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0000773910-97-000002.txt : 19970515

0000773910-97-000002.hdr.sgml : 19970515

ACCESSION NUMBER:

0000773910-97-000002

CONFORMED SUBMISSION TYPE:

10-Q

PUBLIC DOCUMENT COUNT:

3

CONFORMED PERIOD OF REPORT:

19970331

FILED AS OF DATE:

19970514

SROS:

NYSE

FILER:

COMPANY DATA:

COMPANY CONFORMED NAME:

CENTRAL INDEX KEY:

STANDARD INDUSTRIAL CLASSIFICATION:



ANADARKO PETROLEUM CORP

0000773910

CRUDE PETROLEUM & NATURAL GAS



[1311]

IRS NUMBER:

STATE OF INCORPORATION:

FISCAL YEAR END:



760146568

DE

1231



FILING VALUES:

FORM TYPE:

SEC ACT:

SEC FILE NUMBER:

FILM NUMBER:



10-Q

1934 Act

001-08968

97605838



BUSINESS ADDRESS:

STREET 1:

CITY:

STATE:

ZIP:

BUSINESS PHONE:



16855 NORTHCHASE DR

HOUSTON

TX

77060

7138751101



MAIL ADDRESS:

STREET 1:

STREET 2:

CITY:

STATE:

ZIP:





10-Q

1





P O BOX 1330

P O BOX 1330

HOUSTON

TX

77251-1330



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended: March 31, 1997

Commission File Number: 1-8968

_____________________

ANADARKO PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)



Delaware

(State of incorporation)



76-0146568

(I.R.S. Employer Identification No.)



17001 NORTHCHASE DRIVE, HOUSTON, TEXAS

(Address of executive offices)



77060-2141



(281) 875-1101

(Registrant's telephone number)



Indicate by check mark whether the registrant (1) has filed

all reports required to be filed by Section 13 or 15(d) of the

Securities Exchange Act of 1934 during the preceding 12 months

(or for such shorter period that the registrant was required to

file such reports) and (2) has been subject to such filing

requirements for the past 90 days.

Yes

X

No

The number of shares outstanding of each of the registrant's

classes of common stock as of April 30, 1997 as shown below:

Title of Class

Common Stock, $0.10 par value



Number of Shares

Outstanding

59,622,013







PART I.

Item 1.



FINANCIAL INFORMATION



Financial Statements

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)



thousands

Revenues

Gas sales

Oil and condensate sales

Natural gas liquids and other

Total



Three Months Ended

March 31

1997

1996

$107,051

42,595

20,860

170,506



$89,115

30,872

15,720

135,707



Cost and Expenses

Operating expenses

Administrative and general

Depreciation, depletion and amortization

Other taxes

Total



32,855

17,035

45,339

12,913

108,142



26,533

15,199

42,938

10,140

94,810



Operating Income



62,364



40,897



Other Income and (Expenses)

Other income

Interest expense



839

(9,238)



198

(9,502)



Income before Income Taxes



53,965



31,593



Income Taxes



19,531



11,077



Net Income



$ 34,434



$ 20,516



Per Common Share

Net income

Dividends



$

$



$

$



0.58

0.075



Average Number of Shares Outstanding



59,612



0.35

0.075

59,054



See accompanying notes to consolidated financial statements.

2





Item 1. Financial Statements (continued)

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED BALANCE SHEET

(Unaudited)



thousands

ASSETS

Current Assets

Cash and cash equivalents

Accounts receivable

Inventories, at average cost

Prepaid expenses

Total

Properties and Equipment

Original cost

Less accumulated depreciation, depletion

and amortization

Net properties and equipment - based on

the full cost method of accounting for



March 31,

1997



December 31,

1996



$41,370

143,108

25,157

3,342

212,977



$14,601

226,824

24,540

3,843

269,808



4,111,912



4,036,165



1,763,682



1,738,709



oil and gas properties

Deferred Charges



2,348,230



2,297,456



19,130



16,766



$2,580,337



$2,584,030



See accompanying notes to consolidated financial statements.

3





Item 1.



Financial Statements (continued)

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED BALANCE SHEET (continued)

(Unaudited)



thousands

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable

Trade and other

Banks

Accrued expenses

Interest

Taxes and other

Total



March 31,

1997



$



159,389

11,307



December 31,

1996



$



244,219

17,995



10,110

21,763

202,569



12,812

10,227

285,253



Long-term Debt



700,000



731,049



Deferred Credits

Deferred income taxes

Other

Total



507,812

120,854

628,666



498,973

54,675

553,648



Stockholders' Equity

Common stock, par value $0.10

(200,000,000 shares authorized, 60,618,034 and

60,525,699 shares issued as of March 31, 1997



and December 31, 1996, respectively)

6,107

Preferred stock, par value $1.00

(2,000,000 shares authorized, no shares issued as

of March 31, 1997 and December 31, 1996)

--Paid-in capital

333,387

Retained earnings (as of March 31, 1997, $399,102,000

was not restricted as to the payment of dividends)

769,276

Deferred compensation

(2,855)

Executives and directors benefit trust, at market

value (1,000,000 shares as of March 31, 1997 and

December 31, 1996)

(56,813)

Treasury stock (70 shares as of December 31, 1996)

--Total

1,049,102

$2,580,337



6,098

--335,848

739,395

(3,444)

(63,813)

(4)

1,014,080

$2,584,030



See accompanying notes to consolidated financial statements.

4





Item 1. Financial Statements (continued)

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



thousands

Cash Flow from Operating Activities

Net income

Adjustments to reconcile net income to net

cash provided by operating activities:

Depreciation, depletion and amortization

Amortization of restricted stock

Deferred income taxes

(Increase) decrease in accounts receivable

Increase in inventories

Decrease in accounts payable - trade and other

and accrued expenses

Other items - net

Net cash provided by operating activities

Cash Flow from Investing Activities

Additions to properties and equipment

Proceeds from the sale of assets to be leased, net

Sales and retirements of properties

and equipment

Net cash used in investing activities

Cash Flow from Financing Activities

Additions to debt

Retirements of debt

Increase (decrease) in accounts payable, banks

Dividends paid

Issuance of common stock

Issuance of treasury stock



Three Months Ended

March 31

1997

1996

$34,434



$20,516



45,339

589

9,734

90,096

83,716

(617)



42,938

429

10,874

74,757

(14,334)

(1,690)



(75,996)

(2,755)

94,444



(50,391)

9,557

17,899



(120,472)

87,900



(68,431)

---



2,635

(29,937)



1,472

(66,959)



--(31,049)

(6,688)

(4,553)

4,548

4



46,570

--1,466

(4,431)

1,755

---



Net cash provided by (used in) financing activities



(37,738)



45,360



Net Increase (Decrease) in Cash and

Cash Equivalents



26,769



(3,700)



Cash and Cash Equivalents at

Beginning of Period



14,601



17,090



$ 41,370



$13,390



Cash and Cash Equivalents at End of Period



See accompanying notes to consolidated financial statements.

5





Item 1. Financial Statements (continued)

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General

Anadarko Petroleum Corporation is engaged in the

exploration, development, production and marketing of gas, crude

oil, condensate and natural gas liquids (NGLs). The terms

"Anadarko" and "Company" refer to Anadarko Petroleum Corporation

and its subsidiaries. The principal subsidiaries of Anadarko are:

Anadarko Gathering Company; Anadarko Energy Services Company;

and, Anadarko Algeria Corporation.

Certain amounts for the prior year have been restated to conform

to the current presentation.

2. Inventories

Inventories are stated at the lower of average

cost or market. NGLs and natural gas, when sold from inventory,

are charged to expense using the average-cost method. The major

classes of inventories are as follows:

thousands

Materials and supplies

Natural gas liquids, stored in inventory

Natural gas, stored in inventory



March 31, December 31,

1997

1996

$24,963

$23,495

160

28

34

1,017

$25,157

$24,540



3. Properties and Equipment

Oil and gas properties

include costs of $283,255,000 and $254,811,000 at March 31, 1997

and December 31, 1996, respectively, which were excluded from

capitalized costs being amortized. These amounts represent costs

associated with unevaluated properties and major development

projects.

4.



Long-term Debt



A summary of long-term debt follows:



thousands

Commercial Paper

8 3/4% Notes due 1998

8 1/4% Notes due 2001

6 3/4% Notes due 2003

5 7/8% Notes due 2003

7 1/4% Debentures due 2025



March 31,

1997

$

--100,000

100,000

100,000

100,000

100,000



December31,

1996

$31,049

100,000

100,000

100,000

100,000

100,000



7.73% Debentures due 2096

7 1/4% Debentures due 2096



100,000

100,000

$700,000



100,000

100,000

$731,049



The 8 3/4% Notes due 1998 and commercial paper have been

classified as long-term debt in accordance with Statement of

Financial Accounting Standards No. 6, "Classification of Shortterm Obligations Expected to be Refinanced," under the terms of

Anadarko's Bank Credit Agreements.

6





Item 1. Financial Statements (continued)

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

5.

Compressor Sale-Leaseback Agreement

In January 1997, the

Company entered into a sale-leaseback agreement for $87,900,000

(net) involving 145 natural gas compressors in Anadarko's major

mid-continent gathering systems. Proceeds from the transaction

were used for general corporate purposes. The gain of

$66,200,000 is deferred and will be amortized over the lease term

as a reduction to operating expenses.

6. Common Stock

For the first quarter of 1997, dividends of

seven and one-half cents per share were paid to holders of

common stock. Under the most restrictive provisions of the

various credit agreements, which limit the payment of dividends

by the Company, retained earnings of $399,102,000 and

$364,080,000 were not restricted as to the payment of dividends

at March 31, 1997 and December 31, 1996, respectively.

7. Statement of Cash Flows Supplemental Information

The

amounts of cash paid (received) for interest (net of amounts

capitalized) and income taxes are as follows:

Three Months Ended

March 31

1997

1996

$11,046

$11,043

$

(43) $ 2,532



thousands

Interest

Income taxes

8. Operating Expenses

follows:



Operating expenses by category are as



thousands

Oil and gas

Plant, gathering and marketing

Gas purchases

Other



Three Months Ended

March 31

1997

1996

$18,018

$15,123

9,674

7,470

4,588

3,585

575

355

$32,855

$26,533



9. Kansas Ad Valorem Tax

The Natural Gas Policy Act of 1978

(NGPA) allows a "severance, production or similar" tax to be

included as an add-on, over and above the maximum lawful price

for natural gas. Based on the Federal Energy Regulatory

Commission (FERC) ruling that the Kansas ad valorem tax was such

a tax, the Company collected the Kansas ad valorem tax in

addition to the otherwise maximum lawful price. FERC's ruling

was appealed to the United States Court of Appeals for the



District of Columbia (D.C. Circuit), which held in June 1988 that

FERC failed to provide a reasoned basis for its findings and

remanded the case to FERC for further consideration.

7





Item 1.



Financial Statements (continued)

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



9. Kansas Ad Valorem Tax (continued)

On December 1, 1993, FERC

issued an order reversing its prior ruling, but limiting the effect

of its decision to Kansas ad valorem taxes for sales made on or

after June 28, 1988. FERC clarified the effective date of its

decision by an order dated May 19, 1994. The clarification

provided that the June 28, 1988 effective date applies to tax bills

rendered after that date, not sales made on or after that date.

Based on Anadarko's interpretation of FERC's orders, $700,000

(pre-tax) was charged against income in 1994, in addition to

$130,000 (pre-tax) charged against income in 1993. Numerous

parties filed appeals of FERC's action in the D.C. Circuit.

Anadarko, together with other natural gas producers, challenged

FERC's orders on two grounds: (1) that the Kansas ad valorem tax,

properly understood, does qualify for reimbursement under the NGPA;

and (2) FERC's ruling should, in any event, have been applied

prospectively. Other parties separately challenged FERC's orders on

the grounds that FERC's ruling should have been applied retroactively

to December 1, 1978, the date of the enactment of the NGPA and

producers should have been required to pay refunds accordingly.

The D.C. Circuit issued its decision on August 2, 1996 which holds

that producers must make refunds of all Kansas ad valorem taxes

collected with respect to production since October 1983. Petitions

for rehearing were denied November 6, 1996. The Company, along with

other gas producing companies, subsequently filed a petition for

writ of certiorari with the United States Supreme Court seeking to

limit the scope of the potential refunds to tax bills rendered on

or after June 28, 1988 (the effective date originally selected by

FERC). Williams Natural Gas Company filed a cross-petition for

certiorari seeking to impose refund liability back to December 1,

1978. Both petitions were denied on May 12, 1997.

Anadarko estimates the maximum amount of principal and interest at

issue which has not been paid to date and assuming that the October

1983 effective date remains in effect, is about $38,000,000 (pretax) as of March 31, 1997. Of this amount, up to $36,000,000 (pretax) is at issue in the FERC petition for adjustment and the

litigation with PanEnergy Corp et al. (PanEnergy) discussed below.

The Company along with other gas producing companies, filed a

petition for adjustment with FERC on May 12, 1997. In so doing the

Company is seeking waiver of all interest which might otherwise be

due. The total interest at issue is approximately $23,000,000 (pretax). On May 13, 1997 the Company also filed a lawsuit in the

Federal District Court for the Southern District of Texas against

PanEnergy seeking a declaration that pursuant to prior agreements

Anadarko is not required to issue refunds to PanEnergy for the

principal amount of $14,000,000 (pre-tax) and, if the petition for

adjustment discussed above is not granted in its entirety by FERC

with respect to PanEnergy refunds, interest in an amount up to

$22,000,000 (pre-tax) as of March 31, 1997. The Company also seeks

from PanEnergy the return of $816,000 of the $830,000 (pre-tax)

charged against income in 1993 and 1994. The Company is unable at

this time to predict the final outcome of this matter and no

provision for liability (excluding the amounts recorded in 1993 and

1994) has been made in the accompanying financial statements.



8







Item 1.



Financial Statements (continued)



ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

10. The information, as furnished, reflects all normal recurring adjustments

that are, in the opinion of management, necessary to a fair statement

of financial position as of March 31, 1997 and December 31, 1996,

the results of operations for the three months ended March 31,

1997 and 1996 and cash flows for the three months ended March 31,

1997 and 1996.



9





Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations

The Company has included a number of forward looking statements

within the meaning of Section 27A of the Securities Act of 1933

and Section 21E of the Securities Exchange Act of 1934 in Item 2

of this Form 10-Q. These forward looking statements, including

any production and reserve disclosures contained therein, are

based on the best data available at the time this report was

released for printing; however, actual results could differ

materially from those expressed or implied by such statements due

to a number of factors including: commodity pricing and demand,

exploration and operating risks, development risks, domestic

governmental risks, foreign operations risk and competition. See

Additional Factors Affecting Business in the Management's

Discussion and Analysis included in the Company's 1996 Annual

Report on Form 10-K.

Overview of Operating Results

Anadarko's revenues for the first quarter of 1997 reached a

record level for first quarter revenues, based on the highest

natural gas, crude oil and natural gas liquids (NGLs) revenues.

When compared to the same period in 1996, revenues increased 26

percent and net income was up 68 percent due primarily to

stronger commodity prices and higher oil production volumes.

For the first quarter of 1997, Anadarko's net income was $34.4

million (58 cents per share) on revenues of $170.5 million. By



comparison, net income for the first quarter of 1996 was $20.5

million (35 cents per share) on revenues of $135.7 million.

The following table shows the Company's volumes and U.S. prices

for the three months ended March 31, 1997 and 1996:

Three Months Ended

March 31

% Increase

1997

1996

(Decrease)

Natural gas, Bcf

Average daily volumes, MMcf/d

Price per Mcf



42.3

470

$ 2.66



43.7

480

$ 1.96



(3)

(2)

36



Crude oil and condensate, MBbls

Average daily volumes, MBOD

Price per barrel



2,002

22

$20.58



1,701

19

$17.64



18

16

17



Natural gas liquids, MBbls

Average daily volumes, MBOD

Price per barrel



1,231

14

$15.65



988

11

$14.29



25

27

10



See "Natural Gas Volumes and Prices" and "Crude Oil,

Condensate and Natural Gas Liquids Volumes and Prices."

10





Item 2.

Managements's Discussion and Analysis of Financial

Condition and Results of Operations (continued)

Costs and expenses during the first quarter of 1997 were $108.1

million, an increase of $13.3 million (14 percent) compared to

$94.8 million for the first quarter of 1996. The increase is

primarily due to higher oil and gas operating expenses,

production taxes related to higher revenues and depreciation,

depletion and amortization (DD&A) expense.

Interest expense for the first quarter of 1997 was $9.2 million,

a decrease of three percent compared to $9.5 million for the first

quarter of 1996.

Natural Gas Volumes and Prices

During the first quarter of

1997, Anadarko's natural gas production volumes decreased three

percent compared to the first quarter of 1996. In addition to

sales of Anadarko gas, the Company through its wholly-owned

subsidiary, Anadarko Energy Services Company, marketed about 75

billion cubic feet (Bcf) or 830 million cubic feet per day

(MMcf/d) of third party gas during the first quarter of 1997.

This compares to 48 Bcf or 527 MMcf/d of third party gas during

the same period of 1996. Anadarko's average U.S. wellhead gas

price in the first quarter of 1997 increased 36 percent compared

to the first quarter of 1996.

Crude Oil, Condensate and Natural Gas Liquids Volumes and Prices

Anadarko's crude oil and condensate volumes for the first

quarter of 1997 were up 18 percent compared to the first quarter

of 1996. The increase in oil production volumes is primarily

due to the Company's aggressive drilling programs in southwest

Kansas and the Permian Basin of west Texas, along with initial

oil production from the Mahogany platform in the Gulf of Mexico.

Anadarko's average U.S. oil price in the first quarter of 1997

increased 17 percent compared to the same period in 1996.

Anadarko's NGLs sales volumes for the first quarter 1997

increased 25 percent compared to the same period of 1996.

Anadarko's average NGLs price in the first quarter of 1997 was



ten percent higher compared to the same period in 1996.

Use of Derivatives

Anadarko uses derivative financial

instruments to hedge the Company's exposure to changes in the

market price of natural gas and crude oil, to provide methods to

fix the price for natural gas independently of the physical

purchase or sale and to manage interest rates. Commodity

financial instruments also provide methods to meet customer

pricing requirements while achieving a price structure

consistent with the Company's overall pricing strategy. While

commodity financial instruments are intended to reduce the

Company's exposure to declines in the market price of natural

gas and crude oil, the commodity financial instruments may also

limit Anadarko's gain from increases in the market price of

natural gas and crude oil. As a result, gains and losses on

commodity financial instruments are generally offset by similar

changes in the realized price of natural gas and crude oil.

Gains and losses are recognized in revenues for the periods to

which the commodity financial instruments relate. Anadarko's

commodity financial instruments currently are comprised of

futures, swaps and options.

11





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (continued)

Capital Expenditures, Liquidity and Dividends

During the first quarter of 1997, Anadarko's capital spending

(including capitalized interest and overhead) was $120.5 million

compared to $68.4 million in the first quarter of 1996. The

increase is due to increased activity in Algeria and the U.S.

Capital expenditures in both periods related primarily to the

Company's oil and gas exploration and development activities.

The Company believes cash flows, including proceeds from

divestitures, and existing credit facilities will be sufficient

to meet capital and operating requirements, including any

contingencies, during 1997.

In January 1997, the Company entered into a sale-leaseback

agreement for $87.9 million (net) involving 145 natural gas compressors

in Anadarko's major mid-continent gathering systems. Proceeds

from the transaction were used for general corporate purposes.

Anadarko's Board of Directors declared a quarterly dividend of

seven and one-half cents per share of common stock outstanding.

The dividend is payable on June 25, 1997 to stockholders of

record on June 11, 1997. Under the most restrictive provisions

of the various credit agreements, which limit the payment of

dividends by the Company, retained earnings of $399,102,000 were

not restricted as to the payment of dividends at March 31, 1997.

The amount of future dividends for Anadarko will depend on

earnings, financial condition, capital requirements and other

factors, and will be determined by the Directors on a quarterly

basis.

Changes in Accounting Principles

Earnings per Share

Statement of Financial Accounting Standards

(SFAS) No. 128 focuses on additional disclosures related to

earnings per share. SFAS No. 128 is effective for financial

statements for periods ending after December 15, 1997. Anadarko

does not expect SFAS No. 128 to have any material effect on its

calculations of earnings per share.



Exploration and Development Activities

During the first quarter of 1997, Anadarko drilled or

participated in a total of 126 wells, including 75 oil wells, 40

gas wells and 11 dry holes. This compares to a total of 61 wells

in the first quarter of 1996, including 32 oil wells, 13 gas

wells and 16 dry holes. Following is a description of

activity during the quarter.

12





Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations (continued)

Domestic

Gulf of Mexico

Production from the Mahogany platform reached

17,000 barrels of oil per day (BOPD) and 25 MMcf/d of gas from

two wells in April 1997. The operator is in the process of

completing the remaining two wells for production. All four

wells should be on production later this year. Drilling

will then resume on the fifth well, which was drilled to the top

of the salt structure and suspended to allow for installation of

the production platform in August 1996. Anadarko owns a 37.5percent working interest in the Mahogany Field.

An additional development well was drilled on the Company's East

Cameron 157 production platform. The East Cameron 157 A-6 well

flowed 32 MMcf/d of gas and 1,100 barrels of condensate per day

(BCPD). Additional compression was also installed on the

platform to increase production and recover additional reserves.

Anadarko is operator and owns a 100-percent working interest in

East Cameron 157.

In the first quarter of 1997, Anadarko drilled one successful

development well and repaired another well at the Brazos A-47

production platform. Both wells were placed on production.

Anadarko acquired this platform from partners in late 1996 and at

the time of the purchase, the platform was not on production.

Since that time, Anadarko has refurbished the platform and

production at Brazos A-47 has increased from zero to 11 MMcf/d of

gas.

At the Matagorda Island 623 Field, Anadarko is in the process of

maximizing field output through a replacement well drilling

program. Anadarko has authorized the drilling of three

replacement wells in 1997, of which two are currently drilling.

In addition, Anadarko plans to drill one development well in the

field in 1997. The three replacement wells should be on-line in

mid- to late-1997. The four-well program is expected to increase

field production by 100 MMcf/d of gas (gross). Anadarko owns a

37.5-percent working interest in the Matagorda Island 623 Field.

At Matagorda Island 587, the A-2 development well was recompleted

in another productive sand. Production from the well now

averages 5.2 MMcf/d of gas. Anadarko is operator and owns a 32.5percent working interest in the platform.

At the High Island 376 "B" production platform, a well was

recompleted in a new productive interval to increase production.

The High Island 376 "B" No. 1 well produced 1,960 BOPD and 2

MMcf/d of gas. Anadarko is operator and has a 33.8-percent

working interest in the platform.

The Company drilled a successful development well at Vermilion



78. The well increased prodcution by 15MMcf/d of gas and 370

BCPD. Anadarko owns a 37.5-percent working interest in the

platform.

13





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (continued)

The Company purchased two additional lease blocks in the OCS

Lease Sale 166 on April 7, 1997. Anadarko was the apparent high

bidder on Green Canyon 608, a deepwater block, and Grand Isle 111

in the sub-salt play. The Company owns a 100-percent working

interest in the Green Canyon Block and is partnered 50 percent

with Shell Oil Company on Grand Isle.

Permian Basin

Significant drilling activity in the Permian

Basin of west Texas helped increase Anadarko's Company-wide oil

and condensate production by 18 percent in the first quarter of

1997 compared to the first quarter of 1996. During the first

quarter of 1997, the Company drilled 88 wells in the Midland

Division, which is nearly half the total number of wells drilled

in the Division in 1996. During the first quarter of 1997,

drilling focused primarily on the following fields:

TXL South Unit -- 24 development wells were drilled in the TXL

South Unit as part of the Phase II drilling program. This field

is located in Ector County, Texas. Production from these wells

has helped to increase Unit production to 4,100 BOPD compared to

1,000 BOPD in mid-1996. Anadarko owns a 65-percent working

interest in the TXL South Unit.

Ketchum Mountain (Clearfork) Field -- In Irion County's Ketchum

Mountain (Clearfork) Field, 15 development wells were drilled and

completed. When connected to pipeline facilities, production

should increase from the current level of 1,760 BOPD to more than

2,000 BOPD. Anadarko owns an average 93-percent working interest

in the Field.

