquished shall not be divided into more

than two portions, each of which shall be comprised of, and

be defined by reference to, blocks as described in Exhibit B,

save where no such area or areas can be identified for

relinquishment in accordance with this paragraph without

including in such area or areas in whole or in part a field or

area in which a discovery has been made which the

Contractor is not otherwise required to relinquish hereunder,

and (d) each such relinquished individual portion shall be



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USCapital Energy Belize, Ltd., PSA

January 22, 2001



not less than twenty percent (20%) of the area being

relinquished at such time with sides parallel to the

boundaries of the original contract area, to the extent that

the boundaries of the original contract area permit, and with

the longest side not more than three times as long as the

shortest side, and shall in any event be of sufficient size and

convenient shape to enable petroleum operations to be

conducted thereon or thereunder.

4.5



The Contractor shall not be obliged to relinquish, pursuant to

paragraphs 4.1 and 4.2, any part of the original contract

area which has been converted to a field or in which a

discovery has been made which the Contractor is not

otherwise required to relinquish hereunder.



4.6



Upon at least ninety (90) days written notice to the

Government prior to the end of any contract year, the

Contractor shall have the right to relinquish all or any portion

of the contract area effective as of the end of such contract

year, subject to the provisions of paragraph 4.4, and such

portion shall then be credited against that portion of the

contract area which the Contractor is next required to

relinquish pursuant to the provisions of paragraphs 4.1 and

4.2.



4.7



No relinquishment made in accordance with this Article IV

shall relieve the Contractor of: (a) its obligations to make

payments due as a result of surface rentals prior to the

effective date of any such relinquishment, or (b) the

minimum work and expenditure commitments undertaken

pursuant to paragraphs 6.1.1 and 6.1.2.



4.8



Upon relinquishment of any area, the Contractor shall

perform all necessary clean-up activities in accordance with

generally accepted practices in the international petroleum

industry, and shall take all other action necessary to prevent

hazards to human life or third party property.

ARTICLE V



General

Obligations of the

Contractor



5.1



The Contractor shall be responsible for conducting all

petroleum operations within the contract area diligently,

expeditiously and efficiently in accordance with generally

accepted practices in the international petroleum industry

and pursuant to work programmes approved in accordance

with paragraph 5.4. The Contractor shall ensure that all

equipment, materials, supplies, plant and installations used

by himself, and his contractors and subcontractors comply

with generally accepted standards in the international

petroleum industry and are of proper construction and kept

in optimal working order.



5.2



Except as otherwise provided in this Agreement, the

Contractor shall:

(a)



advance all necessary funds and purchase or lease

all equipment, materials and supplies required to be

purchased or leased in connection with petroleum

operations;



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USCapital Energy Belize, Ltd., PSA

January 22, 2001



(b)



furnish all the technical expertise and assistance,

including foreign personnel, required for the conduct

of petroleum operations;



(c)



furnish all other funds for the performance of

petroleum operations as may be required, including

payment to foreign entities that perform services as

contractors or subcontractors to the Contractor;



(d)



appoint a local representative and in his absence, a

replacement therefor, with respect to this Agreement,

who shall have an office and be resident in Belize and

who shall have full authority to represent the

Contractor for all purposes of this Agreement and

whose names shall, on appointment within ninety (90)

days after the effective date, be made known to the

Government;



(e)



provide acceptable working conditions and living

accommodations, and access to medical attention

and nursing care, for all personnel employed by him ,

his contractors and subcontractors in petroleum

operations; and



(f)



pay social security for all employees as per the Laws

of Belize.



5.3



If, after the effective date, others are granted licenses within

the contract area authorizing prospecting for, exploration for

or mining of any minerals or other substances other than

petroleum, or the Government proceeds with such

prospecting, exploration or mining directly in its own behalf,

the Contractor shall use his best efforts to avoid obstruction

or interference with such licensee's or Government's

operations within the contract area. The Government shall

use its best efforts to ensure that operations of third parties

do not interfere with the Contractor's petroleum operations

within the contract area. Additionally, at the request of the

Contractor the Government shall notify Contractor (and

provide Contractor the name, phone number, and address)

of any companies which are granted licenses authorizing

them to prospect for, explore for or mine any minerals in the

contract area.



5.4



(a)

At least ninety (90) days prior to the beginning of

each calendar year, or at such other time as is mutually

agreed by the parties, the Contractor shall prepare and

submit for approval to the Government an annual work

programme and work programme budget of petroleum

operations and petroleum operations expenditures by

quarters for the contract area setting forth the petroleum

operations the Contractor proposes to carry out during the

ensuing calendar year. Such annual work programmes and

work programme budgets shall comply with the minimum

work and expenditure obligations described in paragraphs

6.1. Approval by the Government of the proposed annual

work programme budget of petroleum operations and

petroleum operation expenditures will not be unreasonably

withheld or delayed. The Government and the Contractor

shall have reached Agreement upon an annual work

programme and work programme budget for the period from

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USCapifal Energy Belize, Ltd., PSA

January 22, 2001



the effective date until the end of the calendar year in which

the effective date falls or for the ensuing calendar year if the

effective date falls after the 30th day of September.

(b)

Should the Government wish to propose revisions to

the annual work programme or work programme budget, it

shall within thirty (30) days after receipt thereof so notify the

Contractor specifying in reasonable detail its reasons

therefor. Promptly thereafter the parties shall meet and

endeavor to agree on the revisions proposed by the

Government. If the Contractor and the Government fail to

agree upon any revisions proposed by the Government

within sixty (60) days of the receipt of the Contractor's

proposals, the points of disagreement shall be resolved as

follows:

(i)



all other aspects of the annual work programme and

work programme budget to which the Government

proposes revisions shall be mutually agreed on

before such aspects of the annual work programme

and work programme budget shall be adopted.



(c)

It is recognized by the parties that the details of an

annual work programme may require changes in light of

then existing circumstances. In such event, the Contractor

may introduce such changes as may be necessary,

following consultation with and approval by the Government

(the approval of which shall not be unreasonably withheld),

but subject to the following:

(i)

in the case of changes to an annual work

programme and work programme budget which relate

to exploration operations, such changes may be

implemented to the extent that they are not

inconsistent with the undertakings set forth in

paragraph 6.1 or the general objective of such annual

work programme;

(ii)

in the case of changes to an annual work

programme and work programme budget which relate

to the development of a field, such changes may be

implemented to the extent that they are not

inconsistent with the applicable development work

programme and work programme budget adopted

pursuant to paragraph 6.2 or the general objective of

such annual work programme;



(iii)

all other changes may be notified in writing to

the Government and shall be mutually agreed on

before they may be implemented.

(d)

To the maximum extent practicable, the Contractor

shall involve representatives of the Government in the

preparation of the annual work programme and work

programme budget.

(e)

Within thirty (30) days after the end of each quarter,

the Contractor shall submit to the Government a report

describing and summarizing petroleum operations carried

out, and petroleum operations expenditures incurred during

such quarter. Such report shall be in a form acceptable to

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USCapital Energy Belize, Ltd., PSA

January 22, 2001



the Government.

ARTICLE VI

Minimum Work

and Expenditure

Obligations



6.1



The Contractor shall commence petroleum operations

hereunder not later than ninety (90) days after the effective

date.



Exploration Period



6.1.1



The Government recognizes that the Contractor will incur

administrative expenditures, exploratory work programme

expenditures and, if the exploratory work programme is

successful, development expenditures hereunder.

The

amount to be expended by the Contractor on administrative

expenditures shall be an amount reasonably determined by

the Contractor to fulfill its obligations hereunder and shall

also include contract application fees, acreage fees and

other specific administrative items set forth in this

Agreement provided that the Contractor submits periodic

reports to the Government of all amounts that it has

expended. The amount to be expended by the Contractor in

conducting exploration operations in accordance with

approved work programmes during the exploration period,

shall not be less than the following as adjusted pursuant to

paragraph 6.1.4.



6.1.1.1



Initial Exploration Period:

(a) First contract year: $5,000 to $500,000 US$.

(b) Second contract year: $1,500,000 US$ less the amount

spent in the first contract year of the Initial Exploration

period.

(c) Total for Initial Exploration Period: $1,500,000 US$.



6.1.1.2



First renewal period (if requested by the Contractor

pursuant to paragraph 3.1):

(a) First contract year: $5,000 to $500,000 US$.

(b) Second contract year: $1,500,000 US$ less the amount

spent in the first contract year of the first renewal period.

(c) Total for first renewal period: $1,500,000 US$.



6.1.1.3



Second renewal period (if requested by the Contractor

pursuant to paragraph 3.1):

(a) First contract year: $5,000 to $500,000 US$.

(b) Second contract year: $1,500,000 US$ less the amount

spent in the first contract year of the first renewal period.

(c) Total for second renewal period: $1,500,000 US$.



6.1.1.4



Third renewal period (if requested by the Contractor

pursuant to paragraph 3.1):

(a) First contract year: $5,000 to $500,000 US$.

(b) Second contract year: $1,500,000 US$ less the amount



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USCapita/ Energy Belize, Ltd., PSA

January 22, 2001



spent in the first contract year of the first renewal period.

(c) Total for third renewal period: $1,500,000 US$.

6.1.2



The Contractor undertakes to carry out and comply with the

following

minimum

exploratory

work

programme

commitments.



6.1.2.1



Initial exploration period: mobilization and shooting of

approximately 150 Km. of conventional seismic or 75 Km. of

three-D seismic.

(a) First contract year: Contractor shall begin work on

seismic program in the first contract year.

(b)

Second contract year: Contractor will complete

mobilization and shooting of approximately 150 Km. of

conventional seismic or 75 Km. of three-D seismic by the

end of the second contract year.



6.1.2.2



First renewal period (if requested by the Contractor pursuant

to paragraph 3.1): mobilization and shooting of

approximately 150 Km. of conventional seismic (or 75 Km.

of three-D seismic) or the drilling of one or more wells with a

combined depth of no less than 3,000 meters. The decision

to drill or shoot seismic will be made by the Contractor after

consultation with the Government.



6.1.2.3



Second renewal period (if requested by the Contractor

pursuant to paragraph 3.1): mobilization and shooting of

approximately 150 Km. of conventional seismic (or 75 Km.

of three-D seismic) or the drilling of one or more wells with a

combined depth of no less than 3,000 meters. The decision

to drill or shoot seismic will be made by the Contractor after

consultation with the Government.



6.1.2.4



Third renewal period (if requested by the Contractor

pursuant to paragraph 3.1): the drilling of one or more wells

with a combined depth of no less than 3,000 meters.



6.1.3



If, during any contract year in the exploration period, the

Contractor should expend more than the required minimum

annual exploration expenditures, the Contractor may

subtract an amount equal to the excess amount spent from

the required minimum exploration expenditures for the

ensuing contract year in the exploration period. If works

carried out in any contract year exceed the minimum work

commitment relating to such contract year as provided in

paragraph 6.1.2, the excesses will count towards the

satisfaction of the minimum work commitments for the

ensuing contract year.

Compliance with the required minimum exploration

expenditures for a given contract year shall not relieve the

Contractor of his obligation to comply with the required

minimum work commitment, nor shall compliance with the

required minimum work commitment for a given contract

year relieve the Contractor of his obligation to comply with

the required minimum exploration expenditures for such

contract year.



12



USCapital Energy Belize, Ltd., PSA

January 22, 2001



6.1.4



(a) For each period, prior to commencing each phase of the

exploratory work programme, the Contractor shall provide

the Government with a copy of the contract of work to be

performed and shall deposit into an escrow account with the

Government the estimated amount to be expended to

complete such phase. As work progresses, the Government

shall release funds from the escrow account to allow for

timely payment of invoices for completed work. This escrow

account is intended to satisfy the requirement of Section 17

(d) of the Petroleum Act.

(b) If Contractor fails to complete any work substantially in

accordance with the applicable contract for such work for

which money has been escrowed under Paragraph 6.1.4(a),

above, then the applicable funds shall be forfeited to the

Government unless Contractor can demonstrate that it is

working continuously and diligently to cause the work to be

completed.



Discovery and

Development

Period



6.2



The terms and conditions relating to the discovery and

development period shall be as follows:



6.2.1



When in the course of petroleum operations, a discovery of

petroleum is made, the Contractor shall immediately notify

the Government in writing accordingly, specifying in such

notice all pertinent information concerning the discovery.



6.2.2



If the Contractor determines to conduct a drill-stem or

production test, in open hole or through perforated casing,

with regard to the discovery, he shall notify the Government

of that a drill-stem or production test will be made within

twenty-four (24) hours of the time that such proposed test

has been called, and the Government shall have the right to

have a representative present during such test. Not later

than ninety (90) days after completion of such test or tests,

the Contractor shall complete the analysis and interpretation

of the data resulting from such test and submit a report to

the Government which shall contain copies of such data and

its analysis and interpretation thereof, and which shall also

contain a written notification of whether or not, in the

Contractor's opinion, such discovery is of potential

commercial interest. If the Contractor plugs and abandons

the well which encountered such discovery without

conducting a drill stem or production test, or fails to conduct

a drill stem or production test with respect to such discovery

within one hundred and eighty (180) days from the date on

which such discovery has been made, it shall be deemed to

have notified the Government that, in the Contractor's

opinion, such discovery is not of potential commercial

interest.



