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 FIFTH AMENDMENT TO


PRODUCTION SHARING CONTRACT


(AREA A - OFFSHORE NE BIOCO)


This Fifth Amendment to Production Sharing Contract (this “Amendment”) is


made and entered into this 2 $ day of November, 1998 between The Republic of


Equatorial Guinea (herein referred to as the “State”), represented for the purposes hereof


by the Ministry of Mines and Energy (herein referred to as the “Ministry”), and Ocean


Equatorial Guinea Corporation, a corporation organized and existing under the laws of


the State of Delaware, U.S.A, (formerly known as UMC Equatorial Guinea Corporation, and


referred to herein as “Ocean”, representedTor the purposes hereof by Jim Smitherman, III,


its President.


Recitals


A. The State and United Meridian International Corporation entered into a


Production Sharing Contract dated August 18, 1992 but having an Effective Date of


September 10, 1992, covering the area described therein which is referred to as Area A -


Offshore NE Bioco. Such Production Sharing Contract has been amended by a First


Amendment to Production Sharing Contract dated September 17, 1993;-by a Second


Amendment to Production Sharing Contract dated March 1, 1994; by a Third-Amendment


to Production Sharing Contract dated June 29, 1994; and by a Fourth Amendment to


Production Sharing Contract dated March 29,1996. As amended, such Production Sharing


Contract is herein referred to as the “Contract”.


B. All of the interest of Contractor in the Contract is now owned and held by


Ocean.


C. The State, represented by the Ministry, and Ocean have agreed that the Contract


be amended for the benefit of the Parties as set forth in this document.





D. Words or phrases defined in the Contract and used in this Amendment have the


meanings set forth in the Contract, and the section numbers stated hereinafter correspond


to those in the Contract immediately prior to the effective date of this Amendment, in each


case unless the context clearly indicates to the contrary.


>


Agreements


1. Section 1 of the Contract is amended ifi the following respects:





(a) Section 1.2(o) is amended by the addition, after the words “in Section 4”, of the


following words:


and includes, where the context permits, the work program


contained in a Project-Specific Work Program and Budget as


referred to in Section 4.8.


(b) Section 1.2(z) is amended to read as follows:





(z) Royalty means, for each Field, the right of the State over


Crude Oil and Natural Gas produced, saved, sold and not











utilized in Petroleum Operations in percentages


calculated as a function of daily production rates as


established in Section 7.2.1 of this Contract.


(c) Section 1.2(ad) is amended by deleting the reference to “Section 7.2” and


replacing it with a reference to “Section 7.4.1”.


(d) Section 1.2(am) is amended in its entirety to read as follows:


$


(am) Initial Exploration Period means the period of time


commencing on the Effective Date of the Contract and ending at











midnight local time, Malabo, Republic of Equatorial Guinea, on


September 9, 2001, or such later date as such period may be


extended to pursuant to Section 2.1(c).


(e) A new Section 1.2(as) is added to this Contract reading as follows: •


(as) Project-Specific Work Program and Budget shall have the


meaning ascribed thereto in Section 4.8.


(f) A new Section 1.2(at) is added to the Contract reading as follows:


---X-. :


(at) Uplift shall have the meaning ascribed thereto in Section


7.3.3.


2. Section 2 of the Contract is amended in the following respects:





(a) The last sentence of Section 2.1(a) is amended to read as follows:





The Third Subperiod shall commence with the termination of the


Second Subperiod and end on September 9, 2001 and shall be


called the “Third Subperiod”.


(b) The existing Section 2.5 of the Contract is renumbered as Section 2.5.1, and two


(2) new Sections, designated as Section 2.5.2 and Section 2.5.3, are added as


follows:








2.5.2 For the purposes of Section 2.5.1 any new discovery which





(a) is in pressure communication with any reservoir containing


commercially produceable Hydrocarbons in the existing


 (b) can reasonably and in accordance with good oil field


practice be produced from common production and











processing facilities in the existing Field, provided that the


limits of any potential Field be within five (5) kilometers of


such facilities, or


(c) is composed of reservoir of commercially produceable


Hydrocarbons which under- or over-lie (when viewed from


the vertical) any reservoir of commercially produceable


Hydrocarbons in the existing Field,


will be considered part of the existing Field, and the boundaries


of such Field will be adjusted accordingly. Subject to the terms


of this Contract, all other discoveries will be considered new


Fields.