Sharon Ridge/Diamond M Field -- A total of 11 wells were

completed in the Sharon Ridge/Diamond M Field, located in Scurry

County, Texas, in the first quarter of 1997. Production

increased from 1,400 BOPD to 2,000 BOPD as a result of the

drilling program and the installation of additional waterflood

facilities. Anadarko owns a 100-percent working interest in this

Field.

Forbes Unit -- Five producers in the Forbes Unit of Crosby

County, Texas were completed during the first quarter of 1997.

Unit production increased from 180 BOPD to 500 BOPD. Anadarko

has a 65-percent working interest in the Forbes Unit.

The drilling programs in these fields continued in the second

quarter of 1997 with nine active drilling rigs at the end of

April compared to one active rig at the same time in 1996.

Hugoton Embayment

During the first quarter of 1997, 23

development wells were drilled and 16 wells were recompleted in

the Company's Liberal Division. Of note is the Adams L-2 well,

located in the Eubank South Field of Haskell County, Kansas. The

well was initially completed flowing 7.7 MMcf/d of gas and is

today producing 12 MMcf/d of gas. The Lemon Trust "B" No. 1 well

flowed 2.2 MMcf/d of gas from the Chester interval. The Going "B"

No. 3 well, located in the Dunkle Field of Morton County, Kansas,

flowed 2.7 MMcf/d of gas. Anadarko owns a 100-percent working



interest in the three wells listed above. The Herbel "A" No. 4

well, located in the Hugoton Field of Stevens County, Kansas,

produced 950 thousand cubic feet per day (Mcf/d) of gas. Anadarko

owns a 93.3-percent working interest in the well.

14





Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations (continued)

The Company's Hugoton Field infill drilling program also

continues, with nine wells completed and placed on production during

the first quarter of 1997. The Wilson "E" No. 2H, the Shell "A"

No. 2H and the Haar "A" No. 2H had initial production rates

ranging from 700-800 Mcf/d of gas. Two of the wells are located

in Morton County, Kansas and the other well is in Stevens County.

Anadarko owns a 97.5-percent working interest in each well. The

Bergner "A" No. 2H well, located in Morton County, Kansas, flowed

644 Mcf/d of gas. Anadarko owns a 97-percent working interest in

the well.

West Panhandle Field

In the first quarter of 1997, 11

sidetrack wells were drilled and completed in the Field.

Combined production from these wells increased by 2 MMcf/d of

gas, or about 80 percent. Production from the 11 wells now

averages more than 3.2 MMcf/d of gas. Anadarko owns a 100-percent

working interest in the wells and lateral completions will

continue throughout 1997.

International

Sahara Desert, Algeria

First oil production from the

Company's Algerian assets is still on-track for early 1998.

Construction of production facilities is underway at the Hassi

Berkine South Field (HBNS), located on Block 404 in the Sahara

Desert. Commerciality planning is underway with SONATRACH, the

national oil and gas enterprise of Algeria, and development of

the partners' other commercial fields will follow initial

production from the HBNS Field. An exploration program continues

on the Company's acreage and Anadarko plans to drill up to ten

wildcat wells during 1997.

The Red Sea, Eritrea

During the first quarter of 1997,

Anadarko completed a 4,600 kilometer seismic program in the Red

Sea on the Zula Block. The seismic data will be processed and

modeled by the Company's geoscientists in Houston. Anadarko

expects to drill its first exploration well on the Zula Block

in early 1998.

The Basalt Plateau, Jordan

Initial exploration activities are

underway on the Company's Safawi Block. In late 1996, Anadarko

conducted a magnetotelluric survey and reprocessed more than

1,000 kilometers of seismic data. The information will be used

to determine the location for two stratigraphic test wells

planned for 1997. Anadarko's operations personnel are working

with Jordan's National Petroleum Corporation to secure a drilling

rig for these wells.

In the first quarter of 1997, a subsidiary of Union Texas

Petroleum Corporation joined Anadarko as a partner in the Jordan

venture. Anadarko is operator and both companies have a 50percent interest.

Block 84, Peru

In late April 1997, Anadarko completed the

Environmental Impact Statement for Block 84 in the Ucayali Basin



of Peru. The document should be presented to the Ministry in May

1997. Once approved, the Company plans to begin a 1,200

kilometer seismic survey. The seismic program should

begin this summer. Anadarko is currently conducting

informational meetings about the seismic program with the

inhabitants of the Block.

15





Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations (continued)

North Atlantic, U.K. Tranches 21, 61 and 63

In April 1997,

Anadarko was awarded interests in three deepwater tranches

offshore Shetland Islands in the North Atlantic. Operators are

Fina, Mobil and Phillips, respectively. This is a new

exploration area for the Company.



16





Part II.

Item 1.



OTHER INFORMATION



Legal Proceedings



Kansas Ad Valorem Tax

The Natural Gas Policy Act of 1978 (NGPA)

allows a "severance, production or similar" tax to be included as

an add-on, over and above the maximum lawful price for natural gas.

Based on the Federal Energy Regulatory Commission (FERC) ruling

that the Kansas ad valorem tax was such a tax, the Company

collected the Kansas ad valorem tax in addition to the otherwise

maximum lawful price. FERC's ruling was appealed to the United

States Court of Appeals for the District of Columbia (D.C.

Circuit), which held in June 1988 that FERC failed to provide a

reasoned basis for its findings and remanded the case to FERC for

further consideration.

On December 1, 1993, FERC issued an order reversing its prior

ruling, but limiting the effect of its decision to Kansas ad

valorem taxes for sales made on or after June 28, 1988. FERC

clarified the effective date of its decision by an order dated May

19, 1994. The clarification provided that the June 28, 1988

effective date applies to tax bills rendered after that date, not

sales made on or after that date. Based on Anadarko's

interpretation of FERC's orders, $700,000 (pre-tax) was charged

against income in 1994, in addition to $130,000 (pre-tax) charged

against income in 1993. Numerous parties filed appeals of FERC's

action in the D.C. Circuit. Anadarko, together with other natural

gas producers, challenged FERC's orders on two grounds: (1) that

the Kansas ad valorem tax, properly understood, does qualify for

reimbursement under the NGPA; and (2) FERC's ruling should, in any

event, have been applied prospectively. Other parties separately



challenged FERC's orders on the grounds that FERC's ruling should

have been applied retroactively to December 1, 1978, the date of

the enactment of the NGPA and producers should have been required

to pay refunds accordingly.

The D.C. Circuit issued its decision on August 2, 1996 which holds

that producers must make refunds of all Kansas ad valorem taxes

collected with respect to production since October 1983. Petitions

for rehearing were denied November 6, 1996. The Company, along with

other gas producing companies, subsequently filed a petition for

writ of certiorari with the United States Supreme Court seeking to

limit the scope of the potential refunds to tax bills rendered on

or after June 28, 1988 (the effective date originally selected by

FERC). Williams Natural Gas Company filed a cross-petition for

certiorari seeking to impose refund liability back to December 1,

1978. Both petitions were denied on May 12, 1997.

Anadarko estimates the maximum amount of principal and interest at

issue which has not been paid to date and assuming that the October

1983 effective date remains in effect, is about $38,000,000 (pretax) as of March 31, 1997. Of this amount, up to $36,000,000 (pretax) is at issue in the FERC petition for adjustment and the

litigation with PanEnergy Corp et al. (PanEnergy) discussed below.



17





Item 1.



Legal Proceedings



Kansas Ad Valorem Tax (continued)

The Company along with other gas producing companies, filed a

petition for adjustment with FERC on May 12, 1997. In so doing the

Company is seeking waiver of all interest which might otherwise be

due. The total interest at issue is approximately $23,000,000 (pretax). On May 13, 1997 the Company also filed a lawsuit in the

Federal District Court for the Southern District of Texas against

PanEnergy seeking a declaration that pursuant to prior agreements

Anadarko is not required to issue refunds to PanEnergy for the

principal amount of $14,000,000 (pre-tax) and, if the petition for

adjustment discussed above is not granted in its entirety by FERC

with respect to PanEnergy refunds, interest in an amount up to

$22,000,000 (pre-tax) as of March 31, 1997. The Company also seeks

from PanEnergy the return of $816,000 of the $830,000 (pre-tax)

charged against income in 1993 and 1994. The Company is unable at

this time to predict the final outcome of this matter and no

provision for liability (excluding the amounts recorded in 1993 and

1994) has been made in the financial statements.



18





Item 6.



Exhibits and Reports on Form 8-K



(a) Exhibits

Exhibits not incorporated by reference to a prior filing are

designated by an asterisk (*) and are filed herewith; all

exhibits not so designated are incorporated herein by reference

to a prior filing as indicated.

Exhibit

Number

3(a)



(b)



Original Filed

Exhibit



File

Number



Restated Certificate of Incorporation

of Anadarko Petroleum Corporation,

dated August 28, 1986



19(a)(i) to Form 10-Q

for quarter ended

September 30, 1986



1-8968



By-laws of Anadarko Petroleum

Corporation, as amended



3(b) to Form 10-Q

for quarter ended

June 30, 1996



1-8968



Description



*10



Agreement for Exploration and Exploitation of Liquid Hydrocarbons between

Anadarko Algeria Corporation and Sonatrach,

dated October 23, 1989. (Confidential

treatment requested for certain provisions pursuant to Rule 24b-2 under

the Securities Exchange Act of 1934.)



*27



Financial Data Schedule



(b)



Reports on Form 8-K



There were no reports filed on Form 8-K for the three months

ended March 31, 1997.



18





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of

1934, the Registrant has duly caused this report to be signed

on its behalf by the undersigned duly authorized officer and

principal financial officer.

ANADARKO PETROLEUM CORPORATION

(Registrant)



[MICHAEL E. ROSE]

Michael E. Rose - Senior Vice President,

Finance and Chief Financial Officer



May 14, 1997



19









EX-10

2



Exhibit 10

Legend:

[C] - Confidential treatment requested for certain provisions pursuant to Rule

24b-2 under the Securities Exchange Act of 1934.



AGREEMENT FOR EXPLORATION

AND EXPLOITATION OF LIQUID

HYDROCARBONS

BETWEEN

SONATRACH

AND

ANADARKO ALGERIA CORPORATION

AGREEMENT FOR EXPLORATION AND EXPLOITATION

OF LIQUID HYDROCARBONS

BETWEEN, ON THE ONE HAND,

SONATRACH, National Enterprise (herein referred to as



"SONATRACH"), whose registered office is located in Algiers, 10

Rue du Sahara, Hydra, represented by Nadir Sekfali, Directeur

General Adjoint, for the purpose of this Agreement,

AND, ON THE OTHER HAND,

ANADARKO ALGERIA CORPORATION, a company incorporated and existing

under the laws of Delaware, U.S.A., whose corporate business

offices are located at 16855 Northchase Drive, Houston, Texas

77060, U.S.A., represented by Robert J. Allison, Jr., Chairman of

the Board of Directors and Chief Executive Officer of Anadarko

Algeria Corporation, for the purpose of this Agreement,

THE FOLLOWING HAS BEEN AGREED BY THE PARTIES:

ARTICLE 1

PURPOSE OF AGREEMENT

1.1 This Agreement, ruled by Law 86-14 of August 19, 1986 and

the regulations promulgated for its application, has as its

objective the Exploration and, if a commercially exploitable Pool

is discovered, the Exploitation of Liquid Hydrocarbons in the

Contract Area.

This Agreement also determines:

A.

the conditions relating to the financing of the

Exploration and Exploitation works:

B.

if Liquid Hydrocarbons are found, the conditions

under which ANADARKO shall receive a share of the

production of those Liquid Hydrocarbons as

reimbursement for its Exploration Costs incurred and

as its remuneration;

C.

if a commercially exploitable Gas Pool is

discovered, the conditions for the reimbursement of

costs incurred by ANADARKO in respect of that Pool, the

conditions under which ANADARKO will receive a bonus

for the discovery, as well as the possibility of

creating a jointly held company ruled by Algerian law

to export Gas extracted from that Gas Pool;

D.

the respective rights and obligations of each

Party during the Exploration and Exploitation Phases;

E.

the terms for the execution of Petroleum

Operations;

F.

the terms for the transfer by ANADARKO to

SONATRACH of its technology of Petroleum Operations

provided for in this Agreement and of the training of

SONATRACH'S personnel;

G.

all other stipulations necessary to the

performance of this Agreement and prescribed by the

applicable Laws.

ARTICLE 2

DEFINITIONS

When used in this Agreement, the following terms and expressions

mean:

2.1(2.1) "Affiliate" means a juristic person that controls or is

controlled by a Party to this Agreement, or a juristic person



that controls or is controlled by a juristic person that controls

a Party to this Agreement. "Control" means ownership of at least

fifty one percent (51%) of the voting stock (if the other

juristic person is a corporation issuing stock) or the power to

control the management or the affairs of the other juristic

person (if the other juristic person is not a corporation).

"Non-Affiliate" means a juristic person which is not an Affiliate

of a Party to this Agreement.

2.2(2.13) "Agreement" means this document, any amendment hereof

agreed to by both Parties, and all of the Annexes.

2.3(2.2) "ANADARKO" means Anadarko Algeria Corporation, its

successors and transferees of portions of its rights and

obligations under this Agreement.

2.4(2.5) "Annex" means each document attached to and made an

integral part of this Agreement and labelled as such, namely:

A.



Annex "A" - Geographical Coordinates of the Contract



B.



Annex "B" - Accounting Procedure;



C.



Annex "C" - Basin Evaluation;



D.



Annex "D" - Seismic Processing Center;



E.



Annex "E" - Taking Procedures.



Area;



2.5(2.20) "Basin Evaluation" means those basin evaluation efforts

of ANADARKO to be conducted in accordance with Annex "C".

2.6(2.9) "Budget" means the estimated sum to be expended in

conducting an approved Work Program.

2.7(2.3) "Calendar Year" means a period of twelve (12) months

commencing with January 1st and ending on the following December

3lst, according to the Gregorian Calendar.

2.8(2.61) "Calendar Quarter" means a period of three (3)

Gregorian calendar months commencing on January 1, April 1, July

1 or October 1 of any Calendar Year.

2.9(2.14) "Commencement Date" means the Effective Date or the

date of the granting to SONATRACH of the Exploration Licence

covering the Contract Area, whichever is later.

2.10(2.16)

"Commercial Discovery" means a discovery of Liquid

Hydrocarbons which allows the Parties to obtain a net profit and

a level of return on invested funds which justifies the

Exploitation of that discovery.

2.11(2.7) "Competent Authority" means all Algerian public

authorities enabled by virtue of a legal text to make a decision

or to take an administrative or regulatory act.

2.12(2.41)

"Contract Area" means the four (4) Blocks whose

geographical coordinates are defined in Annex "A". References to

the Contract Area shall mean those Blocks, or, as applicable and

pursuant to Article 8, those portions thereof remaining following

the reductions, the Substitute Area(s) or the Free Adjacent

Area(s) added which are covered by the Exploration Licence or, as

applicable, an Exploitation Licence.



2.13(2.4) "Contract Year" means the same as a Calendar Year,

except that the first Contract Year of the Exploration Phase

shall begin on the Commencement Date and end on December 31 of

the next succeeding Calendar Year, and the first Contract Year of

the Exploitation Phase of each Pool shall begin on the date of

the award of the Exploitation Licence in respect of that Pool and

end on December 31 of the next succeeding Calendar Year.

2.14(2.44)

"Crude Oil" means any Liquid Hydrocarbon mixture

or any portion thereof which is in the liquid phase in the

Reservoir, removed from the Reservoir in such liquid phase, and

obtained at the surface as such.

2.15(2.19)

"Customs Duties" means all taxes, royalties and

customs duties which are payable as a result of the importation

of property into Algeria.

2.16(2.30)

"Day" means a period of twenty four (24) hours

commencing in Algeria at 0000 hours (midnight).

2.17(2.17)

"Development" means Petroleum Operations (other

than Exploration) consisting of:

A.



The Drilling of Development Wells;

B.

The design, engineering, construction, and

installation of materials, the lines, production

facilities and plants and related equipment necessary

to produce and operate Wells, to process Natural Gas

Liquids, and to deliver Liquid Hydrocarbons to the

Point of Delivery;

C.

Any other work or activities necessary or

ancillary to the operations mentioned above.



2.18(2.47)

"Development Plan" means the plan for the

Development of a Pool.

2.19(2.23)

"Drilling" means the work necessary to prepare

Well locations and the construction of access roads to the Well

locations, drilling, coring, casing, perforating, logging, the

determination of drilling fluid and mud programs, sidetracking,

deepening or reworking of any Well, including the reasonable

testing and evaluation of the Well being drilled and, as

appropriate, the plugging and abandoning of such Well, or the

temporary completion for permanent completion or abandonment

thereof at a later date. The term "Drilling" shall not include

the installation of permanent production equipment and pipelines.

2.20(2.32)

"Economic Limit" means the time when all revenues

expected from sales of Liquid Hydrocarbons from a Pool do not

permit the Parties to obtain a net profit and a level of return

on invested funds which justify the continued Exploitation of

that Pool.

2.21(2.15)

"Effective Date" means the date this Agreement and

the Protocol become effective by approval of decree published in

the Official Journal of the Algerian Republic.

2.22(2.54)

"Enhanced Recovery" means the employment of

Secondary Recovery and/or Tertiary Recovery methods of recovering

Crude Oil Reserves. "Secondary Recovery" means extraction of

Crude Oil reserves beyond Primary Recovery volumes by means of

improved recovery processes such as gas injection for pressure

maintenance and/or waterflooding. "Tertiary Recovery" means



extraction of Crude Oil reserves beyond the capability of Primary

Recovery forces and Secondary Recovery processes by means of

either thermal, chemical, or miscible enhanced recovery methods.

"Primary Recovery" means extraction of Crude Oil reserves by

means of natural Reservoir forces or producing drive mechanisms.

2.23(2.8) "Exempt Property" means property which is exempted from

Customs Duties.

2.24(2.21)

"Exploitation" means Petroleum Operations (other

than Exploration) consisting of:

A.



Development;

B.

The servicing and maintenance of equipment, lines,

production facilities, and related equipment necessary

to produce and operate Wells:

C.

The producing, gathering, processing, storing,

transporting and delivering of Liquid Hydrocarbons to

the Point of Delivery;

D.

The design, engineering, construction and

installation of equipment and facilities necessary for

Enhanced Recovery efforts;

E.

Any other work or activities necessary or

ancillary to the operations mentioned above.



2.25(2.42)

"Exploitation Licence" means each exploitation

licence ("permis d'exploitation") awarded to SONATRACH as the

result of a Commercial Discovery.

2.26(2.10)

"Exploitation Operations Committee" means the

committee established under Paragraph 6.3 of this Agreement.

2.27(2.45)

"Exploitation Phase" means the phase of

Exploitation, in respect of each Pool, specified in Article 14 of

this Agreement.

2.28(2.53)

"Exploration" means work to be conducted by

ANADARKO pursuant to Article 10 of this Agreement, and the

construction and installation of facilities necessary to produce

Liquid Hydrocarbons under a Provisional Exploitation

Authorization.

2.29(2.43)

"Exploration Licence" means the exploration

licence ("permis de recherche") awarded to SONATRACH which

granted to it the exclusive right to conduct Exploration on the

Contract Area, together with each amendment, extension and

renewal thereof.

2.30(2.46)

"Exploration Phase" means the phase of Exploration

specified in Article 9 of this Agreement.

2.31(2.22)

"FOB", in reference to the share of Liquid

Hydrocarbons in which ANADARKO is entitled hereunder, means the

title to Liquid Hydrocarbons delivered by SONATRACH (or by an

Affiliate of SONATRACH) at the Port of Loading shall be

transferred to ANADARKO free on board ship when such Liquid

Hydrocarbons pass through the loading flange of the marine

shipping vessel designated by ANADARKO, and may be exported from

Algeria free of any obligation to furnish Liquid Hydrocarbons to

the domestic market of Algeria, free of charges for the

Transportation of Liquid Hydrocarbons, terminalling and pump



fees, and exempt from all charges and taxes as well as all

petroleum related fiscal obligations, and free of any requirement

for the repatriation of funds received by ANADARKO from the sale

of Liquid Hydrocarbons.

2.32(2.18)

"Foreign Exchange" means United States Dollars or

currency other than Algerian money which is accepted by the Party

requesting payment in a currency other than Algerian Dinars.

2.33(2.58)

"Free Adjacent Area" means any adjacent area

situated outside the boundaries of the Contract Area on which

SONATRACH may conduct activities for the prospection, Exploration

and Exploitation of Liquid Hydrocarbons in association with a

foreign legal entity.

2.34(2.26)

"Gas Pool" means the areal geographical extent of

a Reservoir(s) producing or capable of producing Non-Associated

Gas which is distinct and separate areally from another

Reservoir(s) by virtue of geologic and engineering

interpretations.

2.35(2.27)

Natural Gas.



"Hydrocarbons" means Liquid Hydrocarbons and



2.36(2.36)

"Joint Operations" means all Exploitation

operations conducted at the cost, risk and expense of the Parties

jointly.

2.37(2.34)

"Laws" means Law 86-14 and other published laws,

ordinances, decrees and regulations published and in effect on

the Effective Date.

2.38(2.28)

"Liquid Hydrocarbons" means Crude Oil, and all

kinds of Hydrocarbons in liquid form, in their natural state or

obtained from Natural Gas (as Natural Gas Liquids) by

condensation, extraction or processing.

2.39(2.59)

"Maximum Efficient Rate" means the daily

production rate which (taking into account the nature of the

Reservoir or Reservoirs, standard accepted engineering practices

and the existing producing, storage and fluid flow, transporting,

loading and other facilities available) achieves the maximum

economic volumetric recovery of Liquid Hydrocarbons from a

Reservoir without causing physical damage to the Reservoir such

that a minimum of residual Liquid Hydrocarbon saturation will

remain at the time of depletion.

2.40(2.49)

"Minimum Exploration Program" means the program of

Exploration specified in Paragraph 10.1 of this Agreement.

2.41(2.24)

"Natural Gas" or "Gas" means all gaseous

Hydrocarbons produced from Wells, including wet gas and dry gas,

which may either be associated or non-associated with Liquid

Hydrocarbons, and residue gas remaining after the extraction of

Natural Gas Liquids from wet gas. The following Gas

classifications are used:

A.

"Associated Gas" means gaseous Hydrocarbons

associated in any manner with a Reservoir containing

Liquid Hydrocarbons, whether occurring in a gas cap or

in solution;

B.

"Dry Gas" means: (i) Natural Gas produced at the

wellhead which gas analysis shows to contain no Liquid

Hydrocarbons of any nature (whether Crude Oil or



extractable Natural Gas Liquids); and/or (ii) residue

gas remaining after the extraction of Natural Gas

Liquids from wet Gas, whether associated with Liquid

Hydrocarbons or non-associated;

C.

"Non-Associated Gas" means all gaseous

Hydrocarbons, whether wet or dry, which: (i) are

produced at the wellhead without significant volumes of

associated Crude Oil or Natural Gas Liquids, and are

measured at more than one hundred (100) MCF (thousand

cubic feet) of Natural Gas to each barrel of Crude Oil

or Natural Gas Liquids produced from the Reservoir, or

(ii) are produced from a Reservoir qualified as bearing

Natural Gas only, even if encountered in a Well bore

through which Crude Oil also is produced through the

inside of another string of casing or tubing.

2.42(2.33)

"Natural Gas Liquids" means Liquid Hydrocarbons

which may be found by gas analysis to exist at surface conditions

in produced Natural Gas and which may be extracted through Gas

processing techniques. Natural Gas Liquids include C2 plus

(including condensate).

2.43(2.11)

"Operating Committee" means the committee

established under Article 5 of this Agreement.

2.44(2.35)

"Operator" means the Party or Parties which will

be responsible for the conduct of Petroleum Operations conforming

to Article 6. "Non-Operator" means the Party who is not the

Operator.

2.45(2.40)

"Party" means SONATRACH or ANADARKO, respectively,

or any other juristic person which becomes a party to this

Agreement. "Parties" means all such juristic persons

collectively.