6.2.3



If, pursuant to paragraph 6.2.2, the Contractor notifies, or is

deemed to have notified, the Government that such

discovery is not of potential commercial interest, the

Government shall have the option, exercisable by notice in

writing to the Contractor, to require the Contractor to

relinquish the area corresponding to such discovery and

forfeit any rights relating to such discovery and forfeit any

rights relating to such discovery and any production

therefrom. The area subject to relinquishment shall not

exceed the prospective producing area determined by taking

13



USCapital Energy Belize, Ltd., PSA

January 22, 2001



into account the area of the structural closure of the

prospective horizon and other relevant technical factors.

Any such relinquishment by the Contractor of the area

relating to such discovery before the end of the exploration

period shall be carried out in accordance with paragraphs

4.4, 4.6 and 4.8.

6.2.4



If, pursuant to paragraph 6.2.2, the Contractor notifies the

Government that the discovery is of potential commercial

interest, the Contractor shall promptly prepare and submit

for approval to the Government a reasonable work

programme and work programme budget for the appraisal of

such discovery. Such appraisal work programme and work

programme budget shall include a complete programme of

appraisal operations necessary to determine whether such

discovery is a commercial discovery.



6.2.5



Within fifteen (15) days after the submission of the appraisal

work programme and work programme budget pursuant to

paragraph 6.2.4, the Contractor and the Government shall

meet with a view to adopting such work programme and

work programme budget or mutually agreeing upon

amendments or additions thereto.

Failing agreement

between the Contractor and the Government as to such

work programme and work programme budget at such

meeting, or within fifteen (15) days thereafter, the original

appraisal work programme and work programme budget

submitted by the Contractor, revised in accordance with any

agreed amendments or additions thereto, shall be deemed

adopted, and the Contractor shall immediately commence

implementation thereof. On adoption of the appraisal work

programme and work programme budget, the annual work

programme and work programme budget adopted pursuant

to paragraph 5.6 shall be revised accordingly.



6.2.6



If, pursuant to paragraph 6.2.2, the Contractor has notified

the Government that the discovery is of potential commercial

interest, it shall, unless otherwise agreed:

(a) in respect of a discovery of crude oil, advise the

Government by notice in writing, whether or not in its

opinion, the discovery is commercial within a period of

agreed eighteen (18) months from the date on which the

Contractor notified the Government that said discovery was

of potential commercial interest:

Provided that in respect of a discovery of crude oil in

water depths of more than 600 feet, such period may be

increased by mutual agreement from eighteen (18) months

to twenty-four (24) months.

(b) in respect of a discovery of non-associated natural gas,

advise the Government by notice in writing, whether or not in

its opinion, the discovery is commercial, within such period

as may be stipulated in an agreement made pursuant to

Article XIV with respect to such discovery or, in the absence

of such agreement, within thirty-six (36) months from the

date on which the Contractor notified the Government that

said discovery was of potential commercial interest.



6.2.7



If the Contractor notifies the Government that the discovery

is not commercial, or fails to notify the Government that the



14



USCapital Energy Belize, Ltd., PSA

January 22, 2001



discovery is commercial within the periods prescribed in

paragraphs 6.2.6(a) and (b), the Government shall have the

option, exercisable by notice in writing to the Contractor, to

require the Contractor to relinquish the area corresponding

to such discovery and forfeit any rights relating to such

discovery and any production therefrom. The area subject to

relinquishment shall not exceed the prospective producing

area determined by taking into account the area of structural

closure of the prospective horizon and other relevant

technical factors.

Any such relinquishment by the

Contractor of the area relating to such discovery before the

end of the exploration period shall be carried out in

accordance with paragraphs 4.4, 4.6 and 4.8.

6.2.8



(a)

The notice submitted to the Government by the

Contractor pursuant to paragraph 6.2.6 (a) and (b) shall be

accompanied by a report on the discovery setting forth all

relevant technical and economic data, including, but not

limited to, geological and geophysical information, areas,

thicknesses and extent of the productive strata,

petrophysical properties of the reservoir formations, PVT

data, the reservoir's productivity indices for the wells tested

at various rates of flow, permeability and porosity of the

reservoir formations, the relevant characteristics and

qualities of the petroleum discovered, additional geological

data and evaluations of the reservoir, crude oil and natural

gas reserves estimates and any other relevant

characteristics and properties of the reservoirs and fluids

contained therein, as well as all evaluations, interpretations

and analyses of such data and feasibility studies relating to

the discovery prepared by the Contractor, his contractors,

subcontractors and affiliated companies.

(b) In addition, if the Contractor believes that the discovery

is commercial, he shall submit to the Government with the

report described in paragraph 6.2.8 (a) a work programme

and work programme budget for the development of such

discovery. Such development work programme and work

programme budget shall set out detailed proposals,

including cost estimates, drilling schedules, number of wells

and well spacing, production forecasts and a timing

schedule,

in accordance with generally accepted

engineering practices and economics of the international

petroleum industry, for the establishment and operation of all

the facilities, installations and services required for the

production, processing, storage and transportation of

petroleum from the area in which the discovery is located

and any other activities incidental thereto.

Proposals

relating to production procedures shall ensure that the area

does not suffer an excessive rate of decline of production or

an excessive loss of reservoir pressure. Such development

work programme and work programme budget shall also

contain particulars of feasible alternatives, if any, considered

by the Contractor for the development and exploitation of

the discovery and economic feasibility studies carried out by

or for the Contractor with respect to the discovery taking into

account the location, meteorological conditions, cost

estimates, the price of petroleum and any other relevant

data and evaluations thereof.



15



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USCapifal Energy Belize, Ltd., PSA

January 22, 2001



6.2.9





The Government shall examine the report and any work

programme and work programme budget submitted

pursuant to paragraph 6.2.8 and may require the Contractor

to provide, within a specified period of time, such additional

information and data as it may reasonably require to

evaluate such report, work programme and work programme

budget. As soon as possible after the submission of the

report and any work programme and work programme

budget pursuant to paragraph 6.2.8 or receipt of such

additional information and data, the Government and the

Contractor shall meet (i) to determine at such meeting, or at

such later date as may be mutually agreed on, the

boundaries of the area to be delineated as a field, and (ii) to

adopt a work programme and work programme budget for

the development of the discovery.



6.2.10





(a) At the meeting described in paragraph 6.2.9, the

Contractor shall carefully consider and take into account the

proposals of the Government and the reasons therefor and

shall attempt in good faith to reach an agreement with the

Government on the points at issue paying particular

consideration to the objective of achieving initial commercial

production expeditiously taking into account generally

accepted engineering practices and economics of the

international petroleum industry.

(b) If the Government and the Contractor agree upon the

boundaries of the area to be delineated as a field and upon

the adoption of a work programme and work programme

budget for the development of the discovery, the date upon

which such agreement is reached, as reflected in writing

signed by both parties, shall be the date of the declaration of

the commercial discovery for all purposes of this agreement.

The area so determined shall, on such date, be

automatically converted into a field, and the Contractor shall,

as soon as is practicable, commence development and

production operations in the field according to the adopted

work programme and work programme budget.

Upon

adoption of the development work programme and work

programme budget, the annual work programme and work

programme budget adopted pursuant to paragraph 5.6 shall

be revised accordingly.

(c) In the event that no agreement is reached between the

Government and the Contractor within one hundred and

eighty (180) days from the date of submission of the report

and work programme and work programme budget pursuant

to paragraph 6.2.8 as to (i) matters relating to the adoption

of the work programme and work programme budget for the

development of the discovery or (ii) the boundaries of the

area to be delineated as a field, the Government or the

Contractor may refer the matter for determination pursuant

to Article XXIV. The determination in accordance with

Article XXIV shall be final and the work programme and

work programme budget for the development of the

discovery and the boundaries of the area to be delineated

as a field, as the case may be, shall be deemed to have

been adopted and agreed as determined, except that the

Contractor may, within sixty (60) days of receipt of such

determination, notify the Government that the discovery to

which such work programme and work programme budget



16



USCapital Energy Belize, Ltd., PSA

January 22, 2001



and area so determined is no longer considered to be

commercial. If the Contractor so notifies the Government,

the provisions of paragraph 6.2.7 shall apply. Failing such

notification, the date after sixty (60) days of the receipt of

such determination shall be deemed to be the date of the

declaration of the commercial discovery for all purposes of

this Agreement. The area so determined shall, on such date,

be automatically converted into a field and the Contractor

shall, as soon as is practicable, commence development

and production operations in the field according to the work

programme and work programme budget so adopted. Upon

adoption of the development work programme and work

programme budget as aforesaid, the annual work

programme and work programme budget adopted pursuant

to paragraph 5.6 shall be revised accordingly.



Production Period



6.2.11



Notwithstanding any other provision of this Agreement, in

the event that initial commercial production has not occurred

within three (3) years, in the case of a crude oil discovery on

land or in water depths of less than six hundred feet (200

m), or five (5) years, in the case of non-associated natural

gas discovery, or such longer period as the Government

may have agreed in the development work programme and

work programme budget, from the date of declaration of

commercial discovery for a field, the Contractor shall

relinquish the area comprising such field and shall forfeit any

rights relating to such field and any production therefrom.



6.3



The terms and conditions of the production period shall be

as set out below.



6.3.1



The Contractor shall produce crude oil from the contract

area at a rate not to exceed the maximum efficient rate. In

conjunction with the adoption of the development work

programme and work programme budqet pursuant to

paragraph 6.2.10 the Contractor and the Government shall

establish at that time the maximum efficient rate of

production for crude oil and the production rate for non­

associated natural gas. Such rates shall be reviewed

annually at the time of submission of the annual work

programme by the Contractor pursuant to paragraph 5.4 and

revised, if necessary, by mutual agreement. In the case of

non-associated natural gas, the production rate shall not be

required by the Government to be less than that required to

satisfy any contracts then in existence for the sale of such

natural gas.



6.3.2



Not less than ninety (90) days prior to the beginning of each

calendar year following initial commercial production, the

Contractor shall prepare and furnish to the Government for

approval a forecast statement setting forth by quarters the

total quantity of crude oil (by quality, grade and gravity) and

natural gas that the Contractor estimates can be produced,

saved and transported hereunder during such calendar year

in accordance with generally accepted practices in the

international petroleum industry.

The Contractor shall

endeavor to produce in each calendar year the forecast

quantity. The crude oil shall be run to storage tanks,

constructed, maintained and operated by the Contractor in

accordance with Government Regulations, in which such

crude oil shall be metered or otherwise measured for all

17





USCapital Energy Belize, Ltd., PSA

January 22, 2001



purposes required by this Agreement.

ARTICLE VII



The Government shall:



Obligations of the

Government



7.1



assist the Contractor in the execution of work programmes

by supplying or otherwise making available all geological,

geophysical, geographical, drilling, well, production and

other information, including well location maps, relating to

the contract area in the possession of the Government or

coming into the possession of the Government which are

classified as non-confidential;



7.2



provide the right of ingress to and egress from the contract

area and any facilities used in petroleum operations, and,

upon application in the prescribed manner, all necessary

visas, work permits, import licenses and rights of way and

easements as may be required by the Contractor and his

contractors and subcontractors and which may be available

from resources within the Government's control.

ARTICLE VIII



Royalty

Production

Payment



8.1



The Contractor shall pay to the Government a royalty equal

to (I) seven and one half percent (7.5%) of the value of the

annual gross production of crude oil produced and saved in

each calendar year and not used or consumed in petroleum

operations and (ii) five percent (5.0%) of the value of the

annual gross production of natural gas produced, saved and

sold in each calendar year and not used or consumed in the

conduct of petroleum operations.



8.2



The royalty with respect to crude oil shall be payable in cash

and/or kind at the option of the Government. The royalty

with respect to natural gas shall always be paid in cash.



8.3·



For the purposes of determining the amount of the royalty

due, crude oil and natural gas shall be valued in accordance

with paragraphs 10.1, 10.2 and 14.4, less such costs as the

Government may reasonably allow for handling and

transportation from the wellhead to the delivery point as

described in such paragraphs, and the royalty shall be

payable quarterly within thirty (30) days of the end of each

quarter on the basis of crude oil production or natural gas

sales which occur in each such quarter. Payment shall be

accompanied by a certificate from the Contractor setting

forth in detail the basis for computation of the royalty. Such

certificate shall be in a form acceptable to the Government.



8.4



If the Government elects to take the Royalty with respect to

Crude Oil, or any part thereof, in kind, it shall notify the

Contractor in accordance with the provisions of paragraph

11.2.

ARTICLE IX



Discovery of

Petroleum

Operations

Expenditures:

Production



9.1



In each calendar year, after discharging its obligation for the

royalty payment due to the Government pursuant to Article

VIII, the Contractor shall be entitled to recover all petroleum

operations expenditures incurred hereunder, out of one



18





USCapital Energy Belize, Ltd., PSA

January 22, 2001



Sharing



hundred percent (100%) of the petroleum produced and

saved in such calendar year and not used in petroleum

operations by retaining and disposing of that amount of

petroleum equal in value to the unrecovered petroleum

operations expenditures for that calendar year plus all

unrecovered petroleum operations expenditures from prior

calendar years. All such petroleum operations expenditures

shall be recovered without a ceiling in the manner, to the

extent provided for, in the Income Tax (Amendment) Act

(No. 9 of 1991) as amended (No. 7 of 1999). For the

purpose of determining the value of the quantity of

petroleum to which the Contractor is entitled in each

calendar year pursuant to this paragraph 9.1, the provisions

of Article X shall be applied.

