NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here

PRODUCTION SHARING AGREEMENT


REPUBLIC OF MALAWI


BLOCK 6


May 2014


 Page


PART 1 - SCOPE AND INTERPRETATION..........................................................................................................1


1. DEFINITIONS AND INTERPRETATION............................................................................................................1


PART 2 - SCOPE, TERM, EXPLORATION OBLIGATIONS AND TERMINATION.................................................11


2. SCOPE.........................................................................................................................................................11


3. TERM..........................................................................................................................................................12


4. SURRENDER................................................................................................................................................14


5. MINIMUM EXPLORATION WORK AND EXPENDITURE OBLIGATIONS........................................................IS


6. SURFACE FEES.............................................................................................................................................20


7. TERMINATION AND ITS EFFECTS................................................................................................................20


PART 3 -RIGHTS AND OBLIGATIONS OF THE CONTRACTOR...............................................................................21


8. RIGHTS OF THE CONTRACTOR....................................................................................................................21


9. GENERAL STANDARDS OF CONDUCT.........................................................................................................22


10. 11 ABILITY, INDEMNITY AND INSURANCE................................................................................................23


11. WELLS AND SURVEYS..........................................................................................................................24


12. OFFSHORE OPERATIONS........................................................................................................................26


13. ONSHORE OPERATIONS..........................................................................................................................26


14. FIXTURES AND INSTALLATIONS..............................................................................................................27


15. LOCAL EMPLOYMENT AND TRAINING....................................................................................................29


16. DATA AND CONFIDENTIALITY.................................................................................................................30


17. REPORTS.................................................................................................................................................32


PART 4 - RIGHTS AND OBLIGATIONS OF THE GOVERNMENT AND THE MINISTER.......................................32


18. RIGHTS OF THE GOVERNMENT..............................................................................................................32


19. OBLIGATIONS OF THE GOVERNMENT ...................................................................................................33


20. ADVISORY COMMITTEE..........................................................................................................................34


PART 5 - WORK PROGRAMME EXPENDITURE, DEVELOPMENT AND PRODUCTION.....................................36


21. EXPLORATION WORK PROGRAMME......................................................................................................36


22. DISCOVERY AND APPRAISAL PROGRAMME...........................................................................................37


23. DEVELOPMENT PLAN AND DEVELOPMENT WORK PROGRAMME.........................................................39


24. UNITISATION..........................................................................................................................................41


25. PRODUCTION LEVELS AND ANNUAL PRODUCTION PROGRAMME.....................................................41


26. MEASUREMENT OF PETROLEUM...........................................................................................................42


27. NATURAL GAS.........................................................................................................................................42


28. VALUATION OF CRUDE OIL AND NATURAL GAS.....................................................................................43


PART 6 - DOMESTIC SUPPLY OBLIGATION, COST RECOVERY, PRODUCTION SHARING AND MARKETING... 44


29*. DOMESTIC CONSUMPTION...................................................................................................................44


BO. ROYALTY, RECOVERY OF COSTS, PRODUCTION SHARING AND INCOME TAX........................................45


31. LOCAL PARTY FARM-IN...........................................................................................................................50


32. GOVERNMENT PARTICIPATION..............................................................................................................51


33. ENVIRONMENT.......................................................................................................................................51


34. ABANDONMENT AND DECOMMISSIONING OPfcRAIIONS.....................................................................54


35. CORPORATE SOCIAL RESPONSIBILITY.....................................................................................................58


36. PROFIT SHARING STATEMENT..............................................................................................................59


PART 7 - BOOKS, ACCOUNTS, AUDITS, IMPORTS, EXPORTS AND FOREIGN EXCHANGE...............................59


37. BOOKS, ACCOUNTS AND AUDITS...........................................................................................................59


38. PROCUREMENT......................................................................................................................................60


39. EXPORTS AND IMPORTS.........................................................................................................................61


40. EXCHANGE AND CURRENCY CONTROLS.............................................................................................62


PART 8 GENERAL.........................................................................................................................................64


41. REPRESENTATIONS AND WARRANTIES..................................................................................................64


42. PAYMENTS..............................................................................................................................................65


43. ASSIGNMENT..........................................................................................................................................66


44 JOINTOPERATING AGREEMENT............................................................................................................67


45. FORCE MAJEURE.....................................................................................................................................68


46. WAIVER...................................................................................................................................................69


47. GOVERNING LAW...................................................................................................................................69


48. SETTLEMENT OF DISPUTES.....................................................................................................................70


49. STABILITY PERIOD...................................................................................................................................71


50. NOTICES...................................................... 72


51. AMENDMENTS.......................................................................................................................................73


APPENDIX "A1 THE CONTRACT AREA


APPENDIX "B1 ACCOUNTING PROCEDURE


PART I GENERAL PROVISION


PART II CLASSIFICATION, DEFINITION AND ALLOCATION Or COSTS AND EXPENDITURES


PART III COSTS, EXPENSES, EXPENDITURE AND CREDITS OF THE CONTRACTOR


PART IV FINANCIAL REPORT REPORTS TO THE MINISTER


 PRODUCTION SHARING AGREEMENT


1L


This PRODUCTION SHARING AGREEMENT (the "Agreement") is made and entered into on / 2, n MaV


2014 constitutes the agreement BETWEEN:


1. THE GOVERNMENT OF THE REPUBLIC OF MALAWI represented for the purpose of this Agreement hy


the Minister responsible for Mining (the "Minister");





and


2. Pacific Oil Ltd., a company existing under the laws of Seychelles , with office and legal representative in


the Republic of Malawi at PO BOX 31656 . Lilongwe 3, Capital City, (the "Contractor").


individually referred to as a "Party" and, collectively, as "Parties".





PREAMBLE:





WHtREAS: The title to all Petroleum resources existing in their natural conditions in the Republic of Malawi is


vested in the Government on behalf of the people of Malawi;


WHEREAS the Petroleum (Exploration and Production) Act, No.2 of 1983 enacted by the Parliament of the


Republic of Malawi (the "Act") makes provisions with respect to exploring for and producing Petroleum and,


for that purpose, subject to certain limitations and conditions, authorises the Minister to grant Licences;


WHEREAS the Government wishes to attract foreign investment and promote and encourage the exoloration


and development of the potential Petroleum resources within the Contract Area;


WHEREAS Pacific Oil Ltd desires to join and assist the Government in accelerating the exploration and


development of the potential Petroleum resources within the contract area and has the necessary financial


capacity, technical competence and professional skills for the same;


WHEREAS Pacific Oil Ltd has represented to the Government that it has the requisite technical and financial


capabilities to carry out Petroleum Operations and wishes to assist the Government in thoroughly evaluating


the Petroleum potential and promptly and efficiently developing Pet-oleum resources discovered in the


Contract Area;


AND WHFRFAS the Minister wishes to engage Pacific Oil Ltd to carry out on its behalf Petroleum Operations


in the Contract Area;





NOW THEREFORE in consideration of the undertaking and covenants herein contained THE PARTIES HEREBY


AGREE as follows:


PART 1 - SCOPE AND INTERPRETATION ____.------; -.r~''»


•---ZZkw \


1. DEFINITIONS AND INTERF»RETATION


1.1 In this Agreement: 1 2 MM 20U





"Abandonment Fund' has the mcamnigiven in Clause 34; .











1


$





"Accounting Procedure" means the accounting procedures and requirements set out in


Appendix "B" attached hereto and made an integral part hereof;


“Act" means Petroleum (Exploration and Production) Act, No.2 of 1983 enacted by the


Parliament of the Republic of Malawi and includes any amendments and replacements and


any subsidiary laws or regulations;


Adjacent Contract Area" has the meaning given in Clause 24.1 ;


Advisory Committee" has the meaning given in Clause 20;


Affiliate" means a Person directly or indirectly Controlling or Controlled by or under direct


or indirect common Control with another Person;


"Appraisal Operations" means a programme of the activities carried out after the Discovery


to better define the parameters of the Petroleum and the Reservoir to which the Discovery


relates and determine its commerciality and includes any activity carried out under an


Appraisal Programme;


"Appraisal Programme" means a programme of activities after the Discovery that may


include:


(a| Drilling Appraisal Wells and running productivity tests where appropriate,


(b) Collecting special geological samples and reservoir fluids; and


(c) Conducting supplementary studies and acquisition of geophysical and other data,


as well as the processing of same data;


"Appraisal Well" means any Well dr lied fol owing a Discovery in the Contract Area for the


purpose of ascertaining the quantity and real extent of Petroleum in the Petroleum


Reservoir to which that Discovery relates;


"Arms Length Sales" means sales made freely in the open market, in freely convertible


currencies, between willing and unrelated sellers and buyers and in which such buyers and


sellers have no contractual or other relationship, directly or indirectly, or any common or


joint interest as is reasonably likely to influence selling prices and shall, inter alia, exclude


sales (whether direct or indirect, through brokers or otherwise) involving:


(a) Affiliates;


(b) Sales between Companies which are Parties to this Contract;


(c) Sales between governments and government-owned entities;


(d) Countertrades;


(e) Restricted or distress sales;


(f) Sales involving barter arrangements; and








2


(g) Generally any transactions motivated in whole or in part by considerations other


than normal commercial practices;


"Assignment Notice" has the meaning given in Clause 43.3 ;


"Associated Natural Gas" means all Natural Gas produced from any Reservoir the


predominant production of which is Crude Oil and which is separated from Crude Oil in


accordance with good oilfield practice including free gas cap, but shall exclude any liquid


hydrocarbon extracted from such Gas either by normal field separation, dehydration or in a


Gas plant;


"Barrel" means a quantity consisting of 158.987 litres at standard atmospheric pressure of


1.01325 bars and temperature of fifteen degrees centigrade (15°C);


"Block" means the geographical area described as Block as provided in the Petroleum


(Prescribed Fees and Annual Charges) (Amendment) Regulations, (2009), and includes part


of a block so constituted;


"BOPD" has the meaning given at Clause 30.5.2 ;


"Calendar Quarter" or "Quarter" means a period of three (3) consecutive months


commencing with the first day of January, April, July and October;


"Calendar Year" means a period of twelve (12) consecutive months commencing with the


first day of January in any year and ending the last day of December in that year, according


to Gregorian calendar;


"Change of Control" means any direct or indirect change in Control of a Party (whether


through merger, sale of shares or other equity interests, or otherwise) through a single


transaction or series of related transactions, from one (1) or more transferors to one (1) or


more transferees;


"Commercial Discovery" means a Discovery which, in the opinion of the Contractor, is


potentially commercial when taking into account all technical, operational, commercial and


financial data collected when carrying out Appraisal Operations or similar operations,


including but not limited to: recoverable reserves of Petroleum, sustainable regular


production levels and other material technical, operational, commercial and financial


parameters, all in accordance with standard practices in the international petroleum


industry;


"Commercial Production" means regular and substantially continuous production of


marketable Petroleum from a Reservoir If the Petroleum produced is from the test of an


Exploration or Appraisal Well and net part of a regular lifting program or if substantially all


produced Petroleum is used by the Contractor in Petroleum Operations or re-injected into


the Reservoir, there is no Commercial Production;


"Commissioner" means the Commissioner tor Petroleum Exploration and Production


appointed by the Minister pursuant to section 5 of the Act and, if no such person is in office,


thp Minister;











3


"Contract Area" means the geographic area covered by the Petroleum Exploration Licence,


as set out at Appendix A, and any part thereof not previously surrendered;


"Contract Year" means twelve (12) consecutive calendar months from the Effective Date or


from the anniversary thereof;


"Contractor" means, either jointly or individually, Pacific Oil Ltd, its Affiliates, successors or


any assignee or assignees of any interest of the signatory under this Contract, provided that


the assignment of any such interest is accomplished pursuant to the provisions of Clause 43;


"Contractor Entity' means any person which is for the time being an equity participant in


the Contractor, and/or any assignee of all or part of the rights and obligations of such person


under this Contract in accordance with Clause 43;


"Control" means, in relation to a person, the power of another person to secure:


(a) by means of the holding of shares or the possession of voting power in or in relation to


the first person or any other person; or


(bl by virtue of any power conferred by the articles of association ot, or any other


document regulating, the first person or any other person,


the power to appoint the majority of the board of directors of that person or otherwise


control the affairs of that person;


"Cost Petroleum" means the portion of Crude Oil and/or Non-Associated Gas available to


the Contractor to cover its Petroleum Costs in accordance with Clause 30.1 ;


Crude Oil", or Oil" or "Crude" means all hydrocarbons, regardless of gravity, that are


produced at the wellhead in liquid state at atmospheric pressure, asphalt, ozokerites and


the liquid;


'Customs Duties" has the meaning given in Clause 39.9 ;


"Decommissioning Plan’ means the plan for the decommissioning abandonment, recovery


and removal, or if applicable redeployment of Wells, flow lines, pipelines, facilities,


infrastructure and assets related to Petroleum Operations:


"Delivery Point" means the outlet flange of the final fiscal metre prior to conveyance of title*


for Petroleum from the Contractor to another party located within, or as close as is


reasonably practical to, the Development Area and which may be agreed between the


Minister and the Contractor;


"Development Area" means that area identified and delineated in a Development Plan;


"Development Costs" has the meaning given in Appendix B;


"Development Operations" mean all development operations or works conducted in


accordance with a Development Plan with a view to developing a Petroleum Reservoir in


which a Discovery has been made, including but not limited to: drilling of Wells; primary and


subsequent recovery projects and pressure maintenance; survey; engineering, building and





4


erecting or laying of production plants and facilities (including but not limited to: separators;


compressors; generators; pumps and tankage; gathering lines; pipelines and all facilities


required to be installed for production, pressure maintenance, and treatment, storage and


transportation of Petroleum and loading Petroleum in tankers); obtaining of such materials,


equipment, machinery, items and supplies as may be required or expedient for the


foregoing activities; and all auxiliary operations and activities required or expedient for the


better conduct or result of production of Petroleum in the subsurface of the Contract Area;


'Development Phase' means the period commencing when the Development Plan is


adopted;


"Development Plan" means the development plan prepared under Clause 23, by both the


Contractor and the Minister with the results of an executed Appraisal Programme,


"Development Well" means any Well drilled within a Development Area after the dale of


approval of the Development Plan for the purpose of producing Petroleum, increasing or


accelerating production of Petroleum, including injection Wells and dry Wells;


"Discovery" means the discovery of Crude Oil and/or Natural Gas;


"Discovery Area" means such area of the Contract Area in which a Discovery has been made


or in which there is, in the Contractor's reasonable opinion, a genuine prospect of Discovery;


"Dispute" has the meaning given in Clause 48;


"District" means one of the administrative districts into which the Republic is divided in


accordance with the Regional and District Boundaries and Place Names Art.


"District Commissioner" means the administrator having oversight of the affairs of a District;


Dollar1 or "USD ’ means the currency of the United States of America;


'Economic Limit" means that point in the life of the Reservoir where the Revenue to the


Contractor from Petroleum Operations is insufficient to cover the operating costs to


continue Petroleum Operations in accordance with the requirements of the Contract. In this


context "Revenue1 means the expected revenues derived from the conveyance and sale of


Petroleum at the Delivery Point together with any firm tariff income earned by the Reservoir


facilities, if any:


'Effective Date" means the date of this Agreement;


'Environment" means the physical factors of the surroundings of the human being including


land, water, atmosphere, climate, sound, odour, taste, and the biological factors of fauna


and flora, and includes the cultural, social and economic aspects of human activity, the


natural and the built environment as established in the Environment Management Act;


Environmental Damage means soil erosion, removal of vegetation, destruction of wildlife,


pollution of groundwater or surface water, land contamination, air pollution, noise


pollution, bush fire, disruption to water supplies to natural drainage or natural flow of rivers


or streams, damage to archaeological, palaeontological and cultural sites and shall include


any damage or injury to, or destruction of, soil or water in their physical aspects together





5


with vegetation associated therewith, aquatic or terrestrial mammals, fish, avi-fauna or any


plant or animal life whether in the sea or in any other water or on, in or under land;


"Exploration and Appraisal Costs" has the meaning given in Appendix B;


'Exploration Operations" means operations carried on in the course of exploring the


Contract Area for Petroleum and includes but is not limited to geological, geophysical and


geochemical surveys and analyses, aerial mapping, investigations of subsurface geology,


stratigraphic tests, drilling Exploratory Wells and work necessarily connected therewith;


"Exploration Period" means the Initial Exploration Period or any Extension Periods, as the


case may be, during which Exploration Operations are undertaken by the Contractor;


"Exploratory Well" means a Well drilled or to be drilled (as the case may be) in search of


Petroleum to test a geological feature, which has not been determined to contain


producible Petroleum sufficient for Commercial Production;


"Extension Period" means all or any of the Exploration Periods following the Initial


Exploration Period as may be extended under the terms of this Agreement;


"First Extension Period" means the additional period of three (3) Contract Years after the


Initial Exploration Period pursuant to Clause 3;


"Force Majeure" has the meaning given in Clause 45;


"Government" means the Government of the Republic of Malawi and includes any ministry


or other executive body and any person appointed or representing any of them;


"Initial Exploration Period" means the period of four (4) Contract Years commencing on the


Effective Date,


"International Petroleum Industry Practice' means all those uses and practices that are, at


the time in question, generally practiced by prudent professionals of leading international


firms in the petroleum industry as being good, safe, economical, environmentally sound and


efficient in exploring for, developing, producing, processing and transporting Petroleum;


"Joint Account" means the set of accounts maintained by the Contractor to record all


receipts, expenditures and other operations which, under the terms of this Agreement, shall


be shared between the entities constituting Contractor and Government in proportion to


their paying Participating Interests. Such accounts will distinguish between Exploration and


Appraisal Costs, Development Costs and Production Cost. After adoption of a Development


Plan, a separate Joint Account shall be maintained for each Development Area;


"Joint Operating Agreement" or "JOA" means any agreement executed by the Contractor


Entities at any time for the purpose of regulating between such entities the terms under


which the Petroleum Operations will be conducted, which agreement shall be; (a) consistent


with International Petroleum Industry Practice; (b) as between such entities, supplementary


to a Licence; (c) consistent with the provisions of that Licence; and (d) substantially based on


the 2012 Association of International Petroleum Negotiators model joint operating


agreement;








6


"Law" means any constitution, treaty obligation, law, statute, decree, rule, regulation,


judicial act or decision, judgment, order, proclamation, directive, executive order or other


sovereign act of the Government;


"LIBOR" means the London Inter Bank Offered Rate at which Dollar deposits for one (1)


month are offered in the inter-bank market in London, as quoted in the Financial Times of


London for the day in question. In the event that such rate is not published in the Financial


Times, it shall mean the London Inter-Rank Offered Rate at which Dollar deposits for one (1)


month are offered for the nearest day as quoted by a bank in London as agreed by the


Parties to this Agreement;


"Licence" means the Petroleum Exploration Licence, any other petroleum exploration


licence granted pursuant to the Act and any Petroleum Production Licence;


"Local Business Development Programme" means the local business development


programme which is to be developed in accordance with Clause 38 and approved by the


Government, as may be amended or varied by agreement between the Parties;


"Maximum Effective Rate" means the rate at which the maximum ultimate economic


Petroleum recovery is obtained from a commercial field without excessive rate of decline in


Reservoir pressure and consistent with International Petroleum Industry Practice;


"Minimum Expenditure" means the minimum expenditure obligations of the Contractor


during each of the Exploration Periods as specified in Clause 5;


"Minimum Work Programme" means the minimum work programmes set out in Clause 5;


"Minister" means the Minister responsible for the regulation and licensing of Petroleum