2.46(2.39)

"Percentage Interest" means, with respect to each

Party, that Party's percentage share of Liquid Hydrocarbons as

specified in Paragraph 4.3 A of this Agreement.

2.47(2.38)

"Percentage Share of Financing" means, with

respect to each Party, the percentage share of Exploitation Costs

to be borne and paid by that Party, as specified in Paragraph 4.2

of this Agreement.

2.48(2.37)

"Petroleum Operations" means all Exploration,

Exploitation of Liquid Hydrocarbons, and any other operations

contemplated under this Agreement in respect of the conduct of

the said Exploration and Exploitation operations, including

plugging and abandonment of any Well and dismantling and/or

removal of installations utilized in operations under this

Agreement and any other work necessary or ancillary to these

operations.

2.49(2.31)

"Point of Delivery" means that point stated in

Paragraph 17.2 of this Agreement where the Operator shall deliver

Liquid Hydrocarbons to SONATRACH (or to an Affiliate of

SONATRACH) for Transportation to the Port of Loading.

2.50(2.25)

"Pool" means the areal geographical extent of a

Reservoir(s) producing or capable of producing Liquid

Hydrocarbons which is distinct and separate areally from another

Reservoir(s) by virtue of geologic and engineering

interpretations.



2.51(2.48)

"Port of Loading" means the location on the

Mediterranean Sea coast at which Liquid Hydrocarbons pass through

the inlet loading flange of the marine shipping vessel loading

Liquid Hydrocarbons to be exported.

2.52(2.51)

"Protocol" means the agreement concluded between

The Algerian State and ANADARKO, as required by Article 21 of Law

86-14.

2.53(2.6) "Provisional Exploitation Authorization" means a

provisional exploitation authorization ("autorisation provisoire

d'exploiter") granted under Article 11 of Law 86-14.

2.54(2.56)

"Reservoir" means that portion of a porous and

permeable geological formation which contains a naturally

occurring distinct accumulation of Hydrocarbons characterized by

a single reservoir pressure system so that production of

Hydrocarbons from one part of the reservoir affects the reservoir

pressure throughout its extent.

2.55(2.55)

86-14.



"Royalty" means the royalty required under Law



2.56(2.57)

"SONATRACH" means Sonatrach, or any substitute

company which legally succeeds Sonatrach as the holder of each

Exploration Licence, each Provisional Exploitation Authorization

and each Exploitation Licence awarded. It is understood that,

for the purpose of this Agreement, SONATRACH does not act as a

Competent Authority, but as a Party.

2.57(2.29)

"Taxes" means all taxes on results, and other

duties or charges specified in Chapter VI of Law 86-14, together

with all other taxes, duties or other charges of a similar nature

which, subject to Paragraph 9 of the Protocol, are imposed in

Algeria by amendment to that Law or under any other Law on or

after the date the Parties sign this Agreement.

2.58(2.12)

"Technical Advisory Committee" means the committee

established under Paragraph 5.15 of this Agreement.

2.59(2.60)

"Third Party(ies)" means a natural or juristic

person which is not a party to this Agreement.

2.60(2.63)

of Law 86-14.



"Transportation" shall be as defined in Article 8



2.61(2.52)

"Well" means a hole in the subsoil (exclusive of a

seismic shothole) made by Drilling. For purposes hereof, the

following Well classifications are used:

A.

"Exploration Well" means a Well drilled for the

purpose of establishing the location of Liquid

Hydrocarbons not previously discovered or confirmed;

B.

"Delineation Well" means a Well drilled to

demarcate or appraise the size, productive capacity,

and potential recoverable reserves of Liquid

Hydrocarbons discovered by an Exploration Well and to

confirm whether that Exploration Well resulted in a

Commercial Discovery;

C.

"Development Well" means a Well drilled after the

granting of the Exploitation Licence and within the

assumed limits of a Pool in order to confirm those

limits and to produce Liquid Hydrocarbons.



2.62(2.50)

"Work Program" means a written plan or statement

itemizing specific Petroleum Operations to be conducted during a

Contract Year. For purposes of this Agreement, a Work Program

shall be one of the following programs which have been approved

or deemed approved by the Operating Committee:



-



-



An Exploration Work Program;



-



A Substitute Exploration Work Program;



-



A Supplemental Exploration Work Program;



-



An Evaluation Work Program;



-



A Development Work Program;



An Exploitation Work Program.



2.63(2.62)

The terms "Exploration Costs", "Exploitation

Costs", "Joint Account", and "Overhead" shall be as defined in

Annex

"B".

TITLE I

LEGAL NATURE OF THE AGREEMENT/PERCENTAGE SHARES

ARTICLE 3

LEGAL NATURE OF AGREEMENT

3.1 This Agreement is a production sharing type agreement

entered into pursuant to Paragraph 2 of Article 22 of Law 86-14

of August 19, 1986, and Paragraphs 3 and 8 C of Decree No. 87-159

of July 21, 1987.

3.2 This Agreement does not create a legal entity and shall not

be construed as creating a partnership, a joint venture of any

nature, a corporation or a trust. It is simply a juxtaposition

of Percentage Shares of Financing for the conduct of Exploration

work and the Exploitation of Liquid Hydrocarbons which may be

discovered, in accordance with the terms and conditions stated in

this Agreement. Each Party shall be responsible only for its

share of obligations specified in this Agreement.

ARTICLE 4

FINANCING AND PRODUCTION SHARING

4.1 Financing of Exploration. ANADARKO shall completely finance

the work, and furnish all the necessary services and technology,

required for conducting Exploration works. If no Commercial

Discovery is made, ANADARKO will not be entitled to be reimbursed

for funds invested in those efforts. ANADARKO shall have an

interest in the Liquid Hydrocarbons discovered and by-products as

a result of its Exploration work, conforming to the dispositions

of this Agreement.

4.2 Financing of Exploitation. The Parties shall bear all costs

to be incurred for the conduct of Exploitation operations

according to the following Percentage Share of Financing:

SONATRACH

ANADARKO



51.00%

49.00%



Each Party shall arrange for its own sources of capital

financing in respect of its Percentage Share of Financing.

4.3



Production Sharing of Liquid Hydrocarbons.

A.



Except as provided in Article 13 herein, all



Liquid Hydrocarbons produced during the term of this

Agreement and during each Provisional Exploitation

Authorization and each Exploitation License, which is

not used in Petroleum Operations, shall be distributed

between the Parties in the following percentages

(herein referred to as "Percentage Interests"):

Liquid Hydrocarbons

in barrels per day of total (100%)

production (quarterly average)



SONATRACH ANADARKO

Percentage Percentage

Interest

Interest



That portion up to 25,000 BPD



[C]



[C]



That portion in excess of

25,000 and up to 50,000 BPD



[C]



[C]



That portion in excess of

50,000 and up to 75,000 BPD



[C]



[C]



That portion in excess of

75,000 and up to 100,000 BPD



[C]



[C]



That portion in excess of

100,000 and up to 125,000 BPD

That portion in excess of

125,000 and up to 150,000 BPD



[C]



[C]



[C]



[C]



That portion in excess of

150,000 BPD and up to 200,000 BPD



[C]



[C]



That portion in excess of

200,000 BPD



[C]



[C]



B.

As reimbursement for fifty one percent (51%) of

the Exploration Costs incurred by ANADARKO, ANADARKO

shall receive Cost Recovery Liquid Hydrocarbons in

accordance with Article 18 of this Agreement in an

amount equal to the difference between forty-nine

percent (49%) of the total (100%) Liquid Hydrocarbons

produced and the Percentage Interest share of Liquid

Hydrocarbons distributed to ANADARKO under Paragraph

4.3 A above.

4.4 This Agreement does not confer on ANADARKO any right of

ownership of quantities of Liquid Hydrocarbons which are owed to

ANADARKO by virtue of this Agreement prior to its receipt by

ANADARKO FOB at the Port of Loading. However, SONATRACH agrees

to deliver (or cause to be delivered) FOB at the Port of Loading,

and ANADARKO shall have the right to receive and export a

quantity of Liquid Hydrocarbons equal in value to ANADARKO'S

Percentage Interest share of Liquid Hydrocarbons stated in

Paragraph 4.3 A above, Cost Recovery Liquid Hydrocarbons under

Paragraph 4.3 B above, and, as the case may be, the reimbursement

and bonus payable under Article 19 hereafter.

TITLE II

MANAGEMENT AND CONDUCT OF PETROLEUM OPERATIONS

ARTICLE 5

MANAGEMENT OF PETROLEUM OPERATIONS

5.1 The Parties agree to render mutual assistance to one another

to the end of execution of this Agreement. The management of

Petroleum Operations is carried out by the Operating Committee.

The Operating Committee is assisted in its functions by the



Technical Advisory Committee. The conduct of Petroleum

Operations shall be carried out by the Operator.

OPERATING COMMITTEE

5.2 To provide for the orderly supervision and direction of

Petroleum Operations, there is hereby established an Operating

Committee which consists of six (6) members, three (3) appointed

by SONATRACH and three (3) by ANADARKO.

5.3 From among its three respective members, each Party shall

appoint one (1) member (herein called "Representative") who shall

have full power and authority to represent and bind that Party in

all matters and decisions to be taken by the Operating Committee

pursuant to this Agreement. The remaining two (2) members

appointed by each Party shall be designated as "Alternate

Representatives", in the order of "First Alternate

Representative" and "Second Alternate Representative". The First

Alternative Representative shall have full power and authority to

act only in the absence of that Party's Representative. The

Second Alternate Representative shall have full power and

authority to act only in the absence of that Party's

Representative and First Alternate Representative. All decisions

taken by a Representative (or in his absence, by his First

Alternate Representative, or Second Alternate Representative, as

applicable) shall be deemed to be the decision of the Party which

appointed him.

5.4 At meetings of the Operating Committee, a quorum shall exist

upon the attendance of two (2) members which consists of the

Representative (or, in his absence, one of the Alternate

Representatives in the order stated) of each Party.

5.5 Not later than thirty (30) Days following the Effective

Date, each Party shall deliver Notice to the other Party of the

names of its three (3) members appointed to serve on the

Operating Committee, and the names of its members appointed to

serve as its Representative, First Alternate Representative and

Second Alternate Representative.

5.6 At any time, a Party may replace and substitute any one or

more of its members on the Operating Committee, or redesignate

the order in which any one or more of its members may represent

it in respect of decisions to be taken by the Operating

Committee, by delivery of Notice to that effect to the other

Party. Such Notice shall state the name(s) of the person(s) who

shall serve on the Operating Committee, the capacity in which

each person shall serve, and the commencement date in which they

shall so serve.

5.7 The person who serves as the general manager of ANADARKO in

Algeria shall be appointed to serve as its Representative;

however, ANADARKO'S other two (2) members who serve on the

Operating Committee need not be residents of Algeria.

5.8



The function of the Operating Committee shall be to:

A.

Review, discuss and approve Work Programs and

Budgets, and any amendments thereto;

B.

Select the location of Wells to be drilled under

approved Work Programs according to the report

submitted by the Operator (herein referred to as the

"Well Authorization Report");

C.



Review, discuss and approve draft contracts in



respect of Petroleum Operations which contemplate an

expenditure for the Joint Account in excess of Five

Million Dinars (5,000,000.00) or its equivalent in

Foreign Exchange;

D.

Determine the shape, coordinates and surface

area(s) of the Contract Area in which reductions are

required under Article 8;

E.

Review, discuss and approve all other areas to be

added to the Contract Area pursuant to Article 8;

F.

Determine the extent, if any, to which a Well

should be tested, determine whether an attempt should

be made to complete a Well for production, and

determine whether a Well should be abandoned;

G.

Determine whether a Well resulted in a discovery

of Liquid Hydrocarbons, and whether one or more

Delineation Wells should be drilled;

H.

Decide whether an application should be submitted

for a Provisional Exploitation Authorization;

I.



Determine whether a Commercial Discovery has been

established;

J.

Review, discuss and approve Development Plans,

Budgets, and any acceptable amendments thereto;

K.

Demarcate the boundaries of each Pool to be

submitted to the Competent Authority for the award of

Exploitation Licences;

L.

Decide whether an application should be made for

an Exploitation Licence;

M.

Review, discuss and approve expenditure

recommendations for Development of each Pool which

supersede those of the initial Development Plan,

including, but not limited to, proposals to implement

Enhanced Recovery;

N.

Review, discuss and determine if the Economic

Limit has been reached as to each Pool in order to

decide on the second extension of the Exploitation

Phase;

O.

Approve the sale of surplus material, equipment

and goods acquired at the expense of the Joint Account;

P.

Establish the occurrence of a case of Force

Majeure, determine the action to be taken to relieve

its consequences and to establish its cessation;

Q.

Determine the types and coverages of insurance to

be secured;

R.

Appoint ad hoc subcommittees for such purposes as

it deems appropriate. Each Party shall have the right

to appoint the same number of members to any such

subcommittee as the other Party;

S.

Review Operator's organization structure of

personnel to be engaged in conducting Petroleum



Operations and approve Operator's plans for the

training of personnel;

T.

Examine such other matters which arise from this

Agreement.

MEETINGS OF THE OPERATING COMMITTEE

5.9 The Operating Committee shall meet at Operator's offices in

Algeria, or at such other place as may be agreed by the

Representatives:

A.

On or before November 2 of each Calendar Year to

consider and approve the Work Program and Budget for

the following Calendar Year;

B.

On or before May 2 of each Calendar Year to review

the progress of Petroleum Operations under the Work

Program and Budget approved for the current Calendar

Year;

C.

At the time stated in Article 11 in respect of the

initial Exploration Work Program and in Article 12 in

respect of the Evaluation Work Program, Development

Plans and the initial Development Work Program and

Budget;

D.

Whenever requested by a Party by giving at least

fifteen (15) Days (or such lesser period as the other

Party may agree) prior Notice to the other specifying

the matter to be considered at the meeting and

containing all data and information relating to such

matter;

Each Party may, by Notice to the other, advise of additional

matters which that Party desires to have considered by the

Operating Committee. Those matters shall be considered at the

meeting of the Operating Committee provided that such Notice is

given at least ten (10) Days prior to the date of the meeting and

data and information of the type referred to in the preceding

subparagraph is furnished by that Party.

5.10 Each Party shall be entitled to have present at each meeting

of the Operating Committee such reasonable number of technical

advisors as it may desire, none of whom, however, shall have any

binding authority on behalf of their principal.

5.11 Any proposal made by one of the Parties on a given matter

may be considered as a decision taken by the Operating Committee

without the holding of a meeting if the following conditions are

met:

A.

This Party submits by Notice given to the other

the said matters and its proposal;

B.

The other Party shall communicate its decision in

writing concerning the proposal within thirty (30) days

following receipt of the Notice. If the other Party

agrees with the proposal, it will be deemed a decision

of the Operating Committee and the exchanges of written

Notices will be included in the minutes of the

Operating Committee;

C.

Where the matter presented for consideration by

its nature requires a decision in less than thirty (30)



days, the Notice must specify the period for answer and

the reasons justifying the lesser period. The Party to

whom the matter had been submitted shall advise of its

decision within the time specified in the Notice;

D.

If the matter so submitted is not urgent, the

other Party may request that a meeting of the Operating

Committee be convened to make a decision on that

matter.

5.12 The Representative of SONATRACH shall serve as the Chairman

of the Operating Committee. The Chairman shall have no voting

rights other than his vote as a Representative. He will:

A.

Take charge of the preparation and communication

of an agenda for Operating Committee meetings;

B.



Preside over each meeting.



5.13 The Representative of ANADARKO shall serve as the Secretary

of meetings of the Operating Committee. The Secretary is

responsible for:

A.

Preparation of a proposed report of all decisions

taken by the Operating Committee, including decisions

pursuant to subparagraphs 5.11 B or C, and its

submission to the Parties within seven (7) Days after

the Operating Committee has taken a decision, as well

as the preparation of a draft of proposed minutes of

each meeting and its submission to the Parties within

thirty (30) Days after the Operating Committee has

taken a decision. Each Party shall notify the other of

its approval or disapproval of the drafts mentioned

above within seven (7) Days from its receipt of the

report, and within thirty (30) Days from its receipt of

minutes.

A Party who fails to notify the other of its

disapproval within the required time will be deemed to

have approved the report or minutes;

B.

Maintenance of a permanent file of all Operating

Committee meetings and decisions taken.

DECISIONS OF THE OPERATING COMMITTEE

5.14 Except as stated below in this Paragraph, all decisions to

be made by the Operating Committee shall be adopted unanimously.

If the Operating Committee fails to reach unanimity as to a

matter, that matter will be scheduled for reconsideration at a

second meeting which will be held no later than fifteen (15) Days

following the meeting during which there has been no unanimous

accord. If, after reconsideration, the Operating Committee still

fails to reach unanimity, that matter shall be resolved as

follows:

A.

If the disagreement occurs during the Exploration

Phase and relates to the conduct of the Minimum

Exploration Program to be financed at the sole risk of

ANADARKO (notably, but without limitation, the manner

in which the Minimum Exploration Program is to be

conducted, and the choice of employees, contractors,

vendors of equipment, materials, products and

services), then ANADARKO'S decision on this matter

being the object of disagreement shall be deemed a



decision of the Operating Committee;

B.

Without prejudice to the dispositions relating to

Article 13 herein, if the disagreement does not relate

to the conduct of the Minimum Exploration Program to be

financed at the sole risk of ANADARKO, then the

disagreement shall be resolved in conformance with

Article 26 of this Agreement.

TECHNICAL ADVISORY COMMITTEE

5.15 To assist the Operating Committee, an advisory subcommittee

is hereby created (herein referred to as the "Technical Advisory

Committee") consisting of four (4) members. Each Party shall

designate two (2) members charged with its representation. One

(1) of the delegates of SONATRACH shall be the Chairman, and one

(1) of the delegates of ANADARKO shall be the Secretary. During

the first meeting of the Operating Committee, each Representative

shall provide written communication of the names of its delegates

who will serve on the Technical Advisory Committee. At any time,

each Party shall have the right to replace any one or more of its

delegates and to substitute that person with another delegate of

its choice.

5.16 For meetings of the Technical Advisory Committee, a quorum

shall exist upon the attendance of two (2) members which consists

of one (1) of the delegates of each Party. With respect to

recommendations that the Technical Advisory Committee must make

to the Operating Committee, each Party shall have one (1) vote.

5.17 The responsibilities of the Chairman of the Technical

Advisory Committee shall consist of the notification in writing

of the time and place of meetings, the preparation and

communication of an agenda of each meeting, the organization and

conduct of each meeting, and the preparation and presentation to

the Operating Committee of reports and recommendations requested.

The responsibilities of the Secretary of the Technical Advisory

Committee shall be to prepare and communicate to each committee

member minutes of each meeting.

5.18 The Technical Advisory Committee shall:

A.

Meet regularly, not less than fourteen (14) Days

prior to scheduled meetings of the Operating Committee,

to prepare and submit to the Operating Committee

reports and recommendations regarding the:

a.

Petroleum Operations to be conducted

under proposed Work Programs and Development Plans

which Operator has submitted to the Operating

Committee for review and approval;

b.

Amendments proposed to a Work Program

previously approved or to a proposed Work Program

or Development Plan;

B.

Meet at such other times and for such purpose(s)

as specifically directed by the Operating Committee;

C.



Report directly to the Operating Committee.

ARTICLE 6

CONDUCT OF OPERATIONS



6.1 Operator shall be principally responsible for initiating

recommendations to the Operating Committee and for preparing and



submitting to it proposed Work Programs, Budgets, reports, data

and other analyses.

6.2 During the Exploration Phase and for Petroleum Operations,

ANADARKO will be Operator, except for Exploitation operations to

be conducted as stated in Paragraph 6.3 hereafter.

6.3 Except if SONATRACH decides to allow ANADARKO to carry out

solely the role of Operator of one or more Pool(s) discovered,

the conduct of Exploitation operations on each Pool discovered

shall be operated jointly, beginning at the award of the

Exploitation Licence, by SONATRACH and ANADARKO who shall, for

that purpose, establish an Exploitation Operations Committee

according to the following provisions.

6.4 Between the dates Operator submits to the Operating

Committee a Discovery Report pursuant to Paragraph 12.1 and a

Development Work Program and Budget pursuant to Paragraph 12.9,

the Operating Committee shall commence discussions relative to a

plan of dual operatorship. The Operating Committee shall

endeavor to reach agreement for a plan of dual operatorship not

later than the date of the award of the Exploitation Licence

applicable to the first Pool to be developed. The agreement so

reached is herein called the "Dual Operatorship Plan". Unless

the Parties agree otherwise, no Exploitation operations shall be

undertaken until the Dual Operatorship Plan has been approved by

the Parties.

6.5



The Dual Operatorship Plan shall:

A.

Be stated in a written agreement between the

Parties, being subject to all the terms and provisions

of this Agreement concerning the rights and obligations

of the Parties and the Operator;

B.

Be limited in scope to Exploitation operations,

unless the Parties agree otherwise;

C.

Contain a procedure for a phase-in of personnel

provided by SONATRACH, such that the dual operating

organization is staffed one-half (1/2) by ANADARKO and

one-half (1/2) by SONATRACH;

D.

Remain in effect so long as this Agreement remains

in effect;

E.

Conform to the provisions stated in Paragraph 6.6

below;

F.

Be applicable to all Pools discovered, unless

SONATRACH requests ANADARKO to carry out solely the

role of Operator of a particular Pool;

G.

Provide an equitable manner in which Overhead

stated in Annex "B" will be allocated between

Exploration and Exploitation operations so as to

minimize duplication of services and costs.



6.6 The following provisions shall regulate the Exploitation

Operations Committee:

A.

To insure joint execution of Exploitation

operations, and within the framework of the Dual

Operatorship Plan, the Operating Committee shall reach

agreement as to the organization and structure of the



Exploitation Operations Committee;

B.

During the time ANADARKO serves as the Operator,

the Technical Advisory Committee shall remain in

effect. Thereafter, the Operating Committee shall

determine whether to continue or discontinue that

committee, or to absorb its functions into the

functions of the Exploitation Operations Committee;

C.

The Exploitation Operations Committee shall be

managed by two (2) Operations Managers, one (1) of whom

shall be designated by SONATRACH and the other by

ANADARKO. The two Operations Managers shall be jointly

responsible for managing the current affairs of the

Exploitation Operations Committee. However, their

respective responsibilities shall be as determined by

the Operating Committee;

D.

The Exploitation Operations Committee shall not be

a juristic entity:

E.

The Exploitation Operations Committee will act

solely for the account of both Parties on the

directives and under the control of the Operating

Committee;

F.

The Exploitation Operations Committee shall be

subject to the same provisions stated in this Agreement

which are applicable to the Operator.

6.7 ANADARKO may resign from its duties as Operator during the

Exploration Phase and as a member of the Exploitation operations

Committee during the Exploitation Phase if six (6) months' Notice

is delivered to SONATRACH before the date of resignation.

ANADARKO may only resign from its duties as the Operator during

the Exploration Phase on the condition that it has fulfilled its

obligations relative to the Minimum Exploration Program.

6.8 Notwithstanding that resignation, ANADARKO'S responsibility

as Operator shall remain until the effective date of its

resignation.

6.9 SONATRACH, or the legal entity appointed to serve as

Operator or as a member of the Exploitation Operations Committee

upon ANADARKO'S resignation from its duties as Operator, shall

not be bound by the studies, technical and/or financial

conclusions of ANADARKO prior to its resignation.

6.10 SONATRACH will have the right to temporarily withdraw

ANADARKO'S status as Operator during the Exploration Phase and

during the Exploitation Phase in the case of a default in its

obligations as stipulated in Paragraphs 7.1 and 7.2 herein. To

this end SONATRACH will address to ANADARKO an advance Notice

asking it to remedy its default within the time which will be set

in the said advance Notice subject to the circumstances.

However, except for default which may cause loss of the

Exploration Licence, the stipulations of the foregoing paragraph

do not apply during the Exploration Phase in the case of the

conduct of Petroleum Operations financed at the sole risk of

ANADARKO.

ARTICLE 7

EXECUTION OF PETROLEUM OPERATIONS

7.1



During the execution of Petroleum Operations, it shall be



the responsibility of Operator to:

A.