9.2





The remaining quantity of petroleum produced and saved in

a given calendar year and not used in petroleum operations,

after deduction of the value of the royalty payments made in

such calendar year and after recovery by the Contractor of

petroleum operations expenditures pursuant to paragraph

9.1, ("Net Petroleum") shall be taken and disposed of

separately by the Government and the Contractor in each

calendar year in the following proportions:



Government's Share

Percent (%)



Contractor's Share Percent

(%)



Daily Average Production

First 50,000 barrels



5%



95%



Next 50,000 barrels



10%



90%



Next 50,000 barrels



15%



85%



Next 50,000 barrels



20%



80%



Any volume over first

150,000 barrels



25%



75%



ARTICLE X

Valuation and

Measurement of

Petroleum



10.1



Crude oil sold to third parties shall be valued at the net

realized price at the delivery point, well-head or point of

collection in Belize received by the Contractor for such

crude oil.



10.2



Crude oil sold to other than third parties shall be valued as

follows:



10.2.1



By using the weighted average unit price received by the

Contractor from sales to third parties at the delivery point,

net of any commissions and brokerages paid in relation to

such third party sales, during the ninety (90) days preceding

such sale, adjusted as necessary for quality, grade and

gravity, and taking into consideration any special

circumstances with respect to such sales, unless less than

fifty percent (50%), by volume, of crude oil sales during such

19



USCapital Energy Belize, Ltd., PSA

January 22, 2001



period are made to third parties, in which case crude oil sold

to other than third parties shall be valued in accordance with

paragraph 10.2.2.

10.2.2



If no third party sales have been made during such period of

time, then (a) on the basis used to value other crude oil from

Belize of similar quality, grade and gravity (or, if not similar,

adjusted as necessary for quality, grade and gravity) and

taking into consideration any special circumstances with

respect to sales of such crude oil, or (b) if there is no other

crude oil from Belize, on the basis used to value crude oil

from other sources in the Caribbean, Central America,

Colombia and Venezuela as posted in Platt's Oil Gram for

Caribbean I Central American Crudes of similar quality,

grade and gravity and taking into consideration any special

circumstances with respect to sales of such similar crude oil.



10.3



Natural gas shall be valued in accordance with the

provisions of paragraph 14.4.



10.4



Third party sales referred to in this Article shall mean sales

other than barter sales made by the Contractor to

purchasers who are not affiliated companies of the

Contractor in arms length transactions and with whom (at

the time the same is made) the Contractor has no

contractual interest involving directly or indirectly any joint

interest.



10.5



Commissions or brokerages incurred in connection with

sales to third parties, if any, shall not exceed the customary

and prevailing rate.



10.6



In the event that petroleum operations involve the

segregation of crude oils of different quality, grade or gravity,

and if the parties do not otherwise mutually agree, any and

all provisions of this Agreement concerning valuation of

crude oil shall separately apply to each segregated crude oil.

However, in electing to take crude oil for internal

consumption pursuant to paragraph 11.7 and to take royalty

in kind pursuant to paragraph 11.2, the Government shall

have the right to receive, at its own expense and risk, crude

oil of the quality, grade and gravity of its choice.



10.7



The Contractor shall supply, operate and maintain

equipment for measuring the volume and quality of the

petroleum produced and saved hereunder, including gravity,

density, temperature and pressure measuring devices and

any other devices that may be required. All measurement

equipment and devices shall, prior to their installation or

usage, be approved by the Inspector of Petroleum. Such

equipment and devices shall at all reasonable times be

available for inspection and testing by the Inspector of

Petroleum or other authorized representatives. Any such

inspection or testing shall not interfere with the normal

operation of the facilities involved. The equipment and

devices used or installed pursuant to this paragraph shall

not be replaced or altered without the prior approval of the

Government.



10.8



The Contractor shall undertake to measure the volume and

quality of the petroleum produced and saved hereunder,

20



USCapital Energy Belize, Ltd., PSA

January 22, 2001



consistent with generally accepted practices in the

international petroleum industry, with the frequency and

according to procedures which shall be approved by the

Government.

10.9



The Contractor shall give the Inspector of Petroleum at least

twenty four (24) hours notice of its intention to conduct

measuring operations and the Inspector shall have the right

to be present at and supervise, either directly or through

authorized representatives, such operations.



10.10



If it is determined, following an inspection or test carried out

by the Government or its representatives, that the

equipment, devices or procedures used for measurement

are inaccurate and exceed the permissible tolerances which

shall be established by agreement between the Government

and the Contractor, and such determination is verified by an

independent surveyor acceptable to both parties, such

inaccuracy shall be deemed to have existed for one-half of

the period since the last previous such inspection or test,

unless it is proved that such inaccuracy has been in

existence for a longer or shorter period. Appropriate

adjustments covering such period shall be made within thirty

(30) days from the date of such determination.

ARTICLE XI



Marketing, Royalty

In Kind and

Domestic

Requirements



11.1



The Contractor shall be obligated to market all crude oil

produced and saved from the contract area, subject to the

provisions hereinafter set forth.



11.2



If the Government elects to take the royalty payment on

crude oil in kind, it shall so notify the Contractor in writing not

less than sixty (60) days prior to the commencement of each

six month semester of each calendar year specifying the

quantity, and designating the grade and quality that it elects

to take in kind, based upon estimates, including those

contained in the forecast statement furnished pursuant to

paragraph 6.3.2. Final adjustments shall be made within

ninety (90) days of the end of each calendar year on the

basis of actual quantities.

Such notice shall be effective for the ensuing six month

semester of that calendar year. Failure to give such notice

shall be conclusively deemed to indicate the election by the

Government not to take in kind.



11.3



Any sale by the Contractor of any part of the Government's

share of crude oil production shall not be for a term expiring

more than six (6) months after the date of execution of the

sales contract without the Government's written consent. If

the Government so consents, the Government shall not

exercise its rights to receive crude oil in kind pursuant to

paragraph 11.2.



11.4



Any sale by the Contractor of any part of its share of the

crude oil produced and saved from the contract area shall

not be for a term expiring more than twelve (12) months

after the date of execution of the sales contract without the

Government's written consent. The Government shall not

exercise its rights under paragraph 11.7 to require the

21





USCapital Energy Belize, Ltd., PSA

January 22, 2001



Contractor to satisfy the internal consumption requirements

of Belize from crude oil which is subject to such contract.

11.5



Crude oil which the Government has elected to take in kind

shall be delivered by the Contractor. free of cost to the

Government, at regularly spaced intervals at the delivery

point or to the Government's storage facilities in the field, or

both, at the option of the Government. The Government

shall provide at such delivery points, at its sole risk and

expense, all storage, transportation and other facilities

necessary to receive such crude oil, provided, however, that

if the Government requests, the Contractor shall provide

adequate storage facilities at such places. free of charge, at

the risk of the Government, for a quantity of the

Government's crude oil not exceeding one hundred

thousand (1 00,000) barrels for each field. If such storage is

provided, and the Government has no need for such storage

capacity, Contractor has the right to use such storage

capacity for its own use



11.6



If the Government elects to meet all or part of the

requirements of the domestic market of Belize from crude oil

production in Belize, it shall use its share of production from

all crude oil production in Belize to do so. !f in any year there

is domestic demand in excess of the Government's share of

such production, the Government may require the

Contractor to sell crude oil in Belize on a pro rata basis with

other producers in Belize on a pro rata basis with other

producers in Belize, according to the quantity of crude oil

production of each producer in each year. The Government

shall give the Contractor at least three (3) months notice in

advance of such requirement and the term of supply will be

on an annual basis. The price for such sales shall be the

price as calculated pursuant to paragraph 10.2 above.



11.7



If the Government elects to exercise its rights under

paragraph 11.6. it shall notify the Contractor in accordance

with the provisions of paragraph 11.2 relating to the

Government's election to take royalty payment ill kind. The

amounts to be taken shall be based upon estimates,

including those contained in the forecast statement

furnished pursuant to paragraph 6.3.2, and fina! adiustrnents

shall be made withio ninety (90) days of the end of each

calendar year on the basis of actual quantities.



11.8



Not less than twelve (12) months prior to initial commercial

production in any field, the Contractor shall submit to the

Government for approval, proposed procedures and related

operating regulations and financial terms covering the

scheduling, storage and lifting of crude oil from such field.

The procedures, regulations and terms shall be in

accordance with accepted standards and practices in the

international petroleum industry and comprehend the

subjects necessary to efficient and equitable operations

including, but not limited to: rights of parties, notification

time; maximum and minimum quantities: duration of storage,

scheduling, conservation, spillage, liabilities of the parties,

and penalties for over and under lifting, safety and

emergency procedures.



22



USCapital Energy Belize, Ltd., PSA



January 22, 2001



ARTICLE XII

Payment

Procedure



12.1



All payments due to the Government hereunder shall be

made in United States dollars at a bank to be designated by

the Government, or at the Contractor's election, such other

currency as is acceptable to the Government.



12.2



All payments due to the Contractor hereunder shall be made

in United States dollars at a bank to be designated by the

Contractor, or, at the Government's election, such other

currency as is acceptable to the Contractor.



12.3



Except as otherwise expressly provided herein, all payments

required to be made pursuant to this Agreement shall be

made within thirty (30) days following the end of the

calendar month in which the obligation to make such

payment occurs.



12.4



If any payment is not made when due, such unpaid amount

shall bear interest from and after the due date at an interest

rate compounded annually at two percent (2%) greater than

the London Interbank Offer Rate (USOR).

ARTICLE XIII



Surface Rental

and Administration

Fee



13.1



The Contractor shall be liable for payment of such fees and

surface rentals as are stipulated in the Petroleum

Regulations 1992. The fees payable for each year shall be

paid in advance and in accordance with paragraph 12.3.

The fees for the first year shall be paid within thirty (30) days

with reference to the effective date of this Agreement.

ARTICLE XIV



Natural Gas



14.1



The Contractor shall have the right to use associated natural

gas for petroleum operations, including reinjection for

pressure maintenance in the field or adjacent fields of the

Contractor. Associated natural gas which is, in the opinion of

both the Contractor and the Government, not economical,

shall be returned to the subsurface structure, or may be

flared with the consent of the Government. In the event that

the Contractor chooses to process and sell associated

natural gas, the Contractor shall notify the Government of

the same and upon such notification, the Government and

the Contractor shall, as soon as practicable thereafter, meet

together with a view to reaching an agreement on the

production, processing and sale of such gas. In the event

the Contractor chooses not to process and sell associated

natural gas, the Government may elect to off-take at the

outlet flange of the gas-oil separator and use such

associated natural gas which is not required for petroleum

operations. There shall be no charge to the Government for

such associated natural gas, provided that the cost to gather

such associated natural gas in the field at the point of being

flared and to process and utllize it shall be for the account of

the Government.



14.2



Where non-associated natural gas is discovered in the

contract area and the Contractor has, pursuant to paragraph

6.2 informed the Government that the discovery is of

potential commercial interest, the Government and the

23



USCapital Energy Belize, Ltd., PSA

January 22, 2001



Contractor will, on completion of the appraisal programme

relating to such discovery, or sooner if so agreed, meet

together with a view to reaching an agreement on the

development, production, processing, utilization, disposition

or sale of such gas.

14.3



In the event that the development, production, processing,

utilization, disposition or sale of natural gas from the contract

area is determined by the parties to be economically feasible

in accordance with this Article (XIV), the costs of

development and production of the same from the reservoir

to the delivery point, and the revenue derived therefrom,

shall, unless otherwise agreed pursuant to paragraphs 14.1

and 14.2, be included in petroleum operations expenditures

and gross revenues, respectively, for all purposes of this

Agreement, subject to the accounting procedure outlined in

the Bulletin of the Income Tax Commissioner (Annex 1).



14.4



The price to be paid for natural gas, or the value to be

attributed thereto shall ­



14.4.1



for sales to third parties, be equal to the net realized price

obtained by the Contractor for such Natural Gas at the

delivery point;



14.4.2



for sales other than to third parties, be determined by

agreement between the Government and the Contractor,

provided, however, that such price or value shall reflect the

following: (i) the quality and quantity of the natural gas (ii)

the price at which sales of natural gas from other sources in

Belize, if any, are then being made, (iii) the price at which

sales, if any, of natural gas imported into Belize are being

made, (iv) the purpose for which the natural gas is to be

used, and (v) the international market price of competing or

alternative fuels or feedstocks.



14.4.3



Third party sales shall mean sales as described in

paragraph 10.4

ARTICLE XV



Taxes



15.1



The Contractor and his contractors and subcontractors shall

be obligated to pay income tax for the applicable calendar

year upon net taxable income derived from petroleum

operations pursuant to the Income Tax Act.