Operations and anyone appointed by the Minister to exercise any functions of the Minister


under the Act;


"Ministry" means the Ministry of Natural Resources, Energy and Environment or such other


body as may, from time to time, be responsible for the regulation and licensing of Petroleum


Operations;


"MMCFD" has the mcaninggiven in Clause 30.5.1 ;


"Natural Gas" or "Gas" means hydrocarbons that are in a gaseous phase at standard


atmospheric conditions of temperature and pressure, including wet mineral Gas, dry mineral


Gas, casing head Gas and residue Gas remaining after the extraction or separation of liquid


hydrocarbons from wet Gas, and non-hydrocarbon Gas produced in association with liquid


or gaseous hydrocarbons;


"Non-Associated Gas" means all gaseous hydrocarbons produced from gas reservoirs, and


includes wet Gas, dry Gas and residue Gas remaining after the extraction of liquid


hydrocarbons from wet Gas;


"Normal Cubic Metre" means the volume of Gas that occupies a cubic metre when this Gas


is at a temperature of 15 degrees Celsius (15°C) and a pressure of 1.01325 bar;











7


"Offshore" shall mean any area which lies below the elevation of the highest tide level of


the Lake Malawi shoreline in question for the ten (10) years preceding this Agreement;


"Onshore' shall mean any area which lies above the elevat on of the highest tide level of the


lake shoreline in question forth? 10 years preced ng this Agreement;


"Operating Costs" means the operating costs as defined in Appendix B;


"Operator" means the entity designated as such under the Joint Operating Agreement;


"Participating Interest means, in respect of any person, its rights to participate in the


extraction of Petroleum and its obligations to bear that proportion of Production Costs,


expressed as a percentage;


"Party" or "Parties" means the Government of Malawi and/or the Contractor, as well as


their authorised assignees;


1 Petroleum" means Crude Oil and Natural Gas;


Petroleum Costs" means those expenditures made and obligations incurred by the


Contractor and paid into the Joint Account in carrying out Petroleum Operations hereunder,


determined in accordance with this Agreement and the Accounting Procedure and wh ch


shall include, without limitation, Exploration and Appraisal Costs, Development Costs,


Production Costs and Operating Costs;


"Petroleum Exploration Licence" means Prospecting Licence no, PEL006/13, granted to the


Contractor by the Government on 24 July 2013 pursuant to sections 16 and 20 of the Act, for


the exploration of hydrocarbons in Malawi BLOCK 6 (together with any extensions, renewals


or amendments and expressly including the letter agreement relating to ’Clarifications -


Prospecting Licenses for Block 6 in Malawi, License No. PEL0C6/13' ente-ed into between


Pacific Oil Ltd and the Principal Secretary of the Ministry of Mining on 25 July 2013 which is


hereby ratified by the Minister);


"Petroleum Materials" has the mean ng given n Clause 39.2 ;


"Petroleum Production Licence means a licence granted under section 28 of the Act for


operations carried out in the course of developing and producing Petroleum;


"Petroleum Operations" means all or any of the operations, authorised under this


Agreement, related to the exploration for, finding, appraisal, development, extraction,


production, separation and treatment, storage, transportation, and sale or disposal of,


Petroleum up to the point of export or the agreed Delivery Point in the Republic of Malawi


o' the point of entry into a refme'y and includes plugging and abandonment of Wells, safety,


environmental protection, site restoration and natural Gas processing operations but does


not include Petroleum refining operations and shall include, without limitation, Appraisal


Operations, Exploration Operations, Development Operations and Production Operations;


"Point of Sale’ means Delivery Point unless otherwise specified;


"Possible Reserves' means additional reserves of Petroleum which analysis of geoscience


and engineering data indicate are less likely to be recoverable than Probable Reserves;





8


Probable Reserves' means those additional Reserves whch analysis of geoscience and


engineering data indicate are less likely to be recovered than Proved Reserves but rro'e


certain to be recovered than Possible Reserves;


"Production Costs" means all the costs, expenditure and obligations incurred by the


Contractor in carrying out the Production Operations after the start of production from the


Reservoir (which are other than Exploration and Development Costs);


Production Operations shall include, but not be limited tc, the running, servicirg,


maintenance and repair of completed Wells and of the equipment, pipelines, systems,


facilities and plants completed during Development. It shall also include all activities related


to planning, scheduling, controlling, measuring, testing and carrying out the flow, gathering,


treating, transporting, storing and dispatching of Crude Oil and Gas from the uncerground


Petroleum Reservoirs to the Delivery Point, and all other operations necessary for the


production and marketing of Petroleum. Production Operations shall further include the


acquisition of assets and facilities required for the production of Petroleum hereunder and


Oil and Gas field abandonment operations;


Profit Petroleum" means that portion of the tota product on of Crude Oil and/or Non-


Associated Gas from the Contract Area in a particular period, in excess of Cost Petroleum,


which is allocated to the Parties under tie terms of the Ag'eement and Crude Oil comprising


Profit Petroleum shall be referred to as "Profit Oil" and Non-Associated Gas comprising


Profit Petroleum shall be referred to as Profit Gas";


1 Prohibited Person" means a Person-


who is identified on a Sanctions List published by a Sanctions Committee of the


United Nations Security Council; or who is (i) identified on the Inte pol Bed Notice


List (http://www.interpol int/Public/Wanted/Search/Form asp); or (ii) the subject of


an arrest warrant issued by the International Criminal Court; or


who is identified on the World Bank ineligible firms list


(http://web.worldbank.org/external/default/main?theSitePK=84266&contentMDK-


64069844&menuPK=116730&pagePK=64143989&piPK=64148984); or


who is identified on the European Union Sanctions list


(http://ec.europa eu/external_reldtions/cfsp/sanctions/rist/consol-list.htm), or


who is identified on any of the following lists maintaned by the United States


government: (1) the United States Department of Commerce Denied Persons list


(located at http://www.bis.doc.gov/dpl/thedeniallist asp) and Entity list (located at


http://www.bis doc.gov/entities/default.htm); |2| the United States Department of


the Treasury Specially Designated Nationals and Blocked Persons lists (both located


at littp;//www. treas.gov/offices/enforcement/ofac/sdn/tllsdn. pdf): (3) United


States Department of State Foreign Terrorist Organizations list (located at


http://www.state.g0v/s/ct/rls/0ther/des/123385.htm) or Debarred Parties list


(located at http://www.pmddtc.state.gov/compliance/debarhtml); or (4) the


Financial Action Task Force on Money Laundenng list of non-cooperative countries


or territories (located at


http://www.oecd.Org/document/57/0,3343, en_2649_201185_190C665 1 1 1 1,0


O.html);





9








(4





any Person Controlling, Controlled by or under Common Control by any Person listed


above; or


any Person that issues bearer shares or other instruments to evidence ownership of


such Person that do not per mil the identification of the owners of such Person;


"Proved Plus Probable Reserves" means Proved Reserves plus Probable Reserves;


Proved Reserves" means those quantities of Petroleum, which by analysis of geoscience and


engineering data, can be estimated with reasonable certainty to be commercially recoverable,


from a given date forward, from known Reservoirs and under defined economic conditions,


operating methods, and government regulations PLUS


"Reservoir" or "Petroleum Reservoir" or "Gas Reservoir" means a subsurface rock formation


containing an individual and separate natural accumulation of producible hydrocarbons (Oil


and/or Gasl characterised by a single natural pressure system;


"Revenue" means the expected revenues derived from the sale of Petroleum together with any


firm tariff income earned by the field facilities, if any;


"R Factor" has the meaning given at Clause 30.5.7 ;


"Second Extension Period" means the additional period of three (3) Contract Years after the First


Extension Period as provided for in Clause 3.5.2 ;


"Semester" means a period of six (6) consecutive months commencing with the first day of


January or the first day of July of a Calendar Year;


"Social Responsibility Plan" means the social responsibility plan to be developed in accordance


with Clause 35 and approved by the Government, as may be amended or varied by agreement


between the Parties;


"Stability Period" means the pe'iod commencing on the Effective Date and ending, in respect of


each Development Area subject to a Petroleum Production Licence, on the earlier to occur of


(i) the date twelve (12) years from the date such Production Licence was granted and


(ii) the date that Petroleum Operations permanently cease;


"Subcontractor means a specialised person, firm or entity contracted by the Contiactor to carry


out specific work relative to Petroleum Operations undpr thp supervision of and for the account


of the Contractor;


"Tax" means any tax, duty, levy, excise, impost, charge, fee oi rate levied, imposed, assessed or


collected under any Law or by Government, together with any associated interest, penalty, fine,


chare or other amount; 'Taxation' and "Taxes" have a corresponding meaning,


Taxation Act' means the Taxation Act of the Republic of Malawi,


Threshold BOPD has the meaning given at Clause 30.5.2 , and


"Well' means a hole drilled into the earth for the purpose of locating, evaluating, producing or


enhancing production of Petroleum.





10


 1.2 In this Agreement, unless the context otherwise requires:





(d) references to a recital, clause, schedule, annexure or exhibit is to a recital, clause,


schedule, annexure or exhibit of or to this Agreement;


(b) a reference to this Agreement or another instrument includes any vacation or


replacement of any of them


(c) a reference to any statute shall include any amendment, replacement or reenactment





of such statute for the time being in force and any bylaws, statutory instruments,


rules, regulations, notices, orders, directions, consents or perm ssions made under


such statute whether by gazetting or by notification to selected parties and any


conditions attaching to them;


(d) words importing the singular include tne plural ard vice versa;


(e) a reference to any gender includes all genders;





(f) a reference to a person includes a reference to the person's executors,


administrators, substitutes, successors and permitted assigns;





(g) a reference to a person further includes an individual, partnership, company,


corporation, trust, society, organization, authority and association;


(h) a covenant, representation or warranty in favour of two or more persons is for the


benefit of them jointly and severally;





(i) the words 'includes' ard 'including shall mean include without limitation and


including without limitation; and


(I) a covenant representation or warranty on the part of two or more persons binds


them jointly and severally.


1.3 There shall at all times be an Operator designated by the Contractor.


(a) Except as otherwise provided herein, the Operator shall be solely responsible for the


conduct of operations under this Agreement and to represent the Contractor to the


Government.


(b) The Opeiator shall, at the cost of the Ministry, establish an office located in Lilongwe,


Malawi within one hundred and eighty (180) days from the Effect ve Date, or upon


cause shown, a later date approved by the Ministry


1.4 Where any provision of this Agreement conflicts with any provision of the Act, this


Agreement shall prevail only to the extent of the inconsistency.


PART 2 - SCOPE, TERM, EXPLORATION OBLIGATIONS AND TERMINATION





2.





The Contractor shall, subject to the terms of the Agreement -





11


2.1.1 be responsible to the Government for the execution of the Petroleum Operations


contemplated hereunder in accordance with the provisions of this Agreement and is


hereby appointed and constituted the exclusive legal entity to conduct Petroleum


Operations in the Contract Area for the term of this Agreement;





2.1.2 provide all capital, machinery, equipment, technology and personnel necessary for


the conduct of Petroleum Operations; and


2.1.3 bear the risk of Petroleum Costs required in carrying out Petroleum Operations and


shall therefore have an economic Interest In the development of the Petroleum


deposits in the Contract Area. Such costs shall be included in Petroleum Costs


recoverable as provided in Clause 30,


in each case, in accordance with its Participating Interest tor the time being.


This Agreement does not authorise the Contractor to process Petroleum beyond the


Delivery Point and no expenditure in respect of further processing shall be a Petroleum Cost.








This Agreement shall continue in force from the Effective Date for a period of 25 years from


the date on which Commercial Production commences unless terminated earlier on its


terms provided, however, that this Agreement shall remain in force to the extent any


Petroleum Production Licence remains in force.


The Contractor is authorised to conduct Exploration Operations in the Contract Area during


an Initial Exploration Period of four (4) Contract Years from the Effective Date.


The Contractor shall begin Exploration Operations within three [31 months of the Effective


Date.


Upon written application by the Contractor made not later than one (1) month prior to the


expiry of the Initial Exploration Period, the Minister shall, if the Contractor has fulfilled its


work programme obligations under this Agreement, grant a First Extension Period not


exceeding three (3) Contract Years.


If the Contractor has fulfilled its work programme for the First Extension Period:


3.5.1 the Contractor shall be deemed to have fulfilled its Minimum Expenditure


obligations; and


3.5.2 upon written application by the Contractor made not later than one (1) month prior


to the expiry of the First Extension Period hereof, the Minister shall grant a Second


Extension Period not exceeding three (3) Contract Years


In order to enable the Contractor to complete the drilling and testing of an Exploratory or


Appraisal Well actually being drilled or tested at the end of the Initial Exploration Period,


First Extension Period or Second Extension Period, the Minister shall, on written application


by the Contractor made not later than three (3) months before the expiry of that Exploration


Period, unless another period of notice is agreed by the Parties, extend the period in which


the work is to be expeditiously completed.


3.7 In the event of a Discovery in the last year of the Second Extension Period, the provisions of


Clause 22 shall apply


3.8 If the Minister has not responded to a request by the Contractor for an extension of the





term within thirty (30) days of the relevant request being made, the relevant extension shall


be deemed to have been granted and shall be binding on the Government without any


3.9 requirement for further documentation.


At the expiry of the Initial Exploration Period, provided that the Contractor has completed


the Minimum Work Programme, the Contractor shall have the option, exercisable by giving


written notice to the Government at least thirty (30) days prior to the expiry of Initial


Exploration Period either:


3.9.1 to proceed to the hirst Extension Period; or





3.9.2 to relinquish the entire Contract Area except for any Discovery Area and any


Development Area and to conduct Development Operations and Production


Operations in relation to any Discovery in accordance with the terms of this


Agreement, and the Contractor shall have no further obligation in respect of the


Minimum Work Programme under Clause 5





If neither of the options provided for in sub-clauses 3.9.1 and 3.9.2 hereof is exercised by


the Contractor, this Agreement shall terminate at the end of Initial Exploration Period and


the relevant Petroleum Exploration Licence shall be automatically cancelled.


3.10 If at the end of the Initial Exploration Period the Minimum Work Programme for that period


is not completed, the time for completion of the Minimum Work Programme shall be


extended for a period necessary to enable completion thereof but not exceeding six (6)


months, provided that the Contractor submits a written notice to the Government at least


thirty (30) days prior to the expiry of the Initial Exploration Period and can show technical or


other good reasons for non-completion of the Minimum Work Programme and provided


that the period of such extension shall be subtracted from the succeeding Exploration


Period. In case the Minimum Work Programme of the Initial Exploration Period is completed


before stipulated time as provided in the Clause 5, the time so saved will be added to the


succeeding Extension Period, if so requested by the Contractor giving a notice in wr ting to


the Government thirty (30) days prior to such early completion of the Initial Exploration


Period.


If, at the end of the Initial Exploration Period, execution of any Work Programme is in


3.11


progress and which is in addition to the Minimum Work Programme, such Initial Exploration


Period shall be extended for a period not exceeding six (6) months to enable completion


thereof provided that the Minimum Work Programme for such period has been completed


and the Advisory Committee gives its consent to the said extension as provided in Clause 22.


In the event of an extension as provided for herein, the notice referred to in Clause 3.8 shall


be given at least thirty (30) days prior to the expiry' of the relevant extension





3.12 Where sufficient time is not available prior to the expiry of the Exploration Period to


complete an Appraisal Programme, at the request of the Contractor, the Government shall


extend the Exploration Period for such period, not less than two (2) years but not exceeding


four (4) years, as may be mutually agreed between the Parties for the Appraisal Programme


to be carried out and for the Cont'actor and the Advisory Committee, to comply with the


provisions of Clause 22.


3.13 If no Commercial Discovery has been made in the Contract Area by the end of the


Exploration Period, this Agreement shall terminate


3.14 If this Agreement is terminated in accordance with its terms, the Petroleum Exploration


Licence shall be automatically cancelled.


3.15 If at the expiry of the Exploration Period a Development Plan for development of a


Commercial Discovery is under consideration by the Advisory Committee or Government, as


the case may be, pursuant to Clauses 21 or 22. the Licence shall continue in force with


respect to that part of the Contract Area to which the Development Plan relates, pending a


derision on the Development Plan and the application for the Lease, but shall cease to be in


force and effect with respect to the remainder of the Contract Area.


4. SURRENDER


4.1 Area to be Surrendered


4.1.1 The Contractor shall, within thirty (30) days after the expiration of the Initial


Exploration Period, surrender so much of the Contract Area as, together with any


part of the Contract Area surrendered under sub-clause 4.1.5 , amounts to fifteen


per cent. (15%) of the ret Contract Area after excluding any Development Areas.


4.1.2 The Contractor shall, within thirty (30) days aftei the end of the First Extension


Period, surrender so much of the Contract Area as amounts to an additional fifteen


per cent. (15%) of the remaining net Contract Area after excluding any


Development Areas.


4.1.3 In determining the areas to be surrendered pursuant to sub-clauses 4.1.1 and 4.1.2


above:


4.1.3.1 any areas already surrendered pursuant to Clause 4.1.5 shall be deducted


from the surrender obligations;


4.1.3.2 the Contractor shall have the right to determine the shape and location of


areas to be surrendered, provided that such areas shall be contiguous; and


4 1.3.3 nothing in those sub-clauses shall be taken as requiring the Contractor to


surrender any pan of the Contract Area within the boundaries of a


Development Area (if then determined) and accordingly the reference in


those sub-clauses to the Contract Area to be surrendered is a reference to


the Contract Area outside the boundar es of the Reservoir.


4.1.4 The Contractor shall, within thirty 130) days or such longer period as the Minister


may reasonably allow, after thp expiration of the Second Extension Period,


surrender any remaining part of the Contract Area that is not within the boundaries


of a Reservoir or otherwise the subject of a Petroleum Production Licence.











14


4.1.5 I he Contractor may, at any time, voluntarily surrender any part of the Contract Area


by giving not less than sixty (60) days advance written notice of its intention to do


so to the Minister and complying with Clauses 4.2 and 5 of this Agreement


4.1.6 The surrender of any part of Contract Area in accordance with this Clause shall be


without prejudice to any obligation incurred by the Contractor in respect of the area


relinquished prior to the date of relinquishment and such relinquishment shall not


affect the obligations of the Contractor under Clause 34.


4.2 Consultation on Area to be Surrendered


4.2.1 bvery part of the Contract Area surrendered under this Agreement by the


Contractor shall be bounded by lines of longitude and parallels of latitude expressed


in whole degrees, and whole minutes. Except with the approval of thp Minister, no


boundary line shall be drawn less than one (1) minute of latitude and one (1)


minute of longitude.


4.2.2 As far as practicable, each surrendered area of the Contract Area shall form one


continuous area and be contiguous with any previously relinquished area of the


Contract Area, Subject to sub clause (3), no single surrendered area of the Contract


Area shall be less than three (3) square kilometres or twenty-five per cent. (25%) of


any continuous area within the Contract Area, whichever is the lesser.


4.2.3 The Advisory Committee may recommend the surrender of a lesser portion of the


Contract Area than thp area specified in 4 2.2


4.2.4 No part of the Contract Area shall be surrendered by the Contractor unless the


obligations assumed in respect of that pan by the Contractor have been met.


4.2.5 Before surrendering under this Agreement any part of the Contract Area the


Contractor shall consult with the Advisory Committee in order to ensure compliance


by the Contractor with all of the relevant requirements of this Agreement.