Prepare and submit all proposed Work Programs and

Budgets, Well Authorization Reports, Discovery Reports,

Evaluation Reports, Commerciality Reports (as defined

in Article 12) and Development Plans for examination

and approval by the Operating Committee;

B.

Conduct all Petroleum Operations in accordance

with Work Programs and Budgets, Development Plans, and

amendments to any of the foregoing, approved by the

Operating Committee;

C.

Make advance cash calls to the Parties according

to the Annex "B" and, to the extent provided in an

approved Budget, pay all costs and expenses necessary

for the conduct of Petroleum Operations;

D.



To communicate to the Non-Operator:

1.

Daily Well progress reports which shall

consist of a brief description of the work

performed, the number of meters drilled, the type

and depth of the formation or formations

penetrated, the size and landed depth of any

casing landed, the type and results of any tests

made, and such other Well information or data as

the Operating Committee from time to time may

reasonably specify;

2.

Monthly reports which shall consist of a

summary of all Petroleum Operations conducted

during the prior month;

3.

Immediate Notice of special events of

importance to Petroleum Operations, such as a

discovery of Hydrocarbons, Well blowout or Force

Majeure events;

4.

Cuttings and samples of Liquid

Hydrocarbons;

5.

Copies of scientific data or information

obtained;

6.

A reproducible composite electrical log

upon the completion of each Well, and copies of

any log runs made during Drilling and, if same are

made, any radioactivity log, acoustic log,

temperature survey, deviation or directional

survey, caliper log and any like information or

data;

7.

Complete reports and/or analyses of all

cores, when and if analyses are made;

8.

A copy of the plugging record in the

event a Well is abandoned as a dry hole or for

other reasons;

9.

A copy of any final geological report

and the depth-time curve on all Wells;

10. Copies of geological and geophysical

records relating to work performed, except



magnetic tapes which shall be stored by Operator

and made available for use upon request;

11.



Reservoir and Well performance data;



12. Detailed reports on a monthly basis of

all Liquid Hydrocarbons produced from each Pool

the prior month, the quantity thereof used or

consumed in conducting Petroleum Operations, the

quantity delivered into and out of the Parties'

joint tankage during that month, the quantity,

quality and grade of Liquid Hydrocarbons delivered

into SONATRACH'S (or its Affiliate's) pipeline at

the Point of Delivery, the quantity, quality and

grade of Liquid Hydrocarbons delivered by

SONATRACH (or its Affiliate) to, and received by,

ANADARKO at the Port of Loading;

E.

Maintain full and accurate technical and

accounting records of all Petroleum Operations;

F.

Notify Non-Operator immediately upon the

determination of each location for a Well and of the

date of commencement of Drilling;

G.

Permit Non-Operator (upon prior notice) to have

access to all equipment and facilities in and related

to the Contract Area, and to observe all Petroleum

Operations;

H.

Promptly give Notice to Non-Operator of any and

all losses and damages which are not covered by an

insurance policy;

I.

Maintain all meters and measuring equipment in

good order;

J.

Deliver to SONATRACH all cores, cuttings and

fluids collected by Operator in the execution of

Petroleum Operations. However, at all times, Operator

will be entitled to examine or analyze the said cores,

cuttings and fluids, and to take samples in reasonable

quantities and volume. Furthermore, with SONATRACH'S

approval, Operator will be entitled to export samples

of cores, cuttings and fluids that were collected.

Should it become necessary to conduct special whole

core analyses in a laboratory outside of Algeria and,

if SONATRACH agrees, Operator may export the core(s)

under its sole responsibility and control to the

designated laboratory;

K.

Keep in Algeria the originals of magnetic tapes

and, at the end of their processing or analysis,

transfer the said tapes to SONATRACH. Copies of

magnetic tapes or any other technical data which

Operator desires to have processed or analyzed outside

Algeria may be exported;

L.

Perform such other tasks relating to Petroleum

Operations as directed by the Operating Committee.

7.2 Operator endeavors to conduct Petroleum Operations in a

good, prudent and workman-like manner in accordance with sound

technical principles and good petroleum industry practice. In

the conduct of Petroleum Operations, SONATRACH acknowledges that



Operator does not guarantee that its efforts will result in a

Commercial Discovery, and that Operator will be responsible only

for providing the means to conduct and of conducting Petroleum

Operations.

7.3 In conducting Petroleum Operations, Operator will not be

liable to Non-Operator for anything done or omitted to be done by

it unless the act or omission causes a loss which is directly due

to Operator's gross negligence or willful misconduct.

7.4



SONATRACH'S ASSISTANCE



Within the scope of the conduct of Petroleum Operations,

SONATRACH shall, within legal and regulatory limits, give aid to

the Operator to:

Facilitate its personnel's rights of ingress to and egress

from the Contract Area and eventually, the surrounding

areas.

Accomplish the necessary formalities in obtaining, on the

one hand, entry and exit visas for its resident expatriate

personnel or personnel on business trips to Algeria and, on

the other hand, required authorizations to import into or

export from Algeria documents and/or materials used in the

execution of the said operations.

SONATRACH shall make available to the Operator, without

incurring any liability for exactness, documents, magnetic tapes,

and geological and geophysical information relating to the

Contract Area and that necessary for use in conducting Basin

Evaluation efforts. If ANADARKO asks SONATRACH to reproduce and

furnish to ANADARKO copies of any such data or information,

ANADARKO agrees to reimburse SONATRACH for its actual cost

incurred. ANADARKO agrees to use the documents, magnetic tapes,

and geological and geophysical information mentioned above only

for Petroleum Operations under this Agreement.

TITLE III

EXPLORATION PHASE

ARTICLE 8

CONTRACT AREA

8.1 The exclusive coordinates of the Contract Area which

comprise the four (4) Exploration Blocks are defined in Annex

"A".

8.2 SONATRACH undertakes that it will not waive, within the

framework of this Agreement, its rights to the Exploration

Licence, to any Provisional Exploitation Authorization or to any

Exploitation Licence awarded without ANADARKO's prior written

consent. The Parties agree that neither will fail to comply with

any obligation which will cause SONATRACH'S mining title to be

cancelled by the Competent Authority.

8.3 If during the Exploration Phase ANADARKO reasonably believes

that a portion of the Contract Area is not of sufficient economic

potential to justify that ANADARKO start an additional

Exploration Work Program on that portion, ANADARKO shall submit

to SONATRACH a detailed report containing technical and economic

data which supports its position. The report shall also

indicate, based upon Basin Evaluation efforts conducted by

ANADARKO, that parcel of land outside the Contract Area which,

provided this parcel is a free area under Article 12 of Law



86-14, may be appropriately substituted for the portion of the

Contract Area stated in ANADARKO'S report to enable ANADARKO to

complete its Minimum Exploration Program obligations. That

report shall include a substitute Exploration Work Program

(herein referred to as the "Substitute Exploration Work Program)

which ANADARKO proposes to undertake on the new parcel of land

(herein referred to as the "Substitute Area"). Within forty-five

(45) days following receipt by SONATRACH of that report, the

Operating Committee shall meet to consider, discuss and approve

such report and the Substitute Exploration Work Program proposed

by ANADARKO.

If SONATRACH agrees with ANADARKO'S report and the proposed

Substitute Exploration Work Program, then it will submit to the

Competent Authority a request for a new Exploration Licence

covering the Substitute Area and a request for a partial

relinquishment for the areas substituted conforming to the

regulatory provisions applicable for this matter. If the

Competent Authority accepts the request submitted by SONATRACH,

then the new Contract Area shall be made up of the portion of the

initial Contract Area remaining and the Substitute Area. If the

Competent Authority refuses the request submitted by SONATRACH

regarding the substitution of areas, ANADARKO shall be held to

pursue the Minimum Exploration Program as it committed to

pursuant to Article 10 herein. No Work Program approved by the

Operating Committee shall be suspended from execution based on

the submittal of a request as mentioned above, as long as the

Competent Authority has not ruled on the request.

If the request for substitution of an area mentioned above

is accepted by the Competent Authority, then ANADARKO shall have

no right to make other requests during the Exploration Phase. If

the request for substitution is refused by the Competent

Authority, then ANADARKO may make another request during the

Exploration Phase.

If SONATRACH does not agree with ANADARKO'S report or the

Substitute Exploration Work Program proposed, then ANADARKO'S

remaining obligations under the Minimum Exploration Program shall

be reduced by the amount of Exploration work which would have

been conducted for the Minimum Exploration Program on the portion

of the Contract Area which is the subject of the proposed

substitution. In that event, and without prejudice to the

provisions of Paragraphs 8.7 and 8.8, the portion of the Contract

Area stated above will be deleted from the Contract Area at the

time of disagreement.

8.4 Exploration Costs incurred with respect to areas

relinquished in compliance with this Article 8 shall be carried

forward and consolidated with Exploration Costs incurred on the

totality of the Contract Area. All costs incurred by ANADARKO

with respect to Basin Evaluation work which is exclusively

related to an area or areas added pursuant to Paragraphs 8.3 and

8.6 shall be included as Exploration Costs reimbursable to

ANADARKO according to the applicable provisions of this

Agreement.

8.5 Should Exploration works show a geological structure

overlapping an area adjacent to the Contract Area, SONATRACH will

request the Competent Authority to add this area to the Contract

Area if it is a Free Adjacent Area. If that parcel of land is

not a free area, the Parties shall endeavor to reach agreement

with the Third Party(ies) involved for the joint Exploitation of

the discovered Pool overlapping the Contract Area and the said

area, and for an equitable distribution of the Liquid

Hydrocarbons produced from that Pool.

8.6



If the Parties agree that the expansion of the Contract Area



would be advantageous for the conducting together of their

Exploration activities, SONATRACH agrees to request the competent

Authority to include those free areas in the Contract Area as

provided in Article 12 of Law 86-14.

8.7 Upon expiration of the First Exploration Period stated in

Paragraph 9.1 A the surface area of the Contract Area shall be

reduced by an amount equal to the greater of, whichever is

applicable:

A.



Twenty five percent (25%) of the Contract Area; or



B.

Twenty five percent (25%) of the Contract Area,

plus (if applicable) an additional five percent (5%)

for each of the six (6) Exploration Wells specified in

Paragraph 10.1 D in which Drilling has not commenced as

of that expiration date.

8.8 Upon expiration of the Second Exploration Period stated in

Paragraph 9.1 B:

A.

If ANADARKO exercises the option stated in

Paragraph 8.9, the surface area of the Contract Area

shall be reduced by an amount which results in the

Contract Area containing a remaining surface area equal

to fifty percent (50%) of the size of the Contract Area

prior to reduction under Paragraph 8.7 above; or

B.

If ANADARKO does not exercise the option stated in

Paragraph 8.9, the surface area of the Contract Area

shall be reduced:

1.

To a size which contains only the full

extent of the area of the Pools in which Liquid

Hydrocarbons have been discovered, as provided in

Paragraph 8.10; or

2.

Subject to Article 9, by one hundred

percent (100%) if ANADARKO elects to withdraw from

this Agreement.

8.9 Subject to the provisions of Paragraph 9.4 relative to the

extension of time, ANADARKO shall have the option to continue

Exploration works on the Contract Area after expiration of the

Second Exploration Period stated in Paragraph 9.1 by submitting

to SONATRACH, at least seven (7) months prior to expiration of

that period, a supplementary Exploration Work Program which is in

addition to the Minimum Exploration Program therein referred to

as the "Supplemental Exploration Work Program"). If SONATRACH

agrees to the Supplemental Exploration Work Program, the

reduction in the Contract Area shall be as specified in Paragraph

8.8 A above.

8.10 No reduction in the surface area of the Contract Area shall

be required in respect of the full extent of each Pool covered by

an Exploitation Licence. Reductions in the surface area of the

Contract Area scheduled to be made under either Paragraph 8.7 or

8.8 shall be deferred if either of the following events has

occurred and for a period of sixty (60) Days following expiration

of the applicable event:

A.

Petroleum Operations are suspended by reason of

Force Majeure; or

B.



An application for a Provisional Exploitation



Authorization or an Exploitation License has been

submitted to the Competent Authority, but the award is

pending; or

C.

SONATRACH has been notified of the discovery of

Hydrocarbons, but the Operating Committee has not taken

a decision as to whether the discovery is commercially

exploitable.

8.11 ANADARKO shall notify SONATRACH seven (7) months in advance

of the date of its proposed reduction under Paragraphs 8.7 and

8.8 A of the portion of the Contract Area proposed to be reduced.

The advance Notice required for the reduction under Paragraph 8.8

B shall be thirty (30) days. So far as possible, the portions

reduced shall be of sufficient size and shape to enable Petroleum

Operations to be conducted thereon.

8.12 If with respect to any part of the Contract Area which has

been reduced under this Article 8, or if upon expiration of the

term of this Agreement, ANADARKO desires to make a request for

continued Petroleum Operations regarding one or more parts of the

original Contract Area, then, provided such parts of the Contract

Area are free areas under Article 12 of Law 86-14, SONATRACH

agrees to give sympathetic consideration to such request, in

priority to ANADARKO over Third Parties.

ARTICLE 9

TERM OF THE EXPLORATION PHASE

9.1 The term of the Exploration Phase shall include a First

Exploration Period and a Second Exploration Period and respective

extensions thereof:

A.

The first period of the Exploration Phase shall

last for five (5) Contract Years (herein referred to as

the "First Exploration Period") beginning on the

Commencement Date.

The First Exploration Period shall be extended for

a period of one (1) Contract Year if necessary to

complete the Drilling of one or more of the six (6)

Exploration Wells stated in Paragraph 10.1.D.1.

ANADARKO shall notify its request for extension to

SONATRACH at least seven (7) months prior to the

expiration of the First Exploration Period and shall

attach thereto all necessary documents.

B.

The second period of the Exploration Phase shall

last for three (3) Contract Years (herein referred to

as the "Second Exploration Period").

The Second Exploration Period will be extended

for:

1.

One (1) Contract Year, if needed, to

enable ANADARKO to complete the Drilling of one or

more Delineation Wells; or

2.

Two (2) additional Contract Years, if

ANADARKO exercises the option stated in Paragraph

8.9, and SONATRACH agrees to the Supplemental

Exploration Work Program submitted by ANADARKO.

With at least seven (7) months' Notice prior to expiration

of the then current Exploration Period and in the manner required



by Law, ANADARKO shall furnish to SONATRACH who will submit the

same to the Competent Authority all documents necessary for each

request of renewal of an Exploration Licence.

9.2 If at the expiration of the Exploration Phase (as extended

in accordance with Paragraph 9.1.B.2) no Commercial Discovery has

been established, then this Agreement shall terminate unless:

A.

Petroleum Operations are then suspended by reason

of Force Majeure. In that event, this Agreement shall

continue for a period of time during which Petroleum

Operations were so suspended in accordance with Article

25; or

B.

ANADARKO is engaged in Drilling operations. In

that event, this Agreement shall continue for a period

of six (6) months following completion of those

Drilling operations.

If, however, the Drilling operations (or Drilling operations

conducted during the period extended by reason of Force Majeure)

result in a discovery, this Agreement shall continue until a

determination is made whether or not that discovery is a

Commercial Discovery and whether an application should be

submitted for an Exploitation Licence. If a determination is

made that a Commercial Discovery has been made, then this

Agreement shall continue for the term of the Exploitation Phase.

9.3 With respect to those portions of the Contract Area released

under Article 8, ANADARKO shall not be entitled to any right or

interest arising from its prior Petroleum Operations on those

portions except as provided in Paragraphs 8.4 and 8.12 of this

Agreement.

9.4 The postponement of deadlines or extensions of the duration

of the Exploration Periods mentioned in Paragraphs 9.1 and 9.2

herein shall be effective only if approved by the Competent

Authority according to the provisions of Decree No. 88-34 of

February 16, 1988, relating to the granting and renewal of

Exploration Licences. SONATRACH will give Notice to ANADARKO of

all refusals or injunctions by the Competent Authority resulting

from a request to postpone the deadlines or to extend the

duration of an Exploration Period as mentioned above. If the

Competent Authority issues an injunction relating to the

execution of the Minimum Exploration Program, then ANADARKO may

either commit to take the necessary measures to comply with the

said injunctions within the time eventually prescribed by the

Competent Authority, or in the case where ANADARKO considers that

these injunctions are not justified or if it decides not to

comply with the injunctions it may withdraw from the Exploration

Licence under the condition, however, to pay SONATRACH, within

thirty (30) Days following, an amount equal to the difference

between the value of the Exploration works which had to be

performed during the period at the end of which it withdraws and

the Exploration Costs incurred at the date of its withdrawal. In

any case, the value of the Exploration works mentioned above for

the First Exploration Period cannot be less than U.S. $63.5

Million where U.S. $48 Million will be for Drilling.

ANADARKO will not have rights to any indemnification or

reimbursement of the sums stipulated above as penalty based on

the refusal of postponement of deadlines or extensions mentioned

above formulated by the Competent Authority taken at the end of

each period of the Exploration Phase. However, for Exploration

Costs incurred before the date where ANADARKO refused to conform

to the injunctions of the Competent Authority, the provisions of



Article 18 will be applied in the case of the Exploitation of a

Commercial Discovery.

Any withdrawal by ANADARKO pursuant to this Paragraph shall

be without prejudice to its rights of Exploitation derived from

any previous Commercial Discovery pursuant to Article 12.

ARTICLE 10

MINIMUM EXPLORATION PROGRAM

10.1 During the Exploration Phase, ANADARKO shall conduct, and

furnish all sums necessary to finance, a Minimum Exploration

Program consisting of:

A.



Exploration which will include:

1.

The study, processing or reprocessing,

interpretation and analysis of the information and

data furnished by SONATRACH under Paragraph 7.4 of

this Agreement which ANADARKO determines is

necessary for the evaluation of the prospective

potential of the Contract Area;

2.

The conduct of geophysical exploration

through the acquisition of at least one thousand

(1,000) kilometers of new seismic data over the

Contract Area, together with the processing and

interpretation of that data;



B.



Basin Evaluation efforts stated in Annex "C";



C.

The installation, operation and maintenance of the

Seismic Processing Center pursuant to Annex "D";

D.

The Drilling of ten (10) Exploration Wells on the

Contract Area:

1.

Six (6) Exploration Wells will be

drilled during the First Exploration Period; and

2.

Four (4) Exploration Wells will be

drilled during the Second Exploration Period.

If, during the First Exploration Period, ANADARKO

drills more than six (6) Exploration Wells, the excess

Exploration Wells drilled shall be credited against

Exploration Wells required to be drilled during the

Second Exploration Period.

E.

If a discovery of Liquid Hydrocarbons is made, the

Drilling of up to two (2) Delineation Wells to confirm

whether that discovery is a Commercial Discovery,

unless the Operating Committee determines either that:

1.

The discovery is a Commercial Discovery

and it is not necessary to drill one or more

Delineation Wells; or

2.

The discovery can be adequately drained

by less than three (3) Wells; or

3.

The provisions of Paragraph 12.4 are

applicable.

10.2 ANADARKO'S obligation to conduct the Minimum Exploration

Program shall be considered completely performed and satisfied

upon the first to occur of the following dates:



A.

The date ANADARKO completes the Minimum

Exploration Program; or

B.

If ANADARKO does not complete the Minimum

Exploration Program, the date ANADARKO has incurred

Exploration Costs equal in value to U.S. One Hundred

Million Dollars ($100,000,000.00), of which at least

the equivalent of U.S. Eighty Million Dollars

($80,000,000.00) in Exploration Costs has been incurred

for the Drilling of all or less than all the

Exploration Wells specified in Paragraph 10.1 D above;

or

C.

To the dates and in the conditions mentioned in

Paragraph 9.4 above.

10.3 Upon the first to occur of the dates stated in Paragraph

10.2 above:

A.

ANADARKO will be conclusively deemed to have

performed and satisfied all financial and work

commitments required of it in respect of the Minimum

Exploration Program;

B.

Without prejudice to the foregoing subparagraph

and the provisions of Article 9, ANADARKO shall have

the right to continue Exploration efforts in an effort

to make a Commercial Discovery during the remainder of

the term of the Exploration Phase;

C.

If no Commercial Discovery has been made, ANADARKO

shall have the option to withdraw from this Agreement.

10.4 If, upon expiration of the Second Exploration Period (as

possibly extended by Paragraph 9.1 B.1) ANADARKO has neither

completed the Minimum Exploration Program nor incurred

Exploration Costs equal to U.S. One Hundred Million Dollars

($100,000,000.00) for those portions of the Minimum Exploration

Program stated in subparagraphs 10.1 A, B, C, and D above, then

ANADARKO shall pay to SONATRACH a sum equal to the difference

between U.S. One Hundred Million Dollars ($100,000,000.00) and

the total sum of Exploration Costs incurred for those portions of

the Minimum Exploration Program specified above. Payment to

SONATRACH under this Paragraph shall be made not later than

thirty (30) days from the date of determination of the sum owed

by ANADARKO and in the manner directed by SONATRACH.

ARTICLE 11

EXPLORATION WORK PROGRAMS AND BUDGETS

11.1 Not later than thirty (30) Days following the Effective Date

of this Agreement, Operator shall prepare and submit to the

Operating Committee for its review the proposed initial

Exploration Work Program which it proposes to conduct during the

first Contract Year. The Operating Committee shall meet within

thirty (30) Days thereafter to review and decide on this program.

11.2 On or before October 1 of each Calendar Year other than the

initial Contract Year, Operator shall submit to the Operating

Committee its proposed Exploration Work Program for the next

succeeding Calendar Year.

11.3 Each proposed Exploration Work Program shall be submitted to

and approved by the Operating Committee and:



A.

Contain all information as is necessary to

describe fully Petroleum Operations to be conducted

during the period covered thereby;

B.

Be satisfactory as to enable ANADARKO to conduct

Exploration in an orderly progression so that its

Minimum Exploration Program obligations can be timely

performed during the Exploration Phase.

All Exploration work to be conducted will be as consistent

as possible with the Exploration Work Program approved for the

applicable Contract Year. However, if, for a given period of the

Exploration Phase, Exploration work conducted during a Contract

Year exceeds that to be performed under an approved Exploration

Work Program, the excess shall be carried forward as a credit to

be applied against ANADARKO'S Exploration efforts to be conducted

by ANADARKO in the succeeding Contract Year. Should ANADARKO

fail to conduct Exploration scheduled to be conducted during a

Contract Year, that part of Exploration not conducted shall be

made up in the succeeding Contract Year.

11.4 In accordance with Annex "B", Operator shall keep complete

books and records of all Exploration Costs incurred.

TITLE IV

EXPLOITATION PHASE

ARTICLE 12

EVALUATION, DETERMINATION AND DEVELOPMENT PLAN

OF A COMMERCIAL DISCOVERY

2.1 If a Hydrocarbon Pool is discovered, Operator shall promptly

notify Non Operator and, within ninety (90) Days, submit a report

to the Operating Committee specifying all pertinent information

concerning the discovery (herein called "Discovery Report"),

together with Operator's recommendation as to whether the

discovery warrants evaluation by the Drilling of one or more

Delineation Wells.

12.2 If Operator concludes that one or more Delineation Wells

should be drilled, Operator shall include with its Discovery

Report a proposed Work Program and Budget for such evaluation

efforts (herein called the "Evaluation Work Program and Budget").

12.3 Within fifteen (15) Days after receipt of the Discovery

Report, the Operating Committee shall meet to consider Operator's

recommendations. Upon approval of an Evaluation Work Program and

Budget by the Operating Committee, Operator shall proceed with

the Drilling of those Delineation Wells contained therein, with

the understanding that all Delineation Wells (if any) in excess

of two (2) shall be considered Joint Operations.

12.4 If the Operating Committee concludes that the discovery does

not warrant or require the Drilling of any Delineation Well, or

if the discovery is a Non-Associated Gas discovery, then:

A.

Operator shall not be obligated to drill any

Delineation Well concerning that discovery;

B.

If SONATRACH disagrees with Operator's conclusion,

SONATRACH may drill such number of Delineation Wells as

it believes are necessary to evaluate that discovery

pursuant to the provisions of Article 13 hereof;



C.

If the discovery is a Non-Associated Gas

discovery, all further Petroleum Operations associated

with that discovery shall be in accordance with Article

19 of this Agreement.