15.2



In each calendar year, the Contractor's income tax shall be

payable to the Government in installments on the last day of

each quarter on the basis of the estimate, and quarterly

updates thereto, provided to the Government. The estimated

unpaid liability for income tax for each calendar year as of

the current estimate or quarterly update shall be payable

equally over the remaining quarterly installments for such

calendar year. Adjusting payments or refunds, as the case

may be, shall be made within ninety (90) days of the end of

the calendar year based upon the detailed accounts

submitted for such calendar year pursuant to paragraph 26.2

as approved by the Government.



15.3



(a) The Contractor shall within ninety (90) days of the end of

each calendar year, notify the Government of any and all

24



USCapifal Energy Belize, Ltd., PSA

January 22, 2001



amounts paid to its contractors with respect to operations

carried out by them in Belize and in turn shall notify its

contractors that they must similarly advise the Government

within ninety (90) days after the end of each calendar year of

any and all amounts paid to their sub-contractors with

respect to operations carried out by them in Belize.

(b) The Contractor shall also advise each of its contractors,

and shall require such contractors to likewise notify their

subcontractors that for every six (6) months such contractors

and subcontractors shall furnish to the Government a list of

all their Belizean and expatriate personnel, along with the

remuneration received by each of such personnel, and that

they shall be required, prior to leaving Belize to establish to

the satisfaction of the Government that the necessary

income taxes have been paid.

15.4



The Contractor and his contractors and subcontractors and

their respective personnel shall be obligated to pay such

reasonable transfer taxes and stamp taxes as may be in

effect from time to time at the rates which are generally

applicable to all persons or entities in Belize.



15.5



Except as may be otherwise agreed on in writing between

the Government and the Contractor, all transactions giving

rise to revenues, costs or expenses which will be credited or

charged to the books, accounts, records and reports

prepared, maintained or submitted hereunder shall be

conducted at arm's length or on such a basis as will assure

that all such revenues, costs or expenses will not be higher

or lower, as the case may be, than would result from a

transaction conducted at arm's length on a competitive basis

with third parties.

ARTICLE XVI



Exemptions from

Custom Duties



16.1



The Contractor and his non-Belizean contractors and

subcontractors engaged in conducting petroleum operations

under this Agreement shall be permitted to import upon

application to and approval by the Minister of Finance for

exemptions from customs duties with respect to the

importation of, machinery, equipment, spare parts,

materials, supplies, consumable items, moveable property,

and any other items or articles connected with petroleum

operations, subject to the provisions of paragraph 16.2.



16.2



The exemptions provided in paragraph 16.1 shall not apply

to any imported item when, in the reasonable opinion of the

Government, items of the same, or substantially the same,

kind and quality are manufactured locally and are available

for purchase and timely delivery at the Contractor's

operating base in Belize at a price equal to the cost of the

imported item(s).



16.3



The Government reserves the right to inspect during normal

business hours the records, documentation or the physical

item or items for which an exemption is or has been

provided under paragraph 16.1 to determine that such item

or items are being or have been imported solely for the

purpose for which the exemption was granted.



25





16.4



USCapital Energv Be"



T



T



uze, Ltd PSA



he item or items

January 2£2001

shall not be

exempt from custo

.

right exemPtSO~d to third parties (who ~~e dUtl~~ hereunder

consUmption in ro~ SUch customs dutie no In their own

obtained from th:~,ze unless prior written

u~e or

overnment and the import' onzatlon is

the tax or duty d

g

items at the time ~fe on

I the assessed value ots Pha~y pays

sa e.

uc Item or



u:



16.5



16.6



16.7



16.8



Any of the items im

'



non-exem t f

ported Into Belize

h



' Wether exempt 0

im

' p rom customs dur

PortIng party t

res, may be e

r

export duties tax a any time without the p xported by the

,

es or Imposts,

ayment of any

"Custom duties"

taxes'

as Used herein sh II .

f

'. or Imposts (except thos h

a include all duties

e c arges as may be !

'

rom time to time'd

rendered SUch ~:al to the Governme~t for actua~ In f~rce

which are payable a~o~mal handling and storage c~~rvlces

or items under considera~~~~/t of the importation of the r~:~

The Contractor shall b



other financial impost: e:cmpted from any duty, fee or an

Gove~nment for actual ~ervi~pt those charges paid to th~

handlrng and storage char es ~endered SUch as normal

export of petroleum to Wh~e~ (If any) in respect of the

IC the Contractor is entitled

hereunder.



r



The Contractor shall not directl

'.

petroleum produced from the

or IndIrectly, export any

person which the Govern co~ ract area to any country or

pronouncement declared to b~ehn t~/as by !aw or official

os I e or unfnendly.



ARTICLE XVII

Change and

Currency Controls



17.1



The Contractor shall be subject to the applicable exchange

control legislation and regulations in effect from time to time

in Belize, provided, however, that:

(i) the Contractor shall be permitted to freely dispose of any

crude oil produced after satisfying its obligations of payment

of taxes, bonuses, royalties and other fees to the

Government and with the prior approval of the Central Bank

of Belize to receive and hold the proceeds from the sale of

any petroleum, crude oil, natural gas and casinghead

petroleum spirit produced therefrom in its offshore banking

account;



(ii) the Contractor shall be permitted to remit any profits,

dividends, capital, or sums owed in repayment of loans

including sums owed to affiliates, which are not required for

conducting the petroleum operations, to their home office or

nonresident shareholder free of any charges, taxes, imposts

or other duties;

(iii) the Contractor shall have the right to establish and

maintain local bank accounts which may be denominated in

Belize dollars or, subject to the prevailing conditions of the

Central Bank of Belize in US dollars which may be utilized

as necessary for payment of Contractor's obligations in

Belize;



26



USCapita/ Energy Belize, Ltd., PSA

January 22, 2001



(iv) no restriction shall be placed on the importation by the

Contractor of funds necessary for carrying out the petroleum

operations stipulated in this Agreement;

(v) the Contractor shall have the right to pay directly outside

of Belize from its offices abroad for purchases or services for

petroleum operations hereunder, provided, however, that no

such payments shall be made to residents of Belize or to

firms using Belize as their main base of operations (Whether

natural or juridical) contrary to the Laws of Belize.

ARTICLE XVIII

Title to Equipment



18.1



All equipment and assets which are fixed installations and

are not exported by the Contractor under paragraph 16.6

shall become the property of the Government without cost

as soon as this Agreement is terminated.

ARTICLE XIX



Government

Participation



19.1



The Government shall have the option to acquire for itself or

for its designee an undivided and unencumbered working

interest of up to ten percent (10%) of the total interest of the

Contractor in this Agreement and in return therefor shall

furnish its participating interest share of the funds as

provided in paragraphs 19.3.



19.2



Within ninety (90) days following the date of declaration of

commercial discovery for any field, the Government, by

written notice to the Contractor, may exercise its option to

participate in this Agreement. If the Government exercises

its option to participate, (a) it shall promptly reimburse the

Contractor an amount equal to ten percent (10%) of all

exploration expenditures incurred prior to the date of

declaration of commercial discovery for such field and (b)

the Contractor (or each corporation, individual or entity

comprising the Contractor at that time pro rata) shall assign

and transfer to the Government or its designee the

percentage interest that the Government has opted to

acquire. The Government or its designee shall assume all

rights and obligations of the Contractor pro rata with its

participating interest, in connection with this Agreement.



19.3



The Government may, upon giving the Contractor

reasonable written notice, require the Contractor to lend the

Government up to fifty percent (50%) of the funds required

to pay the Government's pro-rata share of expenditure. The

loan shall bear interest at UBOR plus three percent (UBOR

plus 3%), calculated on an annual basis, and the term of the

loan shall be no longer than ten (10) years.

ARTICLE XX



Training and

Employment



20.1



The Contractor agrees to train and employ qualified

nationals of Belize in its petroleum operations and, after

initial commercial production, will undertake the schooling

and training of nationals of Belize for staff positions,

including administrative and executive management

positions. The Contractor will require his contractors and

subcontractors to do the same. The Contractor undertakes

to gradually replace its expatriate staff with qualified

nationals of Belize as they become available. An annual



27





USCapital Energy Belize, Ltd., PSA

January 22, 2001



programme for training and phasing in of nationals of Belize

shall be established by the Contractor and shall be

submitted for approval to the Government. Such programme

shall be included in the annual work programmes submitted

by the Contractor pursuant to paragraph 5.4. Within thirty

(30) days of the end of each calendar year, the Contractor

shall submit a written report to the Government describing

the number of personnel employed, their nationality, their

positions and the status of training programmes for nationals

of Belize.

20.2



The Contractor shall also be required to establish a

programme, satisfactory to the Government, to train

personnel of the Government to undertake skilled and

technical jobs in petroleum operations for the Government.

Such programme shall also include provisions for involving

representatives of the Government in preparation of the

annual work programme and work programme budgets as

required by paragraph 5.4 (d).



20.3



The Contractor shall be responsible for on-the-job training of

Belizean nationals during the exploration and development

periods pursuant to paragraphs 20.1 and 20.2. Commencing

with the first contract year following initial commercial

production in the first field, the Contractor shall undertake

responsibility of training Belizean nationals at a cost not to

exceed $25,000 US$ per each calendar year in accordance

with paragraphs 20.1.

ARTICLE XXI



Purchases in

Belize



21.1



In procurement, the Contractor shall give preference to

goods which are produced or available in Belize and

services which are rendered by nationals of Belize and

companies of Belize, provided such goods and services are

offered on terms equal to or better than imported goods and

services with regard to quality, price and availability at the

time and in the quantities required.



21.2



Locally produced or available equipment, materials and

supplies shall be deemed equal in price to imported items if

the local cost of such locally produced or available items at

the Contractor's operating base in Belize is not more than

ten percent (10%) higher than the cost of such imported

items before customs duties but after transportation and

insurance costs have been added.

ARTICLE XXII



Unitization



22.1



If a field is designated within the contract area and such field

extends beyond the contract area to other areas of Belize

over which other parties have the right to conduct

exploration, development and production operations the

Government may require that the development of the field

and the production of petroleum therefrom be carried out in

collaboration with the other contractors consistent with

accepted practices in the international petroleum industry.

The same rule shall be applicable if deposits of petroleum

within the contract area, although not equivalent to a

commercial discovery if developed alone, would be deemed

to be a commercial discovery if developed with those parts

28





USCapital Energy Belize, Ltd., PSA

January 22, 2001



of the deposits which extend to areas controlled by other

contractors.

22.2



If the Government so requests, the Contractor shall

collaborate with other contractors in preparing a collective

proposal for common development and production of the

deposits of petroleum for approval by the Government.



22.3



If the proposal for common development and production has

not been presented within ninety (90) days of the request

described in paragraph 22.2, or if the Government does not

approve such proposal, the Government may prepare or

cause to be prepared, for the account of the Contractor and

the other contractors involved, a reasonable plan for

common development and production. If the Government

adopts such plan, the Contractor shall comply with all

conditions established in such plan.



22.4



The Contractor may within twenty eight (28) days from the

date on which notice in writing of such plan has been given

to him by the Minister refer the matter to arbitration pursuant

to Article XXIV. In such event the plan shall not be

implemented until the tribunal renders a decision or the

parties agree on a compromise plan, whichever occurs first.



22.5



This Article XXII shall also be applicable to discoveries of

deposits of petroleum within the contract area which extend

to areas that are not within the dominion of Belize, provided

that in these cases the Government shall be empowered to

impose the special rules and conditions which may be

necessary to satisfy obligations under any agreements with

international organizations or adjacent states with respect to

the development and production of such deposits of

petroleum.



22.6



Within ninety (90) days following the approval or adoption of

a unitization plan for common development and production,

the Contractor shall proceed to operate under any such

plan. If a clause of a cooperative or unitary development and

production plan which by its terms affects the contract area

or a part of the same, contradicts a clause of this

Agreement, the clause of the cooperative or unitary plan

shall prevail.

ARTICLE XXIII



Danger to

Persons, Property

or Environment



23.1



If the Government reasonably determines that any works or

installations erected by the contractor or any operations

conducted by the contractor endanger or may endanger

persons or third party property or cause pollution or harm

wild-life or the environment to a degree that is unacceptable

according to international petroleum standards, the

Government may require the contractor to take remedial

measures within a reasonable period established by the

Government and to repair any damage to the environment

that may be necessary in accordance with international

petroleum standards. In the event that the contractor fails to

take the remedial measures required by the Government

within the time period established by the Government, the

Government may carry out such remedial measures for the



29





USCapital Energy Belize, Ltd., PSA

January 22, 2001



contractor's account.

23.2



The Contractor shall undertake relevant environmental

studies to identify any and all source(s) of potential pollution

which may cause harm and damage to the environment

prior to the commencement of any drillings operations in

Belize. Upon execution of this Agreement the Contractor

shall pay a one time fee of $2,000 US$ to be contributed to

a research fund to undertake research for the protection of

manatees and any other endangered species which may be

found in the contract area. Contractor may elect to make

additional contributions at its sole discretion.

ARTICLE XXIV



Arbitration



24.1



If any time during the continuance of this contract or any

renewal thereof or after the termination thereof any question,

disagreement or dispute shall arise regarding this contract or

any matter or thing connected therewith or the breach

thereof or the powers, duties, or liabilities of the parties

thereunder, the parties shall first attempt to amicably solve

the question, disagreement or dispute between themselves

by consulting and negotiating with each other in good faith.