MINIMUM EXPLORATION WORK AND EXPENDITURE OBLIGATIONS


5.1 Save as agreed otherwise in writing v/ith the Government, the Contractor shall carry out the


following Minimum Work Obligations:


5.1.1 During the Initial Exploration Period, the Contractor shall undertake the following:


5.1.1.1 Environmental Impact Assessment


Carry out Environmental Impact Assessment to establish in advance, any


effects which the project may have on the environment. This will probably


be done by local specialists supported by international specialists


5.1.1.2 Surface Geological Studies





Carryout a comprehensive studies of Geological mapping survey in the area


to understand the regional geological trends and lithological characters of


the sedimentary sequences exposed in the area This would provide with a


 fairly regional understanding of the orientation, the depositional sequences


and the structural framework of the area. These works w/ould involve local


specialists, including those entraining.





5.1.1.3 Aeromagnetic and A rborne GravitySurvey


A comprehensive airborne gravity and magnetic survey in the block is


planned to be carried out. The area of the block is approximately


8,448sqkm. This would help dentify regional dip of the underlying strata


and structurally high areas in the subsurface These works would involve


specialist international contractors, together witn local specialists, including


those on training.


5.1.1.4 Regional 2D Seismic Data Acquisition, Processing and Interpretation


The initial exploration period would involve a preliminary 2D seismic





acquisition. This programme would not be comprehensive but rather would


be focused on those areas considered to have regional structural elements


from the aeromagnetic and gravity interpretation Processing and


interpretation of the seismic data would again enable the more attractive


areas to be identified and upgraded. Again these works would involve


specialist international conractors, together with local specialists, including


those on training.








5.1.2 During the First Extension Period the Contractor shall undertake the following:





5.1.2.1 Geochemical Studies





With the data and ideas from the initial exploration period a further phase





of exploration would be embarked upon. This phase would involve a


detailed study of surface geochemical surveys to map the light


hydrocarbons expressed through micro-seeps from active petroleum and


natural gas reservoirs at depth. The mops, developed from the survey,


serve as a guide to identifying prospective areas in both frontier basins


5.1.2.2 Detailed 2D Seismic Acquisition, Processing and Interpretation





This phase would involve a more detailed 2D seismic acquisition, processing


and interpretation. On the basis of this Prospects and Leads will be


identified in the block The identified prospects will be ranked on the basis


of their size, hydrocarbon potential and geological chance of success.


5.1.2.3 Integrated G&G Interpretation











Ihese prospective structures would then be examined in detail to design


drilling programmes to test the presence of oil. Having the design





16


 specifications for several drilling locations then there would be a logistic


exercise to locate and source the drilling equipment required to undertake


a drilling programme on a set number of well locations.


Finally, having located the potential sources of the necessary drilling





equipment contracts have to be negotiated with the Subcontractors and


timing of delivery of equipment needs to be confirmed such that all the


necessary components are in place before drilling commences. Again these


works would involve specialist international Subcontractors.








5.1.3 During the Second Extension Period, the Contractor shall undertake the following








5.1.3.1 Delivery of Drilling Equipment


Most of the equipment and materials required to undertake a multi-well


drilling programme would have to be sourced from outside Malawi and


therefore warehousing and transportation facilities will need to be in place


to take delivery and store material until required.


5.1.3.2 Preparation to drill


The drilling sites would need to be inspected and prepared in advance of a


drilling rig.


5.1.3.3 Drilling and evaluating test-wells


Although under the direct supervision of the Contractor, many of these


specific services would be undertaken by specialist international


contractors, supported by local specialists and trainees. For any well there


will be pre defined targets and objectives, having drilled to penetrate and


achieve these targets then the wells are evaluated by running electronic


logging tools in the wells. These tools are specifically designed to identify If


oil is present, v/here it is located and approximately how much oil has been


identified by that particular well. The most attractive oil bearing zones in


the well will then be flow tested to evaluate, the properties of the oil and


the potential volumes of oil that the well could produce on a daily basis.


Having achieved satisfactory results then the well will either be abandoned


(if no oil has been identified) or suspended (temporarily shut-in) until


suitable long term production facilities are available


The drilling equipment would then be moved to the next programmed well


location and this would be continued until the pre-determmed number of


wells had been drilled.


5.1.4 The Minimum Work Programme shall, to the extent not already started, start within


18 months of the Effective Date.


 5.2 Save as agreed otherwise in writing with the Government, in discharge of its obligation to


earn/ out Exploration Operations in the Contract Area, the Contractor shall spend not less


than sixty per cent. 160%) of the estimated sums specified in the table below which


expenditure shall represent the Minimum Expenditure during the Exploration Period




















Initial Exploration Period -4 Years





Minimum Work Obligation Minimum Financial Expenditures (Million USD)








Environment Impact Assessment 0.50





Surface Geological Studies 0.20





Aeromagnetic and Gravity Survey


180





2D Seismic API Regional 2 50





Total Initial Exploration Period 5.00














First Extension Period - (3 Years from End of Initial Exploration Period)





Minimum Work Obligation Minimum Financial Expenditures (Million USD)





2D Seismic API Detailed


6.00





Geochemical Studies 1.00





Integrated G&G Interpretation 0.50





Total First Extension Period 7.50














Second Extension Period (3 Years from End of Extension Period -1)








Minimum Work Obligation Minimum Financial Expenditures (Million USD)





Drilling of 1 Exploration Well (Firm) 10.00





Drilling of 1 Exploration Well (Optional) 10.00 (Opt)








Total Second Exploration Period 10.00 (Firm)





20.00 (Firm + Optional)





Development and Production Period (25 Years from Approval of Development Plan)





Development Activities





Production Facilities





Export Facilities





Budget for Development Period will be based on the result of the discovery and the estimated


reserves. Development Activities may include Development Dr llmg and Additional Seism c Acquisition.





Production Extension Phase -1 (5 Years from End of Development and Production Phase)





Production Extension Phase - 2 (5 Years from End of Production Extension Phase -1)











5 3 Throughout the Exploration Period, the Contractor and the Minister shall agree an annual


work programme reflecting relevant elements of the Minimum Work Programme in


accordance with Clauses 5.1 .


5 4 The fulfilment of the Minimum Work Programme in respect of each Exploration Period shall


relieve the Contractor of the Minimum Expenditure obligation in the relevant Exploration


Period.


5.5 For the purposes of this Clause, an Exploratory Well shall, unless otherwise provided in the


drilling program relating thereto, be drilled to the depth necessary for the testing of the


geological formation identified by the available data as the objective formation which the


standards of International Petroleum Industry Practice would require the Contractor to


attain, unless before reaching the aforementioned target depth:


5.5.1 the economic basement is encountered;





5.5.2 insurmountable technical problems are encountered which, in accordance with


International Petroleum Industry Practice, makes further drilling unsafe or


impractical; or


5.5.3 impenetrable formations are encountered.





5 6 In such circumstances, the drilling of an Exploratory Well may be terminated at a lesser


depth and such Well shall, if the circumstances described in Clause 5.4 above occur after


the Contractor has attained two-thirds of the target depth, be deemed to have satisfied the


minimum depth criteria provided for hereunder. In all other circumstances in which a Well is


terminated at a lesser depth, a substitute Exploratory Well shall be drilled.


5.7 For the purpose of this Clause "economic basement" means any stratum in and below which


the geological structure or physical characteristics of the rock sequence do not have the


properties necessary for the accumulation of petroleum in commercial quantities and which


ref^pcf^ the maximum depth at which any such accumulation can be reasonably expected.





19


5.8 If during either the Initial Exploration Period or the First Extension Period, the Contractor


exceeds the minimum work obligation set out in this Clause 5 or exceeds the minimum


expenditure obligations for such Exploration Period, then such excess may be credited


toward the respective obligation of the next succeeding Extension Perod or Periods,


provided however that nothing in this Clause shall be construed as extinguishing or


modifying any obligation of the Contractor to drill Exploratory Wells pursuant to this C ause


5.9 If at the end of either the Initial Exploration Period or of any Fxtension Period or upon the


date of termination of this Agreement, whichever occurs first, the Contractor has not


fulfilled its Minimum Work obligations under Clause 5, the Contractor shall pay the


Government that part of the Minimum Expenditure attributable to the work not carried out


multiplied by the Discount Rate calculated on the last month of that Exploration Period less


any amount of the Minimum Expenditure that is carried forward into the following


Extension Period.


SURFACE FEES


6.1 The Contractor shall pay, on or before the beginning of the relevant Contract Year to the


accounting offiepr of the Ministry, surface fees as stipulated in the Second Schedule of the


Regulat ons or any subsequent enactment relating to surface fees. Surface fees expressed in


Kwatcha will be will be calculated in Dollars at a rate equal to the arithmetic average of the


daily closing rates for the purchase and sale of said currency at the Reserve Bank of Malawi


during the month when the Agreement was signed.


6.2 The surface fees shall be calculated on the basis of the surface area of the retained Contract


Area and Development Area on the date those payments are due








TERMINATION AND ITS EFFECTS


7.1 The Contractor may, during any Exploration Period, terminate this Agreement by giving not


less than three (3) months' notice in writing to the Minister provided that all its obligations


for that Period have been met.


7.2 The Contractor may, during the Development Phase, terminate this Agreement by giving not


less than twelve (12) months' notice in writing to the Minister provided that all its


obligations for that Period have been met.


7.3 The Minister may terminate this Agreement by giving written notice to the Contractor,


where in the opinion of the Minister, the Contractor has:


7.3.1 failed to comply with a material term or condition of this Agreement or with a


direction or instruction given under this Agreement with which it is required to


comply;


7.3.2 failed to comply with any material term of a Development Plan prepared in


accordance with Clause 23; or


1 7.3.3 failed to comply with any of the material terms or conditions subject to which the


l Minister gave his consent under Clause 43,


 in each case in a manner reasonably likely to have a materially adverse effect on Petroleum


Operations.





7.4 the Minister shall not, under sub clause 7.3 , terminate this Agreement on the ground of


any failure referred to in that sub-clause unless:


7.4.1 the Minister gives not less than three (3) months written notice to the Contractor of


the intention of the Minister to terminate this Agreement on that ground and that


ground remains uncured; and,


7.4.2 in reaching his decision to terminate the Minister must take into account:


7.4.2.1 any action taken by the Contractor to remedy the default within the three





month period; and,


7.4.2.2 any information so submitted by the Contractor in the three (3) month


period.


7.5 the Minister may terminate this Agreement by immediate written notice if;


7.5.1 the Contractor is insolvent;





7.5.2 an order is made or a resolution is passed winding up the affairs of the Contractor


unless (i) the winding up is for the purpose of amalgamation or re-construction;


and, (ii) the Minister has been notified of the amalgamation or re-construction and


has given its consent; or


7.5.3 a receiver is appointed to administer the assets of the Contractor.





7.6 At any time where the Contractor is more than one Contractor Entity, the Minister shall not


terminate this Agreement because of the occurrence of one of the events specified in Clause


7.5 unless the Minister determines, acting reasonably, that the remaining companies are


unable to perform the obligations of the Contractor under this Agreement.


7.7 On the termination of this Agreement under any of the provisions hereof, this Agreement





and all the respective rights and obligations of the Parties under this Agreement shall


altogether cease to have effect, provided that such termination shall be subject to and


without prejudice to any rights and obligations of the Parties respectively expressed to arise


under this Agreement prior to the termination thereof or any liability of either Party arising


out of an earlier failure to comply with any obligation which must be complied with by such


Party





PART 3 - RIGHTS AND OBLIGATIONS OF THE CONTRACTOR


8. RIGHTS OF THE CONTRACTOR


8.1 The Contractor shall have the exclusive right to carry out the Petroleum Operations within


the Contract Area, subject to the terms of this Agreement and the provisions of the Act (to


the extent not inconsistent with the terms of this Agreement) and the Minister expressly


agrees that the terms of this Agreement are not inconsistent with the Act.





21


8.2 The Contractor shall have the right to construct fixtures and installations as laid out in Clause


14.1 and exercise other ancillary rights as may be reasonably necessary for the conduct of


Petroleum Operations subject to such approvals as may be required and the applicable laws


in force from time to time for the regulation and control thereof.





8.3 The Ministry shall:


8.3.1 not, without the prior consent in writing of the Contractor, inhibit, limit or cancel


the rights of the Contractor in relation to all or any part of the Contract Area or


grant, or purport to grant, to any other person a Production Licence or any other


rights which are, or may be, in conflict with the rights of the Contractor pursuant to


the Contract;


8.3.2 if the Contractor so requests consider reasonable applications, requests, or


representations in respect of the Contract Area and including, without limitation,


regarding Prospecting Operations, Appraisal Operations, Development Operations


and Production Operations consistent with this Agreement;


8.3.3 at the Contractor's expense make available to the Contractor all geological and


geophysical data in the possession or under the control of the Government resulting


from Petroleum exploration by any other person in the Contract Area and the


Contractor shall treat such data as confidential;


8.3.4 permit the Contractor, its servants and agents to have at all reasonable times access


to the Contract Area for the purpose of carrying on the Petroleum Operations


hereunder and for such purpose to move freely to, from and therein; and


8.3.5 facilitate the grant of, on behalf of the Contractor, any permit necessary to enable


the Contractor to use the water in the Contract Area for the purpose of the


Petroleum Operations subject to compliance with the Water Resources Act. In no


case shall the Contractor deprive local communities of the water usage to which


they are accustomed.


GENERAL STANDARDS Of CONDUCT


91 The Contractor shall:


9 11 conduct all Petroleum Operations within the Contract Area diligently, expeditiously,


efficiently and in accordance with International Petroleum Industry Practice


pursuant to the Work Programme formulated in accordance with the Agreement;


9.1.2 ensure provision of all information, data, samples etc. which may be required to be


furnished under applicable Law or under this Agreement;


9.1.3 ensure that all equipment, materials, supplies, plant and installations used by the


Contractor, the Operator, and Subcontractors comply w th International Petroleum


Industry Practice and are of proper construction and kept in safe and good working


order;





9 14 after the designation of a Development A^ea, pursuant to this Agreement, forthwith


proceed, without unreasonable delay, to take all necessary action for prompt and


orderly development of the Development Area and for the production of Petroleum


in accordance with the terms of this Agreement and International Petroleum


Industry Practice;


9.1.5 ensure at all times a technically competent and sufficiently experienced


representative who shall be resident in Malawi and who shall have authority to take


such reasonable steps as may be necessary to implement this Agreement and


whose name and twenty-four (24) hour contact information shall be made known


to the Government;


9.1.6 ensure at all times a safe working environment for all employees in accordance with


International Petroleum Industry Practice;


9.1.7 provide acceptable living accommodation and access to medical attention and


nursing care for all personnel employed in Petroleum Operations;


9.1.8 ensure prompt, fair and adequate compensation for injury to persons and


businesses or damage to property caused by effects of petroleum operations as


established in section 65 of the Act; and


9.1.9 except as otherwise expressly provided in this Agreement, conduct all Petroleum


Operations at its sole risk, cost and expense and provide all funds necessary for the


conduct of Petroleum Operations including funds for the purchase or lease of


equipment, materials or supplies required for Petroleum Operations as well as for


making payments to employees, agents and Subcontractors.


LIABILITY. INDEMNITY AND INSURANCE


10.1 Where the Contractor consists of more than one person they shall be jointly and severally


liable for any and all obligations pursuant to this Agreement.


10.2 The Contractor shall indemnify, defend and render the Government harmless from all claims


and damage which, but for the negligence of the Contractor or Subcontractor in connection


with the Petroleum Operations, would not have arisen or occurred.


10.3 The Contractor shall effect and, at all times during the terms of this Agreement, maintain for


Petroleum Operations insurance of such type and in such amount as is customary in


accordance with the Insurance Act, 2009 and International Petroleum Industry Practice.


Such insurance shall be taken out with insurance company(s) approved by the Government,


in accordance with the Insurance Act, 2009 and Regulations made thereunder and shall,


without prejudice to the generality of the foregoing, include:


10.3.1 all-risks insurance covering all installations, equipment and goods of whatever


nature (other than hydrocarbons prior to extraction) used or intended for use in


connection with activities under this Agreement while in the Republic of Malawi or


in transit therefrom or thereto;


10.3.2 insurance covering loss of Petroleum and its by-products up to the point in time and


location at which title and risk of loss has been transferred in full from the


i Contractor to a third party;


10.3.3 insurance covering clean-up costs for damage to the natural environment, including


pollution of the air and water and surface and subsurface soils and waters


contained within, under or over the Contract Area and other areas used in


connection with activities conducted under or pursuant to this Agreement;


10.3.4 comprehensive general liability insurance covering third-party property damage and


bodily injury from all insurable risks arising from or with respect to the Contract


Area and other areas used in connection with Petroleum Operations and


Contractor's activities under this Agreement;


10.3.5 control-of-Well insurance covering control of Well and re-drill costs following


accidents to Wells located in the Contract Area;


10.3.6 the cost of removing wrecks and cleaning up operations pursuant to an accident in


the course of or as a result of Petroleum Operations; and


10.3.7 health, life and accident insurance for employees and other individuals engaged by


the Contractor in connection with activities under this Agreement.


10.4 All insurance policies taken out pursuant to Clause 10 3 shall be made available to the


Government for review and approval prior to operations commencing. The Contractor shall


provide the Government proof of such insurance annually.


10.5 All costs associated with the insurances required pursuant to this Clause 10 shall be


classified as Exploration and Appraisal Costs, Development Costs or Production Costs fas the


case may be) and subject to cost recovery in accordance with Clause 30.


10.6 The Contractor shall require its Subcontractors to carry insurance of such type and in such


amount as is customary applicable in accordance with the Insurance Act. 2009 and


International Petroleum Industry Practice.


10.7 Any deductibles on insurance shall be in line with customary market practice at the


applicable time.


10.8 Except in the case of a company which has a minimum credit rating of Standard & Poors' A-


or equivalent and where the Minister consents, the Contractor shall not self-insure or insure


through Affiliates.


WELLS AND SURVEYS


11.1 Unless such notice is waived, the Contractor shall not drill a Well or borehole, or


recommence drilling after a six (6) months' cessation, without thirty (30) days' prior


notification to the Minister, which notice shall set forth the Contractor's reasons for


undertaking such Well and shall contain a copy of the drilling programme to the extent not


already submitted as a stand alone document or as part of an annual work programme


pursuant to Clause 5 or a Development Plan.





11.2 The design of a Well or borehole and the conduct of drilling shall be in accordance with


International Petroleum Industry Practice.


11.3 No borehole or Well shall be drilled so that any part thereof is less than one thousand


(1,000) metres from a boundary of the Contract Area, without the consent in writing of the


Commissioner, as required in Section 50 of the Act.


11.4 The Contractor shall not, except where there is danger or a risk of significant economic loss:


11.4.1 abandon a Well or remove any permanent form of casing there from, without giving


forty-eight (48) hours prior notification to the Minister, and an abandoned Well


shall be securely plugged to prevent pollution, sub-lacustrine damage, or water


entering or escaping from the strata penetrated; or


11.4.2 commence drilling, re-enter or plug a Well unless a representative of the Minister


has been given a reasonable opportunity to be present.


11.5 The Contractor shall state, in its application to abandon a Well on land, whether that Well is


capable, in the reasonable opinion of the Contractor without obligations to consult any


specialist technical advisors, of providing a water supply.


11.6 The Contractor shall, within two (2) months of termination or expiry of this Agreement or


the surrender of part of the Contract Area, deliver up all productive Wells, in said


surrendered area, in good repair and working order together with all casings and


installations which cannot be moved without damaging the Well, but the Minister may


require the Contractor to plug the Well at the Contractor's expense by notifying the


Contractor within thirty (30) days after such termination or expiry is effected or at least


three (3) months prior to surrender of a Development Area.