12.5 If the Operating Committee fails to approve the Evaluation

Work Program and Budget proposed by Operator (or any amendment

thereto proposed by Non Operator), that part of the Evaluation

Work Program and Budget for which approval was not received shall

be deferred for reconsideration at a second meeting of the

Operating Committee to be held within fifteen (15) Days following

the date of the first meeting. If, at the second meeting, the

Operating Committee fails to reach a decision, the Evaluation

Work Program and Budget proposed by Operator shall be deemed

approved by the Operating Committee if the works are to be

financed at ANADARKO'S sole risk.

12.6 If the approved Evaluation Work Program and Budget requires

a Provisional Exploitation Authorization to be obtained,

SONATRACH shall, within thirty (30) Days following the date of

approval of the Evaluation Work Program and Budget, submit an

application for a Provisional Exploitation Authorization for the

period determined by the Operating Committee and not exceeding

the maximum term authorized by Law.

12.7 Within thirty (30) Days following completion of the

Evaluation Work Program and Budget, Operator shall submit to the

Operating Committee a preliminary report (herein called the

"Evaluation Report") which sets forth all relevant available

technical and economic data, which shall include the geological

and geophysical information, thicknesses and depth of producing

zones, pressures, petro-physical properties of the Reservoir

rocks, results of analyses of fluids under pressure (PVT),

Hydrocarbon reserve estimates, anticipated drive mechanisms,

anticipated production performance for each Reservoir, relevant

characteristics and analyses of the Hydrocarbons discovered, and

other characteristics of the Reservoir and fluids contained

therein.

12.8 Within one hundred twenty (120) Days following the date

Operator submits the Evaluation Report, Operator shall submit to

the Operating Committee a second report (herein called the

"Commerciality Report") which states whether or not the discovery

is commercially exploitable.

12.9 If Operator concludes that the discovery is commercially

exploitable, Operator shall submit with the Commerciality Report

a proposed Development Plan and a proposed Work Program and

Budget (herein called the "Development Work Program and Budget")

which covers Exploitation operations to be conducted during the

balance of the year in which the Exploitation Licence is awarded

and the entire succeeding Calendar Year.

12.10

The proposed Development Plan shall be designed

following sound engineering and economic principles of the

petroleum industry, and:

A.

It shall be designed to ensure that the Reservoir

does not suffer an excessive rate of decline of

production or an excessive loss of Reservoir energy;

and

B.

It shall adopt the optimum economic Well spacing

for the project considered as a whole.



12.11



The Commerciality Report shall contain:

A.

A copy of the Evaluation Report and a statement of

Petroleum Operations conducted pursuant to the

Evaluation Work Program;

B.

An economic evaluation demonstrating whether the

discovery may or may not be exploited profitably;

C.



Provisions relating to:

1.



The Drilling of Development Wells;



2.

The design, engineering, construction

and installation of equipment, lines, systems,

facilities, materials and related equipment

necessary to permit the production, collection,

storage, processing for removal of Natural Gas

Liquids, Transportation, delivery of Liquid

Hydrocarbons, and the reinjection of Natural Gas;

D.

A forecast of Liquid Hydrocarbons that may be sold

during the Exploitation Phase from that discovery;

E.

A forecast of the price that may be received from

the sale of Liquid Hydrocarbons on the international

market;

F.

A statement of Exploration Costs incurred by

ANADARKO in respect of that discovery, together with:

1.

A statement of all other unreimbursed

Exploration Costs; and

2.

A forecast of Exploration Costs (if any)

to be incurred in respect of all further

Exploration efforts on the Contract Area.

G.

A statement of Cost Recovery Liquid Hydrocarbons

to be delivered to ANADARKO from that Pool, based upon

the criteria stated in Article 18 hereof;

H.

A forecast of Exploitation Costs, Taxes, Royalty

and Transportation charges;

I.

A schedule of the time ANADARKO estimates will be

required to complete the Development Plan;

J.

A plat showing the boundary of the parcel of land

to be demarcated as the area to be subject to an

Exploitation Licence; and

K.

Recommendations concerning the obtaining of an

Exploitation Licence.

12.12

Within thirty (30) Days following receipt of the

Commerciality Report, the Operating Committee shall meet to

consider it. If a proposed Development Plan and a proposed

Development Work Program and Budget were prepared and submitted

with the Commerciality Report, the Operating Committee shall also

review, discuss and attempt to reach unanimous agreement as to

those matters.

12.13

It is the responsibility of the Operating Committee at

the meeting held pursuant to Paragraph 12.12 above to determine



whether or not a discovery of Liquid Hydrocarbons is commercially

exploitable and, if prepared and submitted by the Operator, to

approve a Development Plan and a Development Work Program and

Budget for that Pool. In that regard, the following provisions

shall be applicable:

A.

If the Operating Committee unanimously agrees that

the discovery is a Commercial Discovery, and if the

proposed Development Plan and the proposed Development

Work Program and Budget are approved unanimously, they

shall be carried out after the granting of the

Exploitation Licence as stipulated in Paragraph 12.14

herein. If the Operating Committee fails to

unanimously approve the proposed Development Plan

and/or the proposed Development Work Program and

Budget, then those parts thereof which were not

approved shall be deferred for reconsideration at a

second meeting of the Operating Committee. This

meeting shall be held within thirty (30) Days following

the date of the meeting held pursuant to Paragraph

12.12 above. If, at the second meeting, the Operating

Committee fails to reach unanimous agreement as to

those parts of the proposed Development Plan and/or the

proposed Development Work Program and Budget, the

disagreement shall be resolved in accordance with the

procedure specified in Article 26 herein;

B.

If the Operating Committee unanimously agrees that

the discovery is not a Commercial Discovery, then all

further operations in respect of that discovery shall

be suspended;

C.

If SONATRACH notifies ANADARKO that it believes

the discovery is a Commercial Discovery, but ANADARKO

is not in agreement, SONATRACH, pursuant to the

provisions of subparagraph 13.1 B, shall conduct all

further Petroleum Operations which it believes are

necessary; and

D.

If ANADARKO believes the discovery is a Commercial

Discovery, but SONATRACH is not in agreement, the

disagreement shall be resolved in accordance with the

procedure specified in Article 26 herein.

12.14

Within thirty (30) Days following the date of approval

of the Development Plan and the Development Work Program and

Budget applicable to each Commercial Discovery, SONATRACH shall

submit to the Competent Authority an application for an

Exploitation Licence. In other portions of the Contract Area,

Exploration may (or will, if ANADARKO has not satisfied its

obligations in respect of the Minimum Exploration Program)

continue concurrently with Development and Exploitation

operations.

ARTICLE 13

SOLE RISK OPERATIONS OF SONATRACH

13.1 The provisions of this Article are applicable if:

A.

SONATRACH elects to drill one or more Delineation

Wells pursuant to subparagraph 12.4 B; or

B.

SONATRACH elects to conduct further Petroleum

Operations pursuant to subparagraph 12.13 C; or



C.

During the Drilling of an Exploration Well,

ANADARKO experiences mechanical difficulties or other

geological circumstances and notifies SONATRACH that

ANADARKO does not wish either to continue the Drilling

of that Well at that location or to drill another

Exploration Well in substitution of that Well, and

SONATRACH elects to take over those Drilling

operations; or

D.

During the Drilling of an Exploration Well, and if

ANADARKO refuses to perform supplementary works

requested by SONATRACH, SONATRACH shall be able to

conduct at its sole risk and expense all Drilling and

coring operations or any other investigation for the

purpose of recognizing or evaluating a formation during

the Drilling of a Well. SONATRACH may have these

additional works conducted by the Operator, if it

agrees, at the time and in the manner deemed best by

the Operator taking into account the primary objectives

of the Drilling in question.

13.2 Should SONATRACH desire to conduct Drilling operations

pursuant to subparagraph 13.1 A above, it shall have the right to

do so at its sole risk and expense, provided that it commences

those Drilling operations within six (6) months from the date it

notifies ANADARKO of its election under subparagraph 12.4 B.

13.3 Before SONATRACH commences Drilling or other operations

under this Article, the Parties shall reach agreement as to the

boundary of the area in which Drilling or other operations at the

sole risk and expense of SONATRACH shall be conducted. If the

Drilling or other operations stated in subparagraphs 13.1 B and C

are conducted by SONATRACH, the area so determined shall be

reserved for SONATRACH'S exclusive use.

13.4 Upon completion of Drilling pursuant to subparagraph 13.1 A,

SONATRACH shall submit to the Operating Committee an Evaluation

Report and a Commerciality Report containing the information and

data stated in Article 12.

13.5 If the Commerciality Report with respect to Wells drilled

pursuant to subparagraph 13.1 A above confirms that the Liquid

Hydrocarbons are commercially exploitable, the Drilling of all

Development Wells and all further Petroleum Operations shall be

Joint Operations conducted at the expense of the Joint Account.

13.6 Liquid Hydrocarbons from each Pool developed pursuant to

Paragraph 13.5 above shall be divided as follows:

A.

Liquid Hydrocarbons from Wells drilled at the sole

cost, risk and expense of SONATRACH shall be produced

solely for the account of SONATRACH until it has

received an amount equal in value to five hundred

percent (500%) of all costs and operating expenses

borne solely by SONATRACH for the Drilling and

equipping for production of the applicable Well(s);

B.

Liquid Hydrocarbons from all Wells other than

those stated in subparagraph A above (and Liquid

Hydrocarbons from those Wells after recoupment by

SONATRACH of the penalty mentioned above) shall be

divided in accordance with Paragraph 4.3 above.

13.7 If SONATRACH elects to conduct further Petroleum Operations

not included in ANADARKO'S Work Program at its sole risk and



expense pursuant to subparagraph 13.1B, C or D above, and if a

Hydrocarbon Pool is consequently discovered, SONATRACH shall be

solely entitled to that discovery. SONATRACH shall send Notice

to ANADARKO of the discovery. ANADARKO shall have the option to

have its rights under this Agreement reinstated in that discovery

by paying cash, in the currency of SONATRACH'S choice, five (5)

times the total costs and expenses of works incurred by SONATRACH

at its sole cost, risk and expense. The reinstatement option of

ANADARKO shall remain in effect for six (6) months from the date

ANADARKO receives the foregoing Notice from SONATRACH. The sum

mentioned above shall be paid by ANADARKO within one (1) month

from the date it notifies SONATRACH of the exercise of its

reinstatement option. The sum paid by ANADARKO to SONATRACH in

consideration of its reinstatement shall not be subject to any

reimbursement obligation by SONATRACH.

13.8 Except as provided in Paragraph 13.7 above, ANADARKO will

have no rights to Liquid Hydrocarbons coming from Pools

established by SONATRACH under subparagraphs 13.1 B, C or D, nor

will ANADARKO be obligated to share in the Exploitation Costs of

those Pools.

ARTICLE 14

TERM OF THE EXPLOITATION PHASE

14.1 The initial term of the first period of the Exploitation

Phase of each Pool shall be fifteen (15) years from the date the

Exploitation Licence is awarded (herein referred to as the "First

Exploitation Period"). If, due to delays in the installation of

evacuation pipelines by Operator or SONATRACH (or its Affiliate),

ANADARKO does not receive its share of Liquid Hydrocarbons from

that Pool during the term of the Provisional Exploitation

Authorization, the term of the First Exploitation Period of that

Pool shall be extended for that period of time necessary for

ANADARKO to receive a volume of Liquid Hydrocarbons equal to the

volume it would have received if the production from the Pool

could have been delivered by SONATRACH.

14.2 The First Exploitation Period of each Pool shall be extended

in the following manner:

A.

ANADARKO shall have the option to extend the First

Exploitation Period of each Pool for an additional

period of five (5) years (herein referred to as the

"Second Exploitation Period") by notifying SONATRACH of

its option to extend the First Exploitation Period at

least sixty (60) Days prior to expiration of the First

Exploitation Period;

B.

Before expiration of the Second Exploitation

Period, and in order to determine if the term of the

Exploitation Phase of the Pool in question should be

extended for an additional period of five (5) years

(herein referred to as the "Third Exploitation

Period"), the Operating Committee shall determine if

the Economic Limit of that Pool has or has not been

reached. If the Operating Committee unanimously agrees

that the Pool in question has not reached its Economic

Limit, then the Exploitation Phase of that Pool shall

be automatically extended for the Third Exploitation

Period.

14.3 If the Operating Committee fails to reach unanimous

agreement as to the Third Exploitation Period stated in

subparagraph 14.2 B above, the impasse shall be resolved as



follows:

A.

If ANADARKO is of the opinion that Economic Limit

has been reached as to a particular Pool, but SONATRACH

disagrees with ANADARKO's opinion, ANADARKO shall have

the option to withdraw from further participation in

that Pool by notifying SONATRACH to that effect; or

B.

If SONATRACH is of the opinion that Economic Limit

has been reached as to that Pool, but ANADARKO

disagrees with SONATRACH's opinion, the impasse shall

be resolved in accordance with the procedure specified

in Article 26 below.

14.4 If ANADARKO and SONATRACH agree that Economic Limit has been

reached, all Petroleum Operations associated with that Pool shall

be discontinued and equipment from that Pool shall be salvaged as

directed by the Operating Committee.

14.5 Upon the date the Parties agree that Economic Limit has been

reached in respect of the last Pool under Exploitation under this

Agreement, or the date ANADARKO elects to withdraw from further

participation in all Petroleum Operations pursuant to Article 30

hereof, this Agreement shall terminate.

ARTICLE 15

EXPLOITATION WORK PROGRAMS AND BUDGETS

15.1 Operator shall prepare and submit to the Operating Committee

for consideration and approval the following documents relating

to the Joint Operations chargeable to the Joint Account:

A.

Development Work Programs and Budgets, for which

the Operating Committee shall meet initially at the

time(s) stated in Paragraph 12.12 above, and thereafter

meet at the time stated in Paragraph 5.9;

B.

Exploitation Work Programs and Budgets, for which

the Operating Committee shall meet at the times stated

in Paragraph S.9.

15.2 In respect of annual meetings to be held at the times stated

in Paragraph 5.9 A, Operator shall prepare and submit to the

Operating Committee, on or before October 1 of each Calendar

Year, a proposed Work Program and corresponding Budget for the

next succeeding Calendar Year.

15.3 Each Work Program and Budget shall contain such information

as is necessary to describe fully the Petroleum Operations to be

conducted during the period covered thereby and the currency or

currencies in which costs and expenses are anticipated.

15.4 Within the time stated in Annex "B", each Party shall pay to

the Operator, in Dinars or in convertible Foreign Exchange, its

share of Cash Calls required to cover expenses of conducting

Development and Exploitation Work Programs. Operator will not be

required to continue or to conduct such works, or to commit to

costs required therefor, if a Party has not paid its share of the

Cash Call due.

15.5 Except as otherwise provided:

A.

With respect to specific projects within Budgets

approved by the Operating Committee, Operator shall not

be required to obtain any further approval of



over-expenditures which do not exceed fifteen percent

(15%) of the expenditure authorized for that project in

the Budget for a given Calendar Year. However, Notice

of the need for additional expenditures shall be given

to the Operating Committee as soon as the need becomes

apparent.

B.

Operator shall have no authority to use funds

budgeted for a particular item for any other purpose;

and

C.

Operator shall have no authority to use budgeted

funds for a particular item which will cost in excess

of Five Million Dinars (5,000,000.00) or its equivalent

in Foreign Exchange without first having obtained from

the Operating Committee approval of an authorization

for expenditure covering that particular item.

15.6 The authorization given by the Operating Committee for the

Drilling of any Well shall include approval of all necessary

expenditures required therefor and for completing, testing and

equipping that Well.

15.7 In an emergency, Operator shall have the right to incur

liabilities on behalf of the Parties without prior authorization

of the Operating Committee. In that event, Operator shall take

such steps and make such expenditures on behalf of the Parties as

are necessary to protect the interests of the Parties and their

respective employees. As promptly as possible, Operator shall

report such emergency and the action it has taken to the

Operating Committee.

15.8 No Well which is producing Hydrocarbons (or is capable of

but is not then producing Hydrocarbons) may be plugged and

abandoned without approval of the Operating Committee and the

Competent Authority. If approval of the Operating Committee and

the Competent Authority is received to plug and abandon a Well,

that Well shall be plugged and abandoned by Operator at the

expense of the Joint Account. However, if the Well was drilled

by SONATRACH pursuant to Article 13 and recoupment of penalty (if

applicable under Paragraph 13.6.A) has not been achieved, that

Well shall be abandoned at the sole cost and expense of

SONATRACH.

15.9 Except as provided in Article 13, all expenses, risks and

liabilities for Development and Exploitation of each Pool shall

be considered Joint Operations conducted at the joint expense of

the Parties in accordance with their Percentage Share of

Financing.

15.10

All payments which either Party is required to make

(except advances for cash calls of the Operator) shall be made

within thirty (30) Days following receipt of the invoice

requesting such payment.

15.11

In accordance with Annex "B", Operator shall keep

complete books and records of all Exploitation Costs incurred.

15.12

A Party shall be in default if it fails to advance to

Operator its Percentage Share of Financing of cash calls within

the time stated in Annex "B", or fails to pay when due its

Percentage Share of Financing of costs of the Joint Account.

That Party shall remedy its default by paying all amounts due,

plus interest thereon from the date such amount was due and

payable at the rate specified in Annex "B".



ARTICLE 16

VALUATION OF LIQUID HYDROCARBONS

16.1 The quantities of Liquid Hydrocarbons delivered to ANADARKO

as Cost Recovery Liquid Hydrocarbons under Article 18 shall be

valued solely at the sales price of Liquid Hydrocarbons of

identical quality received by SONATRACH on the international

market (hereinafter referred to as the "Sales Price").

16.2 The calculation of the Sales Price applicable for each

Calendar Quarter shall be made on the basis of the average price

received by SONATRACH from sales of Liquid Hydrocarbons during

the three (3) months preceding the month in which the Notice

required by Paragraph 16.3 is made. The sales to be taken into

consideration in the determination of the Sales Price shall be in

Foreign Exchange FOB at the Port of Loading and shall concern

comparable quantities of Liquid Hydrocarbons, after taking into

consideration adjustments for quality. No "spot" sales or

contracts involving barter shall be used in the calculation of

the Sales Price.

16.3 The Sales Price referred to in Paragraph 16.2 above shall be

stated for a Calendar Quarter in a Notice delivered by SONATRACH

to ANADARKO at the latest within the first ten (10) Days of the

month preceding such Calendar Quarter. The Sales Price thus

stated shall apply to Liquid Hydrocarbons taken in the Calendar

Quarter in question. If such Notice is not delivered within that

time limit, the applicable price shall be that previously

calculated. However, the Operating Committee may decide to

retain the Market Price applicable for the same period as

stipulated in Paragraph 16.4 herein. If the new Sales Price

which should have been applied for the said Calendar Quarter is

set after the time limit, an adjustment to the valuation shall be

made by adjusting the quantity of Liquid Hydrocarbons to be taken

during the next Calendar Quarter.

16.4 If one Party believes that the Sales Price referred to in

Paragraph 16.2 differs in a significant manner and for a

significant period of time from the average of a basket of prices

of Liquid Hydrocarbons of the same quality as those Liquid

Hydrocarbons to be taken by ANADARKO (hereinafter referred to as

the "Market Price"), the Operating Committee shall determine the

price to be used for the valuation of Liquid Hydrocarbons. For

the purpose of the composition of the basket of prices stated

above, and before Liquid Hydrocarbons are taken, the Operating

Committee shall select at least five (5) Liquid Hydrocarbons of

the same quality to determine the Market Price.

16.5 The quantities of Liquid Hydrocarbons to be taken by

ANADARKO during a given Calendar Year shall be calculated on a

provisional basis during the first fifteen (15) days of the month

of December preceding the applicable Calendar Year on the basis

of the elements agreed by the Parties under Paragraph 4.3 B.

Before the end of each Calendar Quarter of the Calendar Year in

question, these quantities shall be adjusted on the basis of

actual data supplied and arrived at by the Parties. Before the

end of the first Calendar Quarter of the Calendar Year following

the Calendar Year in question, the quantities due to ANADARKO for

that Calendar Year shall be definitely determined. Any

adjustments made shall apply to quantities of Liquid Hydrocarbons

to be taken during the following Calendar Quarter.

ARTICLE 17

DISPOSITION OF LIQUID HYDROCARBONS



17.1 During the term of this Agreement, each Party shall have the

right to take, receive, export from Algeria, sell, dispose of,

and carry away all its share as stated in Paragraph 4.3 of all

Liquid Hydrocarbons produced and saved from each Pool.

17.2 As part of Joint Operations, Operator shall construct such

Liquid Hydrocarbon storage and handling facilities and evacuation

pipelines which are necessary to connect the respective delivery

facilities of each Pool to the main pipeline(s) of SONATRACH (or

its Affiliate). All these facilities shall be approved

beforehand by the Operating Committee. The outlet flange of each

evacuation pipeline at the main pipeline shall be the Point of

Delivery.

17.3 Costs and expenses necessary pursuant to Paragraph 17.2, and

those necessary for the maintenance and operation of those

pipelines and metering stations located upstream from the Point

of Delivery, shall be Joint Account expenses.

17.4 If quantities of Liquid Hydrocarbons as to which ANADARKO is

entitled from a discovered Pool do not have the same

characteristics as those to be delivered to ANADARKO at the Port

of Loading, then, before deliveries commence, the Parties shall

reach agreement as to the characteristics and quantities of

Liquid Hydrocarbons to be delivered by SONATRACH to ANADARKO in

substitution of those ANADARKO should be delivered. The

quantities of Liquid Hydrocarbons stated above shall be

determined in accordance with an evaluation formula determined by

the Operating Committee. That formula shall take into

consideration the difference in quality between the Liquid

Hydrocarbons from the Pools discovered and the Liquid

Hydrocarbons to be delivered by SONATRACH to ANADARKO.

17.5 If controls relating to production quotas are imposed such

that the Pools are restricted from being able to produce at their

Maximum Efficient Rate of production, SONATRACH agrees that the

reduction in the production of Liquid Hydrocarbons from said

Pools will not be greater than that imposed on the total

production of Liquid Hydrocarbon Pools of the same kind in

Algeria. However, should the imposition of quotas for the

conservation of the production result in the said Pools being

produced at a rate below their Economic Limit, the Parties agree

to make every effort to ensure that such Pools are produced at

their Maximum Efficient Rate of production.

ARTICLE 18

REIMBURSEMENT OF THE FIFTY ONE PERCENT SHARE

OF EXPLORATION COSTS

18.1 As reimbursement for fifty one percent (51%) of Exploration

Costs incurred, ANADARKO shall receive and SONATRACH commits

itself to deliver (or cause to be delivered) to ANADARKO, FOB at

the Port of Loading, a quantity of Liquid Hydrocarbons valued in

accordance with Article 16 and determined by application of the

provisions of subparagraph 4.3 B (herein referred to as "Cost

Recovery Liquid Hydrocarbons").

18.2 Deliveries of Cost Recovery Liquid Hydrocarbons shall be

made, subject to Paragraphs 18.3 and 18.4 below, from one or more

Pools developed and exploited jointly until ANADARKO has been

reimbursed fully for fifty one percent (51%) of all Exploration

Costs incurred.

18.3 The quantity of Cost Recovery Liquid Hydrocarbons shall be



determined by taking into consideration the legal amortization

rate specified in Article 54 of Law 86-14.

18.4 In determining the quantity of Cost Recovery Liquid

Hydrocarbons, the Parties agree as follows:

A.

If the Operating Committee determines that a Pool

would be commercially exploitable if fifty one percent

(51%) of all Exploration Costs which (i) have not been

reimbursed to ANADARKO at that time (herein referred to

as "Unreimbursed Exploration Costs"); and (ii) are

projected to be incurred by ANADARKO thereafter (herein

referred to as "Projected Exploration Costs"), were

charged as a burden against SONATRACH'S share of Liquid

Hydrocarbons from that Pool, then the Cost Recovery

Liquid Hydrocarbons shall be equal in value to:

1.



Unreimbursed Exploration Costs; and



2.

Projected Exploration Costs (subject,

however, to adjustment based upon the sum of

actual Exploration Costs incurred in the future),

even if no further Commercial Discovery is

achieved; or

B.