If the Government and the Contractor are not able to

amicably resolve their differences within a period of forty-five

(45) days after such difference arises, then the dispute or

differences shall be finally settled by arbitration in

accordance with the Arbitration Rules of the United Nations

Commission on International Trade Law (hereinafter referred

to as UNCITRAL Arbitration Rules).



24.2



The number of arbitrators shall be three. The Government

shall appoint one and the Contractor shall appoint one. The

two arbitrators thus appointed shall choose the third

arbitrator who will act as the Presiding Arbitrator. If the two

arbitrators cannot come to an agreement on the designation

of the third, the third arbitrator shall be designated in

accordance with the UNCITRAL Arbitration Rules.



24.3



The place of arbitration shall be Belmopan, Belize if at the

time of such arbitration, Belize is recognized as a member

state of the 1958 Convention on the Recognition and

Enforcement of Foreign Arbitral Awards ("New York

Convention"). If Belize is not a member state of the New

York Convention at that time, the place of arbitration shall be

Mexico City, Mexico.



24.4



The language to be used in the arbitration proceeding shall

be English.



24.5



The arbitral tribunal shall decide all questions presented on

the basis of:

(a) the laws and regulations of Belize applicable to this

Agreement and other relevant laws, both national and

international;

(b) the provisions of the Agreement, and

(c) trade usages and customs of the international petroleum

industry.



30



USCapital Energy Belize, Ltd., PSA

January 22, 2001



24.6



Arbitral awards shall be final and binding upon the parties

from the date they are made and judgment upon the award

may be entered in any court having jurisdiction.

ARTICLE XXV



Termination



25.1



The Government shall have the right to terminate this

Agreement upon giving thirty (30) days written notice of its

intention to do so if the Contractor (a) fails to make any

monetary payment required by law or under this Agreement

for a period of thirty (30) days after the due date for such

payment, (b) fails to comply with any other material

obligation that he has assumed under this Agreement, or (c)

fails to comply with the Petroleum Act (No. 8 of 1991) and

any applicable lawful acts, regulations, orders or instructions

issued by the Government or any department or agency of

the Government.



25.2



If the circumstance or circumstances that result in

termination under paragraph 25.1(a), (b) or (c) are remedied

by the Contractor within the thirty (30) days period following

the notice of termination as aforesaid, such termination shall

not become effective.



25.3



If the circumstance or circumstances that would otherwise

result in termination under paragraph 25.1 (b) or (c) are the

result of force majeure, then termination shall not take place

so long as such force majeure continue and for such period

thereafter as is reasonable.



25.4



The termination of this Agreement for whatever reason shall

be without prejudice to the obligations incurred and not

discharged by the Contractor prior to the date of termination.



25.5



In the event of termination pursuant to paragraph 25.1 or

25.7, the Government may require the Contractor, where

reasonable, for a period not to exceed one hundred eighty

(180) days, to continue, for the account of the Government

at the Government's sole risk and expense, crude oil or

natural gas production activities until the right to continue

such production has been transferred to another entity.



25.6



Within ninety (90) days after the termination of this

Agreement pursuant to paragraph 25.1 or paragraph 25.7,

unless the Minister has granted an extension of this period,

the Contractor shall complete any reasonably necessary

action as directed by the Government to avoid

environmental damage or a hazard to human life or third

party property.



25.7



In the event the Government fails to perform its obligations

under this Agreement, the Contractor may, upon giving the

Government ninety (90) days prior written notice, terminate

this Agreement provided the Government has not complied

with such obligations within the ninety (90) day notification

period. Additionally, Contractor shall have the right to

terminate this Agreement totally, or partially, (a) with respect

to any part of the contract area other than a field then

producing, or that prior thereto had produced, crude oil or

natural gas upon giving thirty (30) days written notice of its

intention to do so, and (b) with respect to any field then

31





USCapital Energy Belize, Ltd., PSA

January 22, 2001



producing, or that prior thereto had produced crude oil or

natural gas upon giving ninety (90) days written notice of its

intention to do so. Upon termination, the provisions of

paragraphs 4.7 and 4.8 shall apply.

ARTICLE XXVI

Books, Accounts

and Audits,

Records, Reports

and Inspections



26.1



The' Contractor shall be responsible for keeping complete

accounts, books and records reflecting all petroleum

operations expenditures and gross revenues consistent with

generally accepted procedures and standards in the

international petroleum industry and in accordance with the

accounting procedure outlined in the Bulletin of the Income

Tax Commissioner (Annex 1).



26.2



Within ninety (90) days after the expiration of each calendar

year, the Contractor shall submit to the Government detailed

accounts showing all petroleum operations expenditures

and all gross revenues during the past calendar year. Before

submission to the Government, the accounts shall be

audited by an independent chartered accountant or certified

public accountant acceptable to both parties, at the expense

of the Contractor. It is understood that the Government

retains the authority to review and audit the Contractor's

accounts, books and records with respect to petroleum

operations conducted hereunder either directly or through

an independent accountant designated by the Government.



26.3



The Government and its duly authorized representatives

shall have full and complete access to the contract area at

all reasonable times with a right to observe petroleum

operations and shall have the right to inspect all assets,

records, books, accounts and data kept by the Contractor

relating to petroleum operations and this Agreement. In so

doing, the Government and its representatives shall not

unduly interfere with the Contractor's petroleum operations.

However, the Government and its representatives may

make a reasonable number of surveys, drawings, tests and

copies for the purpose of implementing this Agreement. In

doing so, the Government and its representatives shall be

entitled to make reasonable use of the equipment and

instruments of the Contractor provided that no damage to

the equipment or instruments or impediment to the

petroleum operations hereunder shall result from such use.

The Government shall indemnify and reimburse the

Contractor for any loss or damage which may in fact result

from any such use of equipment and instruments, provided

that such loss or damage is reported to the Government

within twenty-four (24) hours from the time of such

inspection. The Government and its representatives shall

be given reasonable assistance by the Contractor for such

functions, and the Contractor shall afford to the Government

and its representatives all facilities and privileges afforded to

its own personnel in the field.



26.4



The Contractor shall prepare and maintain accurate and

current records of its activities in the contract area

hereunder. The Contractor shall furnish the Government in

conformity with the applicable regulations, and as the

Government may reasonably require, information, reports

and data concerning its activities and operations under this



32



USCapifal Energy Belize, Ltd., PSA

January 22, 2001



Agreement.

26.5



The Contractor shall save and keep for the duration of this

Agreement all unused cores and samples taken from the

wells drilled, which shall be forwarded to the Inspector of

Petroleum or his authorized representatives at such time

and in the manner directed by the Government. All cores

and samples acquired by the Contractor shall be available

for inspection by the Inspector of Petroleum or his

authorized representatives at all reasonable times. Unless

previously forwarded to the Government pursuant to

instructions given under this paragraph, the Contractor shall

forward to the Government all remaining cores and samples

upon the expiration or termination of this Agreement.



26.6



Unless otherwise agreed to by the Government, in the case

of exporting any rock or petroleum samples from Belize for

the purpose of testing and analysis, samples equivalent in

size and quantity shall, before such exportation, be

delivered to the Inspector of Petroleum.



26.7



Originals of records and other data can be exported only

with the permission of the Government, provided, however,

that magnetic tapes and any other data which must be

processed or analyzed outside Belize may be exported if a

comparable record is maintained in Belize and provided that

such exported records and data shall be repatriated to

Belize.



26.8



The Contractor shall provide to the Inspector of Petroleum in

appropriate form all original data resulting from petroleum

operations, including, but not limited to, geological,

geophysical, petrophysical engineering, well logs, production

data and completion status reports and any other data which

the Contractor may compile during the term hereof including

all reports, analyses, interpretations, maps and evaluations

thereof prepared by the Contractor and any contractors,

subcontractors or consultants to the Contractor or by

affiliated companies, and cuttings of all samples that have

been obtained or compiled during the term hereof ("data").

The Government shall have title to all such data. Such data

shall not be disclosed to third parties by the Government

prior to relinquishment of the area to which they relate, or

prior to the end of the exploration period if such area is not

sooner relinquished,

provided,

however,

that the

Government may make copies available to professional

consultants, legal counsel, accountants, underwriters,

lenders and such Government entities as may need to be

made aware thereof or have the right to require disclosure.

In any event, the Contractor may retain copies of all such

data. The Contractor shall not disclose such data to any

third parties without the Government's prior written consent,

provided, however, that the Contractor may make copies

available to professional consultants, legal counsel,

accountants, underwriters, lenders, affiliated companies and

contractors and subcontractors of the Contractor and such

government entities as may need to be made aware thereof

or have the right to require disclosure. Any data which are

disclosed by the Government or the Contractor to third

parties pursuant to this paragraph (26.8) shall be disclosed



33



ua..



USCapitai Energy Belize,

PSA

January 22, 2001



on terms which ensure that such data are treated as

confidential by the recipient. To the extent that there is any

inconsistency between the provisions of this paragraph

(26.8) and the provisions of Article XXXIII, the provisions of

this paragraph (26.8) shall govern.

ARTICLE XXVII

Insurance and

Indemnification



27.1



The Contractor shall maintain in force a third party liability

insurance policy covering the activities of himself, his

contractors and subcontractors and the employees of all

such parties.

Such insurance policy shall include the

Government as an additional insured, shall waive

subrogation against the Government, and shall provide that

it may not be canceled except upon thirty (30) days prior

written notice to the Government. A certificate evidencing

such insurance policy shall be furnished to the Government

within ninety (90) days of the effective date or thirty (30)

days before commencement of seismic operations

whichever is later. The contractor shall procure at his own

expense and maintain in full force at all times, where

applicable and available in the insurance market, the

following:

1. Workmen's Compensation Insurance in full compliance

with the laws of the applicable country and state of hire.

2. Employer's liability Insurance.

3. Commercial General Liability Insurance with Bodily Injury

(other than automobile)

4. Pollution Liability: Sudden and accidental pollution

liability on a claims made basis.

5. Umbrella Liability or Excess Insurance: Excess liability

insurance pursuant to an "umbrella" policy covering claims in

excess of the underlying insurance as set forth in (3) above.

6. Automobile Liability: Coverage with Bodily Insurance and

Property Damage with combined Single Limit per

Occurrence.

7. Energy Exploration and Development Policy: Blowout

insurance covering cost of well control, redrilling and

pollution liability.

Such insurance will be purchased with limits that are

mutually agreed to within acceptable industry standards.



27.2



The Contractor shall indemnify, defend and hold the

Government harmless against claims, losses and damages,

without limitation, claims for loss or damage to property or

injury or death to persons caused by or resulting from only

petroleum operations conducted by or on behalf of the

contractor, provided that the contractor shall not be held

responsible to the Government under this paragraph (27.2)

for any loss, claim, damage or injury caused by or resulting

from any negligent action of personnel of the Government.

The Contractor shall contribute zero point one percent



34





USCapita/ Energy Belize, Ltd., PSA

January 22, 2001



(0.1 %) of the value of the annual gross production of crude

oil and/or natural gas produced and saved in each calendar

year and not used or consumed in petroleum operations to a

Common Fund to be held in trust by the Government and

managed for the sole purpose of indemnification against any

or all environmental damages caused during the petroleum

operations.

Nothing contained in paragraph (27.3) above shall be

construed to relieve the contractor of his obligations of

indemnification as set out in this Agreement.

ARTICLE XXVIII

Assignment



28.1



The Contractor may assign, transfer, conveyor otherwise

dispose of any part or all of its rights or interest under this

Agreement with the prior written consent of the Government,

which consent shall not be unreasonably withheld. If the

Government gives its consent to said assignment or

transfer, such assignment or transfer will be granted free of

any charge to Contractor or Contractor's assignee or

transferee.



28.2



Notwithstanding the provisions of paragraph 28.1, the

Contractor assigns to any affiliated company, the Contractor

shall remain fully liable for the performance of this

Agreement and shall be fully liable for the performance of

any such assignee.



28.3



In the case of an assignment to any non-affiliated company,

insurance company, or governmental insurance provider,

the Contractor shall provide to the Government an

unconditional undertaking by the assignee to assume all

obligations of the Contractor under this Agreement.

Notwithstanding such undertaking, the Contractor shall

remain jointly and severally liable with the assignee for

performance of the obligations of the Contractor unless the

Contractor assigns his entire interest under this Agreement.

ARTICLE XXIX



Law of the

Agreement



29.1



This Agreement shall be construed under, governed by and

interpreted in accordance with the laws of Belize and such

principles of international law as may be applicable.

ARTICLE XXX



Force Majeure



30.1



Except as otherwise provided in this Article, each party shall

be excused from complying with the terms of this

Agreement, except for the payment of monies due at the

commencement of the force majeure, if such compliance is

prevented by strikes, wars (declared or undeclared), acts of

God, governmental intervention not otherwise addressed in

this Agreement, third-party intervention, or by any act or

cause that is reasonably beyond the control of such party,

such causes being herein called "force majeure". In the

event that either party hereto is rendered unable, wholly or

in part, by any of these causes to carry out its obligations

under this Agreement, such party shall give notice and

details of force majeure in writing to the other party within

thirty (30) days after the party giving notice of such force



35





USCapitaf Energy Belize, Ltd., PSA

January 22,2001



majeure is aware of its occurrence. In such cases, the

obligations of the party giving the notice shall be suspended

during the continuance of any inability so caused. The

Government and Contractor will do all that is reasonable

within their power to remove such cause.