11.7 Where the Contractor applies to permanently abandon an Exploratory Well in which


Petroleum o( potentially commercial significant quantities has not been found, the Minister


may request the Contractor to deepen or sidetrack that Well and to test the formations


penetrated as a result of such operations, or to drill another Exploration Well within the


same prospect area, subject to the following provisions:


11.7.1 Any such additional Petroleum Operations shall be at the sole cost, risk and expense


of the Minister and shall be paid for in accordance with the Accounting Procedure.


The Government shall advance the funds necessary to conduct the operations to


the Contractor prior to the commencement of any related work.


11.7.2 The Contractor shall not undertake such additional work if it will interfere with the


conduct of the Contractor’s Petroleum Operations or if it is not technically or


operationally feasible in the reasonable opinion of the Contractor.


11.7.3 In the event that the Petroleum Operations undertaken under Clause 11.7 result in


a Discovery which the Contractor elects to appraise and/or develop as a commercial


field, the Contractor shall reimburse the Government one hundred percent. (100%)


of the costs and expenses incurred by the Government for the conduct of the


operations and such sum shall be paid within sixty (60) days of the notification


made by the Contractor. If the Contractor does not make such an election, the


Government shall have the right to continue the Petroleum Operations on this


I \ Discovery at the sole cost, risk and expense of the Government.








25


11.8 The Contractor shall give the Minister thirty (30) days' notice ot any proposed geophysical


survey of the Contract Area, which notice shall contain complete details of the programme


to be conducted provided that if any such survey is contemplated in an annual work


programme agreed pursuant to Clause 5.3 , that survey shall be deemed notified to the


Minister for the purposes of this Clause 11.8 . At the request of the Contractor, the Minister


may waive the notice period.


12. OFFSHORE OPERATIONS


12.1 The Contractor shall ensure that works and installations erected Offshore in the Republic of


Malawi's territorial waters and exclusive economic zone shall be:


12.1.1 constructed, placed, marked, buoyed, equipped and maintained so that there are


safe and convenient channels for shipping;


12.1.2 fitted with navigational aids approved by the Ministry of Transport and Public


Infrastructure;


12.1.3 illuminated between sunset and sunrise In a manner approved by the Ministry of


Transport and Public Infrastructure; and


12.1.4 kept in good repair and working order and constitute no risk to the health, safety


and environmental health of the locality and its environs.


12 2 The Contractor shall pay fair and reasonable compensation for any genuine and


documented interference in fishing rights caused by the Petroleum Operations.


13. ONSHORE OPERATIONS


13.1 The Contractor shall ensure that works and installations erected Onshore in the Republic of


Malawi shall be:


13.1.1 constructed, placed, marked, equipped and maintained without undue interference


to any existing easement to the public:


13.1.2 kept in good repair, working order so as to minimise risk to the health, safety and


environmental health of the locality and its environs; and


13.1.3 carried out in a proper, safe and workmanlike manner and in accordance with


International Petroleum Industry Practice.


13.7 The Contractor shall take reasonable steps to secure the safety, health and welfare of


persons engaged in its operations in and about the exploration and development areas in


accordance with International Petroleum Industry Practice.


13.3 The Contractor shall pay fair and reasonable compensation for any genuine and


documented interference in economic rights caused by the Petroleum Operations














26


14. FIXTURES AND INSTALLATIONS





14.1 With the written consent of the Minister, such consent not to be unreasonably withheld,


conditioned or delayed, the Contractor shall have the right to construct roads, drill water


wells and to place fixtures and installations necessary to conduct the Petroleum Operations,


including but not limited to storage tanks, shipment installations, pipelines, cables or similar


lines, located inside or outside the Contract Area. The consent of the Minister may be


conditional on the use by other producers of the excess capacity, if any, of those facilities.





14.1.1 Where the Minister determines that a mutual economic benefit can be achieved by


constructing and operating common facilities, the Contractor shall in cooperation


with other affected parties submit within six (6) months, unless otherwise agreed by


the Parties, a proposal for the joint construction and operation of such common


facilities.


14.1.2 If the proposal is not submitted or approved, the Minister may prepare his own





proposal for the joint construction and operation of such facilities. The Minister's


proposal unless another proposal is mutually agreed, shall be adopted by the


Contractor and other affected parties with the costs allocated to the Contractor and


each of the other affected parties in proportion to the economic benefit expected


to be realized by the Contractor and each of the other affected parties from the


operation of such common facilities.





In no case shall the proposal burden the Contractor or any of the affected parties with


charges in excess of those that the Contractor or other affected party would have borne in


the absence of such joint construction and operation.


14.2 The Government shall within the limits of its authority use all lawful reasonable endeavours





with respect to governmental authorities and third parties, to assist the Contractor in


obtaining such rights, privileges, authorizations, approvals and other agreements from


authorities and jurisdictions, inside and outside the territory of the Republic of Malawi as


the Contractor shall reasonably deem necessary for Petroleum Operations and/or as may be


required by such authorities and jurisdictions, but shall not be responsible if such rights,


privileges, authorisations and approvals are not obtained provided it has complied with this


Clause 14.2 . Such agreements may Include, but need not be limited to, such matters as


export pipeline rights of way and operation rights, permits and undertakings with respect to


the transshipment, storage or staging of Petroleum produced and saved from the Contract


Area, materials, equipment and other supplies destined to or from the territory of the


Republic of Malawi, and exemptions from national, local and other taxes, transit fees, and


other fees and charges on Petroleum Operations being conducted in such other


jurisdictions.





14.3 The Government shall make available to the Contractor, and only for the purposes of the


Petroleum Operations, any land which it owns that is suitable for the activities intended to


be carried out thereon and does not conflict with land use rights already granted to third


parties or the existing use by the Government of such land. The Contractor shall have the


right to utilize such land to build the facilities necessary for the Petroleum Operations and


thp obligation to maintain, above and below the ground, such facilities in good working


order.





c4





27





14.4 Rights on land held by third parties that the Contractor determines to be necessary for the


carrying out of the Petroleum Operations shall be acquired by direct agreement between


the Contractor and the private person concerned as follows:


14.4.1 The Contractor may acquire, from parties other than the Government and in


accordance with Law, land use rights or interests in existing buildings, facilities or


structures, sufficient to enable it to construct, install and operate onshore


operations that the Contractor deems necessary or appropriate to carry out its


Petroleum Operations under this Agreement. If an agreement cannot be reached


between the Contractor and the person or persons concerned, the Contractor may


request the Government to facilitate the process of negotiation between the


private owner and the Contractor for the acquisition of the necessary rights or


interests with just compensation.


14.4.2 The Contractor must report annually to the Ministry on its land acquisition and





compensation activities, specifying ail payments made and the purpose of each


payment. Such report shall be a public document.





14.5 The Contractor shall indemnify the Government for any damage caused to the land by any


unauthorised or negligent construction, use and maintenance of its facilities on land


provided by the Government directly or through the operation of this Clause 14and in


accordance with Law shall be liable to the owners or users of lands adjacent to lands


occupied or used by the Contractor for any damage to such lands and to the improvements


14.6 or crops thereon caused by such construction, use or maintenance. The responsibilities of


the Contractor to third parties who have by contract provided the Contractor with rights or


interests in land shall be governed by the terms of those contracts and by generally


applicable Law, if any.


The costs and expenses of the Contractor incurred pursuant to this Clause 14 shall be


considered cost recoverable and shall be treated as Petroleum Costs.


14.7 The Minister may, in consultation with the Contractor, consent to the laying of pipelines,


cables and similar lines in the Contract Area by other Persons, but those lines shall not





14 8 interfere with the Petroleum Operations of the Contractor.


On termination or expiration of this Agreement or surrender of part of the Contract Area,


the Contractor shall remove the above-ground plant, appliances and installations from the


Contract Area or the part surrendered other than those that are situated in or related to a


14.9 Development Area or, at the option of the Minister, the Contractor shall transfer them, at no


cost, to the Government, in the condition that they are then in.


When the rights of the Contractor in respect of a Development Area terminate, expire or are





surrendered, the Contractor shall transfer to the Government at no cost, the plant,


appliances and installations that are situated in the Development Area or that are related


thereto, unless such plant, appliances and installations are or may be utilised by the


Contractor in Petroleum Operations under this Agreement, but the Government may require


the Contractor to remove the surface installations at the cost of the Contractor.














28


LOCAL EMPLOYMENT AND TRAINING





15.1 Subject to the requirement of Law relating to immigration, the Ministry shall provide the


necessary work permits and other approvals required for the employment of expatriate


personnel by the Contractor in Malawi. The Contractor, its contractors and Subcontractors


shall, to the maximum extent possible and subject to such citizens having the requisite


technical capabilities, qualifications, competence and experience, employ Malawi citizens in


the Petroleum Operations including in staff positions such as administrative and executive


management positions, and until expiry or termination of this Agreement, shall train those


citizens. The training programme shall be established in consultation with the Minister.


15.2 During each year of the term of the Petroleum Exploration Licence and Petroleum


Production Licence or any renewal thereof the Contractor shall spend a sum of no less than


USD50.0CO for one or more of the following purposes:


15.2.1 to provide a mutually agreed number of Government and Ministry personnel with


on-the-job training in the Contractor's operations in the Republic of Malawi and


overseas, and/or practical training and/or practical institutions abroad, particularly


in the areas of natural earth sciences, engineering, technology, Petroleum


accounting and economics, economic analysis, contract administration and law as


related to the fields of Oil and Gas exploration and production;


15.2.2 to send suitable Malawi personnel selected by the Government and the Ministry on


courses at universities, colleges or other training institutions mutually selected by


the Contractor, the Government and the Ministry;


15.2.3 to send Malawi personnel selected by The Government and the Ministry to


conferences, workshops and seminars related to the Petroleum industry;


15.2.4 to purchase for the Government and the Ministry advanced technical books,


professional publications, scientific instruments or other equipment reasonably


required by the Government and the Ministry.


15.3 Not later than six (6) months after the grant of a Petroleum Exploration Licence, the


Contractor shall, in consultation with Ministry, implement the programme proposed in the


Development Plan as approved by the Government for the training and employment of


Malawi nationals in each phase and level of Petroleum Operations and for the transfer of


management and technical skills for the safe and efficient conduct of Petroleum Operations


15.4 In addition to the requirements in Clause 15.2 the Contractor shall ensure that the


development of personnel in key areas allows nationals to participate in value-adding,


analytical and management areas of:


15.4.1 a technical or professional nature including general management, design


engineering, project management, seismic data processing, human resource


development, legal; and


15.4.2 business strategic skills including leadership, business development, executive


management, commercial, analytical, negotiating, strategy development and


trading know how and acumen.


15.5 The Contractor shall prepare an annual local content plan which shall accompany the annual


Work Programme and budget for Petroleum Operations in the Contract Area and which shall


include but is not limited to:


15.5.1 procurement of Malawian goods, material and services:


15.5.2 a detailed plan and programme for Malawian recruitment, employment and


training, including post-graduate training and scholarships, and


15.5.3 a plan for the transfer of skills, knowledge, competence and know-how.


15.6 The Contractor shall, together with the annual report on Petroleum Operations in the


Contract Area, submit and publish an annual report, which shall be verified by a competent


and independent third party, describing the Contractor's activities and results on Malawian


content and the local value adding other than the production sharing and fiscal obligations.


15.7 The Contractor shall be responsible for the training costs of Malawi personnel it employs,


such costs being recovered as Petroleum Costs. Subject to Clause 15.2 , costs incurred by


the Contractor for training programmes for Government personnel will be borne by the


Government.


DATA AND CONFIDENTIALITY


16 1 The Contractor shall keep all logs and records of the drilling, deepening, plugging or


abandonment of boreholes and Wells, in accordance with International Petroleum Industry


Practice and containing particulars of:


16.1.1 the strata and sub-soil through which the borehole or Well was drilled;


16.1.2 the casing, tubing and down-hole equipment and alterations thereof, inserted in a


borehole or Well;


16.1.3 Petroleum, water, workable mineral or mine workings encountered; and


16.1.4 any other matter reasonably required by the Minister


In addition, it shall provide the Ministry with the information and data obtained as provided


under this Agreement


16.2 The Contractor shall record, in an original or reproducible form of good quality, and on


seismic tapes where relevant, all geological and geophysical information and data relating to


the Contract Area obtained by the Contractor and shall deliver a copy of that information


and data, the interpretations, thereof and the logs and records of boreholes and Wells, to


the Minister, in a reproducible form, as soon as practicable after that information, those


interpretations and those logs and records come into the possession of the Contractor.


16.3 The Government shall have title to all data and information, whether raw, derived,


processed, interpreted or analysed, obtained pursuant to this Agreement. Originals of


reports and technical data recordings may not be taken out of Republic of Malawi without


prior approval of the Minister. The Contractor shall have the right, without any limitation, to


send abroad copies of such reports and technical data magnetic tapes and other data


relating to Petroleum Operations. Magnetic tapes or other data, the original of which must


be analysed and processed abroad may be shipped out of Republic of Malawi provided that


a comparable record is maintained in Malawi, and that they remain available at all times to


the Government, which shall be entitled to require their return.


16.4 The Contractor shall keep records of any supply information concerning the Petroleum


Operations, reasonably requested by the Minister, if the data or information necessary to


comply with the request is readily available.


16.5 Apart from the exceptions stated in this Clause 16, all the information which the Contractor


shall supply to the Government under this Agreement shall be supplied at the expense of


the Contractor and both Parties shall keep that information confidential during the entire


term of the Agreement, and shall not divulge or disclose such data or information to third


parties without the specific consent of the other Party, such consent not to be unreasonably


withheld or delayed The foregoing confidentiality obligation shall not apply to information


or data in the public domain, known to the receiving Party at the date of disclosure or with


regard to public announcements or press releases required to be made under any applicable


law, rules or regulations, by a government agency having jurisdiction over the entity


constituting the Contractor, by a court order or pursuant to the regulations of a recognized


stock exchange on which the shares of the entity constituting the Contractor or its Affiliate


are listed.


16 6 Notwithstanding Clause 16.5 , the Minister may use any information supplied, for the


purpose of preparing and publishing reports and returns required by law, and for the


purpose of preparing and publishing reports and surveys of a general nature.


16.7 Any data or information relating to relinquished or surrendered areas shall become the


exclusive property of the Ministry, who shall have the right to use the same for any purpose,


in particular for the purpose of promoting said areas. The Contractor shall be entitled to


keep copies of such data and information and to use such data and information for any


purpose. The Minister may publish any information, which relates to a surrendered area at


any time after the surrender, and in any other case, three (3) years after the information


was received unless the Minister determines, after representations by the Contractor, that a


longer period shall apply.





16.8 The Government shall not disclose, without the written consent of the Contractor, to any


person, other than a person employed by or on behalf of the Government, know-how and


proprietary technolog-/ which the Contractor may supply to the Minister.


16.9 The Contractor may not sell nor exchange any data related to the Petroleum Operations





without the approval of the Minister, which approval shall not be unreasonably withheld or


delayed where, in the Contractor's reasonable opinion, such sale or exchange would benefit


the Petroleum Operations.





16.10 The Ministry and the Contractor shall make public (i) this Agreement and any amendments


or written interpretations of this Agreement, (ii) any amounts paid by or other economic


benefits provided by the Contractor to the Government pursuant to this Agreement or


otherwise, and (iii) such other information as may be required by law or regulation to be


made public








31


16.11 Notwithstanding the above, if such information concerns technical devices, production


methods, business analyses and calculations and any other industrial and trade secrets and


are of such a nature that others may exploit them in their own business activities, the


Ministry may approve that such information may rightfully be subject to confidentiality for a


certain period of time provided that in no such case shall payment information be deemed


confidential.


17. REPORTS


17.1 The Contractor (in accordance with the Act) shall supply the Minister with monthly reports


on, but not limited to, (i) drilling operations, (ii) Production Operations; and (iii) geophysical


operations.


17.2 The Contractor shall report in writing to the Minister the progress of the Petroleum


Operations according to the following schedule:


17.2.1 within one (1) month of the last day of March, June, September and December,


covering the previous three (3) months;


17.2.2 within three (3) months of the last day of December, covering the previous year;


and


17.2.3 within three (3) months of the date of expiry or termination of this Agreement,


covering the Term of this Agreement.


17.3 A report under Clause 17.1 shall contain, in respect of the period which it covers:


17.3.1 details of the Petroleum Operations carried out and the factual information


obtained;


17.3.2 a description of the area in which the Contractor has operated;


17.3.3 an account of the expenditure on Petroleum Operations in accordance with the


Accounting Procedure;


17.3.4 a map indicating all boreholes. Wells and other Petroleum Operations; and


17.3.5 on expiry or termination of this Agreement details of the Petroleum Operations


including all the matters described in 18.3.1 to 18.3.4.


PART 4 - RIGHTS AND OBLIGATIONS OF THE GOVERNMENT AND THE MINISTER


18. RIGHTS OF THE GOVERNMENT


18.1 The Government may acquire a part of the Contract Area for a public purpose other than


searching for or extracting Petroleum by any person other than the Contractor, subject to:


/•» 18.1.1 the Contractor being given thirty (30) days' notice;


\ 18.1.2 a reduction in the Minimum Work Programme and the Minimum Expenditure to


\ reflect the so reduced Contract Area; and





32 G?








18.1.3 such acquisition will not prevent the carrying out of Petroleum Operations within


the Contract Area or significantly hinder Production Operations.


18.2 The Government shall not, without good cause, acquire a part of the Contract Area on which


Petroleum Operations are in progress. The Contractor shall not carry out Petroleum


Operations on such an acquired part but may:


18.2.1 enter upon that part but not materially interfere with the public purpose; or


18.2.2 carry out directional drilling from an adjacent part.


18.3 The Minister, or a person authorised by him in writing, may, subject to giving reasonable


notice to the Contractor and provided that such inspection does not interfere with the


normal course of Petroleum Operations, at all reasonable times inspect any Petroleum


Operations, and any records of the Contractor relating thereto, and the Contractor shall


provide, where available, facilities similar to those applicable to its own or to sub¬


contractors' staff.


18 4 The Minister may require the Contractor to perform any obligation under this Agreement by


giving reasonable written notice, and if the Contractor fails to comply with the notice ortake


steps to comply with the relevant notice within three (3) months after its receipt, the


Minister may execute any necessary works for which the Contractor shall pay forthwith. The


Minister may give notice to execute works at any time but not later than three (3] months


after the termination or expiry of this Agreement or the surrender of a part of the Contract


Area.


19. OBLIGATIONS OF THE GOVERNMENT


19.1 Thp Government may at the request of the Contractor, make available to the Contractor


such land as the Contractor may reasonably require for the conduct of Petroleum


Operations and:


19.1.1 where the land is subject to restrictions set out in Part VI (Restrictions and Surface


Rights) of the Act, the President of the Republic of Malawi or Minister if applicable


may in accordance with the Act provide access to such land or compensation for the


applicable restrictions; and


19.1.2 the Contractor shall pay or reimburse the Government any reasonable


compensation that may be required for the setting apart, use or acquisition of any


land for the Petroleum Operations and as anticipated in Part VI of the Act


19.2 The Government shall grant or cause to be granted to the Contractor, its contractors and


Subcontractors such way-leaves, easements, temporary occupation or other permissions


within and without the Contract Area as are necessary to conduct the Petroleum Operations


and in particular for the purpose of laying, operating and maintaining pipelines and cables,


and passage between the Contract Area and the point of delivery of Petroleum.


19.3 The Government shall at all times give the Contractor the right of ingress to and egress from


« the Contract Area and the facilities wherever located for the conduct of Petroleum


/ \ Operations.