If the Operating Committee determines that the

Pool would be commercially exploitable only if

Unreimbursed Exploration Costs and a portion of

Projected Exploration Costs were charged as a burden

against SONATRACH'S share of Liquid Hydrocarbons from

that Pool, then Cost Recovery Liquid Hydrocarbons shall

be equal in value to:

1.



Unreimbursed Exploration Costs; and



2.

The agreed portion of Projected

Exploration Costs (subject, however, to adjustment

based upon the sum of actual Exploration Costs

incurred in the future).

That portion of Exploration Costs not reimbursed

out of Liquid Hydrocarbons from that Pool shall be

carried forward for reimbursement as stated in

subparagraph 18.4 F below; or

C.

If the Operating Committee determines that the

Pool would be commercially exploitable if all or a

portion of Unreimbursed Exploration Costs, but none of

the Projected Exploration Costs, were charged as a

burden against SONATRACH'S share of Liquid Hydrocarbons

from that Pool, then the Cost Recovery Liquid

Hydrocarbons shall be equal in value to the agreed

portion of Unreimbursed Exploration Costs. That

portion of Exploration Costs not reimbursed out of

Liquid Hydrocarbons from that Pool shall be carried

forward for reimbursement as stated in subparagraph

18.4 F below; or

D.

If the Operating Committee determines that the

Pool is commercially exploitable if only fifty one

percent (51%) of Exploration Costs incurred in respect

of that Pool were charged as a burden against

SONATRACH'S share of Liquid Hydrocarbons, then the Cost

Recovery Liquid Hydrocarbons from that Pool shall be

equal in value to fifty one percent (51%) of



Exploration Costs incurred in respect of that Pool

only. That portion of Unreimbursed Exploration Costs

from that Pool shall be carried forward for

reimbursement as stated in subparagraph 18.4. F below;

or

E.

If the Operating Committee determines that a

particular discovery of Liquid Hydrocarbons is

commercially exploitable only if not burdened by

charging SONATRACH'S share of Liquid Hydrocarbons from

that Pool with a reimbursement obligation, then

Unreimbursed Exploration Costs and Projected

Exploration Costs which otherwise would be reimbursable

to ANADARKO out of Liquid Hydrocarbons from that Pool

shall be carried forward for reimbursement in the

manner stated in subparagraph 18.4 F below; and

F.

The following provisions shall be applicable to

Exploration Costs which have not been reimbursed to

ANADARKO from SONATRACH'S share of Liquid Hydrocarbons

from one or more Pools:

1.

Until ANADARKO has received full

reimbursement for fifty one percent (51%) of all

Exploration Costs incurred, Exploration Costs

which have not been reimbursed to ANADARKO when a

new Pool is determined to be commercially

exploitable shall be carried forward and

consolidated for reimbursement to ANADARKO out of

Liquid Hydrocarbons from that Pool and each Pool

subsequently established; and

2.

During each annual meeting stated in

subparagraph 5.9 A which occurs after the granting

of the first Exploitation Licence, the Operating

Committee shall make a determination as to whether

the Pool(s) then under production (based upon the

production performance of that or those Pools, the

Sales Price or, if appropriate, the applicable

Market Price of the Hydrocarbon reserves remaining

in place, production rates greater than

anticipated in the Development Plan for that or

those Pools, and other economic factors) would

remain commercially exploitable if the

Unreimbursed Exploration Costs are reallocated and

charged to SONATRACH'S share of Liquid

Hydrocarbons from that or those Pools. If the

Operating Committee determines that a Pool(s)

would remain commercially exploitable under the

conditions stated above, the Operating Committee

shall reach agreement as to the additional

quantity of Cost Recovery Liquid Hydrocarbons.

This method of reallocating Exploration Costs will

also apply when the Operating Committee determines

that a Pool's (or Pools') actual production

performance is less than that which was estimated

in the initial determination of its commerciality.

18.5 If the Representatives fail to reach unanimous agreement as

to any of the matters stated in Article 18, then the impasse

shall be resolved in accordance with Article 26.

TITLE V

NATURAL GAS

ARTICLE 19



PROVISIONS RELATING TO GASEOUS HYDROCARBONS

19.1 Associated Gas or Non-Associated Gas shall be used

preferentially for Petroleum Operations relating to the optimum

recovery of Liquid Hydrocarbons in the Pool discovered. These

uses are to be reviewed and evaluated as a part of the

Development Plan established for each Pool discovered.

Associated or Non-Associated Gas shall have priority use for

Petroleum Operations in Pools discovered anywhere on the Contract

Area, for the purpose of Gas injection to improve production of

Liquid Hydrocarbons, or to produce or conserve Reservoir energy

necessary for Exploitation of Reservoirs.

19.2 If Natural Gas is discovered in quantities sufficient to

lead ANADARKO to believe that such discovery is or may be

commercially exploitable within the framework of Petroleum

Operations and/or for the extraction of Natural Gas Liquids

and/or for the export of surplus Natural Gas, ANADARKO shall

submit a Discovery Report to the Operating Committee. Following

review of the Discovery Report, the Operating Committee shall

instruct the Technical Advisory Committee to study ANADARKO'S

proposals and report to it all possible economic alternatives

concerning that discovery.

19.3 Upon receipt of the Technical Advisory Committee's report,

the Operating Committee shall reach agreement as to whether a

commercially exploitable Pool has been discovered. A Natural Gas

Pool shall be deemed to be commercially exploitable if the

proceeds of sale of the volume of Natural Gas that can be

produced are sufficient to cover Exploration and Exploitation

Costs, Transportation charges, Royalty, Taxes, the Bonus owed to

ANADARKO under Paragraph 19.4 A, and still yield a net profit.

19.4 If the Operating Committee agrees that a commercially

exploitable Gas Pool has been discovered, then:

A.

SONATRACH shall deliver to ANADARKO, FOB at the

Port of Loading, a quantity of Liquid Hydrocarbons

equal in value to all Exploration Costs of ANADARKO in

respect of that Natural Gas discovery, together with an

additional volume of Liquid Hydrocarbons equal in value

to a Bonus of one hundred and fifty percent (150%) of

those Exploration Costs (herein referred to as

"Bonus"). The delivery of Liquid Hydrocarbons to

ANADARKO under this subparagraph shall be made within

one (1) year following the date deliveries of Gas from

the Gas Pool commence at the Point of Delivery. The

reimbursement of Exploration Costs to ANADARKO under

this subparagraph will be made provided that the

Exploration Costs associated with the Gas discovery

were not added to reimbursable Exploration Costs under

Article 18 of this Agreement; and

B.

Natural Gas Liquids from the said discovered Pool

and resulting from Hydrocarbons processing by the

Parties on the site of said Pool or on another site

agreed by the Parties shall be distributed under the

provisions of Paragraph 4.3 of this Agreement.

l9.5 If the Parties further agree to jointly export the surplus

Natural Gas, they shall enter into a protocol agreement under

which a jointly held company ("societe d'economie mixte") ruled

by Algerian law will be created, of which ANADARKO shall have a

participation of forty-nine percent (49%) and SONATRACH will have



a participation of fifty-one percent (51%).

TITLE VI

ACQUISITION OF PROPERTY - CONTRACTORS

ARTICLE 20

GOODS/EQUIPMENT/FIXED ASSETS AND SERVICES

20.1 In order to implement Work Programs and Development Plans

approved by the Operating Committee, Operator, in its own name,

shall have the right to purchase or rent, or import:

A.

All equipment, materials, goods and supplies of a

movable nature (herein referred to as "Movable

Property") which it determines is necessary in

conducting Petroleum Operations; and

B.

All temporary or permanent buildings needed to

house personnel engaged in Petroleum Operations, to

store or protect Movable Property from environmental

elements, and offices and housing for Operator's

personnel (herein referred to as "Immovable Property").

20.2 The purchase of Immovable Property situated in Algeria shall

be subject to the requirements of applicable Laws.

20.3 All agreements for the purchase or rental of any single item

of Movable Property or Immovable Property for use in Joint

Operations chargeable to the Joint Account and whose anticipated

cost will exceed Five Million Dinars (5,000,000.00), or its

equivalent in Foreign Exchange, shall be previously submitted to

the Operating Committee for approval.

20.4 In the purchase or rental of Movable Property for use in

Algeria, Operator shall give preference to Algerian manufactured

Movable Property, provided:

A.

The quality of the particular product is

acceptable based upon standards and codes recognized in

Algeria and internationally which will be as strict as

those set or established by the American Petroleum

Institute (API):

B.

The cost of the particular product is competitive

with the prevailing rates for Movable Property

delivered in Algeria and proposed by Non-Algerian

suppliers; and

C.

The Algerian supplier can deliver the particular

product by the time and in the quantity required by

Operator in comparison with the time and quantities

proposed by non-Algerian suppliers.

20.5 Operator is authorized to select, in accordance with the

criteria stated in Paragraph 20.7, engage and entrust to

contractors the execution of works within Petroleum Operations.

20.6 All agreements to be entered into by Operator and its

contractors which contemplate an expenditure chargeable to the

Joint Account greater than Five Million Dinars (5,000,000.00), or

its equivalent in Foreign Exchange, shall be previously submitted

to the Operating Committee for approval.

20.7 Operator shall, in selecting contractors, give preference to

SONATRACH and its Affiliates, and to Algerian business persons or



entities, provided that in each instance operator is reasonably

satisfied with their ability to perform the work entrusted to

them and provided that their fees, time, terms and conditions are

competitive with those of other contractors who submit tenders

for such work. Particularly, the competitive criteria include

the contractor's experience, the condition and availability of

its equipment, the unique capabilities of the contractor's

service and/or equipment and the contractor's compliance with

equipment specifications and performance standards recognized in

the petroleum industry.

20.8 The fixed assets resulting from Petroleum Operations shall

be owned exclusively by SONATRACH, except for the Movable

Property and Immovable Property rented or purchased and imported

by ANADARKO in its own name or by its contractors in their name.

ANADARKO shall have free use of the foregoing property, without

cost, which property shall be under its responsibility as long as

ANADARKO conducts Petroleum Operations under this Agreement.

20.9 The Movable Property purchased and/or imported into Algeria

by ANADARKO in SONATRACH'S name and which it uses in conducting

Petroleum Operations shall pass to SONATRACH when purchased or,

if applicable, when imported into Algeria. ANADARKO shall have

free use of the foregoing property, without cost, which property

shall be under its responsibility as long as ANADARKO conducts

Petroleum Operations under this Agreement.

TITLE VII

ADMINISTRATIVE PROVISIONS

ARTICLE 21

PERSONNEL AND TRAINING

21.1 The number of employees engaged by Operator shall be the

minimum determined by Operator as necessary for the efficient

performance of its obligations.

21.2 All employees engaged by Operator, except those of

Non-Operator who are assigned to assist in Petroleum Operations,

shall be considered the employees of Operator.

21.3 All employees shall be selected solely on the basis of their

ability, experience, education and training, and other factors

determined by Operator which are related to the particular jobs.

21.4 In the selection of employees of various nationalities, the

Parties agree that the efficiency of conducting Petroleum

Operations shall be given first consideration. Operator shall,

as far as it determines is consistent with the efficient

performance of Petroleum Operations and its undertakings under

this Agreement, give priority to Algerian nationals who meet the

qualifications stated in Paragraph 21.3 above.

21.5 At the first meeting of the Operating Committee, Operator

shall submit for the Operating committee's approval its intended

organization structure, together with a list of its intended

employees in Algeria, their intended positions and the

anticipated direct and indirect costs of those employees.

21.6 Upon request of Operator, SONATRACH agrees to use its best

efforts to furnish the broadest technical assistance,

particularly in making qualified personnel available to assist in

Exploration and Drilling operations. The form of this technical

assistance and the conditions and compensation under which

SONATRACH'S personnel shall be made available shall be the



subject of a special agreement between the Parties.

21.7 SONATRACH agrees to assist Operator in obtaining all

employee quotas determined by Operator to be necessary in

conducting the Exploration Program. SONATRACH also undertakes to

assist Operator in obtaining visas, work permits or

authorizations, and exemptions from Customs Duties provided for

by regulations for the expatriate employees employed by Operator,

its contractors (and the immediate families of each).

21.8 During the Exploration Phase, the Operating Committee shall

determine an agreed number of employees of SONATRACH who shall be

given the opportunity to attend and participate in training

programs ANADARKO establishes for its employees, or training in

association with on-the-job performance of Petroleum Operations,

particularly those related to the Seismic Processing Center,

Exploration and Drilling, and to the Exploitation techniques for

Pools, so long as the training does not impair efficient or safe

operations.

21.9 Not later than six (6) months following the date of the

award of the first Exploitation Licence, ANADARKO shall propose a

training program for a number of SONATRACH'S employees, agreed to

y the Parties, and/or other persons, which will provide the

candidates selected on-the-job training and actual work

experience leading to requisite qualifications to:

A.

Fulfill position requirements of various levels of

employment in Petroleum Operations, including

administrative, professional and technical positions;

and

B.

Give employees with the requisite potential the

possibility of being promoted to more senior positions

in Petroleum Operations.

21.10

ANADARKO'S annual costs of training programs shall be

included in Exploration Costs or Joint Account expenses, as

applicable.

ARTICLE 22

LITIGATION/RISKS/LIABILITY

22.1 The defense of litigation filed by Third Parties against the

Operator in respect of Petroleum Operations hereunder shall be

approved by the Operating Committee. All costs and expenses

related to the defense of litigation, and sums paid to discharge

claims and judgments (to the extent not covered by insurance),

shall be included as Exploration Costs or Exploitation Costs,

depending upon the type of Petroleum Operation which gave rise to

the claim or litigation. However, litigation which results from

the willful misconduct or gross negligence of Operator shall be

its sole responsibility.

22.2 All risks and liabilities incurred in conducting

Exploitation operations shall be borne by the Parties in

proportion to their Percentage Share of Financing. However, each

Party shall assume the risks and liabilities resulting from its

gross negligence or willful misconduct.

ARTICLE 23

CONFIDENTIALITY/PRESS RELEASES

23.1 This Agreement, and all plans, maps, drawings, designs,

scientific and technical reports and other data and information

of any kind or nature, relating to the Contract Area and



Petroleum Operations under this Agreement, shall be treated as

strictly confidential and shall not be disclosed to Third parties

without the prior consent of the other Party.

23.2 The provisions of Paragraph 23.1 shall not apply to

disclosure to Affiliates, to contractors, auditors, accounting or

petroleum engineering firms, legal advisers, to finance

institutions involved in the provision of finances for the

Petroleum Operations hereunder, as well as those persons

intervening in resolving disputes, provided that they agree in

writing to keep confidential this Agreement and/or such data and

information stipulated in Paragraph 23.1. Disclosure shall also

be permitted to authorized stock exchanges and to governments,

when such disclosure is required by applicable law.

23.3 No Party shall issue any press release or other formal

statement concerning this Agreement or Petroleum Operations

without the prior consent of the other Party, which consent shall

not be unreasonably withheld. The foregoing prohibition shall

not apply to a statement made by a Party or its Affiliate in

order to comply with a statutory obligation or the requirements

of a governmental agency or of an established stock exchange. A

copy of the intended statement shall be furnished to the other

Party at least forty-eight (48) hours before it is released.

TITLE VIII

LEGAL PROVISIONS

ARTICLE 24

TRANSFERS

24.1 ANADARKO shall have the right to transfer all or part of its

rights and obligations to:

A.

An Affiliate without the prior written approval of

SONATRACH or the Competent Authority being required;

B.

One or more Non-Affiliates, provided that

SONATRACH does not exercise its right of preemption

according to the procedure provided in Paragraph 24.3

below.

If SONATRACH does not exercise its right of

preemption, a transfer by ANADARKO to a Non-Affiliate

shall be subject to receipt of SONATRACH'S and the

Competent Authority's prior written approvals.

SONATRACH and the Competent Authority shall take their

respective decision on the basis of the documents

furnished to them which relate to elements concerning

the control of the transferee company(ies).

24.2 Transfers by ANADARKO shall be made in compliance with

Decree No. 87-158.

24.3 The Parties agree that SONATRACH'S right of preemption under

Decree No. 87-158 in respect of contemplated transfers by

ANADARKO to Non-Affiliates shall be implemented according to the

following procedure:

A.

ANADARKO shall give notice to SONATRACH of its

desire to make the transfer, stating the name of the

Non-Affiliate(s), the price and a summary of all other

terms and conditions acceptable to ANADARKO;

B.



Within ninety (90) Days of receipt of the Notice



mentioned in Paragraph A above, SONATRACH shall give

Notice to ANADARKO indicating whether it wishes to

exercise its preemption right based upon the price and

the other conditions contained in the Notice mentioned

in Paragraph A above, and whether or not the Competent

Authority will approve the preemption purchase by

SONATRACH;

C.



If SONATRACH exercises its preemption right then:

1.

It will be deemed that the Competent

Authority has approved the transfer to SONATRACH

from ANADARKO; and

2.

Not later than thirty (30) Days from the

date ANADARKO receives SONATRACH'S Notice, the

Parties shall enter into such agreements as are

necessary to finalize the transfer; and



D.

If SONATRACH does not exercise its preemption

right, ANADARKO shall have the right to transfer to the

Non-Affiliates all or part of ANADARKO'S rights and

obligations stated in its Notice, on terms and

conditions no less favorable to ANADARKO as the terms

and conditions offered to SONATRACH.

24.4 If a transfer is made, the transferee shall succeed to the

rights and obligations of ANADARKO, to the extent of the portion

of the Percentage Share of Financing and Percentage Interest

received. No such transfer shall modify the rights and

obligations of SONATRACH.

ANADARKO and its transferees shall be jointly and severally

responsible to SONATRACH for all obligations arising from this

Agreement. It is agreed that SONATRACH shall only have to deal

with ANADARKO who shall represent each of the transferees and

that ANADARKO alone shall be responsible for the execution of all

obligations arising under this Agreement. Each of the

transferees shall, to that effect, appoint ANADARKO as its

representative with SONATRACH and shall grant to it powers to

take all measures necessary to the execution of this Agreement.

24.5 The substitution or total or partial transfers by SONATRACH

of its rights and obligations under this Agreement to one of its

Affiliates shall not modify or prejudice the rights and

obligations of the other Party to this Agreement.

ARTICLE 25

FORCE MAJEURE

25.1 All events which delay or prevent the performance by a Party

of its obligations under this Agreement shall be considered Force

Majeure if the conditions stated in Paragraph 25.2 are met.

25.2 The term "Force Majeure" means the occurrence of any event

or circumstance (except the inability of a Party to timely meet

its financial obligations hereunder) which is:

A.



Irresistible;



B.



Unforeseeable; and



C.

Majeure.



Independent of the will of the Party invoking Force



Exceptionally an extraordinary or supernatural event



irresistible and independent of the will of the invoking Party

but foreseeable may constitute a case of Force Majeure. The

Party invoking such a case will bring proof that it took, before

the occurrence of the said event, all necessary measures to

foresee this event and remedy its consequences.

25.3 In the event of Force Majeure:

A.

The period of the Force Majeure event, together

with the period necessary to restore any damage done by

such event, shall be added to the time given herein for

the performance of the affected obligation and/or to

the corresponding term of the phases or periods

provided for in this Agreement;

B.

The other Party shall have no right to damages for

default of this Agreement;

C.

The Party invoking Force Majeure shall give Notice

promptly to the other Party of the Force Majeure event.

If the Force Majeure event continues for thirty (30)

Days, Operator shall call a meeting of the Operating

Committee which will determine what action (if any) may

be taken to relieve that situation; and

D.

The Party invoking Force Majeure shall use all

reasonable means to diligently remedy and bring to an

end the consequences of the Force Majeure event.

ARTICLE 26

SETTLEMENT OF DISPUTES

26.1 Any dispute arising out of the performance and/or

interpretation of this Agreement shall, in accordance with the

provisions of Article 63 of Law 86-14, be submitted to the

competent Algerian jurisdiction.

26.2 Prior to recourse to said jurisdiction, the Parties, if they

have failed to resolve the dispute between themselves within

sixty (60) Days of its inception, agree to submit the dispute to

a Conciliation Board according to the following terms and

conditions:

A.

The Party wishing to have recourse to Conciliation

(herein referred to as "Claimant") shall give Notice to

the other Party (herein referred to as "Respondent") of

its request by registered letter, return receipt

requested, which will state explicitly the subject

matter of the request, the claims and the

justifications which support them and which shall

explicitly state the last and first names,

qualifications and address of its appointed

Conciliator;

B.

Within thirty (30) Days from receipt of the

foregoing request, the Respondent shall:

1.

Appoint a Conciliator, give Notice to

the other Party and the Conciliator appointed by

the Claimant of the last and first names,

qualifications and address of the Conciliator thus

appointed; and

2.

Notify the Claimant of its observations

upon the request for Conciliation and the claims



which are contained therein.

C.

The Conciliators appointed by the Parties shall,

within thirty (30) Days from the Notice of the

appointment of the second one, proceed to the

appointment of a third Conciliator who shall act as the

Chairman of the Conciliation Board (herein referred to

as "Chairman");

D.

If, at the expiration of the thirty (30) Days

stated in Paragraph 26.2 B above, the Respondent has

not proceeded to the appointment and Notice provided

for in Paragraph 26.2 B.1 above, the Claimant shall

submit the matter to the Secretary General of the

United Nations Commission on International Trade

(UNCITRAL) so that he may appoint, or cause to be

appointed, the Conciliator within forty-five (45) Days;

E.

If, at the expiration of the thirty (30) Days

stated in Paragraph 26.2 C above, the two Conciliators

have not reached an agreement on the appointment of the

Chairman, the Parties shall have thirty (30) Days to

agree, with the assistance of both Conciliators, upon

the appointment of the Chairman. If they fail to

agree, the most diligent Party shall submit the matter

to the Secretary General of the United Nations

Commission on International Trade (UNCITRAL) so that he

may appoint, or cause to be appointed, the Chairman,

according to the following terms and conditions:

1.

In any case and regardless of the

designation procedure, the Chairman shall:

have no present or past

economic interest in, nor be dependent upon,

either of the Parties or their Affiliates;

be of a nationality other than

the nationalities of the Parties;

be of a nationality of a

country which has diplomatic relations with

the countries of the Parties;

be internationally recognized

as being competent in the petroleum industry;

and

have a good understanding of

the language of this Agreement.

2.

The Chairman shall be appointed within

forty-five (45) Days from a list of two candidates

remaining on a common list prepared from lists

provided by each Party according to the following

procedure:

a)

Each Party shall submit to the

other Party a list of five (5) names, stating

qualifications and addresses;

b)

The Parties shall meet at the

latest forty-eight (48) hours after the

exchange of lists in order to prepare a

single list of two names. In order to



establish this list, each Party will propose

one name and have the right to challenge all

candidates proposed by the other Party, with

the exception of one only;

c)

The single list to be

submitted to the Secretary General of the

UNCITRAL shall be composed of the two

remaining names, in alphabetical order and

without stating the Party who proposed the

names;

d)

If one of the Parties does not

comply with the obligations of subparagraphs

1 and/or 2 above, the most diligent Party

shall have the right to submit to the

Secretary General of the UNCITRAL a list of

three (3) persons meeting the criteria listed

in Paragraph 26.2 E.1, for the purposes of

appointing the Chairman; and

e)

The Chairman thus appointed

cannot be challenged.

F.

If, in the course of the Conciliation, one of the

Conciliators does not fulfill his appointment, dies,

resigns or is unable to continue to participate in it,

the Party who appointed that Conciliator shall be

entitled to appoint his successor within fifteen (15)

Days. Failing that, his successor shall be appointed

according to the procedure specified in Paragraph 26.2

D above; and

G.

If, in the course of the Conciliation, the

Chairman does not accept his appointment, dies, resigns

or is unable to continue to participate in it, his

successor shall be appointed according to the procedure

specified in Paragraphs 26.2 C and E above.

26.3 The Conciliation Board sits at Algiers, Algeria, but may

hold hearings in any other place which might be more appropriate.

The Conciliation Board shall decide upon the procedure to follow

for the requirements of its proceedings. It especially sees to

it that each Party be given the full opportunity of pressing its

claims, rights and justifications and that all memoranda or

information be provided simultaneously to the other Party. The

Conciliation Board is specially empowered to:

A.