ARTICLE XXXI

Entire Agreement

and Amendments



31.1



This Agreement embodies the entire Agreement and

understanding between the Contractor and the Government

relative to the subject matter hereof, and supersedes and

replaces any provisions on the same subject in any other

agreement between the parties, whether written or oral, prior

to the date of this Agreement. This Agreement may not be

amended, modified, varied or supplemented except by an

instrument in writing signed by the Contractor and the

Government.

ARTICLE XXXII



Waiver



32.1



Performance of any condition or obligation to be performed

hereunder shall not be deemed to have been waived or

postponed except by an instrument in writing signed by the

party which is claimed to have granted such waiver or

postponement.



32.2



No waiver by any party of anyone or more obligations or

defaults by any other party in the performance of this

Agreement shall operate or be construed as a waiver of any

other obligations or defaults whether of a like or of a different

character.

ARTICLE XXXIII



Confidentiality



33.1



This Agreement and any confidential information of any

party hereto which becomes known to the other party in

connection with the performance of this Agreement shall not

be published or disclosed to third parties without the former

party's written consent, except as otherwise provided herein,

and provided however that such other party may

communicate confidential information to legal counsel,

accountants, other professional consultants, underwriters,

lenders, agents, contractors or shipping companies to the

extent necessary in connection with this Agreement, with the

obligation of the parties receiving such information to

maintain confidentiality, or to an agency of the Government

of the country of the Contractor having authority to require

such disclosure.

The term "confidential information", as used herein shall

mean information identified as "confidential" by the party

originally in possession of it and disclosed to the other party,

excluding information previously known to the other party or

information which is publicly known (except through

disclosure of the other party in violation of this Article XXXIII)

or information that comes into the legitimate possession of

such other party.



33.2



The confidentiality obligations of this Article XXXIII shall

expire upon relinquishment of the area to which the



36



USCapitaJ Energy Belize, Ltd., PSA

January 22, 2001



information relates.

ARTICLE XXXIV



37





..



USCapitat Energy Belize, Ltd., PSA

January 22, 2001



IN WITNESS WHEREOF, the Government and the Contractor have hereunto set their

hands and seals the day and year first herein before written.







SIGNED, SEALED AND DELIVERED BY

THE abovenamed HONOURABLE

JOHN BRICENO for and on behalf

of the GOVERNMENT

of BELIZE



SIGNED, SEALED AND DELIVERED BY



BRIAN E. RICHTER, PRESIDENT



FOR USCAPITAL ENERGY BELIZE, LTD.





,



in the presencifLe



of:



-U/{~



~TNE:-



/.--=/



~/



I, JOHN BRICENO of Belmopan, hereby acknowledge that I did sign, seal and deliver

the within-written document as my act and deed.



Acknowledged at BELMOPAN this 22 nd day of January, 2001.



Before me,



BE IT REMEMBERED, that on the 22 nd day of January, 2001 personally appeared

before me the within named and acknowledged before me that he/she did sign, seal

and deliver the within-written instrument as his act and deed and that the signature of



JOHN BRICENO is in his writing.



38





USCapital Energy Belize, Ltd., PSA

January 22,2001



I, EVADNE L. WADE

SAY as follows:



1.



MAKE OATH AND



I am subscribing witness to the execution of this agreement by BRIAN E.



RICHTER.



2.



I was present and did see BRIAN ~. RICHTER sign, seal, and deliver this



agreement as his act and deed.



3.



" is in the proper handwriting of



0-1.



W~



"is my



SWORN at BELMOPAN

THIS 22 ND DAY OF JANUARY, 2001



~~ ;L wJJ



WITNESS



Before me,



BE IT REMEMBERED that on the 22nd day of January, 2001, personally appeared

before me the within-named EVADNE L. WADE and made oath that she was a

subscribing witness to the execution of this AGREEMENT by BRIAN E. RICHTER and

was present and did see BRIAN E.



Rlc~eal ~iver



this agreement as



his act and deed and that the si9naturelf ~pk/~:::



" f v~



/



-



lJ ~



If



and



"are in their respective proper handwritings.



39





..





USCapital Energy Belize, Ltd., PSA

January 22, 2001



I hereby certify that I have count the within-written document and that it contains two

hundred and thirty-one (231) folios of seventy-two words each and twenty-seven (27)

words over and no more.



AS WITNESS my hand this 22nd of January, 2001.



WITNESS



THIS DOCUMENT was prepared in the Geology & Petroleum Department for the

lnspector of Petroleum for and on behalf of the Government of Belize



INSPECTOR OF PETROLEUM



40





Exhibit A to Production Sharing Agreement between USCapital Energy Belize, Ltd.

and the Government of Belize



Block 19 Coordinates

Sector



335

336

337

338

350

351

352

353

354

365

366

367

368

369

377

378

379

380

381

382

383

384

385

392

393

394

395

396

397

398

407

408

409

410

411

412

422

423

424

425

426

435

436

437

438

444

445

446

447

Total



No. of Sub Sectors

10 p,q,r,s,t,u,v,w,x,y

15 k,l,m,n,o,p,q,r,s,t,u,v,w,x,y

15 k,I,m,n,o,p,q,r,s,t,u,v,w,x,y

9 k,l,m,p,q,r,u,v,w

16 d,e,l,j,l,m,n,o,q,r,s,t,v,w,x,y

25 all

25

all

25 all

a,b,c,f,g,h

6

2

x,y

25 all

25

all

25 all

14 a,b,c,d,f,g,h,i,k,I,m,n,p,u

5 r partial,s,t,w partial,x,y

10 p,q,r,s,t,u,v,w,x,y

10 p,q,r,s,t,u, v,w,x,y

10 p,q,r,s,t,u,v,w,x,y

16 d,e,i,j,n,o,p,q,r,s,t,u,v,w,x,y

25 all

25

all

23

a,b,c,d,e,f,g,h,i,j,k,l,m,n,o,p,q,r,s,u,v,w,x

1 a

15 c.d.e.h.i.j.m.n.o.r.s.t.w.x.y

25

all

25 all

25 all

25

all

17 a,b,c,d,e,f,g,h,i,j,k, I,m,p,q,u, v

3 a,b,f

16 c,d,e,h,i,j,m,n,o,r,s,t,w,x,y

25 all

25 all

25

all

22 a,b,c,d,e,f,g,h,i,j,k,l,m,n,o,p,q,r,s,u,v,w

4 a,b,f,g

19 b,c,d,e,g,h,i,j,l,m,n,o,q,r,s,t,v,w,x,y

25 all

25 all

25

all

7 a,b,c,f,g,k,p

20

b,c,d,e,g,h,I,j,I,m,n,o,q,r,s,t,v,w,x,y

25

all

25 all

10 a,b,f,g,k,l,p,q,u,v

2

a,b,c,d,e (all partial) ~)~

2 a,b,c,d,e (all partial)

3 a.b.c.d.e (all partial) j

3 a,b,c,d;-e-(all partial)



-\~



Acres



Sq. Km.



Hectares



9884

14826

14826

8896

15815

24711

24711

24711

5931

1977

24711

24711

24711

13838

4942

9884

9884

9884

15815

24711

24711

22734

988

14826

24711

24711

24711

24711

16803

2965

15815

24711

24711

24711

21745

3954

18780

24711

24711

24711

6919

19768

24711

24711

9884

1977

1977

2965

2965

795678



40

60

60

36

64

100

100

100

24

8

100

100

100



4000

6000

6000

3600

6400

10000

10000

10000

2400

800

10000

10000

10000

5600

2000

4000

4000

4000

6400

10000

10000

9200

400

6000

10000

10000

10000

10000

6800

1200

6400

10000

10000

10000

8800

1600

7600

10000

10000

10000

2800

8000

10000

10000

4000

800

800

1200

1200

322000



56



20

40

40

40

64

100

100

92

4

60

100

100

100

100

68

12

64

100

100

100

88

16

76

100

100

100

28

80

100

100

40

8

8

12

12



Exhibit B to Production Sharing Agreement between USCapital Energy



Belize, Ltd. and the Government of Belize





\



334



1_'_~~~lII!tolI!'I'!'"



''''''''''''_~



'''''--337~--



I



I



----



.~-------



---_.



[[J



351



368



387



36!l



,.!~,



j->

,., , ,., ~.~,



~..!l~""'''''~lol,._" ._JIt'~I"'''~!.!' "."N'''''''' """""""f'••~""""""".'" .

B ack 19 Boundane s

,



.



I.......



~



392



.



m

r-t-­



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407



1·-



409



~



410



-



~



\t



424



425



.



r



',,,,,

)



I



....... _.,



/



'



1'0.1"" ... ,,'

I



435



..,



JvA~



I



~



\



438



"........





'.,\



\,



J



~



(



J



437



,l~,



411



.",) . i



[",. r"412



J""" :.t.



-- -------~ - - - ' -



.......



"



\: .~ it

423



~r

\



-422



I



382



r""-'



~' .,-~,



408



.,:;j



38



.. ~.



3804



383



i



v,



396



f426



pdl



. I''''



396



-,



'o."



' .f



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r



38!l



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'~ll&54



353



368



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395



394



352



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3150



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,;·fb'

r-fJj



Annex-l

INCOME TAX COMMISSIONER'S BULLETIN



~



.....



Article I

General Provisions

1.7 Definitions of Capital and Operating Expendi Lures



1.8 Depreciation



1.9 Arm's Length Transactions



1.10 General Exclusions



1.11 Currency Exclusions



1.] 2 Revision of 1.he Accounting Procedure



].13 Acceptance of Costs





Article II

2.1



Definition for thePurpose ofDeLennining Compliance with theMinimum



Exploration Expenditures Commitment





2.2



Definition for the Purpose of Article IX





Article III

3. 1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9



.





PetrolculJl Operations Expenditures



Accountilli Methods and Principles



Labour Costs

Material Costs



Technical Services Costs



Insurance and Claims



Legal and Litigation Costs



General Administration and Services



Interest, etc



Office Costs, etc. in Belize



Example of Production ShareCalculation





.'



ARTICLE I

GENERAL PROVISIONS

DEfINITIONS



Ll



The Accounting Procedure described herein is to be

followed and observed in the performance of both parties'

obligations under this Agreement. The definitions appearing

in Article I of this Agreement shall also apply to this Exhibit.



INCONSISTENCY



I. 2



In the event of any inconsistency or conflict between the

provisions of this Exhibit and the other provisions of this

Agreement, then the other provisions of this Agreement shall

prevail.



ACCOUNTING

RECORDS AND

REPORT



1.3



(a) The Contractorshall establish and maintain at its business

office in Belize complete accounts, books and records of all

revenues, costs and expenses relating to all Petroleum

Operations hereunder in accordance with generally accepted

procedures and standards in the lntemational petroleum

Industry. Such accounts, books, records and reports will be

available for the Inspection and use of the Government and

its representatives in carrying out its supervisory function

under the Agreement.

(b) Within thirty (30) days of the Effective Date of this

Agreement, the Contractorshall submit to and discuss with

the Government aJJfopoSed outline of charts of accounts,

books, records an reports, which outline shall be in

accordance with generally accepted and recognized

accountingsystems applied by Certified Public Accountants

in the United States of America and consistent with modern

petroleum industry practices and procedures. Within ninety

(90) days of receiving the above submission, the

Government shall either indicateits approval of the proposal

or re9uest revisions to the proposal. Within one hundred

and eighty (180) days after the Effective Date of the

Agreement, the Contractor and the Government shall agree

on the outline of charts of accounts, books, records and

reports which shall describe the basis of the accounting

system and procedure to be developed and used under this

Agreement. following such agreement, the Contractor shall

expeditiously prepare and provide the Government with

formal copies of the comprehensive charts of accounts and

manuals related to the accounting, recording and reporting

functions, and procedures which are, and shall be, observed

under this Agreement.

(c) All reports and statements will be prepared in

accordancewith this Agreement, the laws of Belize, and

where there are no relevant provisions of either of these, in

accordance with generally accepted practices in the

international petroleum industry.



LANGUAGE

AND UNITS OF

ACCOUNT



. 1.4



TAX ACCOUNTING 1. 5

PROCEDURES



.



Unless otherwise agreed, all accounts, records, books and

reports shall be maintained and prepared in the English

language and shall be recorded 111 United States dollars.

The following tax accounting principles shall apply:



1.5.1 In the event that the Contractorat any time comprises more

than one corporation, individual or entity, in the form of a

partnership,joint venture, unincorporated association or •

other combination of entitiesor individuals, Income Tax

shall in all cases be calculated and assessed on the basis of

the Net Taxable Income of each corporation, individual,

partner, joint venturer, associateor other entity comprising

the Contractor. In the event the Governmentor its assignee

elects, pursuant to paragraph 19.2 of the Agreement to



..



It



participate herein, the Governmentor Its assignee shall not

be treated differently for purposes hereof than the

Contractor.