33


19.4 The Government shall issue and/or renew entry permits for technicians and managers


employed in the Petroleum Operations by the Contractor or its Subcontractors and their


dependants.


20. ADVISORY COMMITTEE


20.1 The Ministry and the Contractor shall, within ninety (90) days after the Effective Date,


establish a committee to be known as the Advisory Committee which shall consist of a


minimum of:


20.1.1 a chairman and three (3) other persons appointed by the Ministry; and,


20.1.2 three (3) persons appointed by the Contractor


20.2 One person appointed by the Contractor shall, as designated by the Contractor, be the


Secretary of the Committee;


20.3 The Ministry and the Contractor may each, with due regard to the terms of sub-clause 20.1 ,


appoint by notice in writing, any person to act in the place of any member of the Advisory


Committee appointed by each of the, respectively, due to absence or incapacity to act as a


member of the Committee.


20 4 When an alternate member properly acts in the place of any member he/she shall have the


powers and perform the duties of such member.


20 5 Without prejudice to the rights and obligations of the Contractor in relation to the


management of its operations, the functions of the Advisory Committee shall include, but


not be limited:


20.5.1 to monitor all Petroleum Operations carried out by the Contractor;


20.5 2 to consider and make suggestion on all matters relating to general policies,


procedures and methods in the conduct of Petroleum Operations


20.5.3 to review any proposed Exploration Work Programme and budgets submitted by


the Contractor to the Ministry and to propose any modifications to the Contractor;


20.5.4 to review proposals for surrender or relinquishment of any part of the Contract


Area by the Contractor;


20.5.5 to review any Appraisal Programme submitted by the Contractor to the Ministry


under Clause 22 of this Agreement, to propose any modifications to it for the


Ministry's consideration and to monitor the implementation of such Appraisal


Programme;


20.5.6 to review any Development Plan which the Contractor submits for approval by the


Ministry pursuant to Clause 23 and to propose any modifications to it for the


Ministry's consideration;


f\ 20.5.7 to review annual production forecast statements presented by the Contractor


1\ pursuant to Clause 23;





34


 20.5.8 to review the insurance program and environmental protection program provided


under Clause 10;


20.5.9 to review the award of major contracts in connection with Petroleum Operations,





involving amounts in excess of USD500,000, through competitive tender


procedures;





20.5.10 to ensure that the accounting of expenditures and the maintenance of operating


records and reports kept in connection with the Petroleum Operations are made in


accordance with this Agreement, the Accounting Procedure and the accounting


principles and procedures in line with International Petroleum Industry Practice;





20.5.11 to recommend the appointment of auditors along with scope of audit, approval


and adoption of audited reports submitted under Clause 37;


20.5.12 to appoint such technical, administrative, financial and other advisory


subcommittees as the Advisory Committee determines are necessary or


appropriate in connection with the foregoing; and


20.5.13 to consider any other matter relating to Petroleum Operations which may be


referred to the Advisory Committee by the Parties or any of them (other than any


proposal to amend this Agreement) and which is not specifically delegated to the


Contractor pursuant to this Agreement.


The Advisory Committee shall take no action or make any decisions not in accordance with


Law.





20.6 All meetings of the Advisory Committee shall be held in Republic of Malawi, unless the


Committee decides otherwise subject to approval by the Ministry. The Advisory Committee


shall meet at least four (4) times in every Contract Year. Additional meetings may be called


at any time by the Chairman of the Advisory Committee by giving notice to the other


representatives on the Advisory Committee at least seven |7| days in advance of such


meeting. Any other member of the Advisory Committee may request a meeting of the


Advisory Committee by giving notice to the Chairman. Upon receipt of such request, the


Chairman shall call a meeting of the Advisory Committee for a date not less than seven (7)


days nor more than thirty (30) days after receipt of such request. The above notice periods


may be waived with the unanimous written consent of all the members in the Advisory


Committee.





J 20.7 All decisions of the Advisory Committee shall be passed on a show of hands by a simple


majority of those members present and participating in a meeting. In the event of a


I deadlock the chairman of the Advisory Committee shall not have a casting vote.





20.8 Any member shall be entitled, if either he/she or his/her alternate is unable to attend a


J meeting, to cast his vote by telex, fax, email or any other effective mode of communication


agreed by all the members of the Advisory Committee and received by the Chairman prior to


the date on which the vote is taken in the course of the meeting or by giving a prior written


notice to all other members, appoint a member, with his/her prior consent, representing


1 another Party in the Advisory Committee as its proxy to attend a meeting and to exercise


the appointing member's right to vote at the meeting whether as directed by the appointing


member or otherwise. A member appointed as a proxy and attending a meeting shall be


1


35


j














present in two separate capacities and vote accordingly. All such votes shall have the same


effect as if that member had been present and so voted at the meeting.


20.9 Five (5) members of the Advisory Committee shall form a quorum for a meeting of the


Committee, at least three (3) of which members shall be members appointed by the


Ministry and at least two (2) shall be a member appointed by the Contractor.


20.10 The Ministry and the Contractor shall have the right to call any expert to any meeting of the


Advisory Committee to advise the Committee on any matter of a technical nature requiring


expert advice.


20.11 The Advisory Committee may make recommendations to the Government and the Ministry


or the Contractor, as the case may be. Such recommendations shall be given full and proper


consideration by all Parties to this Agreement.


PART 5 - WORK PROGRAMME EXPENDITURE, DEVELOPMENT AND PRODUCTION


21. EXPLORATION WORK PROGRAMME


21.1 The Contractor shall submit to the Minister, one (1) month after the Effective Date, a


detailed statement of the Exploration Work Programme and budget for the first Contract


Year Thereafter, the Contractor shall, at least three (3) months prior to the beginning of


each Calendar Year, prepare and submit to the Advisory Committee a detailed annual Work


Programme and budget, setting forth the Petroleum Operations which the Contractor


proposes to carry out in the ensuing Calendar Year, and the estimated costs thereof.


21.2 The Advisory Committee may submit to the Contractor, within thirty (30) days of the receipt


of the annual Exploration Work Programme and budget, suggested modifications and


revisions thereof. The Contractor shall consider the inclusion of such suggested


modifications and revisions in light of International Petroleum Industry Practice and shall


provide the Minister with the exploration Work Programme and budget which the


Contractor has adopted.


21.3 After the adoption of the annual Exploration Work Programme and budget, the Contractor


may make changes to that annual Exploration Work Programme and budget if those changes


do not materially affect the original objectives of that Exploration Work Programme and


budget, and shall state the reasons for those changes to the Minister.


21.4 Every Work Programme and budget submitted to the Advisory Committee during the


Exploration Period pursuant to this Clause and every revision or amendment thereof shall be


consistent with the requirements set out in Clause 5 relating to Minimum Work Programmes


and Expenditures for the relevant Exploration Period.


21.5 Each proposed annual Work Programme shall include, as a minimum, the following:


21.5.1 a detailed description of the work to be performed during the following Calendar


Year, proposals as to subcontractors and suppliers necessary for the


implementation of such work and a time schedule for performing it; and











36


21.5.2 a detailed estimate of the expenditure to be incurred in performing ttie proposed


annual Work Programme and a time schedule for the incurrence of such


expenditures.


DISCOVERY AND APPRAISAL PROGRAMME


22.1 In the event the Contractor discovers Petroleum, it shall, as promptly as possible, notify the


Ministry thereof and submit to it, within ninety (90) days after the date of the temporary


plugging or abandonment of the discovery Well, a report including all available information


relating to said discovery and the initial conclusions the Contractor believes may be drawn


from such discovery. Such report shall by its nature be subject to the work that will be


undertaken to determine the extent and nature of the Discovery following more precise


studies and appraisal.


22.2 If the Contractor wishes to undertake an Appraisal Programme relating to the


abovementioned Petroleum Discovery, it shall promptly notify the Ministry of its intent to


do so (without thereby incurring any obligation to do so) and thereafter shall submit for


approval to the Ministry, within six (6) months after the date of notification of said


Discovery, the Appraisal Programme and the estimate of the related budget.


The provisions of Clause 21 shall be applicable, mutatis mutandis, to the Appraisal


Programme as regards its approval and performance, it being understood that the


submitted Programme shall comply with International Petroleum Industry Practice.


22 3 If the Contractor meets the conditions referred to in Clause 22.2 , has complied with its


obligation under the Law concerning Petroleum Operations and under this Agreement and


so requests, the Ministry shall grant in writing, an exclusive appraisal authorization and


Licence extension for a period not exceeding four (4) years from the date of approval or


deemed approval of the Appraisal Programme and the related budget, in respect of the


appraisal perimeter specified in Appraisal Programme.


Except as otherwise provided by this Clause, the Contractor shall, during the term of said





exclusive appraisal period, be subject to the same terms and conditions in this Agreement as


that applicable to the Exploration Period.





22.3.1 The Contractor shall diligently carry out the Appraisal Programme for the Discovery


in question; in particular it shall drill the appraisal Wells, acquire the seismic data


and carry out the production tests specified in the approved Appraisal Programme.


At the Contractor's request, with notification to the Ministry at least thirty (30) days


prior to the expiration of the appraisal period above-defined, the duration of said


period may be extended by a maximum of six (6) months, provided that the


Contractor demonstrates such extension is justified by (i) the results that can


reasonably be expected from continuation of the Appraisal Programme, or (ii)


delays beyond the reasonable control of the Contractor.





Further extensions of the appraisal period may be requested by the Contractor and


reviewed and approved by the Ministry if the Contractor has diligently performed


the approved Appraisal Programme up to that time and reasonably demonstrates


that further geological, geophysical, subsurface, facilities or commercial work is


justified in order to establish whether the Reservoir corresponding to the Petroleum


Discovery is commercial.


22.3.2 As soon as practical after the completion of the Appraisal Programme, and no later


than thirty (30) days prior to the expiration of the appraisal period, the Contractor


shall provide the Ministry with a detailed report giving all the then available


information relating to the Discovery and the appraisal thereof. If the Contractor is


of the opinion that the discovery is not commercial, the report shall set forth the


salient facts causing the Contractor to hold that opinion, including its evaluation of


the recoverable reserves and the estimated development and operating costs. An


evaluation of the future price of Petroleum is not a requirement of this report.


Upon expiration of the appraisal period in the absence of a report indicating that


the Contractor is of the opinion the Discovery is commercial, or may become


commercial under circumstances which are reasonably foreseeable, the rights of


the Contractor with respect to such area shall be the rights of the Contractor with


respect to areas within the delimited area prior to the expiration of the Extension


Periods unless the Fxtension Periods have already terminated, in which case the


Contractor shall have no further rights with respect to such area. Requests by the


Contractor for further extensions of the appraisal period in the event of a Non-


Associated Natural Gas discovery will be governed by the terms of Clause 22.7 .


22.4 If, after having carried out the Appraisal Programme, the Contractor considers that the


Reservoir corresponding to the Petroleum Discovery is of commercial potential, it shall


notify the Ministry that the Discovery is a Commercial Discovery and submit to the Ministry,


together with the previous report, an application for a Petroleum Production Licence


accompanied by a detailed Development Plan for said Reservoir.


22 5 Where a Discovery of Non-Associated Gas is made by the Contractor and the Contractor


considers that such Discovery of Non-Associated Gas may be a Commercial Discovery but for


the time being is not, for reasons such as technical constraints, lack of available outlet


markets, a shortage of consuming or other necessary facilities or a need to aggregate the


Discovery with other existing or potential Gas discoveries within or without the Contract


Area, the Contractor shall notify the Ministry accordingly.


22.6 Under the aforesaid circumstances, as reviewed by the Ministry, and in order to allow the


Contractor to investigate and attempt to resolve the impediments causing the Discovery not


to be for the time being a Commercial Discovery, the Contractor shall be allowed to retain


the part of the Contract Area which encompasses such Discovery for a period of two (2)


Calendar Years beyond the expiry of the Initial Exploration Period or any Extension Period


for the Contractor to be able to conduct investigations and attempts. Within the aforesaid


extension and subject to having previously carried out an approved Appraisal Programme


and submitted the relevant results, the Contractor shall forward to the Ministry, for review


and approval, a detailed report (together with elements, data, estimated recoverable


reserves, projects delivery rate and pressure, information on market outlet availability and


such other information of a technical and commercial nature as may be required), Indicating


whether in the Contractor's opinion the Non---Associated Gas Discovery in question is a


Commercial Discovery. Upon expiration of the aforesaid extension or earlier, as the case


may be, the area covering the Non-Associated Gas Discovery shall be relinquished if it is


determined that it is not a Commercial Discovery








38


22.7 In the event that a Discovery of Non-Associated Gas may become a Commercial Discovery


under terms and conditions more favourable, to that effect, than the ones stipulated herein


(including such terms as the Cost Recovery Petroleum and the Production Sharing provisions


under Clause 31), at the initiative of either Party, the Ministry and the Contractor shall meet


in order to discuss and agree on revised terms, such as would allow the Contractor to


develop commercially such Non-Associated Gas Discovery and to achieve a net economic


return thereon equivalent to the one which would have derived from a comparable Crude


Oil accumulation. If agreement is reached on such revised terms and conditions within six (6)


months from start up of discussions, then such terms will be incorporated into a


supplemental agreement which shall be an integral part thereof and the Discovery shall be a


Commercial Discovery from the date of such agreement. Failing agreement within the


aforesaid time limit, the Non-Associated Gas Discovery in question shall be treated as non¬


commercial for all purposes herein.


DEVELOPMENT PLAN AND DEVELOPMENT WORK PROGRAMME


23.1 The Contractor shall prepare, in consultation with the Advisory Committee, a Development


Plan based on sound engineering and economic principles and in accordance with


International Petroleum Industry Practice and considering the Maximum Effective Rate of


production appropriate to any Commercial Discovery and submit it to the Minister,


23.2 The Development Plan shall contain:


23.2.1 the planned delimitation of the Development Area applied for by the Contractor, so





that it covers the area defined by the seismic closure(s) of the Reservoir concerned,


together with all the technical justifications with respect to the extent of the


Reservoir;


23.2.2 an estimate of the reserves in place, the proven and probable recoverable reserves


and the corresponding annual productions, together with a study on the methods of


recovery;


23.2.3 an annual production forecast statement;


23.2.4 the possible valuation of the Petroleum products to be produced for the Crude Oil





and Natural Gas;


23.2.5 proposed Delivery Point(s) for Crude Oil and/or Natural Gas;


23.2.6 procedures for measuring total production at the Delivery Point(s);





23.2.7 item by item, the description of major equipment and work necessary for


Commercial Production, such as the number of development Wells, the number of


platforms, pipelines, production, processing, storage and loading facilities together


with their specifications;


23.2.S as applicable, a marketing plan for Natural Gas pursuant to guidelines in Clause 27


which may include the Contractor's proposal to structure the project as an


integrated or segmented Gas project (including gathering, treating, and conditioning


of Natural Gas for sale);








39 i4





23.2.9 an estimated schedule for plan implementation Including estimated date of the


Contractor's final investment decision and the projected Oate of production start¬


up;


23.2.10 estimates of all capital expenditures and operating costs, including necessary


infrastructure, and


23.2.11 a plan for developing the environmental impact studies and Social Responsibility


Plan required by law and Clauses 33 and 35 of this Agreement


23.3 Within sixty [60) days after the submission of the Development Plan, the Ministry may


propose revisions or modifications by notifying the Contractor of the substance of, and its


justifications for, the proposed revision(s) or modification(s) which shall be consistent with


International Petroleum Industry Practice, sound economic protections and a reasonable


return on investments for the Contractor and the Ministry and the Contractor shall meet as


soon as possible in ordpr to consider the proposed revisions or modifications and establish.


Any revisions or modifications agreed between the Contractor and the Ministry shall be


deemed adopted and incorporated into the Development Plan


Should the Ministry fail to notify the Contractor of its wish for revision or modification or of


its approval within the above-ment oned sixty (60] day or thirty (30) day period (as the case


may be), the plan submitted by the Contractor shall be deemed to be accepted by the


Ministry at the expiration of said period.


Approval of the Development Plan shall constitute the approval of the Minister to the grant


of a Petroleum Production Licence in respect of the Development Area and the Minister


shall issue such Licence as soon as reasonably practicable after the date of such approval


and, in any event, no later than thirty (30) days after such date.


23.4 I he Petroleum Production Licence issued pursuant to Clause 23.3 above shall be in lespect


of the whole of the Development Area for a term of twenty five (25) years with an automatic


five (5) year extension and, if Commercial Production of Petroleum remains possible at the


end of such initial extension, the Contractor shall be entitled to a further five (5) year


extension


23.5 After a Development Plan has been adopted, and a Petroleum Production Licence has been


correspondingly granted in accordance with the provisions of this Agreement, the


Contractor shall use reasonable efforts to proceed, promptly and without undue


interruption, to Implement the Development Plan in accordance with International


Petroleum Industry Practice. Development work shall commence no later than six (6)


months from the date of adoption of the Development Plan.


73.6 In connection therewith, the Contractor shall submit to the Minister, prior to the first day of


October of each year following the adoption of the Development Plan, a detailed statement


of the annual Development Work Programme and budget for the next Calendar Year.


23.7 Where the Development Operations result in an extension to the Development Area to


which the Discovery relates within the Contract Area, the Minister shall adjust the relevant


Development Area to include that extension as determined by the analysis of all the relevant


available information,








40


24. UNITISATION





24.1 Where a Reservoir o which a Discovery relates extends into an area adjacent to the Contract


Area and which is the subject of a Licence granted under the Act (an "Adjacent Contract


Area"), the Minister may require the Contractor to produce Petroleum therefrom in co¬


operation with the contractor of the Adjacent Contract Area. Where non-commercial


deposits of Petroleum in the Contract Area if exploited with deposits in an area adjacent to


the Contract Area, would be commercial, the Minister may make a similar requirement of


the contractor of that Adjacent Contract Area.


24.2 If the Minister so requires, the Contractor shall in co-operation with the contractor of the


adjacent area, submit within six (6) months, unless otherwise agreed by the Parties, a


proposal for the joint exploitation of the deposits, for the approval of the Minister such


proposal to be based on reliable technical, operational and economical parameters, all in


accordance with standard practice in the international petroleum industry.


24.3 If the proposal is not submitted or approved, the Minister may prepare his own proposal, in


accordance with International Petroleum Industry Practice, for the joint exploitation of the


recoverable reserves. The Minister’s proposal unless another proposal is mutually agreed


pursuant to Clause 22.2 , shall be adopted by the Contractor subject to the adjacent


contractor's acceptance of the same proposal. The reasonable costs of preparing the


proposal shall be divided equally between the Contractor and the adjacent contractor.


24.4 The provisions of the proposal for joint exploitation shall prevail over this Agreement, where


those provisions do not reduce the financial benefits to the Parties under this Agreement.


24 5 In the event that the Minister decides the unitisation. and if the Contractor does not agree


with the Minister's decision, the Contractor shall be entitled to arbitration pursuant to the


provisions of Clause 48.


24 6 In the event that a Reservoir extends beyond the boundaries of the Contract Area into an


adjacent area which is within the national borders of the Republic of Malawi and is not the


subject of another licence granted under the Act, the Government shall, upon the


Contractor's request, take the necessary steps to extend the boundaries of Contract Area so


as to include the entire Reservoir within the Contract Area, provided that the Contractor can


offer the Government a competitive minimum work program for such adjacent area


25. PRODUCTION LEVELS AND ANNUAL PRODUCTION PROGRAMME


25.1 The Contractor shall produce Petroleum at the Maximum Effective Rate in accordance with


International Petroleum Industry Practice.