Visit any place it deems necessary for the purpose

of its proceedings;

B.

Require the Parties to produce all relevant

documents, records and account books related to the

performance of this Agreement;

C.

Proceed to the hearing of the Parties, witnesses

and any other Third Party involved; and

D.

Take all other reasonable measures of preliminary

investigation it deems necessary and especially appoint

one or several experts, give them their assignment, and

determine a time limit for the delivery of their

report(s).

26.4 The Parties agree, during the Conciliation proceedings, to:



A.

Furnish to the Conciliation Board, upon its

request and within the time limit it specifies, all

memoranda and data necessary for its proceedings and,

in a general way, to participate to the Conciliation

proceedings;

B.

Keep confidential the proceedings and all

documents produced in the framework of the

Conciliation;

C.

Pay in equal parts the expenses and fees of the

members of the Conciliation Board as set and justified

by the Board and notified by the Chairman who will be

able to make a call for funds; and

D.

Not cause any interruption in the performance of

obligations under this Agreement for the sole reasons

of the Conciliation process.

26.5 In order to carry out the assignment with which it has been

entrusted, the Conciliation Board must take into account:

A.

Algerian Laws and regulations in effect on the

date of the execution of this Agreement;

B.



Provisions of this Agreement and its Annexes; and



C.

Practices, customs and rules of the international

petroleum industry.

26.6 Within six (6) months from the appointment of its Chairman,

except when there is an extension by the Conciliation Board made

necessary by a measure of preliminary investigation, the

Conciliation Board must complete its proceedings and address its

recommendation to the Parties.

26.7 The recommendation given to the Parties shall include

reasons explaining the recommendation and its motive.

A.

If both Parties accept the recommendation, they

will implement the means which will enable them to

comply with it. The dispute is, then, deemed settled.

B.

If one of the Parties rejects the recommendation,

that Party shall notify the Chairman so that the

Conciliation Board may give official notice to the

Parties that the attempt of Conciliation has failed.

C.

It shall be possible to submit the dispute to the

competent Algerian jurisdiction according to Article 63

of Law 86-14, if, at the expiration of sixty (60) Days

from the recommendation, the recommendation has not

been expressly accepted by the Parties.

26.8 The recommendation of the Conciliation Board is of a

confidential nature and it cannot be released, produced nor

published by one of the Parties without the specific consent of

the other Party or by a Third Party without the specific consent

of all Parties to this Agreement. The confidential nature of the

recommendation cannot be asserted if the competent jurisdiction

requests its production.

ARTICLE 27

LAWS AND REGULATIONS



27.1 This Agreement shall be subject to Law 86-14 and to its

application decrees, and to the legislations and regulations in

force on the Effective date of this Agreement.

In case of modification of Law 86-14, and any of its

application texts which substantially affect the interest of

either Party, the Parties shall meet and renegotiate in good

faith the eventual modifications to be brought to the contractual

terms in order to reestablish the equilibrium of the respective

interests of the Parties.

In case of an agreement on such modifications, they will be

the object of an amendment of the present Agreement which will be

submitted for approval in the form required by the Competent

Authority.

ARTICLE 28

INSURANCE

28.1 Operator (and its contractors) shall obtain and maintain all

such insurance required by applicable Laws and all other

insurance which the Operating Committee determines should be

obtained.

28.2 Operator, on condition of the respect of applicable Laws and

regulations in effect:

A.

May designate claims adjusters, brokers,

underwriters and insurers, process all claims, and take

all reasonable measures to receive indemnities and/or

to obtain reparation for losses; and

B.

May have the right to reinsure all insurance

policies with or by its brokers and underwriters.

28.3 Proceeds paid to ANADARKO from insurance for losses

sustained in respect of the conduct of the Minimum Exploration

Program shall be deducted from Exploration Costs to be reimbursed

to ANADARKO.

ARTICLE 29

IMPORTATION/EXPORTATION OF GOODS, MATERIALS AND EQUIPMENT

29.1 The Parties recognize that ANADARKO, its contractors and

their respective expatriate employees who are engaged in

conducting Petroleum Operations under this Agreement, will seek

to be permitted to import temporarily into and to then export

from Algeria, and to be exempted from all Customs Duties with

respect to all types of Exempt Property specified in the Law.

29.2 So as to facilitate the granting to ANADARKO of import

authorizations under Paragraph a) of Article 11 of Law 88-29

dated July 19, 1988, as such right is authorized under Article 27

of Law 86-14, SONATRACH shall assist ANADARKO in order to fulfill

the following formalities:

A.

The importation of goods, equipment and material

to be used for the Prospection, Exploration and

Exploitation of Hydrocarbon Pools and the export of

goods, equipment and materials of such nature which was

imported on a temporary basis under the Algerian tax

and customs laws in force; and

B.

To request the exemption from Customs Duties of

goods, equipment and materials mentioned above in

accordance with the conditions stated in Law 86-14 of



August 19, 1986.

29.3 However, with respect to the assistance to be furnished by

SONATRACH, SONATRACH shall not be responsible in any way:

A.

If ANADARKO fails to furnish the necessary

declarations required under the tax and customs laws;

B.

For any false declaration or partial declaration

made by ANADARKO to tax or custom authorities;

C.

For the non-payment by ANADARKO of any Custom

Duties imposed or for the partial payment of Custom

Duties; or

D.

For the payment of any penalty or indemnity owing

by ANADARKO to tax or custom authorities.

ARTICLE 30

TERMINATION

30.1 Unless the Parties agree otherwise, this Agreement will

terminate upon the occurrence of one of the following events:

A.

or



Withdrawal by ANADARKO pursuant to Paragraph 10.3;



B.

Expiration of the Exploitation Phase in respect of

all Pools jointly exploited by SONATRACH and ANADARKO

pursuant to this Agreement.

30.2 The responsibility for the consequences resulting from each

Party's acts or omissions up to the date of termination shall

survive this Agreement. Any obligations of such Party then

remaining shall be fulfilled by it within six (6) months of the

date of termination.

ARTICLE 31

NOTICES

31.1 All notices, reports, statements, invoices, cash calls,

requests, demands and other communications (herein referred to as

"Notice") required to be given by one Party to another hereunder

must, in order to be valid, be made in writing and delivered to

the other Party at the address stated below, or to any address

the Party in question may indicate by Notice to the other Party.

FOR SONATRACH



10 rue du Sahara

HYDRA - ALGIERS, ALGERIA 16035

Telephone: 2132-60-61-22

Telex: 62.103 SHDG, 62.104 SHDG

Telecopy: 213-2-60-70-37



FOR ANADARKO



16855 Northchase Drive

HOUSTON, Texas 77060, U.S.A.

Telephone: 1-(713) 875-1101

Telex: 765353

Telecopy: 1-(713) 874-3523 or 875-2287



The date of validity of the Notice shall be considered to be

the date of its reception.

ARTICLE 32

LANGUAGE OF AGREEMENT



32.1 The language of this Agreement is French and all Notices

stated in Article 31 above shall be in the French language.

ARTICLE 33

FINAL PROVISIONS

33.1 This Agreement is comprised of this document and its Annexes

which form an integral part of it.

33.2 In case of discrepancy between the provisions of the

Agreement and the provisions of the Annexes, the provisions of

the Agreement shall prevail.

ARTICLE 34

EFFECTIVENESS

34.1 This Agreement will take effect upon its approval by the

Competent Authority in the forms required by the regulations in

force and as soon as the Protocol takes force.

EXECUTED in Algiers in 6 original copies the 23rd of

October, 1989.



FOR:



FOR:



The National Company

SONATRACH



Anadarko AlgeriaCorporation



By: /s/ Nadir Sekfali

Le Directeur General Adjoint



By: /s/ Robert J.Allison. Jr.

Chairman of the Board of Directors and

Chief Executive Officer

ANNEX "B"

ACCOUNTING PROCEDURE



ARTICLE 1 - GENERAL PROVISIONS

1.1



Object and Duration

The purposes of this Accounting Procedure (herein referred

to as the "Accounting Procedure"), is to establish the rules

and procedures concerning:

-



the preparation of Budgets.

-



the accounting rules.



-



the financing of Petroleum Operations.



the reimbursement of Exploration Costs to

ANADARKO.

The provisions of this Accounting Procedure shall be

applicable until the final settlement of the accounts kept

within the framework of the Agreement. The joint accounting

shall be finally settled and balanced by whatever cash

payments between the Parties are necessary following

presentation by Operator to the Parties of a final statement

of costs, and after a potential Audit.

1.2



Definitions



Definitions stated in the Agreement are applicable to the

Accounting Procedure. Definitions and provisions of the

Accounting Procedure have the same validity and effect as

the definitions and provisions stated in the Agreement.

Certain terms and expressions used both in the Agreement and

in this Accounting Procedure are defined hereunder:

1.2.1

Audit means an audit of Accounting Documents

which is conducted within the period stipulated in

Article 6 herein.

1.2.2

Seismic Processing Center means the computer

equipment and corresponding software as well as the

ancillary equipment listed in Annex D of the Agreement.

1.2.3

Joint Account means that part of the Joint

Accounting System in which Operator shall record:

1.

Exploitation Costs incurred realizing

Joint Operations.

2.

Cash Calls and other payments paid by

the Parties.

1.2.4

Contractor means any Algerian (including

SONATRACH and an Affiliate of SONATRACH) and

non-Algerian (and any Affiliate of ANADARKO) contractor

engaged by the Operator in the framework of the conduct

of Petroleum Operations.

1.2.5

Seismic Processing Center Costs means the

costs and expenditures incurred by ANADARKO for the

needs of the Seismic Processing Center, less any

potential revenues inherent in services rendered by the

Seismic Processing Center.

1.2.6

Sonatrach Assistance Costs means the cost of

SONATRACH'S assistance furnished to ANADARKO by

SONATRACH.

1.2.7

Training Costs means the costs and expenses

incurred in conducting the training programs covered in

Article 21 of the Agreement.

1.2.8

Exploitation Costs means costs incurred for

Development and Exploitation.

1.2.9

Basin Evaluation Costs means those costs and

expenditures incurred by ANADARKO in conducting the

Basin Evaluation.

1.2.10

Exploration Costs means the total cost

incurred for Exploration and related Overhead by

ANADARKO.

1.2.11

Overhead means general and administrative

costs and expenses listed in Paragraph 5.5.12 herein.

1.2.12

Accrual Method means the accounting method

which recognizes revenue when earned and recognizes

expenses in the accounting period as incurred, without

regard to the date of receipt or payment.



1.2.13

Accounting Documents means statements,

invoices and other accounting records as well as all

other accounting files maintained by Operator with

respect to Petroleum Operations.

1.2.14

Total Cost ("Cost Price" or "Gross Cost")

shall include all costs related to services, equipment,

material or to any identified activity.

Elements of costs making up this Total Cost shall

meet the following conditions:

a.



relate to Petroleum Operations



b.

be truly incumbent upon the Petroleum

Operations

c.

be necessary and required for the proper

functioning of Joint Operations.

d.

be sufficiently detailed and supported

by justifying evidence permitting an efficient

control of application of Paragraphs a, b and c

above.

1.2.15

Joint Accounting System means the system of

accounting records approved by the Operating Committee

and maintained by Operator, pursuant to Article 4

herein in which Operator shall record Exploration Costs

and Exploitation Costs.

ARTICLE 2 - BUDGETARY PROVISIONS

2.1



Annual Budgets for Exploration and Exploitation shall

present sufficiently detailed headings to be perfectly

consistent with the cost system accounts and to facilitate

budgetary control.



2.2



Work Programs and Budgets shall be prepared and approved as

defined in the Agreement.



2.3



Once approved by the Operating Committee, Work Programs and

Budgets become executable upon the initiative of the

Operator.



2.3



Before November 2nd of each Calendar Year, Operator shall

submit to the Operating Committee the detailed Work Program

and Budget for the following Calendar Year.

At the latest by November 30th, after verification and any

modification, and potential additions are made, the Budget

shall be definitively adopted by the Operating Committee.



ARTICLE 3 - FINANCIAL PROVISIONS

3.1



Financing of Petroleum Operations

3.1.1

The financing necessary for the execution of

the Work Programs and Budgets approved by the Operating

Committee are assured by the Parties, in accordance

with the provisions of the Agreement.

3.1.2

ANADARKO shall integrally assure the

financing of Exploration work in conformity with

Article 4.1 of the Agreement. Operator shall prepare



quarterly provisional settlements of accounts to be

delivered to the other Party at the latest forty-five

(45) Days after the Calendar Quarter in question

3.1.3

Neither Party shall have the right to use the

Agreement as a vehicle to gain or lose money at the

expense of the other by profiting from variations in

Foreign Exchange rates.

3.1.4

Financial costs of loans, credits,

overdrafts, and other long, medium and short

financing means to which each of the Parties

resorted shall be borne solely by each Party

not be, in any case, chargeable to the other

3.2



term

have

and shall

Party.



Cash Calls

3.2.1

Operator shall make quarterly Cash Calls to

the Parties for funds necessary for settling

expenditures relative to jointly financed Petroleum

Operations taking into account the estimation for the

period covered by the current Work Program and the

Budget and the Percentage Share of Financing of each

Party.

The first Cash Call in respect of a Work Program

and Budget shall be for the remainder of the Calendar

Quarter in progress upon the date the Work Program and

Budget are approved. Monthly Cash Calls and the

Procedures for monthly Cash Calls may be adopted by

approval of the Operating Committee.

3.2.2

Except as stated in Paragraph 3.2.1 above

with respect to the period of the first Cash Call, each

Cash Call shall be:

a.

equal to Operator's estimate of funds

required to conduct Petroleum Operations during

the succeeding Calendar Quarter under the approved

Work Program and Budget.

b.

not later

preceding

are to be



requested by sending each Party a Notice

than the fifteenth (15th) of the month

the Calendar Quarter when the expenses

incurred.



c.

in accordance with the remittance

instructions stated in the Cash Call Notice and

paid by the Parties, based upon their respective

Percentage Share of Financing, not later than the

first business Day of the Calendar Quarter for

which the funds are required.

d.

sufficiently detailed to permit

appropriate reference to Petroleum Operations to

be conducted at the expense of the Joint Account

under the Work Program and Budget.

e.

accompanied by a statement of Operator's

estimate of Cash Calls required for the subsequent

Calendar Quarter.

3.2.3

Within thirty (30) Days following expiration

of each Calendar Quarter, Operator shall deliver to the

Parties a written statement which indicates the balance



(if any) of Cash Calls in the Joint Account upon

expiration of said Calendar Quarter. If the balance is

below or equal to ten percent (10%), an adjustment

shall be made in the Cash Call for the next Calendar

Quarter. If it is in excess by ten percent (10%), an

adjustment shall be made, on the basis of the U.S.

Dollars, within fifteen (15) Days of receipt of the

statement.

3.2.4

If any Party fails to pay Operator its

Percentage Share of Financing of sums due under this

Article, that Party shall be in default, and must pay

the Operator all amounts in default, plus interest on

the amount in default, calculated annually based on the

actual number of Days late, as follows:

at the London Interbank Offered Rate

("LIBOR"), plus two (2) percentage points,

compounded on a monthly basis. The calculation

shall be based on the rate of the last working Day

of the month preceding the period concerned as

published in the "International Herald Tribune".

it is understood, however, that if

during a given Calendar Year LIBOR plus two points

is less than ten percent (10%), the retained rate

shall be ten percent (10%).

3.2.5

Notwithstanding the provisions of Article 4

of the Agreement and, independently of the provisions

in the above articles, the Parties may, if they deem it

necessary, mutually agree in respect with laws and

regulations in effect concerning Foreign Exchange

control and transfer, to specific financial conditions

concerning, particularly, the taking over by ANADARKO

of all Foreign Exchange payments and the taking over by

SONATRACH of all Dinar payments for Petroleum

Operations. The above provision shall not in any case

penalize either Party.

ARTICLE 4 - ACCOUNTING PROVISIONS

4.1



All entries and accounting records shall be established in

French.



4.2



The accounting system of Petroleum Operations shall be

prepared by Operator in accordance with the provisions of

the National Accounting Plan, the Agreement and the

Accounting Procedure.

The accounting system shall be established taking into

account the following principles:

operator shall keep accounting books and vouchers

up to date and according to the rules, in accordance

with the Accounting Procedure in order that an

inspection may be made during business hours and

subject to prior Notice of thirty (30) Days.

this accounting method shall be based on the

double entry accounting system and transactions shall

be recorded under the Accrual Method.



4.3



Currency of account and exchange procedure

4.3.1



-



The Algerian Dinar shall constitute



the currency of accounts; however, during the

Exploration Phase, the account shall be kept in

both Algerian Dinars and U.S. Dollars. Any

Foreign Exchange other than the U.S. Dollar will

be converted into U.S. Dollars, based upon the

exchange rate of this currency as quoted in the

"International Herald Tribune" of the last working

Day of the month of recording.

To determine if the date provided by

Paragraph 10.2.B of the Agreement has been reached

and to determine the quantities of Liquid

Hydrocarbons as reimbursement provided by Article

18 of the Agreement, the Parties will refer to the

U.S. Dollar accounts

4 3.2

The conversion from U.S. Dollars to Algerian

Dinars shall be based on the monthly average buying

rate of the Central Bank of Algeria (B.C.A.) for the

preceding month, to three decimal places, rounded down

if it is under the number five and up if it is over

that number.

4.4



All Accounting Documents shall be kept available by the

Operator. It is understood that SONATRACH is the sole owner

of all the Accounting Documents and that, upon SONATRACH'S

request, the Accounting Documents shall be handed over to

SONATRACH against a written receipt.



4.5



Operator shall prepare an accounting system and shall submit

it for approval to the Operating Committee. This system

includes a general accounting and an analytical accounting

constituting the Joint Accounting System

4.5.1

The general accounting, in which are recorded

the costs and proceeds of Petroleum Operations, shall

be held by the Operator in accordance with the

provisions of Laws in effect in Algeria, especially

those in the National Accounting Plan (Decree 75-36 of

April 29, 1975 and the application text of June 23,

1975 containing the National Accounting Plan).

4.5.2

Analytical accounting shall permit the

calculation of chargeable Total Cost and facilitate

management control as well as budgetary controls.

This accounting will group together, in collective

analytical accounts, expenditures relating to Petroleum

Operations, thus determining the costs and Total Cost

of:

-



investments during Exploration Phase.



-



investments during Exploitation Phase.



-



Exploitation Costs.



It is understood that appropriate accounts shall

be created to identify and separate expenditures

relating to:

-



Basin Evaluation studies.



-



Seismic Processing Center.



4.5.3

The collective analytical accounts referred

to above shall be subdivided as follows:

a)

Phase:



Investments during the Exploration



Total Cost of studies and

Exploration work for each type of study or

work and by Exploration block.

Total Cost of Pools discovered

by type and by Pool in accordance with

Article 18 of the Agreement.

b)



Investments during the Exploitation Phase:

Total Cost of Drilling (by

Well and by Pool)

Total Cost of studies and of

fixed and specialized installations for

Exploitation (by study or by installation and

by Pool).

c)



Exploitation Costs:



The cost for production operations

including all Exploitation Costs by Pool or by

Block up to the Point of Delivery. This

collective account shall be subdivided into

subaccounts in accordance with the Operator's

analytical plan.

d)



Basin Evaluation Costs.

e)

Costs and expenditures incurred for the

Seismic Processing Center.



4.5.4

The Operator will make sure that the Total

Cost includes all expenses relative to Petroleum

Operations. The Operator will assure particularly

that:

all charges incurred and unpaid at the

end of the fiscal year are incorporated in the

Total Cost.

provisions are created and charged to

Total Cost of work and services actually supplied.

charges paid in advance which have not

been used at the end of the fiscal year are

excluded from the Total Cost.

In order to facilitate analysis, the principal

cost categories shall be clearly indicated in the

analytical accounts.

4.6



All accounting entries shall be substantiated by the

appropriate supporting Accounting Documents particularly:

contracts and duly approved invoices for external

expenses.

-



employment contracts, activity reports, timesheets



for personnel services.

order forms, purchasing orders, delivery orders,

receiving vouchers, exit forms, invoices and other

orders for the movement of stocks.

4.6.1

All Accounting Documents shall be kept

available by the Operator for the Parties for a period

of twenty-four (24) months from the end of the fiscal

year concerned.

It is understood that SONATRACH shall be the sole

owner of the said Accounting Documents as well as all

supporting documents and that the said documents shall

be handed over to SONATRACH at the end of the

above-mentioned time period.

This period shall be six (6) months in case of

termination by ANADARKO or in case of expiration of the

Agreement.

4.6.2

In order to enable SONATRACH to fulfill its

tax obligations under Law 86-14, at the latest February

28th of each Calendar Year, Operator shall deliver to

SONATRACH all documents and information needed to

prepare the tax return for the preceding year.

It is understood that any penalties or indemnities

caused by delays in the delivery of the above mentioned

documents or information shall be borne solely by the

Operator.

4.7



In addition to accounts necessary for the correct

maintenance of the accounting for Petroleum Operations, each

Party shall keep current accounts where it shall record and

follow expenses financed or paid by each Party. The said

current accounts shall be subdivided as follows:

current accounts for investments during the

Exploration Phase.

current accounts for investments during the

Exploitation Phase.

-



current accounts for Exploitation Costs.



current accounts for Seismic Processing Center

Costs.

current accounts for Basin Evaluation Costs.

4.7.1

Operator shall establish and transmit to the

Parties on a quarterly basis, within thirty (30) Days

after the end of the considered Calendar Quarter:

provisional statements of costs financed

or paid by each Party.

provisional estimates of Total Cost

compared with the corresponding Budgets which

permit following the progress of Petroleum

Operations.

a statement of each Party's current

account in accordance with the models to be agreed

to between the Parties.



ARTICLE 5 - CHARGEABLE EXPENSES

5.1



Expenses incurred for the execution of Petroleum Operations

shall be chargeable to the Parties, pursuant to the

Agreement and to the Accounting Procedure. They shall be

sufficiently detailed and substantiated by appropriate

supporting documents.



5.2



Expenses shall be chargeable as they are incurred and shall

be charged according to their nature.



5.3



Investment cost shall include among others:

-



Drilling.

gathering and distribution systems including

pipelines, storage installations, separation and

processing units for Hydrocarbons.

permanent and prefabricated buildings for

industrial, administrative or dwelling usage, water

conveyance and electrical production systems.

-



stocks of spare parts supplied by the contractors.



All costs not included in the category of investment costs

shall be considered as expense.

5.4



Services rendered by Third Parties shall be charged at net

cost billed by the suppliers and to this shall be added the

cost of transportation to the warehouse on the site.



5.5



The rules governing the charging of different costs and

expenses under the categories of Exploration Costs and

Exploitation Costs are as follows:

5.5.1



Personnel Costs:

a)



Exploration Phase

During the Exploration Phase the cost of personnel

employed by ANADARKO for the execution of the Petroleum

Operations shall be charged by ANADARKO at their actual

cost.

b)



Exploitation Phase



During the Exploitation Phase costs of permanent

employees engaged in the execution of Petroleum

Operations, particularly salaries, benefits,

contributions and expatriation costs, shall be

recovered by the Operator through flat fees determined

on a man-per-day basis for the applicable categories of

personnel.

After their approval by the Operating Committee,

the flat fees shall be charged to the Joint Account.

To readjust the costs actually incurred, each

Party may ask the Operating Committee to update these

flat fees.

5.5.2



Cost of Material

Material that is purchased shall be charged to the



Total Cost, after deduction of all discounts and

reductions owed or received; however, it will include

particularly, transportation and insurance costs and

all other costs concerning the said purchase.

The material supplied by Operator and/or its

Affiliates or by one of the Parties and/or Affiliates

shall in any case be charged at its Total Cost as

provided for in the paragraph above.

5.5.3



Services

The Total Cost of services rendered by Third

Parties shall be charged at the invoice price.

The Total Cost of services rendered by either

Party shall be charged at agreed prices which, in any

case, will not be higher than those which SONATRACH or

ANADARKO would bill to their Affiliates and/or Third

Parties for similar services.