CARRYFORWARD 1.5.2 Commencing with the Calendar Year in which Initial

OFLOSSES

Commercial Production first occurs, any allowable

deductions for IncomeTax purposes with respect to

Petroleum Operations Expenditures, the Production Payment

(Royalty) and the Government's share of Crude Oil

production which remain unrecovered In any Calendar Year

from Gross Revenue shall be treated as an operatingloss

and may be carried forward as an allowablededuction to

subsequent Calendar Years until fully recovered from Gross

Revenues. In the event that an operatiug loss remains

unrecovered upon the termination of this Agreement, such

loss may be carried over and deducted from other revenues

of the Contractor from Petroleum Operations in Belize.



"



ACCRUALBASIS



1.6



All books, accounts and records shall be prepared on an

accrual basis. Revenue shall be deemed to be earned, in the

case of petroleum sales, in the accounting period when title

passes to the purchaser. Revenues shall be attributed to the

accounting period in which they are earned, and costs and

expenses to the accounting period in which they are

incurred, without the need to distinguish whether cash is

received or disbursed in connection with a particular

transaction. Costs and expenses shall be deemed to have

been incurred, in the case of physical items, in the

accounting period when title thereto passes, and in the case

of services, in the accounting period when such services are

performed.



DEFINITION OF

PETROLEUM

OPERATIONS

EXPENDITURES



1.7



Petroleum Operations Expenditures may consist of capital

and operating expenditures as follows:



CAPITAL

EXPENDITURES



1.7.1



Capital expenditures are those Petroleum Operations

Expenditures for asset that normally have a useful life which

extends beyond the year in which the asset was acquired.

In addition to expenditures relating to assets that normally

have a useful life beyond the year in which the asset was

acquired, the costs of development and production drilling

operations, as described in paragraph 1.7.1 (e) of this

Exhibit, will be classified as capital expenditures.

Capital expenditures include, but are not limited to, the

following:

(a) Construction utilities, but are not limited to, the

following: water facilities, warehouses, and field roads.

Cost of CrudeOiI treating plants and equi pment, secondary

recovery systems, natural gas plants and steam systems,

(b) Construction housing and welfare housing- recreational

facilities and othertangible Property incidental to

construction,



..



(c) Production facilities - production rigs (including the costs

of labor, fuel, hauling and supplies for both the offsite

fabrication and onsiteinstallation of rigs, and other

construction costs in erecting rigs and installing pipelines),

wellhead equipment.subsurface lifting equipment,

production tubing, sucker rods, surface pumps, flow lines,

gathering equipment, delivery lines and storagefacilities,

(d) Movables - surfaceand subsurface drilling and

tools, equipment ~nd instru,ments, barges, ,

floating craft, automotive equipment, aircraft, construction

prQ(I~lction



...



"'



(c)

contributions and donations, except those approved

by the Government,

(d)

gills or rebates to suppliers, and gifts or

commissions to intermediaries arranging serviceor supply

contracts,



,,'



(e)

any interest, fines, monetary corrections or increases

i n expenses resulting from the Contractor's failure to

comply with its obligations under this Agreement, applicable

law or agreements with third parties, and

(I) any other expenditures not directly related to Petroleum

Operations or not in compliance with the provisions of this

Exhibit.



CUR R E N C Y

1.11

EXCHANGE RATES



For conversion purposes between any other currency and

United States dollars, the average of the buying and selling

rate of exchange shall be used as Issued by the Central Bank

of Belize on the first day of the month in which 'the

revenues, costs or expenses are recorded. Any realized or

unrealized gains or losses from the exchange of currency

shall be charged or creditedto Petroleum Expenditures. A

record of the exchange rates used in converting other

currencies into United States dollars shall be kept by the

Contractor.



REVISION OF THE I. 12 By mutual agreement between-the Government and the

Contractor this Accounting Procedure may be revised

A C C 0 UN TIN G

PROCEDURE

from time to time.

1.13 The acceptance by the Government of the values and

treatment proposed by the Contractor relating to all costs and

expenses may be conditional upon the presentation by the

Contractor. following a request by the Government or its

representatives. of all records and original documents

supporting such costs and expenses, such as invoices. cash

vouchers. debit notes. price lists or similar documentation

verifying the value and treatment proposed. For a period of

twenty four (24) months following the delivery by the

Contractor of the records and original documents described

above. the Government shall have the right, but not the

obligation to audit the books and records ofthe contractor.

In the event that no claim for adjustment is lodged by the

Government within said twenty-four (24) month period, the

valuesand treatment alTorded by the contractor shall be

deemed to be final for the periods covered by said records.



ACCEPTANCE OF

COSTS



AUTICLE II

PETROLEUM OPERATlONS EXPENDITURES

DEFINITION FOR



2.1



THE PURPOSE OF'



..



DETERMINING

COMPLIANCE

WITH THE

MIN IMUM

EXPLORATION

EXPENDITURES

COMMJTMENf



In determining the Contractor's compliance with the

minimum Exploration Expenditures obligations

undertaken pursuant to this Agreement. Petroleum

Operations Expenditures shall include all costs and

expenses incurred in the performance of exploration

operations in accordance with approved work

programmes. but excluding those incurred in the

pelformance of development and production operations

111 the contract year in question without the need to

distinguish, between capital and operating expenditures.



DEFINITION FOR 2.2



THE PURPOSEOF



ARTICLE IX



2.2.1 For each calendar year, including any calendar year prior to

the calendar year in which Initial commercial production



first occurs, petroleum operations expenditures, fur the

purposes uf Article IX of ihis Agreement, shall include all

petroleum operations expenditures incurred in that calendar

year in the contract area, Provided however, that Contractor

shall a!so be entitl~lIto alllHeyiously approved petr~leum

operauons expenditures submitted under those certam

Production Sharing Agreements dated May 21, 1993

(Gladden Basiu PSA) and January 30, 1996 (Block 13 PSA)

between the Government and Belize Natural Resources, Ltd,

and its assigns.



t'



2.2.2 The fulluwing costs and expenses shall not be included ill



petroleum operations expenditures lor the purposes uf

Article IX oflhis Agreement:

(a) SUI face rentals pnyable pursuant to Article Xlll of"

this Agreement,

(b) any costs relating tu the provision of the security

described in paragraph G.I.G uf this Agreement including

payments made tu the Government pursuant to such security



or otherwise for failure to incur the minimum exploration

expenditures in accordance with parugraph G.I of this

AgI cement, and

(c) any iulerest, Ices, duties, tuxes uud other financial

charges, releued to ill paragraph 3.7 of this Exhibit, relating

tu loans I1IllI credits obtained by the Contractor tu acquire

Iuuds fur the execution of its obligations under this

Agreement.

DEFiNiTiON FOR 2.3

THE PURPOSE OF

THE INCOME TAX



Fur each calendar year, couuneuclug with the calendar year

in which initial couunercial production first occurs, '

petroleum operations expenditures which shall be deductible

fur the purpose of the cnlculatiou of IncomeTax payable

shall consist of the sum of:

(I) the current calendar year's operating expeuditures

incurred, including the current calendar year's allowable

deductions fur depreciation of capital expenditures

detenuiued In accordance with subparagraphs 1.5,2 of this

Exhibit.

ARTICLE III



ACCOUNTiNG METHODS AND PiUNCl1'LES

l'etrol euiu operations expeuditures incurred

hereunder shall be calculated and accounted for in a manner

consistent with the following principles and definitions and

shall include:

LABOUR COSTS



.



3. I



MATERIAL COSTS 3.2



Costs uf sill aries and wages of the Contractor's

e1lllJluyees directly engaged in petroleum operations,

inc uding costs of holidays, vacations, sickuess.Iiving and

houslng allowances, traveltime, bonuses and other

established plans for employee benefits customarily grunted

to the Contractor's employees and their families In similar

ventures

Costs uf materials, et/uipment, machines, tools and any

other goods of a simi ar nature used or consumed in

petroleum operations subject to the following:

(a) Acquisition - the Contractor shall only supply or

purchase materials f or use in petroleum operationsIhnt may

be used in the foreseeable future. The accumulation of

surplus stocks and inventory shall be avoided. Inventory



,,,



levelsshall, however, take into account the time lag for

replacement, emergency needs and similarconsiderations,

(b) Components of costs - costs of materials purchased by

the Contractor for use in petroleum operations may include,

in addition to the invoice price (subtracting the discounts

given, if any), freight costs and costs of transportation

between the supply point ami delivery point (provided that

such costs are not Included in the invoice price), inspection

costs, insurance, custom duties, taxes and other items that

may be charged to imported materials or to materials

purchased in the Belize,



,•





(c) Accounting - such materials costs shall be charged to the

accounting records and books based on the "First In-First

Out" (FIFO) method,

(d) Supply of Materials by Affiliated Companies - materials

supplied by the Contractor's Affiliated Companies shall be

charged to the accounting records and books at prices no

higher than the prices comparable material purchased on a

competitive basis from third party suppliers. This criterion

shall apply to both new and used materials,

(e) Inventories - the COlitractor shall maintain both n

physical and accounting inventory of all materials in stock in

accordance with generally accepted practices in the

international petroleum industry. The Contractor shall make

a physical inventory of all suchmaterials at least twice in any

Contract Year. The Government may carry out total or

partial inventories whenever it deems it necessary. The costs

of noncapital items purchased for inventory shal I be charged

to operating expenditure when issued from stock for

consumption,

TECHNICAL 3.3

SERVICE COSTS



The value of technical services Costs relating to Petroleum



Operations shall be:



(a) In the case of'technical services performed by third

parties directly subcontracted, including outside consultants,

contractors and utilities, the price paid by the Contractor,

provided that such prices are no higher than the pri ces

charged by other suppliers for comparable work and

services, and

(b) In the case-of technical services performed by the

Contractor or its Affiliated Companies, prices which are no

higher than the mostfavorable prices charged to other

Affiliated Companies of the Contractor and to third parties

for comparable services.



INSURANCE AND 3. 4

CLAlMS



Costs relating to insurance, provided such insurance is

customary, affords prudentprotection against risks and is at

a premium no higher than thatcharged on a competitive basis

by insurance companies which are not Affiliated Companies

of the Contractor. The proceeds of any insurance or claim

shall be credited against Petroleum Operations Expenditures.

Exceptin caseswhere insurance coverage is required

pursuant to Article XXV of this Agreement, if no insurance

IS carried for a particular risk, all costs incurred by the

Contractor in settlement of any related loss, cI aim, damage

or judgement, .including legal services, shall be includable in

Petroleum Operations Expenditures so long as they or the

matters they relate to, were incurred incidental to an

approved work program budget.



LEGAL AND

3.5

LITlGATlON COSTS



Costs and expenses of litigation and legal or related services

necessary or expedient for the protection of the Contract

area. Any damages or compensation received shall be

credited against Petroleum Operations Expenditures. Under

no circumstances may the Contractor's costs incurred in the



.



"



..



-



.

course of arbitration, entered into under Article XXII of this

Agreement, be included in Petroleum Operations

Expenditures,

' .

; .. :~ I



3.6

GENERAL

ADMINISTRATION

AND SERVICES

OVERHEAD

COSTS



General services and administrative costs, other than direct

costs, including, but not limited to:

(a) The Contractor's personnel and services costs including

reasonable officespace in the United States relating to

administration, legal, accounting, treasury, auditing,

taxation, planning, employee relalions, purchasing and other

functions required for Petroleum Operations under this

Agreement, and

(b) Reasonable travel expenses of the Contractor's

personnel in the general and administrative categories listed

111 (a) above for the purpose of inspection andsupervision of

Petroleum Operations in Belizeshall be allocable to

Petroleum Operations Expenditures according to methods

agreed to by the Contractor and the Government. The

methods agreed shall result from a detailed study and the

methods selected following such study shall be applied each

year consistently unless otherwise agreed by the parties. In

the case of Exploration Operations, thesegeneral

administration and services overhead costs shall not exceed

three percent (3%) of the direct costs incurred in such

operations in each Calendar Year. Following the date of

declaration of Commercial Discovery in the first Field, the

Government and the Contractor, shall agree upon the level of

General Administration and Services Overhead Costs which

may be allocable to Petroleum Operations Expenditures and

the percentage of direct costsceiling shall be reduced

accordingly.



INTEREST, ETC.



3.7



Interest; fees, duties, taxes and other financial charges

relating to loans and credits obtained by the Contractor to

acquire funds for the execution of its obligations under this

Agreement at rates not exceeding the prevailing commercial

rates may be charged to Petroleum Operations Expenditures.

Details of any financi ng plan, and amounts thereof, shall be

Included in each annual Work Programme Budget.



OFFICE COSTS,

ETC. IN BELIZE



3. 8



Staffing and maintenance ofthe Contractor's head office in

Belizeand otheroffices in Belize, including rent, telephone,

telex and radio expenses, as well as the expenses of general

facilities such as shore bases, warehouses, water, power and

communications systems, roads and bridges.



EXAMPLE OF

3.9

PPODUCTION

SHARE

CALCULATION



The example belowshows the application of the scale of

Production Sharingfor a field producing 360,000 bbls per

day on an average in the course of a quarter.



.





, "It



,;



Production Share Table



,



Dai~ Average



Pro uction (bbl/d)



Government

Share (%)



Contractor

Share (%)



0- 50,000



5





95





50,000 - 150,000



10



90





150,000 - 250,000



15



85





250,000 - 350,000



20



80





> 350,000



25



75





Gross Value of 360,000 bbl/d @ $20/bbl

100% Recovery of expenses

Balance in dollars



s 7,200,000

s 2,880,000

s 4,320,000



Government's Share of the Balance:

[(50,000 bbls x 5% + 100,000 bbls x 10%



+



+

x



100,000 bbls x 15% + 100,000 bbls x 20%

10,000 bbls x 25%) / (360,000 bbls)]



4,320,000



s



s 600,000





Contractor's share



s 3,720,000



$ 4,320,000 - $ 600,000



.