25.2 Prior to the first day of October of each year following the commencement of Commercial


Production, the Contractor shall submit to the Minister, a detailed statement of the annual


production programme and budget for the next Calendar Year.


25.3 The Contractor shall endeavour to produce in each Calendar Year the forecast quantity


estimated in the annual production programme.














41


25.4 The Crude Oil shall be run to storage (constructed, maintained and operated by the


Contractor) and Petroleum shall be metered or otherwise measured as required to meet the


purpose of this Agreement in accordance with Clause 26


MEASUREMENT OF PETROLEUM


26.1 The volume and quality of Petroleum produced and saved from the Contract Area shall be


measured by methods and appliances customarily used in International Petroleum Industry


Practice.


26.2 The Minister may inspect the appliances used for measuring the volume and determining


the quality of Petroleum and may appoint an inspector to supervise the measurement of


volume and determination of quality,


26.3 The Minister may from time to time direct that any weighing or measuring appliance be


tested or examined in such manner on such occasions or at such intervals and by such


means as may be reasonably specified in such direction.


26.4 Where the method of measurement, or appliances used for such measurement, have


caused an overstatement or understatement of a share of the production, the error shall be


presumed to have existed since the date of the last calibration of the measurement devices,


unless the contrary is shown, and an appropriate adjustment shall be made for the period of


error.


26.5 The Contractor shall not make any alteration in the method or methods of measurement or


weighing used by it or any appliances used for that purpose without the consent in writing


of the Minister, and the Minister may in any case require that no alteration shall be made


save in the presence of a person authorised by the Minister provided that the Minister shall


make such person available without undue delay.


26.6 The Commissioner and the Contractor shall determine the measurement point at which


production shall be measured and the respective shares of Petroleum allocated.


NATURAL GAS


27.1 The Contractor shall have the right to use Natural Gas extracted from Reservoirs within the


Contract Area for the Petroleum Operations in the Contract Area including but not limited to


power generation, pressure maintenance and recycling operations.


27.2 The terms and conditions relating to the use and production of Associated Natural Gas shall


be as follows:


2/.2.1 In the event the Contractor elects to process and sell Associated Natural Gas, the


Contractor shall notify the Ministry and, for the purposes of cost recovery and


entitlement of production, such Natural Gas shall be treated by the Parties in the


same way as other Natural Gas;


27.2.2 In the event the Contractor elects not to process and sell Associated Natural Gas not


used for purposes stipulated in Clause 27.1 or sub-clause 27.2.3 below, the


Government may offtake without any payment to the Contractor but at the


Government's sole risk and cost, such Natural Gas at the Gas/Oil separator;


provided that such offtake does not seriously disrupt or delay the conduct of


Petroleum Operations.


27.2.3 The Contractor may re-inject any Associated Natural Gas which is not taken by the


Government pursuant to sub-clause 27.2.3 , used for Petroleum Operations or


processed and sold by the Contractor, or taken by Government in accordance with


sub-clause 27.2.2 , and the costs of such disposal Gas shall be recoverable to the


extent that such re-injection is included in the Development Plan, and


27.2.4 Flaring will be resorted to only in case of an emergency. Where there is insufficient


time to request an authorization from the Minister, the Contractor may vent or flare


without the prior consent of the Minister but shall ensure that the venting or flaring


is done in accordance with a prescribed procedure and International Petroleum


Industry Practice, and shall be at the lowest possible level. Where Petroleum has


been flared or vented in an emergency, the Contractor shall immediately inform the


Ministry of the event


27.3 The Contractor shall be deemed to have relinquished all rights to the Discovery of non-


Associated Natural Gas if it has not given a notice that a Discovery is a Commercial Discovery


within the applicable time limit.


27.4 The Contractor shall be responsible, subject to any associate costs being automatically


classified as Petroleum Costs recoverable under Clause 30.1 , tor investigating market


opportunities and seek to develop a market for non-Associated Natural Gas produced from


any Development Area and shall sell such non-Associated Natural Gas on a joint dedicated


basis on terms common to all the parties constituting the Contractor. Every contract for the


sale of such non-Associated Natural Gas made by the Contractor under Clause 27 shall be


subject to approval by the Ministry. In applying for such approval the Contractor shall


demonstrate to the Ministry that the prices and other terms of sale of such Natural Gas


represents the market value obtainable for such Natural Gas taking into consideration a fair


market cost for transport ng such Natural Gas from the Delivery Point to the purchaser and


having regard to the alternative uses and markets that can be developed for such Natural


Gas.


VALUATION OF CRUDE OIL AND NATURAL GAS


28.1 The value of Crude Oil, for all purposes under this Agreement including in relation to any


supply of Crude Oil by the Contractor to the Government pursuant to Clause 29, shall be


denominated in U S. Dollars and shall be calculated each month as follows:


28.1.1 if there have been Arms Length Sales of Crude Oil produced from the Contract Area


during that month, the value shall be the weighted average per unit price actually


paid in those sales, at the Delivery Point where title and risk pass to the buyer,


adjusted for grade, gravity and quality of such Crude Oil as well as for transportation


costs and other appropriate adjustments for grade, gravity, and quality of such


Crude Oil transaction;


28.1.2 if there have been no Arm's Length Sales of Crude Oil produced from the Contract


Area during that Month, the value shall be the "fair market value" determined as


the average per unit prevailing market price, actually paid during that Month in


Arm's Length Sales for export under term contracts of at least ninety (90) days, for


 Crude Oil produced in the Republic of Malawi and in the major Crude Oil producing


countries, and adjusted for grade, gravity and quality of such Crude Oil as well as for


transportation costs and any other appropriate adjustments.





28.1.3 If necessary, the value of Crude Oil shall be determined separately for each volume


of Crude Oil of the same gravity, sulphur and metal content, pour point, product


yield and other relevant characteristics and for each Delivery Point. The value of


Crude Oil shall be mutually agreed at the end of each Month and applied to all


transactions that took place during the Month.





28.1.4 If the Minister and the Contractor cannot reach an agreement on the value of Crude


Oil within thirty (30) days of the end of any Month, such determination shall be


made by an internationally recognized expert appointed by the Parties jointly, but if


they fail to agree within thirty (30) days on the appointment of such expert, then by


the British Institute of Petroleum and the expert shall report his determination


within twenty (20) days of his appointment and his determination shall be final and


binding upon the Government and the Contractor. The cost of the expert shall be


shared equally by the Contractor and the Government.


28-1-5 Pending the determination of the value of Crude Oil for a Month, the value of Crude


Oil determined for the preceding Month will be provisionally applied to make


calculation and payment during such Month until the applicable value for that


Month is finally determined pursuant to Clause 28.1.2 . Any adjustment to


provisional calculation and payment, if necessary, will be made within thirty (30)


days after such applicable value is finally determined.


28.2 The Contractor shall endeavour to sell all Natural Gas produced and saved from the Contract


Area at arm's length prices to the benefit of Parties to the Agreement.





28.3 Notwithstanding the provision of Clause 28.2 , Natural Gas produced from the Contract


Area shall be valued for the purposes of this Agreement as follows:


28.3.1 Gas which is used as per Clause 27.1 or sold to the Government pursuant to Clause


27.2.2 shall be ascribed a zero value;





28.3.2 Gas which is sold or disposed of other than in accordance with Clause 28.3.1 shall


be valued on the basis of competitive Arm's Length Sales in the region for similar


sales under similar conditions


28 4 The formula or basis on which the prices shall be determined pursuant to Clause 23.3.2 shall


be approved by the Ministry prior to invitation of price bids or other price discovery steps by


the Contractor for the sale of Natural Gas to buyers. In determining whether or not to


approve the formula or pricing basis, the Ministry shall take into account amongst other


relevant considerations, the domestic and international prices of comparable Gas and the


linkages with traded liquid fuels. Where the Contractor makes sale of Gas at prices higher


than the approved formula, then the higher price would be reckoned for the purposes of


this Agreement.





PART 6 - DOMESTIC SUPPLY OBLIGATION, COST RECOVERY, PRODUCTION SHARING AND MARKETING


 29.1 The Contractor shall have the obligation to supply in priority CruOe Oil for domestic


consumption in the Republic of Malawi and shall sell to the Government that portion of the


Contractor's share of production, which is necessary to satisfy the domestic supply


requirements in accordance with the following provisions.





29.2 In each Calendar Year, the Minister shall notify the Contractor not less than three (3) months


prior to the beginning of that Calendar Year, of the domestic supply requirement. The


maximum amount of Crude Oil that the Minister may require from the Contractor's share of


production, once Commercial Production has commenced, in any Calendar Year pursuant to


this Clause 29 2 shall be the Contractor's share of the total requrement prorated with that


of all other Crude Oil producers in the Republic of Malawi and shall, in any event, be no


more seventy five per cent (75%) of the Contractor's share.


For the purpose of this Clause, domestic consumption' does not include Crude Oil refined


in the Republic of Malawi for export





29.3 When the Contractor is obligated to supply Crude Oil for domestic consumption in the


Republic of Malawi, the price paid by the Government shall be calculated in accordance with


Clause 28 Such sales to the Government shall be invoiced monthly and shall be paid within


sixty (60) days of receipt of the invoice, unless other terms and conditions are mutually


agreed and the Contractor's obligations under this Clause 29 shall be subject to the


Government being at all times, in compliance with its payment obligations.





30. ROYALTY. RECOVERY OF COSTS. PRODUCTION SHARING AND INCOME TAX


30.1 The Contractor shall discharge the obligation to pay royalties under section 45 of the Act in


respect of Crude Oil and Natural Gas obtained from the Contract Area, by delivering to the


Government five per cent. (5%) of total Crude Oil/Natural Gas production at the Delivery


Point and the Minister may direct and the Government may require the Contractor to


dispose of such royalties otherwise to be delivered to the Government in such manner as


the Government may direct. The Government may elect to receive all royalties in cash or


some in form of Oil. The royalty amount due to Government shall be payable on a monthly


basis no later than the end of the succeeding month.





30.2 When the Minister elects not to take and receive in kind any part of the royalties, the


Minister shall notify the Contractor three (3) months before the commencement of each


Semester of a Calendar Year, specifying the quantity of production and such notice shall be


effective for the ensuing Semester. Any sale by the Contractor of Government royalties shall


not be for a term of more than one (1) year without the Minister’s consent.





30.3 The Contractor shall recover the Petroleum Costs, in respect of Petroleum Operations in the


respective Development Area, incurred and paid by the Contractor pursuant to the


provisions of this Agreement and duly entered in the Contractor's books of account, by


taking and separately disposing of an amount equal in value up to a maximum share of


seventy per cent. (70%) of the remaining Petroleum and seventy per cent. (70%) of Non-


Associated Gas produced and saved from that Development Area during that quarter and


not used in Petroleum Operations.


30.4 Cost Recovery





\ Petroleum Costs may be recovered from Cost Petroleum in the following manner:





45











30.4.1 In any Month, the available Cost Petroleum for each Development Area shall be


applied first to recover Production Costs from that Development Area, and the


Contractor shall be entitled to recover such expenses in proportion to their


individual cumulative unrecovered Production Costs. After recovery of Production


Costs any excess Cost Petroleum available for distribution shall be applied to


recover Exploration and Appraisal Costs from the Development Area and the


Contractor shall be entitled to recover such expenses. After recovery of Operating


Costs and Exploration and Appraisal Costs any excess Cost Petroleum available for


distribution shall be applied to recover any other Petroleum Costs.





30.4.2 If during any year the Cost Petroleum from the Development Area is not sufficient


to enable the Contractor to recover in full the Petroleum Costs due for recovery


from the Development Area in that year, the payment schedule shall be as follows:


30.4.2.1 Recovery shall first be made of the Production Costs; and





30.4.2.2 Recovery shall next be made of the Exploration Costs; and





30.4.2.3 Recovery shall then be made of the Development Costs; and


30.4.2.4 Recovery shall then be made of any other Petroleum Costs.





The unrecovered portions of Petroleum Costs shall be carried forward to the


following year and the Contractor shall be entitled tn recover such accumulated


Petroleum Costs in that or subsequent years as if such Petroleum Costs were due


for recovery in that or succeeding years, until the unrecovered Petroleum Costs


have been fully recovered out of Cost Petroleum from the Contract Area.


30.4.3 Any un-recovered cost Petroleum Costs shall be recovered out of Cost Petroleum





available in the next succeeding quarter or quarters in the same manner as set out


herein but in no case after the termination of this Agreement.





30.4.4 Capital expenditure incurred in respect of each Development Area shall be


recoverable at a rate of twenty per cent. (20%) per annum based on amortization at


that rate starting either in the year in which such capital expenditure is incurred and


paid or the year in which Commercial Production from that Development Area


commences, whichever is the later.


30 4 5 Exploration Costs incurred by the Contractor in the Contract Area up to the





commencement of Commercial Production - including Exploration Costs incurred


under a previous Petroleum Exploration Licence - shall be aggregated, and the


Contractor shall be entitled to recover the aggregate of such Exploration Costs out


of the Cost Petroleum. Exploration Costs outside the Development Area incurred by


the Contractor after the commencement of Commercial Production shall be


recoverable from subsequent discoveries and Development Areas.


3C.4.6 To the extent that, in a Quarter, the Petroleum Costs recoverable under Clauses


30.4.2 to 30.4.6 are less than the maximum value of the Cost Petroleum as


specified in Clause 30.1 , the excess shall become part of, and be included in the


Profit Petroleum as provided for in Clause 30.5








46


 30 4 7 For the purpose of valuation of Cost Petroleum, the provisions of Clause 30 shall





apply.


30.5 Profit Petroleum & Production Share





From the commencement of Commercial Production, Profit Petroleum and shall be shared,


taken and disposed of separately by the Government and the Contractor as follows:


3C.5.1 Non-Associated Gas production shall be measured in tranches of daily total





production rates (million standard cubic feet per day, "MMCFD") in Onshore areas,


as follows:





MMCFD


0 49.999





50.000 99.999


100.000 199.999


700.000 299.999





300.000 and above








3D.5.2 Crude Oil production shall be measured In tranches of daily total production rates


(Barrels of oil per day being “BOPD") in Onshore areas, as follows-





BOPD


0 12,499





12,500 24,999


25,000 49,999





50.000 74,999


75,000 99,999


100,000 149,999





Above 150,000





(150,000 BOPD being the "Threshold BOPD").





The tranches of production referred to above shall be specified in terms of average


daily production rates.





30.5.3 The average daily production rates shall be determined for each Calendar Quarter


and shall be calculated by dividing the total quantity of Crude Oil and or Non-


Associated Gas produced and saved from the Contract Area during any Quarter by


the total number of days during which Crude Oil and or Non-Associated Gas were


I produced in such Quarter.








47





30.5.4 The quantity of Cost Petroleum required to satisfy Petroleum Costs in any Calendar


Year shall be allocated to each of the applicable tranches of production in the same


proportion as the total production in each tranche of production bears to total


production from the Contract Area.


30.5.5 After recovery of Petroleum Expenses, the resulting Profit Petroleum in each


tranche of production shall be shared as follows:


Profit Gas:





Tranches of daily total production Ministry share of the Contractor's


rates in the Development Area Profit Gas share of Profit Gas


onshore and shelf areas (MMCFD)


0 49.999 2094 8094


50.000 99.999 22 5% 77 5%


100.000 199.999 2594 7594


200.000 299.999 27.5% 72.5%


300.000 and above 30% 7096











Profit Oil:





Tranches of daily total Ministry share of Contractor's share of


Production rates in the Contract Profit Oil Profit Oil


Area (BOPD)





0 - 12,499 20% 8094


12,500- 24,999 22.5% 77.5%





25,000 - 49,999 25% 75%


50,000 - 99,999 27.594 72.5%


100,000 - 149,999 30% 70%








and above the Ihreshold BOPD, in accordance with the applicable R factor (as


defined below) ratio between cumulative Contract Revenues (as defined below) and


cumulative Contract Costs (as defined below), calculated on a monthly basis.


30.5.6 Once thp Threshold BOPD has been reached, the H factor ratio shall apply In respect


of all Profit Petroleum in that and all following months, notwithstanding that BOPD


subsequently falls below the Threshold BOPD, either temporarily or permanently.


30.5.7 Subject to the provisions of the Accounting Procedure, the "R Factor" shall be





calculated as follows:














48 oj








 Beginning at the Effective Date, the value of the R Factor in respect of a


month (n+1) shall be determined at the end of that month (n) accumulated


in accordance with the procedure below:


R Factor (n + 1) = eX/eY





where:


"eX" means the cumulative sum of all Contract Revenues earned by the


Contractor, either from Cost Recovery Petroleum or from Profit Petroleum,


from inception of such earnings up to the end of the month immediately


preceding the month in question; and


"eY" means the cumulative sum of all Petroleum Expenses incurred by the





Contractor, from inception thereof up to the end of the month immediately


preceding the month in question.


"n” means the index number of the relevant month.


30. S.8 The R Factor shall be applied to the Petroleum Profit Sharing Table below to find the





percentage split betv/een Government and Contractor of Profit Petroleum in each


month.





Profit Petroleum Sharing Table





R Factor Band Government share (%) Contractor share (%)


0-1 20 80


1-2 22.4 77.6


2-3 24 8 75.2


3-4 27.2 72.8


4+ 29.6 70.4








30.6 The Contractor's accounting shall account separately for all components for the calculation


of "X" and “Y" values in the formula provided in Clause 30.5.4 above.


30.7 If at any time an error occurs in the calculation of the ’R Factor' the necessary correction


shall be made and any adjustments shall apply from the month the error occurred. The Party


having benefited from a surplus of Profit Petroleum shall surrender such surplus to the other


Party, beginning from the first day of the following month. However, each lifting of Crude Oil


relating to such error shall not exceed twenty-five per cent. (25%) of the share of Profit


Petroleum to which such Party is entitled. Quantities of Crude Oil so lifted shall be valued


from the unit value established at the date of the lift ng. Interest of LIBOR plus one per cent.


(1%) shall be paid to the injured Party, to be applied on the value of un-lifted volumes of


Crude Oil at the time the error occurred up to the date of delivery


30.8 The Contractor shall be subject to Tax on income in connection with Petroleum Operations


as provided by Law. To the extent that Contractor engages in activity other than Petroleum


Operations, Contractor shall account for such activity separately and shall be subject to tax


on such activity as provided by law





49


 30.9 The Government undertakes to do all that is necessary to prevent any local or other


authority of the Government or any traditional authority from interfering with or imposing


any taxes on Crude Oil or Natural Gas or their movement.


30.10 The Government undertakes, at the request of the Contractor made at any time following


the expiry of two (2) years from the Effective Date, to negotiate in good faith a reduction in


the rate of Tax payable by the Contractor on income in connection with Petroleum


Operations.


30.11 Within 60 days of the end of each Calendar Year a final calculation of Cost Petroleum and





Profit Petroleum based on actual Crude Oil and or Non-Associated Gas quantities, prices and


recoverable costs and expenses in respect of that Calendar Year shall be prepared and any


necessary adjustments to the Crude Oil and or Non Associated Gas sharing shall be agreed


upon between the Contractor and the Government and made as soon as is practicable.





30.12 The Contractor will be free to export any Petroleum received by the Contractor pursuant to


this Clause 30 and to retain the proceeds of the sale of such Petroleum outside the Republic


of Malawi.