2.5.3 Notwithstanding the provisions ofSection 2.5.2, there shall not


be established more than two (2) Fields in the Contract Area.


Any commercial discovery made after two (2) Fields have been


established will be treated as a part of one of the existing Fields,


as Contractor may designate in accordance with good


engineering practice and with the prior approval of the Ministry.








3. Section 4 of the Contract is amended in the following respects:








(a) The last sentence of Section 4.2 is amended by deleting the words “but the costs


of such excess work shall, however, for the purposes of bank guarantee yearly


adjustments provided for in Section 4.3, be credited to the Contract Year during


which such costs were actually incurred”.








(b) The following sentence is added at the end of Section 4.5:








Contractor shall not be limited in this regard, provided that Contractor


shall obtain the approval of the Ministry before any such over-


expenditures in excess of ten percent (10%) of the total amount of the


applicable Work Program and Budget are included as Petroleum


Operations Costs.








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 (c) There is added to the Contract a new Section 4.8 reading as follows:








4.8 Notwithstanding the foregoing provisions of Section 4, if the


Contractor anticipates that a project, which may consist of


work of any nature, will exceed twelve (12) months duration


and the Contractor wishes to have such project approved in its


entirety, then the Contractor must in respect of such project


submit for approval to the Ministry a project-specific work


program and budget of Petroleum Operations Costs (herein


referred to as a “Project-Specific Work Program and


Budget”). Approval of a Project-Specific Work Program and


Budget shall be deemed a firm approval and will be


unaffected by any rejection by the State of an annual Work


Program and Budget of Petroleum Costs submitted by the


Contractor, as provided in Section 4.4. The Contractor shall


provide a report annually to the State on expenditures incurred


in relation to any such project and will respond in writing to


any written comments that the State makes to the Contractor


in relation to such report. If in any Year Contractor has not


performed at least fifty (50%) of the work scheduled in the


Project-Specific Work Program and Budget, the matter will


be reviewed with the Ministry and the project will be subject


to suspension.


4. Section 7 of the Contract is amended in the following respects:


(a) Sections 7.2,7.3,7.4,7.4.1,7.4.2,7.4.3 and 7.4.4 are deleted in their entirety and


replaced with the following (provided that these deletions shall not affect the


__________validity of any acts of the Parties pursuant to the deleted provisions while they.


were in force):








7.2 Royalty


7.2.1 Contractor shall pay to the State as Royalty in respect of each


Field in the Contract Area a percentage of gross Hydrocarbons


produced, saved and sold and not otherwise utilized in


Petroleum Operations from such Field in each Calendar


Quarter. Such percentage shall be based on the daily average


quantity of such Hydrocarbons. As to the first ten (10) million








-5-


 Barrels of cumulative oil production the Royalty shall be ten


percent (10%). For all subsequent production the Royalty shall


be determined in accordance with the following schedule:





Production Level Royalty


0 - 20,000 Barrels per day 12%


20,001 - 40,000 Barrels per day 13%


40,001 - 60,000 Barrels per day 14%


60,001 - 100,000 Barrels per day 15%


Over 100,000 Barrels per day 16%


The above scale shall be applied separately to each Field on an


incremental basis (z.e., each of the first 20,000 Barrels of


production per day shall bear a Royalty of 12%, each of the next


20,000 Barrels of "production per day shall bear a Royalty of


13%, etc.).


7.2.2 Contractor shall make an estimate for each Field of the Royalty


level for each Calendar Quarter, based on expected production


rates, liftings and other relevant factors; and Royalty shall be


payable in respect of each lifting of Hydrocarbons during the


Calendar Quarter based on the estimated percentage for the


Field from which such Hydrocarbons were produced times the


gross sales proceeds of such lifting. As soon as practicable


following the end of a Calendar Quarter the Parties shall


determine the actual Royalty percentage which should have


been applied for each Field during such Calendar Quarter, and


any overpayment or underpayment shall be corrected by


increasing or decreasing the amount of the next Royalty


payment(s) to occur.


7.3 Cost Recovery


7.3.1 After making Royalty Payments to the State Contractor shall be


entitled to recover all Petroleum Operations Costs, as


determined in accordance with the Accounting Procedure


attached hereto as Exhibit “C”, applicable to each Field out of


seventy-five percent (75%) of the remaining sales proceeds or />


other disposition of Hydrocarbons produced and saved /1


hereunder from such Field and not used in Petroleum AA


Operations. '[








-6-


 7.3.2 All Petroleum Operations Costs incurred directly in respect of


a Field, including the costs of drilling operations within the area








of the Field prior to the time it is established in accordance with


the terms of this Contract, will be allocated to such Field.