.....





~l:1'1 / 2_o~_

LodgeforrecordnycA-CD~Y w,J ~Cll2.oL-J) E;:;A~--rMCtJT

2~~ day of:rAG 20Qi.,





this

at



?',.1~P""'~" -ec: '1/~



RegiS!Jllf Jtf.aods



f"



rove n ano recorded



1£1



str.c.



Conformity with the provlS10I1S

of the General Registry Act

Chapter 258 of the Law of Belize

Revised Editions 1980 in Deeds



Book



Volum~~



of 20Q1.;>



at Folios -



day Of~U\\A(~ i



rL



~



~~ I.:;.



r/



111 Y



.:«:I



(his ~Z'WD.:I,....



A-G ,1!~

Registr sr of Lands



SECOND AMENDMENT



PRODUCTION SHARING AGREEMENT



USCAPITAL ENERGY BELIZE LTD.



(DATED 22 ND OF JANUARY 2001)





SECOND AMENDMENT AGREEMENT made this



Dc~~ 2007



1.'1



day of



by and between the GOVERNMENT OF BELIZE,



(hereinafter referred to as the "Government") acting through the

Minister of Natural Resources, and USCapitaI Energy Belize Ltd.,

a corporation duly organized under the laws of the British Virgin

Islands (hereinafter referred to as "Contractor").



WHEREAS, a Production Sharing Agreement (PSA) was awarded

to USCapital Energy Belize Ltd. by the Government of Belize on

the



nod



of January 2001;



AND WHEREAS, for the reasons described in the amendment to

the PSA dated the 28 th day of September 2004, Contractor and the

Government amended the effective date of the PSA from January

22,2001 to January 22, 2004;



AND WHEREAS, the Contractor timely completed the work and

expenditures required by the PSA in the first year of the Initial

Exploration Period;

SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

ND

USCAPlTAL ENERGY BELIZE LTD. - DATED 22 OF JANUARY 2001

Page 1 of9



AND WHEREAS, the Contractor (i) commenced the work and

expenditures required by the PSA in the second year of the Initial

Exploration Period, and (ii) actively sought to complete such work

and expenditures in the first year of the First Renewal Period in

accordance with permissions granted by the Geology & Petroleum

Department of the Government in a letter dated November 11,

2005;



AND WHEREAS, pursuant to proceedings instituted by the

Sarstoon-Temash Institute for Indigenous Management in the

Supreme Court of Belize on the



is"



of May, 2006 against the



Government challenging the forestry permits granted by the

Government to the Contractor to continue its seismic activities (the

"SATUM Legal Proceedings"), the Contractor was forced to

temporarily suspend its seismic activities;



AND WHEREAS, in response to a letter dated 2ih June 2006

from the Contractor's attorneys, W. H. Courtney & Co., requesting

confirmation from the Government that Contractor would be

permitted a reasonable time after the final determination of the

SATUM Legal Proceedings to resume and complete its exploration



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22 ND OF JANUARY 2001



Page 2 of9



activities, the Government confirmed such reasonable extensions

of time for the Contractor in a letter dated July 7, 2006;



AND WHEREAS, the Government and the Contractor are desirous

of amending the PSA to provide for such reasonable extension of

all time requirements in the PSA;



NOW THEREFORE, the Government and the Contractor agree as

follows:



1. The effective date of the PSA shall be January 22, 2006.



2. Accordingly, as of the date of this Second Amendment, the

PSA is in the second year of the Initial Exploration Period.



3. The Contractor may carry-over into the first year of the

First Renewal Period (which now commences on January



22, 200') the completion of its work programme and

expenditures required from the second year of the Initial

Exploration Period.



4. The Contractor's earlier written request dated October 13,



2005 to extend the PSA into the First Renewal Period and



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22 ND OF JANUARY 2001

Page30f9



the related acreage relinquishment continue to apply and do

not have to be resubmitted due to the amendment of the

effective date.



5. The Contractor's written request dated October 22, 2007 to

extend the PSA into the Second Renewal Period and the

related acreage relinquishment is hereby agreed by the

Contractor and the Government to be withdrawn and is,

accordingly, null and void.



6. The Contractor and the Government agree that this

amendment removes all of the causes of force majuere

described in the Contractor's letter dated October 23, 2007,

except for any delays or other matters that might arise as a

result of the Mayan Land Case described in such letter that

would prevent the Contractor from timely performing it's

obligations under the PSA. The Government agrees to use

its best efforts to assure that the Mayan Land Case does not

delay, hinder or otherwise affect the Contractor's rights

under the PSA, and to provide Contractor with appropriate

relief in the event of any such delay or adverse effect to the

Contractor.



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22ND OF JANUARY 2001

Page 4 of9



/





IN WITNESS WHEREOF, the Government and the Contractor

have hereunto set their hands and seals the day and year first herein

before written.



SIGNED, SEALED AND DELIVER

BY THE HONOURBLE

FLORENCIO MARIN for and on be alf of the GOVERNMENT

OF BELIZE



11

I







FLORE



SIGNED, SEALED AND DELIVERED BY BRIAN E.

RICHTER, PRESIDENT for USCAPITAL ENERGY BELIZE

LTD.



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22 ND OF JANUARY 2001



Page 5 of9



I, FLORENCIO MARIN of Belmopan, hereby acknowledge that I

did sign, seal and deliver the within-written document as my act

and deed.



~t



Q



BELMOPAN



this



~ day

I



,2007.



.



of



r





Before me,



CHIEFE



BE



IT



REMEMBERED,



that



on



the



'ley



day



of



within named and acknowledged before me that he did sign, seal

and deliver the within-written instrument as his act and deed and

that the signature of FLORENCIO MARIN is in his writing.



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED n N D OF JANUARY 2001

Page6of9



I,



fr'1Af?)l HvL.IN6zS, MAKE OATH AND SAY as follows:

1. I am subscribing witness to the execution of this agreement

by BRIAN E. RICHTER

2. I was present and did see BRIAN E. RICHTER sign, seal

and deliver this agreement as his act and deed.

3. The signature



,,~g72'<:';:;;'-; is



in



the proper handwriting of BRIAt'J" E. RICHTER and the

signature



"~" is



in my own



proper handwriting.



SWORN at BELMOPAN



THIS



2'f



DAY OF



Ooh~er



,2007





I



~~\

WITNESS



-=:



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPlTAL ENERGY BELIZE LTD. - DATED 22 ND OF JANUARY 2001



Page 7 of9



Before me,



CHIE



BE IT REMEMBERED this



L'1



2007,



before



personally



appeared



day of

me



and made



0



ch~ex-



the



oath that



within-named

he was



a



subscribing witness to the execution of this AGREEMENT by

BRIAN E. RICTHER and was present and did see BRIAN E.

RICHTER sign, seal and deliver this agreement as his act and deed

and



"



that



the



signature>



'~~h A



~ are



in



their



respective



and



proper



handwritings.



CHI F EXECUTIVE OFFICER



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22 ND OF JANUARY 2001



Page 8 of9



I hereby certify that I have counted the within-written document

and that it contains{~ ®



folios of~~1rk(n,.)words each



and ~-,~k", ~ words over and no more



AS WI1NESS my hand this J...'l day of



Oc. ~ ~..



,2007



THIS DOCUMENT was prepared in the Geology & Petroleum

Department for the Inspector of Petroleum and on behalf of the

Government of Belize.



SECOND AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22ND OF JANUARY 2001



Page 9 of9



AMENDMENT



PRODUCTION SHARING AGREEMENT



USCAPITAL ENERGY BELIZE LTD.



(DATED 22ND OFJANUARY 2001)



'It-­

AMENDMENT AGREEMENT made this 2t'day of September

2004 by and between the GOVERNMENT OF BELIZE,

(hereinafter referred to as the "Government") acting through the

Minister of Natural Resources, and USCapital Energy Belize Ltd.

(a subsidiary of DSCapital Energy Partners PLC), a corporation duly

organized under the laws of the British Virgin Islands (hereinafter

referred to as "Contractor").



-



"WHEREAS, a Production Sharing Agreement (PSA) was awarded

to USCapital Energy Belize Ltd. by the Government of Belize on

the 2zmofjanuary 2001;



AND WHEREAS, the Area awarded under PSA dated 22nd of

January 2001 petroleum Block 19 is adjacent to the West and South,

Belize-Guatemala Borderts):



AND WHEREAS, the Area across the western and southern

Belize/Guatemala Border(s) of interest of Contractor is known as

petroleum Block 7-96;

AMENDMENT-PRODUcnONS~GAGREEMENT



USCAPITAL ENERGYBElJZE LTD. - DATED 22"" OF JANUARY 2001

10F6PAGES



AND WHEREAS, the Contractor and resource owner, the

Government have considered the potential for cross-border deposits

in petroleum Blocks 19 and 7-96;



AND WHEREAS, the Government and Contractor is desirous of

undertaking exploration for and the exploitation of any and all such

resources which may be discovered in the Areals) ofBlock(s) 19.



NOW THEREFORE, the Government and Contractor agree as

follows:



1.



Petroleum exploration efforts of USCapital Belize Ltd. in

petroleum Block 7-96 were adversely impacted by certain

negative events occurring in Guatemala.



2.



Such events were reasonably beyond the control of USCapital

Energy Belize Ltd.



3.



The irresistible events have ceased and no longer persist in

2004.



4.



The effective date of the PSA shall be January 2~ 2004.



AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22"" OFJANUARY 2001

20F6PAGES



IN WITNESS WHEREOF, the Government and the Contractor

have hereunto set their hands and seals the day and year first herein

before written.



AND DELIVERED BY

HONOURABLE

for and on behalf

~'-l,'J.u.ENT OF



o



'V~



BELIZE



ci W.£



WITNESS



SIGNED, SEALED AND



DELIVERE~:/J



BRIANE.RICHTER

PRESIDENT

FOR USCAPITAL ENERGY

BELIZE LTD.



/



~



~~.~

B



. RICHTER

PRESIDENT

FOR USCAPITAL ENERGY

BEI.IZELTD.



in the presence of:



I, JOHN BRICENO of Belmopan, hereby acknowledge that I did

sign, seal and deliver the within-written document as my act and

deed.



tr



Acknowledged at BELMOPAN this _~L day of SEPTEMBER,

2004.



v.



AMENDMENT - PRODUGTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22"" OF JANUARY 2001

30F6PAGES



Before me,



---



'O~s~



~~o~ t\.



------------------------------------MISSIONER OF THE SUPREME COURT



(1

BE IT .I:UJ.J.vJ'£'_lVlBERED, that on the ~ day of SEPTEMBER,



2004 personally appeared before me the within named and

acknowledged before me that he/she did sign, seal and deliver the

within-written instrument as his act and deed and that the signature

ofjOHN BRICENO is in his writing.



-::.-;::-~~~



~~



~~~



JIDSSIONER OF TIlE SUPREME COURT



AMENDMENT - PRODucnON SHARING AGREEMENT

USCAPITAL ENERGY BELIZE L'ID. - DATED 22"" OFJANUARY 2001

40F6PAGES



I, EVADNE L. WADE MAKE OATH AND SAY as follows:

1.



I am subscribing witness to the execution of this agreement



by BRIAN E. RICIITER.



2.



I was present and did see BRIAN E. RIClITER sign, seal,



and deliver this agreement as his act and deed.



Thesignatme·,~.k?J4 ;;Sinthe

" t:e-L.. cf. U..6 "

3.



proper handwriting of BRIAN E. RICHTER and the signature

is my own proper handwriting.



SWORN at BELMOPAN

THIS ).~



t::J



DAY OF SEPTEMBER, 2004



Before me,



-------



~

Ot'K ~QNl\

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



SSIONER OF THE SUPREME COURT



a



BE IT REMEM....-....... ~.D this).&' day of September, 2004, personally

appeared before me the within-named EVADNE L. WADE and

made oath that she was a subscribing witness to the execution of this



AGREEMENT by BRIAN E. RICHTER and was present and did

see BRIAN E. RICHTER sign, seal ":'~ de~r ~x:=­

his act and deed and that the SIgnature

1('

.....

and "



i:--t........ c1. r/'~





",,?~,



"are in



~



their respective



proper handwritings.



-----



----------------~~ - ~~~~­



SSIONER OF THE SUPREME COURT



AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LID. - DATED 22"" OFJANUARY 2001

50F6PAGFS



I hereby certify that I have count the within-written document and

that it contains nine (9) folios of seventy-two words each and fifty­

five (55) words over and no more.



.



t1 ~



AS WITNESS my hand this~ of September, 2004.



TIllS DOCUMENT was prepared in the Geology & Petroleum

Department for the Inspector of Petroleum for and on behalf of the

Government of Belize



AMENDMENT - PRODUCTION SHARING AGREEMENT

USCAPITAL ENERGY BELIZE LTD. - DATED 22"" OFJANUARY 2001

60F6PAGFS