The use of services of the Parties and/or the

Affiliates must be submitted for the prior agreement of

the Parties.



5.5.4



Damage and Losses

The following are chargeable to the Damages and

Losses account:

All costs and expenses necessary to the

repair or replacement of goods acquired for

Petroleum Operations because of damages or losses

due to fire, eruptions, storm, theft, accident or

any other cause. The Operator shall give Notice

to the Parties as soon as possible of the damages

and losses exceeding fifty thousand (50,000)

Algerian Dinars (or the equivalent in Foreign

Exchange) in each case.



5.5.5



Insurance and Settlement of Damages

As regards the insurance premiums paid

by the Operator for the Petroleum Operations.

the amounts received from an insurer to

settle a claim.

the expenses incurred to settle all

losses, claims, damages and all other similar

expenses incurred for the execution of Petroleum

Operations.

It is understood that such costs and expenditures

shall not be a consequence of the Operator's gross

negligence or willful misconduct.



5.5.6



Legal Costs

-



as regards legal expenses resulting from

disputes ensuing from Petroleum Operations.



-



attorney fees.



-



appraiser expenses.



-



sums due as damages resulting from

disputes ensuing from the conduct of Petroleum

Operations.



It is understood that these disputes shall not be

caused by the Operator's gross negligence or willful

misconduct.

5.5.7



Taxes

All taxes related to effecting Petroleum

Operations with the exception of the oil Royalty and

tax on results borne by SONATRACH.

5.5.8

Offices, Camps and Miscellaneous

Installations

operation and maintenance expenses of

all offices, camps, warehouses, dwellings and

other installations used directly for Petroleum

Operations.

Operation and maintenance expenses shall especially

include:

operation costs such as, workshops,

transportation services, civil engineering and

utilities.

expenses for the purchase, rental,

operation, repair and maintenance of radio and

microwave communication systems between the

Contract Area and Operator's installations.

expenses inherent in all measures taken

for the personnel's safety and well-being,

including all measures taken to preserve the

environment by virtue of the Laws and regulations

in effect.



5.5.9



Training Costs

The costs which are chargeable for the training of personnel

according to Article 21 of the Agreement.



5.5.10



Transportation Expenses



Expenses incurred due to transportation of material, other

than the expenses already included in the purchase cost of

these goods, in accordance with Paragraph 5.5.2 above.

5.5.11



Other Expenses



Any other expenses incurred to meet the needs of Petroleum

Operations that are not included in the expense headings

mentioned above.

5.5.12



Overhead

a)



Exploration Phase



Overhead incurred by the parent company of the

Operator provided by the Agreement will be charged to

the Joint Account in proportion to the sum of costs



incurred annually for direct charges, based on the

following percentages:

Five percent (5%) of Direct Charges

which are equal to or less than ten million

(10,000,000) Algerian Dinars.

Three percent (3%) of Direct Charges

which are in excess of ten million (10,000)

Algerian Dinars but less than fifteen million

(15,000) Algerian Dinars.

One percent (1%) of direct Charges which

are equal to or exceed Fifteen Million

(15,000,000) Algerian Dinars.

The overhead charges for services performed by the

whole general organization of the Operator covers the

following functions:



b)



-



Management.



-



Administrative, Financing, and

Accounting Services.



-



Budget, personnel.



-



General and continual technical services

from and control by parent company.



-



Internal Audit.



-



Tax and legal services, research and

development public relations.



-



Etc.



During the Exploitation Phase

The overhead related to the whole organization in

Algeria will be charged at actual cost to the Joint

Account by the Operator.

However, each Party shall support on their

Percentage Interest of Liquid Hydrocarbons the cost of

technical and administrative assistance made by their

own central departments or Affiliates.



ARTICLE 6 - INSPECTIONS AND ADJUSTMENTS

6.1



All Accounting Documents, especially settlements of accounts

and statements submitted by the Operator to the Parties for

a given fiscal year, shall be deemed to be exact and correct

after the expiration of twelve (12) months from the end of

that fiscal year, unless, within that period, one of the

Parties raises a written objection.



6.2



For a period of twelve months following the date of the end

of that fiscal year, upon thirty (30) Days prior Notice to

the Operator, the Non Operator shall have the right, at its

own costs, to Audit yearly the accounts concerning that

fiscal year and related Accounting Documents for the entire

fiscal year or part thereof.

The said right of Audit shall not extend the time limit

applicable to contest the accounts and claim redress as



provided above.

6.3



In order to keep to a minimum disruption of the Operator's

activities, the Parties shall endeavor, as far as possible,

to conduct the said Audits jointly or simultaneously.



6.4



At the latest sixty (60) Days after the date of the Audit

provided under this Accounting Procedure, the concerned

Party shall send to the Operator its written audit report,

as well as any exceptions raised.

Operator shall respond in writing to the exceptions within

sixty (60) Days after the Notice.

If the exceptions are not withdrawn, the Operator and the

other Party shall have thirty (30) Days to attempt to settle

the controversy.

After the expiration of this period, if no solution is

found, the Parties shall refer the matter to the Operating

Committee.



6.5



At least once a year, Operator shall be bound to take a

physical inventory. The physical and accounting inventories

shall be compared, and any difference shall, upon approval

by the Operating Committee, be the subject of a possible

readjustment of accounts. Operator shall give each Party

written notice at least thirty (30) Days prior to the

commencement of such operations of his intention to take the

physical inventory.



6.6



Each time there is a change of Operator, a physical

inventory shall be taken with duly authorized

representatives of the Parties present. A report of their

inventory will be prepared and signed by the two Operators

in which all related details shall be noted.

ANNEX "C"

BASIN EVALUATION



1.



The objective of the Basin Evaluation is to identify free

areas located outside the Contract Area in which may show to

exist economically profitable prospects for Exploration of

Liquid Hydrocarbons.



2.



ANADARKO will undertake a regional Basin Evaluation study

dealing with the Hydrocarbon potential of the eight (8)

Exploration Districts shown on the map attached as Annex

C-1, with particular emphasis on Districts 1, 3, 4, 6, 7,

and 8 including the offshore continental shelf.



3.



This study will be an integral part of the Minimum

Exploration Program performed during the Exploration Phase.

Periodic reports, technical reviews and recommendations will

be presented to the Operating Committee.



4.



Based upon the recommendations of the Basin Evaluation

technical group, the Operating Committee will determine

those free areas for which will be requested either new

Exploration Licences or new prospection authorizations or

either the adding to one or many areas already covered by an

Exploration Licence.



5.



To conduct Basin Evaluation, ANADARKO will provide a group

of geologists and geophysicists. This group shall work in



association with SONATRACH to review all existing data of

SONATRACH, which will form the initial database for the

study.

6.



In addition to the options of

Paragraphs 8.3 and 8.6 of the

Basin Evaluation, the Parties

agreement between the Parties

petroleum operations.



the Parties pursuant to

Agreement which result from

may elect to conclude a new

for the conducting of



7.



The Basin Evaluation study, the technical information, and

all reports derived from this study are the exclusive

property of SONATRACH. However, ANADARKO will keep a copy

of that study and the technical information and reports

which it agrees to hold in confidence in accordance with

Article 23 of the Agreement.



8.



Costs incurred by ANADARKO in conducting Basin Evaluation

are not included in determining whether ANADARKO has

satisfied its financial obligations stated in Paragraph 10.2

of the Agreement. However, a portion of those expenditures

will be considered Exploration Costs reimbursable to

ANADARKO, conforming to Paragraph 8.4 of the Agreement.



9.



In order to conduct Basin Evaluation, the following types of

studies are envisioned:

A.

Compilation and review of all available published

and unpublished reports on the subject;

B.

Compilation and review of existing SONATRACH data,

including:



C.



1.



Base maps (Wells, seismic coverage,

topography, etc.);



2.



Well logs, formation tops and test data;



3.



Interpreted maps (structure, isopach and

others);



4.



Production data;



5.



All seismic, gravity and magnetic data

already collected; and



6.



Biostratigraphic data and correlations;



Construction of regional cross-sections;



D.

Regional lithologic descriptions of potential

Reservoir and source rocks (measured sections, core and

cutting descriptions);

E.

Outcrop studies/field mapping when necessary,

assisted by satellite imagery interpretation;

F.

Interpretation of existing regional geophysical

data and their seismic reprocessing if necessary; and

G.

Interpretation of tectonic history and timing of

trap development and its relation to Hydrocarbon

generation and migration.

ANNEX "D"

SEISMIC PROCESSING CENTER



Conditioned upon the signing of an agreement (hereafter

called the "Seismic Processing Center Agreement") between

ANADARKO and SONATRACH, and without prejudice to the provisions

of Paragraph 13 hereof, ANADARKO agrees to purchase, have

installed, and then, for an initial period of three (3) years of

operation, manage, operate and maintain the computer hardware and

software (hereinafter collectively referred to as the "Seismic

Processing Center").

In priority order, the Seismic Processing Center will be

used to:

A.

Process and/or reprocess by ANADARKO, SONATRACH'S

available seismic data over the Contract Area;

B.

Process the seismic data acquired by ANADARKO on

the Contract Area; and

C.

Reprocess seismic data belonging to SONATRACH

necessary for ANADARKO to conduct the Basin Evaluation

work stated in Annex "C" of the Agreement.

The specific terms and provisions concerning the Seismic

Processing Center will be stated in the Seismic Processing Center

Agreement to be entered into between SONATRACH and ANADARKO not

later than three (3) months from the Effective Date. This

agreement must include the following specific provisions:

1.

ANADARKO shall operate and manage the Seismic

Processing Center during the first three (3) years of

operation and, with the exception stated in Paragraph 2

below, shall have the exclusive use of the Seismic

Processing Center for the work which will be performed

on the Contract Area and in Basin Evaluation. The

period of the first three (3) years of operation begins

when the Seismic Processing Center is fully installed

and operational in Algeria.

2.

During the first three (3) years of operation,

SONATRACH may utilize the Seismic Processing Center to

process its own data, for a minimum of 15% of the

monthly operating time, or more when computer time

becomes available. For this work, SONATRACH will

reimburse ANADARKO on a cost basis, with no profit or

loss to ANADARKO.

3.

ANADARKO will provide, at its own cost and

expense, the computer hardware and software necessary

to process approximately 2000 kilometers of data per

month, as well as all the auxiliary equipment such as

furniture, air conditioning equipment, backup

electrical power, power boosters and transformers.

These costs and expenses include, notably, the expense

of purchase of equipment, delivery, importation and

installation of the Seismic Processing Center in

Algeria. These costs and expenses will constitute

Exploration Costs and therefore will be reimbursable in

accordance with the Agreement.

4.

During the first three (3) years of operation of

the Seismic Processing Center, ANADARKO will provide

all required maintenance, spare parts, supplies,

equipment, expatriate technicians, and training for

Algerian personnel. These costs and expenses will

constitute Exploration Costs and will be able to be

reimbursed in accordance with the Agreement.



5.

During that period, SONATRACH will provide, at its

sole cost and expense, building and office space in

Boumerdes for the Seismic Processing Center and its

related facilities, such as electrical power, water,

gas and telephone lines, as well as all the Algerian

staff deemed necessary by ANADARKO, with SONATRACH'S

agreement, for the operation of the Seismic Processing

Center, with no financial obligation to ANADARKO.

6.

During the first three (3) years of operation,

ANADARKO shall have the sole authority concerning the

management, supervision and training of the Algerian

personnel furnished by SONATRACH.

7.

The Seismic Processing Center Agreement between

ANADARKO and SONATRACH will contain detailed provisions

relating to the selection, supervision and training of

the Algerian staff to be called to work at the Seismic

Processing Center and provided by SONATRACH, in

accordance with Paragraphs 4 and 6 above.

8.

After the Seismic Processing Center has been in

operation for three (3) years, SONATRACH will operate

and manage the Seismic Processing Center and will bear

solely all costs and expenses related to that activity.

SONATRACH will, at this point, have priority usage of

the Seismic Processing Center. ANADARKO, nevertheless,

will have the right to continue to process its data, on

a time available basis, and if ANADARKO determines it

necessary, ANADARKO will have access to the Seismic

Processing Center to copy seismic digital tapes. All

costs relative to the usage of the Seismic Processing

Center by ANADARKO will be billed to ANADARKO on a cost

basis, with no profit or loss to SONATRACH. ANADARKO'S

rights mentioned in this paragraph will continue as

long as ANADARKO executes Petroleum Operations in

Algeria under the Agreement.

9.

From the moment it is imported or at the latest

when it is installed, the title to the Seismic

Processing Center shall be held by SONATRACH. The

transfer of ownership, however, will be without

prejudice to ANADARKO'S rights to be reimbursed by

SONATRACH for fifty-one percent (51%) of costs relative

to the Seismic Processing Center, which costs shall

also include Customs Duties (if any) paid by ANADARKO

for the importation of the Seismic Processing Center.

10. The agreement mentioned above will include a

detailed description of all the hardware and software,

as well as all the auxiliary equipment.

11. The agreement mentioned above will contain further

details concerning the installation, management,

operation, priorities and procedures for usage and

maintenance of the Seismic Processing Center in

Algeria.

12. If the Seismic Processing Center is not imported

and operational in Algeria within six (6) months

following the Effective Date of the Agreement, ANADARKO

will, within ten (10) Days from expiration of that

period, call a meeting of the Operating Committee to

seek a solution to the problem causing the delay.



Provided the Operating Committee reaches agreement as

to a solution, ANADARKO shall have a maximum time of

three (3) months from the date of that meeting within

which to import and make the Seismic Processing Center

operational.

13. In the case one of the two following situations occurs:

A.

Three (3) months after the Effective Date of the

Agreement SONATRACH and ANADARKO fail to reach final

agreement as to the specific terms and provisions

concerning the Seismic Processing Center Agreement and

the Operating Committee agrees that all possible means

of reaching final agreement have been exhausted and the

principles contained in this Annex have not been

violated by either Party; or

B.

ANADARKO fails to import and have the Seismic

Processing Center operational pursuant to Paragraph 12

above, whichever event first occurs, then ANADARKO

shall advance the sums necessary for SONATRACH to

execute, for ANADARKO'S account, the obligations stated

in Paragraph 3 above which ANADARKO is unable to

perform as part of the initial Exploration Work Program

approved by the Operating Committee.

ANNEX "E"

TAKING PROCEDURE

ARTICLE 1

LOADING LIABILITY

SONATRACH shall be liable to ANADARKO for due execution of all

ship loading operations for which it is responsible under the

Agreement and this Annex. On the other hand, all other purely

port operations shall be the direct responsibility of the partner

or his representatives.

ARTICLE 2

QUARTERLY LOADING PROGRAM AND APPORTIONMENT

On the basis of the estimated quantities of Liquid

Hydrocarbons which are expected to be at ANADARKO'S disposal,

eighty-five (8) days before the beginning of each Calendar

Quarter, ANADARKO shall give Notice to SONATRACH of the monthly

quantities it expects to take during each Calendar Quarter.

Within fifteen (15) days of the receipt of the above

mentioned Notice, SONATRACH shall notify ANADARKO either of its

agreement or of the amendments SONATRACH wishes to include in the

program proposed by ANADARKO.

ARTICLE 3

MONTHLY LOADING PROGRAM AND NOMINATION OF SHIPS

3.1



Thirty (30) days before the beginning of each month of the

quarterly loading program, ANADARKO shall notify SONATRACH

of the loading program it wishes to follow during that

month. That Notice shall indicate the quantity of Liquid

Hydrocarbons to be loaded-within ten percent (10%)-onto each

ship and the Expected Time of Arrival ("ETA") for each ship.

Within five (5) days following receipt of that Notice,

SONATRACH shall inform ANADARKO if it can or cannot accept

the ETA proposed by ANADARKO. In the event of

non-acceptance, SONATRACH shall set loading dates as close



as possible to the ones proposed by ANADARKO.

3.2



ANADARKO shall notify SONATRACH ten (10) days in advance of

the firm date ("Firm Date") of the ship's arrival, of its

name, principle dimensions, cargo load capacity, the port(s)

of discharge of cargo and the distribution of the usual

loading documents.

Unless the Parties agree otherwise, the Firm Date so

announced must not be postponed more than two (2) days from

the date previously set in the monthly loading program

established in accordance with the provisions of Paragraph

3.1 of this ANNEX.



3.3



ANADARKO shall take measures to ensure that the captain of

its ship notifies SONATRACH'S representative at the Port of

Loading of the ship's ETA at the Port of Loading, as

follows:

A.

A first Notice shall be sent either as soon as the

ship casts off from the last port of call, if that port

is no more than seventy-two (72) hours away from the

Port of Loading (which will have been determined by

SONATRACH) or, if it is not the case, seventy-two (72)

hours prior to the ship's ETA; then

B.

A second Notice shall be sent forty-eight (48)

hours prior to the ship's ETA; and finally,

C.

A third Notice shall be sent twenty-four (24)

hours prior to the ship's ETA.



3.4



ANADARKO may substitute a ship previously nominated

according to the provisions of this Article for another ship

of the similar type and capacity.

ANADARKO shall notify SONATRACH of any substitution as soon

as possible, and at least seventy-two (72) hours prior to

the ETA of the ship initially nominated.



3.5



Subject to thirty (30) days' prior Notice, SONATRACH

reserves the right to request the taking of Liquid

Hydrocarbons as soon as the volumes in storage which are due

to ANADARKO have reached 50,000 metric tons.

ARTICLE 4

LOADING



4.1



SONATRACH'S representative will load the ship at the berth

assigned to it. The berth shall be free upon the ship's

arrival and shall permit the ship to enter, exit and anchor

in security.



4.2



When the ship arrives at a Port of Loading or in a zone

outside the port, the ship's captain shall notify

SONATRACH'S representative by letter, telex, or radio that

the ship is ready to receive the quantity of Liquid

Hydrocarbons scheduled for that ship, whether the berth is

free or not.



4.3



If, upon the ship's arrival, the ship is led without delay

to the berth, the Notice specified in Paragraph 4.2 above

shall be deemed to have been given as soon as the ship has

completed mooring.



4.4



If the ship arrives at the Port of Loading within twelve

(12) hours prior to or after the Firm Date, the lay day

period shall start either six (6) hours following receipt of

the Notice, or at the start of loading operations, provided

it begins before the end of this six (6) hour period. Any

other delay caused by the ship shall be added to that six

(6) hour period.



4.5



If the ship arrives at the Port of Loading more than twelve

(12) hours prior to the Firm Date, SONATRACH'S

representative shall cause the loading operations to proceed

as soon as possible, taking into consideration the

requirements of the overall loading program of other ships.

In no case shall SONATRACH'S representative be bound to

accept the Notice more than six (6) hours prior to the

expected loading time. The lay days shall be calculated

according to the provisions of Paragraph 4.4 above.



4.6



If the ship arrives at the Port of Loading more than twelve

(12) hours after the Firm Date, SONATRACH'S representative

shall proceed to the loading operations as soon as possible,

taking into consideration the overall loading programs for

other ships and its available supply of Liquid Hydrocarbons.

The lay day period shall start at the first of the following

hours:

A.

Either six (6) hours after the Notice given under

Paragraph 4.2 above has been declared acceptable by

SONATRACH'S representative; or

B.

At the start of loading operations, if loading

begins less than six (6) hours after acceptance of that

Notice.



4.7



The lay days shall cease when the loading hose pipes are

disconnected and the necessary documents are received on

board.



4.8



The time allotted for the loading shall be equal to one-half

(1/2) the time stated in the latest edition of the WORLDWIDE

TANKER NOMINAL FREIGHT SCALE (hereafter referred to as

"WORLDSCALE") in effect on the day loading is completed, for

ships of similar type and capacity.



4.9



The ship shall leave its berth upon completion of the

loading operations. Any loss or damage suffered by

SONATRACH or its representative due to the ship's failure to

quickly leave its assigned berth, including delays suffered

by other ships waiting for their turn to load, shall be the

responsibility of ANADARKO.



4.10 All piloting, mooring, "lamanage," and deballasting costs

shall be borne by the ship. If, upon SONATRACH'S

representative's request, there is a change of berth during

loading operations, the costs corresponding to that change

shall be borne by SONATRACH.

ARTICLE 5

DEMURRAGE

5.1



Subject to compliance with the Notice provisions of

Paragraphs 3.2 and 3.3, SONATRACH will pay ANADARKO, for any



ship not loaded within the lay day period determined

according to the provisions of Article 4 above, demurrage

for the number of hours or portions thereof in excess these

periods.

5.2



The amount of demurrage shall be calculated at the rate in

effect as stated in the latest edition of WORLDSCALE, for a

ship of the same type and capacity transporting the same

type of Liquid Hydrocarbons. This rate shall be modified by

the Average Freight Rate Assessment percentage (hereafter

referred to as "AFRA") in effect on the day of completion of

loading operations and applicable to that same category of

ship.



5.3



If ANADARKO presents a ship for loading whose size and

Liquid Hydrocarbon tonnage capacity is greater than agreed,

the demurrage shall be calculated at the Worldscale rate

corresponding to the said tonnage to which a five percent

(5%) allowance in respect of fuel and consumables shall be

added. The resulting rate shall be modified by the AFRA

percentage in effect on the date of completion of loading

operations and applicable to the category of ship with the

agreed tonnage, to which the said five percent (5%)

allowance shall be added.



5.4



No demurrage shall be paid by SONATRACH to ANADARKO if the

difficulty or delay in delivering Liquid Hydrocarbons is due

to Force Majeure.



5.5



All claims by ANADARKO for the payment of demurrage must be

received by SONATRACH within three (3) months after the date

of the bill of lading. The claim shall include, in addition

to all the other documents in support of the claim, an

original invoice and four duplicate copies. Beyond this

deadline, the claim shall not be taken into consideration.

ARTICLE 6

DELIVERY AND LOADING CONDITIONS

Liquid Hydrocarbons shall be delivered by SONATRACH and

taken by ANADARKO FOB port of loading.

The features of the ports of loading shall be communicated

to ANADARKO before taking begins.

ARTICLE 7

FREIGHT CONTROL



7.1



The quantity of Liquid Hydrocarbons delivered to ANADARKO

will be volumetrically determined during loading operations

based on measurements of the onshore tanks used to load the

ship. The volumes will be corrected to a temperature of 15

C using appropriate conversions, the deduction being made

for possible BSW.



7.2



ANADARKO will be able to designate, on condition of first

obtaining SONATRACH'S agreement (which agreement will not be

unreasonably withheld), a representative to witness the

inspection of the quantity of Liquid Hydrocarbons during

loading operations of each ship. To that end, SONATRACH

shall place at ANADARKO's representative's disposal a copy

of the quantity calculations and any other information

relating to Liquid Hydrocarbons delivered to ANADARKO. In

this case, the quantity of Liquid Hydrocarbons received

which will appear on the bill of lading will be that which

was determined jointly by SONATRACH and ANADARKO's



representative.

7.3



SONATRACH shall give to ANADARKO a certificate indicating

the quantity of Liquid Hydrocarbons delivered to ANADARKO.

The certificate shall not be contestable after thirty (30)

days following the date of the bill of lading.



7.4



In case of objection by ANADARKO within the time period

stated in Paragraph 7.3 above, Article 26 of the Agreement

will be applied.



7.5



The quality of the Liquid Hydrocarbons shall be determined

from representative samples taken from the onshore tanks.

One of these samples shall be sealed and put on board the

ship for ANADARKO'S use. Another sealed sample shall be

kept by SONATRACH for thirty (30) days from the date of the

bill of lading.



7.6



The quality testing of samples shall take place, except if

otherwise agreed by the Parties, according to the most

recent methods of the American Society for Testing Materials

(ASTM). The sulfur content and water and sediment content

(BSW) will be determined according to ASTM-D-129 and

ASTM-D-96 respectively.









EX-27

3





5

0000773910

ANADARKO PETROLEUM CORPORATION

1,000

























































3-MOS

DEC-31-1997

MAR-31-1997

41,370

0

143,108

0

25,157

212,977

4,111,912

1,763,682

2,580,337

202,569

700,000

0

0

6,107

1,042,995

2,580,337

170,506

170,506

91,107

91,107

0

0































-----END PRIVACY-ENHANCED MESSAGE-----



9,238

53,965

19,531

34,434

0

0

0

34,434

0.58

0