Petroleum Operations Costs not incurred directly in respect of


a Field shall be allocated, and as additional Fields are


established may be reallocated, among all Fields on an equitable


basis.


t


7.3.3 On the last day of each Calendar Year from and after the


Effective Date all Petroleum Operations Costs incurred under


this Contract but not yet recovered shall be multiplied by


nineteen percent (19%), and the calculated amount (the


“Uplift”) shall be added to and become a part of the Petroleum


Operations Costs which Contractor is entitled to recover


hereunder. :


7.4 Net Hydrocarbons


7.4.1 Any Hydrocarbons which are produced and saved hereunder


and are not used in Petroleum Operations and are remaining


after making the Royalty payments and after allowing


Contractor to recover-Petroleum Operations Costs out of the


seventy-five percent (75%), as set forth above, shall be referred


to herein as “Net Hydrocarbons”. Net Hydrocarbons shall be


shared between the State and Contractor based on cumulative


production in accordance with the following table:





Cumulative Production State’s Share of Contractor’s Share of


(in millions of Barrels) Net Hydrocarbons Net Hydrocarbons





0-25 10% 90%


+25 - 50 12% 88%


+50-150 15% 85%


+ 150 - 300 25% 75%


+300 - 400 40% 60%


+400 50% 50%





The foregoing percentages shall be applied separately to each 1/


Field based on cumulative production from such Field. 5/











-7-


 (b) Section 7.4.5 is amended by renumbering it to be Section 7.4.2 and by


replacing the references therein to “Sections 7.4.1 (c), 7.4.2(c) and 7.4.3(c)”


with “Sections 7.2.1 and 7.4.1”.








5. The first sentence of Section 8.6 is amended to read as follows:


During any Calendar Year the handling of production (i.e., the








implementation of the provisions of Section 7) and the proceeds thereof shall


be provisionally dealt with on the basis of the relevant Work Program and


Budget of Petroleum Operations Costs and any relevant Project-Specific


Work Program and Budget based upon estimates of quantities of Crude Oil


to be produced, of internal consumption in The Republic of Equatorial


Guinea, of Marketing possibilities, of prices and other sales conditions as


well as of any other relevant factors.


6. Section 15 is deleted in its entirety and replaced with the following:





15.1 Any notices required or given by either Party to the other


shall be deemed to have been delivered when properly


acknowledged for receipt by the receiving Party. All


such notices shall be addressed to:





The Ministry of Mines and Energy:


With Offices at: Malabo at the








Republic of Equatorial Guinea


Telephone #: (240) 93405


--------------------------------Telex^-9^5405-EG--


Facsimile#: (2404) 93353


The Contractor: Ocean Equatorial Guinea Corporation


With Offices at: 1201 Louisiana, Suite 1400


Houston, Texas 77002 U.S.A


Telephone#: (713)420-1000


Facsimile#: (713)420-1655


Either Party may substitute or change such address on written


notice thereof to the other.





-8-


7. Exhibit “C” to the Original Contract, “Accounting Procedure”, is amended in the


following respects:





(a) In Section 2, paragraph 1, the reference to “Section 7.2” is deleted and


replaced with “Section 7.3”.











(b) In Section 2, the word “and” is deleted following paragraph 1 (c), the word


“and” is added following paragraph 1(d), and a new paragraph 1(e) is


added reading “the Uplift”.


(c) The first two sentences of Section 3, paragraph 1, are deleted and the


following substituted:


Depreciation will be calculated from the Calendar Year


in which the asset is placed into service, with a full Year’s


depreciation allowed in the initial Calendar Year.


Depreciation of capital' costs only for purposes of Income


Tax Calculations will be calculated over six (6) Calendar


Years using the straight line method.


(d) Three (3) new paragraphs numbered 6, 7 and 8 are added to Section 3


reading as follows:


6. For Tax Law purposes losses which Contractor may incur


in a Calendar Year may be carried forward to offset


taxable income in subsequent Calendar Years until such


losses have been completely utilized, provided that no


such loss may be carried forward more than fifteen (15)


Years.


7. All tax deductions associated with costs bom by ft


Contractor shall be allocated to the Contractor that bears //


such costs in the proportions actually borne, without








-9-


regard to whether such costs are recoverable Petroleum


Operations Costs.