31. LOCAL PARTY FARM-IN





31.1 Without prejudice to the rights of the Government pursuant to Clause 32, the Government


may exercise an option in favour of a Local Party to acquire a ten per cent. Participating


Interest on and subject to the terms of this Clause 31 (the "Local Farm-in Right"]


31.2 The Local Farm-in Right may be exercised by the Government, on behalf of a Local Party,





giving written notice to the Contractor at any time prior to the expiry of two (2) year from


the tffective Date





31.3 For the purposes of this Clause 31, "Local Party" means any corporate entity which is


ultimately one hundred per cent (100%) owned by nationals of Malawi and which is named


on a schedule of such entities provided by the Government to the Contractor no later than


thirty (30) days prior to exercise of the Local Farm-in Right.


31.4 The price paid by the Local Party, or the Government on behalf of the Local Party, in respect





of the Local Farm-in Right shall be agreed between the Contractor and the Government


within thirty (30) days of receipt by the Contractor of the Government s notice pursuant to


Clause 31 2 above, provided that the local Farm-in Right shall only be exercisable if the


Contractor, acting reasonably, agrees the consideration to be paid.





31.5 The exercise of the Local Farm-in Right shall be contingent upon:





31.5.1 the Local Party having, in the reasonable opinion of the Contractor, suitable skills,


experience, financial standing and reputation to acquire a Participating Interest;





31.5.2 the conclusion of satisfactory due diligence by the Contractor in relation to the Local


Party; and





31.5.3 the Local Farm-in Right being exercised prior to the expiry of two (2) years from the


Effective Date.








50 (4











31.6 If the Local Farm-in Right is exercised in accordance with the terms of this Clause 31, the


Contractor shall use reasonable efforts to sign all documents and do all things reasonably


required to effect the transfer of a Participating Interest to the Local Party. Under no


circumstances shall the Local Farm-in Right be exercisable at any time after the expiry of two


(2) years from the Effective Date.


GOVERNMENT PARTICIPATION


32.1 The Government shall have the option to acquire a ten per cent. (10%) participation in the


rights and interests of Licence and the Contract Area. The Government has the right to


assign this interest and any obligations of the Government pursuant to such interest to any


governmental entity wholly Controlled or owned by the Government.


32.2 The option to participate shall be exercised by the Minister by written notice to the


Contractor which shall be given no later than ninety days prior to the start of Commercial


Production.


32.3 Any Government participation acquired pursuant to the preceding subsections shall be


carried by the Contractor until the start of Commercial Production, which means that |i) all


exploration, appraisal and development costs shall be paid by the Contractor; (ii) the


Government shall pay its Participating Interest share of all costs of carrying out production


operations, and (iii) the non Government participants comprising the Contractor shall be


entitled to recover the Government's Participating Interest share of all or part of the


exploration, appraisal and development costs of the Reservoir in question, without interest


thereon, as part of Cost Petroleum.





32.4 Any Government participation acquired pursuant to the preceding subsections may be


managed by any entity to which the interest is assigned in accordance with Clause 43.2 .


The Ministry or entity holding management authority shall become a party to a Joint


Operating Agreement between the non-government parties comprising the Contractor. If no


Joint Operating Agreement exists, then the Parties shall negotiate such agreement


consistent with the standards of International Petroleum Industry Practice.


ENVIRONMENT





33.1 The Government and the Contractor recognize that Petroleum Operations will cause some


impact on the Environment in the Contract Area. Accordingly, in furtherance of the


regulations made under the Petroleum Act and Environmental Management Act or as the


Government may otherwise require from time to time, in performance of this Agreement,


the Contractor shall conduct Petroleum Operations with due regard to concerns with


respert to protection of the Environment and conservation of natural resources and shall in


particular:





33.1.1 employ International Petroleum Industry Practice including advanced techniques,


practices and methods of operation for the prevention of Environmental Damage in


conducting its Petroleum Operations;


33.1.2 take all reasonable steps to: prevent Environmental Damage and, where some


adverse impact on the Environment is unavoidable, to minimise such damage and


the consequential affects thereof on property and people;


33.2 The Contractor shall cause a Person or Persons with special knowledge on environmental


matters, to carry out two (2) environmental impact studies in order:


33.2.1 to determine at the time of the studies the prevailing situation relating to the


Environment, human beings and local communities, the flora and fauna In the


Contract Area and in the adjoining or neighbouring areas; and


33.2.2 to establish the likely effect on the Environment, human beings and local


communities, the flora and fauna in the Contract Area and in the adjoining or


neighbouring areas in consequence of the relevant Exploration Period of Petroleum


Operations to be conducted under this Agreement, and to submit, for consideration


by the Parties, methods and measures contemplated in Clause 33 for minimising


Environmental Damage and carry ing out site restoration activities.


33.3 The first of the aforementioned studies shall be carried out in two (2) parts, namely, a


preliminary part which must be concluded before commencement of any field work relating


to a seismographic or other survey, and a final part relating to drilling in the Exploration


Period. The part of the study relating to drilling operations in the Exploration Period shall be


approved by the Government before the commencement of such drilling operations, it being


understood that such approval shall not be unreasonably withheld.


33.4 I he second of the aforementioned studies shall be completed before commencement of


Development Operations and shall be submitted by the Contractor as part of the


Development Plan, with specific approval of the Government being obtained before


commencement of Development Operations, it being understood that such approval shall


not be unreasonably withheld.


33.5 The studies mentioned in Clause 33.2 shall contain proposed environmental guidelines to


be followed in order to minimise Environmental Damage and shall include, but not be


limited to, the following, to the extent appropriate to the respective study taking into


account the Exploration Period of operations to which the study relates:





(a) proposed access cutting;


(b) clearing and timber salvage;


(c) wildlife and habitat protection;


id) fuel storage and handling;


(e) use of explosives;


(f) camps and staging;


(g) liquid and solid waste disposal;


(h) cultural and archaeological sites;


(i) selection of drilling sites;


(j) terrain stabilization;


(k) protection of freshwater horizons;


(l) blowout prevention plan;


(m) flaring during completion and testing of Gas and 01 Wells;


(n) abandonment of Wells;


(o) rig dismantling and site completion;


(p) reclamation for abandonment;


(q) noise control; and








52


(r) protection of natural drainage and water flow.


33.6 Subject to the provision of applicable Law and notifications on protection of the


Environment, any new project or expansion or modernization projects for Petroleum


Operations for which a proposal is submitted by the Contractor, the Government shall


complete the assessment of the project within a period of ninety (90) days from the receipt


of the requisite documents and data from the project authorities and completion of public


hearing. The decision of the Government on the proposal of the Contractor for


environmental clearance shall be conveyed within thirty (30) days thereafter.





33.7 The Contractor shall use reasonable endeavours to ensure that:


33.7.1 Petroleum Operations are conducted in an environmentally acceptable and safe





manner consistent with International Petroleum Industry Practice and that such


Petroleum Operations are properly monitored;





33.7.2 the pertinent completed environmental impact studies are made available to its


employees and to its contractors and Subcontractors to develop adequate and


proper awareness of the measures and methods of environmental protection to be


used in carrying out the Petroleum Operations; and


33.7.3 the contracts entered into between the Contractor and its contractors and


Subcontractors relating to its Petroleum Operations shall include the provisions


stipulated herein and any established measures and methods for the


implementation of the Contractor's obligations in relation to the Environment under


this Agreement.


33.8 The Contractor shall, prior to conducting any drilling activities, prepare and submit for


review by the Advisory Committee contingency plans for dealing with Oil spills, fires,


accidents and emergencies, designed to achieve rapid and effective emergency response.


The plans referred to above shall be discussed with the Government and local stakeholders


in the proposed drilling areas and concerns expressed shall be taken into account.


33.9 In the event of an emergency, accident. Oil spill or fire arising from Petroleum Operations


affecting the Environment, the Contractor shall forthwith notify the Government and shall


promptly implement the relevant contingency plan and perform such site restoration as may


be necessary in accordance with International Petroleum Industry Practice.


33.10 In the event of any other emergency or accident arising from the Petroleum Operations


affecting the Environment, the Contractor shall take such action as may be prudent and


necessary in accordance with International Petroleum Industry Practice in such


circumstances.





33.11 The Contractor shall prepare an emergency response plan to deal with such emergencies


including but not limited to blowouts, fire, storms, petroleum spills, floods and lightning The


Contractor shall cooperate with the security authorities of the Republic of Malawi that are


mandated to protect Petroleum Operations in the Contract Area.





33.12 The Contractor shall, in consultation with the Ministry and upon the Minister's approval,


establish a safety zone surrounding each Petroleum facility, Well or transportation system








53


33.13 If the Contractor's failure to comply with the provisions of sub-clause 33.1 and the


regulations, results in pollution or damage to the environment or lucastrine life or


otherwise the Contractor shall take all necessary measures to remedy the failure and


effects thereof. If such pollution or damage is the result of negligence or wilful misconduct


of the contractor, the cost of the remedy shall not be a recoverable expense for the purpose


of Clause 30.1 .


33 14 If the Contractor does not act promptly so as to control or clean up any pollution or make


good any damage caused, the Government may, after giving the Contractor reasonable


notice in the circumstances, take any action which may be necessary to ensure compliance


with such terms and to recover from the Contractor, immediately after having taken such


action, all costs and expenditures incurred in connection with such action together with


interest.


33.15 The Government shall have the right to visit and inspect at reasonable times all sites, plants,


facilities, warehouses and offices of the Contractor directly or indirectly serving the


Petroleum Operations including visiting personnel associated with those operations to


ensure compliance with the Act and Environmental Management Act.


33.16 The Minister may, if he has reasonable cause to believe that the Petroleum Operations may


endanger persons or property, cause pollution, harm marine life or interfere with navigation


and fishing, order the Contractor to take reasonable remedial measures or order the


Contractor to discontinue the relevant Petroleum Operations until such measures, or


mutually agreed alternatives thereto, are implemented.


33.17 The Contractor shall take into account subject to the provisions of Clause 33, relevant


Republic of Malawi regulations and the following international safety and industria hygiene


standards in conducting its Petroleum Operations under the Agreement:


33.17.1 Oil Industry International Exploration and Production Forum (E&P Forum)


Reports - HSE Management;


33.17.2 International Association of Drilling Contractors (IADC| Drilling Safety


Manual;


33.17.3 International Association of Geophysical Contractors (IAGC) - Operations


Safety Manual; and


33.17.4 Threshold Limited Values for Chemical Substances in the Work Environment


- American Conference of Governmental Industrial Hygienists


34. ABANDONMENT AND DECOMMISSIONING OPERATIONS


34.1 On expiry or termination of this Agreement or relinquishment of part of the Contract Area,


the Contractor shall:


34.1.1 subject to Clause 14.8 , removp all equipment and installations from the


relinquished area or former Contract Area in a manner agreed with the Government


pursuant to an abandonment plan; and


34 1 2 perform all necessary site restoration in accordance with International Petroleum


Industry Practice and take all other action necessary to prevent hazards to human


life or to the property of others or the Environment and to restore the Contract


Area, as nearly as possible, to the condition in which it existed on the Effective Date


34.2 The Decommissioning Plan is to form part of the Development Plan, and shall inclutfp a


schedule for the amortization of costs and cost recovery of costs, which are estimated to be


incurred when the development is decommissioned.


34.3 The Contractor shall establish an "Abandonment Fund' in an interest bearing USD escrow


account in order to secure the availability of funds required to cover the expenses of future


abandonment and decommissioning operations which are expected to be incurred under


the Decommissioning Plan in accordance with International Petroleum Industry Practice The


account shall he established at an international bank of good financial standing and a long


term debt rating of not less than "AA" by Standard and Poor's or a comparable rating by


another mutually agreed rating service The same Abandonment Fund shall receive the


funds tor all Reservoirs.


34.4 The Abandonment Fund shall be used solely for the purposes of covering the costs of


abandonment and decommissioning operations and its establishment shall satisfy the bond


requirements provided in Malawi's environmental laws.


34.5 The Contractor shall establish the account in the first Calendar Quarter in which the ratio of


cumulative production to overall Proved Plus Probable Reserves reaches fifty per cent (50%)


unless otherwise agreed in thp Development Plan.


34.6 All abandonment and decommissioning costs shall be recovered as Petroleum Costs at the


time funds are transferred into the Abandonment Fund.


34.7 The Contractor will transfer funds to the Abandonment Fund on a Calendar Quarter basis for


the amount of future abandonment and decommissioning costs according to the following


formula:





FTA = (ECA - AFB) X CPP/PRR


Where:





FTA is the amount to be transferred to the Abandonment Fund for future


abandonment and decommissioning costs in respect of the relevant


Calendar Quarter.


ECA is the total estimated cost of abandonment and decommissioning


operations established pursuant to this abandonment and


decommissioning operations set out in this Clause 34.


AFB is the balance of the U.S. Dollar interest bearing Abandonment Fund





referenced in Clause 34.3 at the end of the previous Calendar Quarter.


CPP is the volume of Petroleum produced during the Calendar Quarter in


v which the abandonment and decommissioning accrual was booked.


\


55


PRR is the Contractor's estimated remaining Proved Plus Probable


Reserves at the end of the Calendar Quarter in which the abandonment


and decommissioning funds were transferred; as such estimates may be


revised by Contractor from time to time.


34.8 Commencements of Abandonment and Decommissioning Operations


34.8.1 Abandonment and decommissioning will be scheduled to occur after a Commercial


Discovery reaches its Economic Limit


34.8.2 On or before the start of the two (2) year calendar period prior to the expected date


of abandonment and decommissioning, the Minister shall notify the Contractor


which of the facilities and assets identified in the development and production


programme shall not be abandoned and decommissioned, but which shall revert to


the ownership of the Government in accordance with Clause 14 of this Agreement


No further funds to cover abandonment and decommissioning costs shall be


reserved or accrued for the facilities and assets so identified and a corresponding


adjustment shall be made, if necessary, by the Contractor.


34.8.3 If the Minister decides not to use said assets, he shall have the right to require the


Contractor to remove them at the latter's expense in accordance with the said


Decommissioning Plan, it being understood that the abandonment and


decommissioning operations shall be carried out by the Contractor in accordance


with International Petroleum Industry Practice, this Agreement and in accordance


with the time schedule and conditions defined in the Decommissioning Plan which


shall have been approved.


34.9 Abandonment and Decommissioning upon Termination of Development Area


34.9.1 If the Contractor recommends abandonment and or decommissioning of facilities


assets or Wells belonging to it in connection with a termination of a Development


Area, pursuant to Clause 4 of the Agreement, the Government may elect to take


ownership of and continue using such facilities, assets and Wells by giving the


Contractor written notice of such decision within sixty (60) calendar days of the


Government's receipt of the Contractor's notice of relinquishment. Upon so


notifying the Contractor, which notification is effective as of the effective date of


the Contractor's relinquishment, the Government shall take ownership of, and be


responsible for, abandonment and decommissioning such facilities, assets and


Wells.


34 9 7 If the Government does not elect to continue using such facilities, assets or Wells,


the Contractor shall be responsible for their abandonment and decommissioning


upon termination of this Agreement or of the Development Area within the


corresponding Development Area, if earlier. The Contractor may in consultation


with the Government defer the abandonment and decommissioning operations for


a reasonable length of time if this would result in operational efficiencies, which


minimise the cost for all Parties.





34.10 Facilities, Assets and Wells which the Government Continues to Use


34.10.1 With respect to any facilities, assets or Wells which the Government elects


to own pursuant to this Agreement or pursuant to these abandonment and


decommissioning provisions:


34.10.1.1 the Government shall conduct such continued use and/or


abandon or decommission in accordance with


International Petroleum Industry Practice and in such a


manner that does not interfere with continuing Petroleum


Operations; and


34.10.1.2 the Government may abandon and decommission such


facilities, assets and Wells as and when the Government


decides.


34.10.2 The Government shall indemnify on demand and hold harmless the


Contractor in respect of any and all costs, losses and liabilities of any kind


arising out of or in connection with any facilities, assets or Wells used by


the Government including, without limitation, decommissioning costs.


34.11 Disbursements of Funds for Abandonment and Decommissioning Costs


34.11.1 The Contractor will advise the Government on an annual basis of its best


estimate nf the projected date of abandonment and decommissioning of


the Discovery based on the then current estimate of when the Economic


Limit will be reached according to the then current production forecast and


realized Oil prices.


34.11.2 As and when the Contractor commences booking accruals pursuant to


these provisions, the Contractor will cause the accrued costs of


abandonment and decommissioning operations to be set aside in a


separate U.S. Dollar interest bearing escrow account in the joint names of


the Contractor and the Government, established at a mutually acceptable


financial institution in England or the United Arab Emirates to be used


solely for paying the decommissioning costs. The account is to be funded


on a quarterly basis by each entity constituting the Contractor in proportion


to each such entity's then current participating equity interests in this


Agreement out of its share of ongoing cost Oil and profit Oil attributable to


the Contractor and the Government entities, or by cash payment if


production is insufficient. A final reconciliation shall be submitted to all


Contractor parties and the Government following completion of all


abandonment and decommissioning operations and adjustments made in


accordance with the Clause 34.12 below.





34 12 Adjustments to the transfer of funds to the Abandonment Fund





34 12 1 If funds remain in the Abandonment Fund following completion of all


abandonment and decommissioning operations, then such excess funds


shall be distributed to the Contractor and the Government in the same


proportion as the cumulative Profit Petroleum distribution to the


Government and the Contractor under Clause 30 of this Agreement during





57


 the years that the funds were transferred by the Contractor into the


account to cover abandonment and decommissioning costs.





34.12.2 The projected cost of removing facilities or assets that the Government


decides should not be removed shall be paid by the Contractor to the


Government out of the Abandonment Fund concurrently with the transfer


of ownership of such facility, asset or Well to the Government. The


Government represents that the transferred funds shall only be used in


conjunction with its abandonment and decommissioning operations.


34.12.3 If the Abandonment Fund is insufficient to complete abandonment and


decommissioning activities, additional funds for such activities shall be


provided from a portion of Crude Oil which the Contractor is entitled to


receive under this Agreement from any Development Area, or if no


production is available, by cash payment by the Contractor.





35. CORPORATE SOCIAL RESPONSIBILITY


35.1 Content of Corporate Social Responsibility Plan





35.1.1 The Contractor shall prepare a draft Social Responsibility Plan, which will take


account of:





35.1.1.1 the relevant proposals in the environmental impact assessments


and the Development Programme to the extent they describe


appropriate social responsibility projects;


consultation with local Malawian residents;


35.1.1.2





35.1.1.3 consultation with the local District Commissioner; and


35.1.1.4 consultation with the Government,








it being the intention of the Parties that such a draft plan may intentionally not fully


utilize the available cash contributions as described in Clause 35.1.2 on the basis


that a social responsibility committee created by the Advisory Committee may meet


and resolve to introduce programmes which will, amongst other things, utilise any


surplus cash. On completion, the draft plan shall be submitted to the relevant


Minister for approval.


35.1.2 The Social Responsibility Plan will provide for an annual expenditure on social





projects by the Contractor of no more than USD120,000 per Contract Year


35.2 Implementation of Corporate Social Responsibility Plan





35.2.1 The Contractor shall commence implementation of the Social Responsibility Plan


twelve (12) months from the date of issue of the Petroleum Exploration licence.


35.2.2 The Company shall act in a manner to ensure the design of the works proposed in


the Social Responsibility Plan is complete in time for the commencement of the


35.2.3 The Contractor shall provide to the Government regular reports on the works


completed, the contracts entered into and the expenditure incurred in


implementing the Social Responsibility Plan and the Government may inspect the


Contractor s records thereof. Such reports shall be public.