8. The Contractor will withhold income tax on personal income


from residents and non-residents in the hydrocarbon sector as


established in Decree Law Num 2/1997 and the Ministerial


Order implementing such Decree Law.


8. Miscellaneous Provisions


(a) This Amendment is binding on the Parties, with effect from October 15,1998, at


such time as it has been duly signed and delivered and approved by a resolution


of the Supreme Court of the Republic of Equatorial Guinea and ratified by the


Head of State of the Republic of Equatorial Guinea so as to become effective as


a law of the Republic of Equatorial Guinea.


(b) This Amendment is not to be annulled, amended or modified in any respect


except by the mutual consent of the Parties.


(c) Except as amended by this Amendment, the Contract (including the four previous


amendments thereto) remains in full force and effect.


























- 10-


IN WITNESS WHEREOF the Parties have signed this Amendment in six (6)


originals, three (3) in the Spanish language and three (3) in the English language on the date


first set forth above.








THE MINISTRY OF MINES AND


ENERGY OF THE REPUBLIC OE


EQUATORIAL GUINEA











ByJfc


JuanOlo Mba Nsenig


Minister





OCEAN EQUATORIAL GUINEA


CORPORATION













































































- 11 -


November-^, 1998





Side Letter to Amendment to


Production Sharing Contracts


Reference is made to the following:


A. Production Sharing Contract dated August 18, 1992, but having an


Effective Date of September 10, 1992, covering the area described therein


which is referred to as Area A - Offshore NE Bioco, as heretofore amended


and as further amended this date by a Fifth Amendment to Production


Sharing Contract;


B. Production Sharing Contract dated June 29, 1994, but having an Effective


Date of November 30, 1995, covering the area described therein which is


referred to as Area C - Offshore Bioco, as heretofore amended and as


further amended this, date by a Third Amendment to Production Sharing


Contract; and :•


C. Production Sharing Contract dated April 5, 1995, but having an Effective


Date of April'17, 1995, covering the area described therein which is


referred to as Area D - Offshore Bioco, ..as heretofore amended and as


further amended this date by a Second Amendment to Production Sharing


Contract.


By this letter, which is supplemental to the above-mentioned Production Sharing


Contracts, as amended (the “PSC’s”), the State and Ocean Equatorial Guinea Corporation


(“Ocean”), as a Contractor, in each of Contracts, hereby ratify, confirm and-agree as


follows:





1. Ocean will compute the taxes based on its net income on a country-wide


basis, and will be subject to taxation in accordance with the Tax Law (as


defined in the PSC’s), as modified by the terms of the PSC’s and this letter:


It is the intent of the Parties that such obligations will not be changed by


subsequent modifications of the Tax Law, including new or revised


interpretations of its meaning, unless mutually agreed by the parties.


2. Until such time as production of Crude Oil commences on any of Blocks A,


C or D the minimum income tax (“Minimum Tax”) payable by Ocean in


respect of any Calendar Year will be limited to a maximum amount equal


to the CFA equivalent of U.S. $50,000. After production of crude oil


 commences on any of said Blocks the Minimum Tax payable by Ocean in


respect of any Calendar Year will be increased to a maximum amount equal








to the CFA equivalent of U.S. $100,000. All amounts paid by Ocean as


Minimum Tax shall be applied as an offset against such Ocean’s future


income tax liability in Equatorial Guinea. For each of the first five (5)


Calendar Years in which Ocean has a positive income tax liability in


Equatorial Guinea the amount of Minimum Tax payments which may be


offset against income tax shall be limited to one-half C/2) of Ocean’s total


income tax liability for the applicable Calendar Year. Thereafter, any


remaining balance of Minimum Tax payments may be offset against all of


Ocean’s income tax liability for each Calendar Year. ?


3. Neither contractors nor subcontractors of Ocean shall have any obligation


to pay Impuesto Sobre Cifra de Negocio Interior, or any other tax imposed


on transactions that may be adopted in the future that would otherwise be


imposed on transactions, which relate directly or indirectly to the conduct


of petroleum operations.


4. Disputes arising among the Parties shall be resolved using the arbitration


and choice of law provisions in Sections 13 and 16 of the PSC’s.





Executed on the date first set forth above.





THE MINISTRY OF MINES AND


ENERGYOF THE REPUBLIC OF


























OCEAN EQUATORIAL GUINEA


CORPORATION