35.2.4 Prior to the commencement of the implementation of the Social Responsibility Plan,


the Contractor shall seek the assistance of the Advisory Committee regarding the


type, location, size and the standard of the works proposed in the Social


Responsibility Plan and the Contractor shall have regard to the committee's


recommendations and the intent of Clause 35.1.1 in determining the type,


location, size and standard of the works proposed in the Social Responsibility Plan.


35.2.5 In the implementation of the Social Responsibility Plan, the Contractor shall in no


case be required to fund or find funds for that portion of the costs which exceed


USD50.000.


36. PROFIT SHARING STATEMENT


The Contractor shall prepare with respect to each month a Profit Sharing Statement containing the


following information as in paragraph 24 of Appendix B.


PART 7 - BOOKS, ACCOUNTS, AUDITS, IMPORTS, EXPORTS AND FOREIGN EXCHANGE


37. BOOKS, ACCOUNTS AND AUDITS


37.1 The Contractor shall keep books and accounts in original at an office in the Republic of


Malawi in accordance with the Accounting Procedure and shall submit to the Minister a


statement of those accounts, not more than three (3) months afterthe end of each Calendar


Year.


37.2 The Minister shall require, at the Contractor's cost, an annual independent audit (starting,


except in the case of manifest error or fraud, within twenty four (24) months after the end


of the Calendar Year, and concluding within twelve (12) months of this start) of the


Contractor's books and accounts relating to this Agreement for any Calendar Year. The


Contractor shall forward a copy of the independent auditor's report to the Ministry within


sixty (60) days following the completion of the audit.


37.2.1 The appointment of an independent firm of chartered accountants and the scope of


audit should have prior approval of the Advisory Committee


37.3 The Government may audit the books and accounts (by itself or as it directs), within two (2)


Calendai Years of the period to which they relate, and shall complete that audit within one


(1) Calendar Year


37.4 For purposes of auditing, auditors may examine and verify at reasonable times all charges


and credits relating to the Petroleum Operations such as books of account, accounting


entries, material records and inventories, vouchers, payrolls, invoices and any other


N documents, correspondence and records necessary to audit and verify the charges and


\\ credits. Furthermore, the auditors shall have the right in connection with such audit to visit


\ \ and inspect at reasonable times all sites, plants, facilities, warehouses and offices of the








59


Contractor directly or indirectly serving the Petroleum Operations including visiting


personnel associated with those operations.


37.5 In the absence of an audit within two (2) Calendar Years or in the absence of notice to the


Contractor of a discrepancy in the books and accounts within three (3) Calendar Years of the


period to which the audit relates the Contractor's books and accounts shall be deemed


correct.


PROCUREMENT


38.1 When purchasing goods and services related to Operations, the Contractor shall, and shall


cause its major contractors to organize their procurement practices of goods and services to


give local Malawian businesses a meaningful opportunity to bid for and secure contracts to


supply goods and services provided that such goods and services are at least comparable in


quality, terms, delivery, service, quantity and price to goods and services obtainable from


other sources. This shall include but not be limited to the dissemination of supply


opportunities through advertising locally and on the Contractor's website.


38 2 As part of such facilitation the Contractor shall develop a Local Business Development


Programme to encourage and assist the establishment or expansion, as the case may be, of


local Malawian businesses which may be capable of providing consumables, materials, plant,


equipment or services from their own resources to the Contractor. Such Programme shall


also set out how the Contractor intends to structure its procurement as required in Clause


38.1 . The Local Business Development Programme shall be part of the Development


Programme.


38.3 The Contractor in consultation with the Government shall at all times designate a


responsible person to


38.3.1 assist Malawi citizens who wish to or have set up businesses to service the


Contractor and the Project;


38.3.2 implement the Local Business Development Programme;


38.3.3 liaise with the appropriate officials from the Government; and


38.3.4 provide advice and technical assistance in the development and implementation of


long term business enterprises which can continue after Petroleum Operations are


completed.


38 4 The Contractor shall submit annual reports to the Commissioner, the first report to be


submitted within three (3) months after the first (lrt) financial year end of the Contractor


following the approval of the Appraisal Programme Such reports shall detail (i) progress


being made on the implementation of the Local Bus ness Development Programme, (ii) the


extent by Malawi Kwatcha value and category to which the Contractor and its major


contractors acquired during such year goods and services from the local Malawian


businesses, (iii) the Contractor's expected procurement from local Malawian businesses in


the current fiscal year, and (iv) any recommended modifications of the Local Business


Development Programme, and the goals for such procurement during the current fiscal year


Such reports shall be public.


38.5 For purposes of this Clause, "local Malawian businesses" means:


38.5.1 services provided by citizen residents of Malawi; or


38.5.2 entities incorporated or formed in Malawi where citizens of Malawi are entitled to


receive sixty per cent. (60%) or more of all profits from such entities. For purposes


of this Clause, a "major contractor" is a contractor or subcontractor who received


more than two hundred thousand U.S. Dollars (USD $200,000) directly or indirectly


from the Contractor in that year and who had significant operations in Malawi that


year.


EXPORTS AND IMPORTS


39.1 Except as to the Petroleum to be delivered to the Government pursuant to the terms of this


Agreement, the Contractor shall own and receive its share of Petroleum produced from the


Contract Area and shall be entitled to export such Petroleum without restriction and free of


any taxes, customs or other duties and other impositions or charges whatsoever.


39.2 The Contractor and its contractors and Subcontractors engaged in carrying out Petroleum


Operations under this Agreement shall be permitted to import into the Republic of Malawi


all the materials, equipment and supplies including but not limited to machinery, vehicles,


consumable items, movable property and any other articles, used solely and exclusively for


the carrying out of Petroleum Operations under this Agreement (the "Petroleum


Materials").


39.3 Subject to a relevant representative of the Ministry certifying that the Petroleum Materials


are to be used solely and exclusively in carrying out Petroleum Operations, the Contractor;


its contractors and Subcontractors shall be entitled to make such imports without;


39.3.1 any approval of import licence provided, however, that an application has been


duly made,


39.3.2 any exchange control approval; or


39.3.3 any inspection outside of the Republic of Malawi by general superintendence or


other inspecting body, acting for the timp being, appointed by the Government,


and free and exempt from any and all customs or other duties, import taxes and any


other charges or impositions on import


39.4 The Government shall have the right to inspect the records and documents of the physical


item or items for which an exemption has been provided to determine that such item or


items are being or have been imported solely and exclusively for the purpose for which the


exemption was granted. The Government shall also be entitled to inspect such physical


items wherever located in Malawi to ensure that such items are being used for the purpose


herein specified and any item not being so used shall immediately become liable to payment


of the applicable Customs Duties.


39.5 The actual costs of contracts for technical and other services entered into by the Contractor


for Petroleum Operations and for materials purchased by the Contractor for use in


Petroleum Operations shall be recoverable, provided that those services and materials are


reasonably required for Pet'oleum Operatons and provided further that the prices paid by


the Contractor are no higher than those currently prevailing in normal arm's length


transactions of the open market for comparable services and materials.


39.6 Each expatriate employee of the Contractor, its contractors and Subcontractors shall be


permitted to import and, at the end of their service in the Republic of Malawi, re-export,


exempt from all Customs Duties household goods and personal effects, including one (1)


automobile provided however that such properties are imported within six (6) months of


their arrival or such longer period as the Government may in writing determine.


39.7 The Contractor and its contractors and Subcontractors and their expatriate employees may


sell in the Republic of Malawi all imported items which are no longer needed for Petroleum


Operations. However, if such imports were exempt from Customs Duties, the seller shall


fulfil all formalities required in connection with the payment of duties, taxes, fees and


charges imposed on such sales.


35.8 The Contractor and its contractors and Subcontractors anc their expatriate employees may


export from the Republic of Malawi, exempt of all export duties, taxes, fees and charges, all


previously imported items which are no longer required for the conduct of Petroleum


Operations under this Agreement.


39.9 "Custom Duties", as that term is used herein, shall include any duty, cess or surtax imposed


by or under the customs laws as defined in the Customs and Excise Act.


EXCHANGE AND CURRENCY CONTROLS


40.1 The Contractor and its subcontractors and Affiliates shall comply with the procedures and


formalities required by thp laws and the regulations relating to foreign exchange in force in


the Republic of Malawi, provided these procedures and formalities do not affect the rights


hereunder set forth.


40.2 Funds transferred into the Republic of Malawi for local expenditures, funds utilized abroad


to purchase goods and services for Petroleum Operations, charges for services performed by


the Contractor or its subcontractors outside the Republic of Malawi as part of Petroleum


Operations and all other expenditures and investments made pursuant to this Agreement


shall be filed by the Contractor's Malawi bankers with the Reserve Bank of Malawi which


shall issue appropriate written confirmation to the Contractor.


40.3 Funds required by the Contractor and foreign subcontractors to meet local expenditures


shall be imported into the Republic of Malawi in freely convertible currencies and


transferred to local banks. If it or they so desire, the Contractor and/or its foreign


subcontractors may borrow Malawi currency from local banks In order to meet local


expenditures.


40.4 Any purchase or sale of foreign exchange shall be affected at the exchange rate to the


Contractor, as quoted by the Reserve Bank of Malawi.


40.5 The Contractor shall be authorised to open, maintain, control and operate accounts in any


currency in foreign banks outside the Republic of Malav/i, to have full and complete control


of such accounts, and to retain abroad and freely dispose of any funds in such accounts


Among other reasons, withdrawals may be made for payments for goods and services


acquired abroad, for payments to subcontractors engaged in Petroleum Operations, and for


transferring funds to local banks in the Republic of Malawi to meet local expenditures, all in


connection with the Contractor's activities under this Agreement.


40.6 The Contractor shall be granted the following exchange rights:


40.6.1 To provide in freely convertible foreign currencies all funds to conduct Petroleum


Operations;


40.6.2 To hold such funds abroad with no obligation to transfer funds or assets to the


Republic of Malawi except such funds as are necessary to meet Contractor's need


for Malawi currency, in the case that Contractor does not borrow such funds from


local banks;


40.6.3 To freely dispose of any funds held outside the Republic of Malawi;


40.6.4 To export any and all Petroleum to which it is entitled pursuant to this Agreement;


40.6.5 To retain abroad and freely dispose of all proceeds, received outside from the


export, sale or exchange of Petroleum with no obligation to remit such export


proceeds except as may be needed to meet the Contractor’s expenses in the


Republic of Malawi, in the case that the Contractor does not borrow funds from


local banks for that purpose;


40 6 6 To remit and/or repatriate abroad and freely dispose of (i) all proceeds received


within the Republic of Malawi from the sale or exchange of Petroleum within the


Republic of Malawi, (ii) proceeds received from other operations and activities


within the Republic of Malawi, and (iii) any other funds accruing to the Contractor


within the Republic of Malawi, including, without limiting the generality of the


foregoing, all profits and or dividends and the Government shall ensure that all such


remittance and/or repatriation shall be free of any currency and/or exchange


control whether pursuant to applicable laws which may be in force or otherwise;


40 6 7 To pay its international subcontractors and expatriate employees in foreign


currencies, either inside or outside of the Republic of Malawi. Expatriate employees


shall be authorised to remit and/or repatriate any personal funds or proceeds in any


currency received in the Republic of Malawi from the sale of personal belongings


All payments to resident Subcontractors shall be made exclusively in the Republic of


Malawi; and


40.6.8 To maintain a special account or accounts for non-Malawi funds in a local bank or


banks chosen by the Contractor from which funds can be disbursed for the purpose


of making any payments required in conducting Petroleum Operations, or making


payments to, or for the benefit of the Contractor's employees, whether local or


expatriate





40.7 Any payments made by any Party to another Party shall be made in U S Dollars unless the


Parties mutually agree upon another currency.


40 8 In the event the laws and the regulations relating to foreign exchange in force in the


Republic of Malawi at the Effective Date are amended prior to or during, the Stability Period





63


and to the extent the effect of the amendment is to vest discretion in relation to the


imposition of exchange controls in the Reserve Bank as exchange control authority, the


Government shall in good faith urge the Rpserve Bank as exchange control authority to


exercise its discretion such that the Contractor and Affiliates shall, notwithstanding such


amendment and without requiring further approvals from the Government, continue to


have the rights set out in this Clause 40


40 9 The Contractor's Subcontractors and their employees shall have the same rights as the


Contractor and its employees under this Clause 40


PART 8- GENERAL


41. REPRESENTATIONS AND WARRANTIES


41.1 Representations and Warranties of the Contractor


The Contractor represents and warrants to the Government on the Effective Date as follows:


41.1.1 The Contractor Is a corporation duly organized, validly existing and in good standing


under the laws of Malawi, and has the corporate power and authority to execute,


deliver and perform its obligations under this Agreement.


41.1.2 This Agreement has been duly authorised by all necessary corporate action on the


part of the Contractor, and this Agreement constitutes a legal, valid and binding


obligation of the Contractor enforceable against the Contractor in accordance with


its terms, except as such enforceability may be limited by (i) applicable bankruptcy,


insolvency, reorganization, moratorium or other similar laws affecting the


enforcement of creditors' rights generally and (ii) general principles of equity


(regardless of whether such enforceability is considered in a proceeding in equity or


at law).


41.1.3 As far as the Contractor is aware, none of the Affiliates, directors, officers or other


Persons is a Prohibited Person.


41.1.4 The execution, delivery and performance by the Contractor of this Agreement will





not (i) contravene, result in any breach of, or constitute a default under, any


agreement or instrument to which the Contractor is a party or by which it or any of


its properties are bound or affected, (ii) conflict with or result in a breach of any of


the terms, conditions or provisions of any order, judgment, decree, or ruling of any


court, arbitrator or governmental authority, applicable to the Contractor or


(iii) violate any provision of any statute or other rule or regulation of any


governmental authority applicable to the Contractor.


41.1.5 As far as the Contractor is aware, there are no actions, suits, investigations or


proceedings pending or, to the knowledge of the Contractor, threatened, against or


affecting the Contractor or any property of the Contractor in any court or before


any arbitrator of any kind or before or by any governmental authority that call into


question the right of the Contractor to enter into and perform its obligations under


this Agreement or that, if resolved against the Contractor, would materially


adversely affect its ability to perform its obligations under this Agreement.








b4


41.1.6 Neither the Contractor nor any of the Contractor's Affiliates, has been determined


under any order, judgment, decree or ruling of any court, arbitrator or


governmental authority to be In material violation of (j) any applicable law,


ordinance, rule or regulation relating to the protection of the environment of any


governmental authority or (11) any agreement pursuant to which it is entitled to


extract minerals or hydrocarbons under the laws of any jurisdiction.


41.1.7 The Contractor has, or has the means to access, the experience, finance, expertise,


technical know-how and systems required for the conduct of the activities


contemplated by this Agreement.


41.1.8 None of the Contractor, any Affiliate of the Contractor or any Person acting on


behalf of the Contractor or any Affiliate of the Contractor has made or promised to


make any payment or transfer of anything of value, directly or indirectly, to or for


the benefit of an Official or an Official's family member or to an intermediary for


payment to or for the benefit of an Official or an Official's family member in


connection with this Agreement or the transactions contemplated hereby. (For the


purposes of this paragraph, "Official" means (i) any employee or officer of the


Government, including any regional or local department or agency or


instrumentality thereof, (ii) any employee or officer of any enterprise owned or


Controlled by the Government, (ili) any official of a political party in Malawi, (iv) any


official or employee of a public international organization, (v) any other person


acting in an official capacity for, or on behalf of, any of the entities described in


clauses (i) through (iv), or (vi) any candidate for political office in Malawi.)


41.2 Other Undertakings of the Contractor


41.2.1 The Contractor shall notify the Government of any transfer of any ownership


interest in the Contractor or in any Person which Controls the Contractor (other


than in any Person whose shares are publicly listed on a stock exchange having


reporting and disclosure requirements substantially similar to those imposed in any


of the leading international stock exchanges) within 30 days following such Transfer.


Such notice shall be accompanied by the certification of the chief executive officer


of the Contractor that, immediately after giving effect to such Transfer, the


representations and warranties of the Contractor as set forth in Clause 41.2 are


true and correct as of a time immediately after giving effect to such Transfer and


updating the information required by Clause 41.1.3 .


41.2.2 At all times during the Term, (i) the Contractor shall be a corporation organized


under the laws of Malawi, (ii) none of the Affiliates, directors or officers may be a


Prohibited Person, (iii) the Contractor shall be eligible to hold a license under the


Act, and (iv) the representation made in Clause 41.1 shall be true and correct. On


each annual anniversary of the Agreement Date, the chief executive officer of the


Contractor shall provide to the Government a certification that the Contractor is in


compliance with the requirements of this Clause 41.2.1


PAYMENTS





All sums due to the Government or the Contractor shall be paid in U S. Dollars or other currency


agreed to by the Government and the Contractor. Any late payment shall attract interest at 1


percentage point above LIBOR per annum.





65


ASSIGNMENT





43.1 Except with the consent of the Minister in accordance with this Clause 43, no assignment or


other dealing by the Contractor in respect of this Agreement shall be of any force or effect.


Any Change of Control of any company comprising the whole or part of the Contractor shall


also be subject to these provisions and in the event.


43.2 The Government may only assign its rights or obligations to a company owned and


Controlled by the Government.


43 3 To be effective, any deed of sale, assignment, transfer or other disposal to a third party


provided under Clause 43 shall be subject to the following procedure, which must be


implemented within thirty (30) days following notification (an "Assignment Notice") to the


Government


43.3.1 the third party shall demonstrate to the Minister's satisfaction evidence of its


technical and financial capabilities;


43.3.2 the third party shall demonstrate proof of incorporation in Republic of Malawi;


43.3.3 the assigning party or party subject to the Change of Control shall have paid all


capital gains taxes to the Government and in the event that the gain or any pan of it


accrues to an offshore entity shall pay to the Government a sum equivalent to the


amount which would have been paid had the gain accrued to a Malawian party; and


43.3.4 the deed of assignment shall include an undertaking by such third party to fulfill any


obligations of the Contractor under this Agreement on a joint and several basis.


43.4 If the Minister has not responded to an Assignment Notice or notification of the Change of


Control within the thirty (30) day period referred to in Clause 43 3 , his consent to the


relevant assignment shall be deemed to have been given (provided that the obligations set


out in Clause 43.2 have been complied with).


43.5 In case of an assignment, the Contractor shall provide the Government with a Deed of


Assignment in which the main conditions and liabilities assumed by the assignee are set out


and a copy of the assignment agreement or transfer agreements as well as any other


document relevant to the assignment or transfer Furthermore, the assignor or transferor


shall submit an evaluation by an independent expert and all material terms of the


assignment.


43.G The Minister reserves the right to employ the services of an independent consultant, at the


cost of the Contractor or any of the entities comprising the Contractor, to be mutually


agreed by the Minister and such entity:


43.6.1 to carry out an independent valuation of the transaction; and


43.6.2 to carry out an independent due diligence of the assignment or transaction


including an evaluation of the technical competence and financial capacity of the


assignee or transferee.











66 4








43.7 Should an assignment or Change of Control referred to under this Clause occur without such


entity first obtaining the required consent of the Minister, the assignment will be null and


void and the Contractor will cease to hold an interest under this Agreement.


43 8 No assignment or transfer shall in any way absolve the assignor from the obligations


undertaken by it under the Agreement except to the extent such obligations are in fact


assigned to the assignee or transferree


43.9 Any entity or entities comprising Contractor shall apply for consent, at least ninety (90)


calendar days before the proposed effective date of the Transfer; which application shall


include evidence to the Minister of the financial and technical competence of the Transferee


together with a valuation and all material terms of the Transfer


43.10 Where the Contractor assigns or transfers the participating interest under this Agreement,


the Contractor shall have a secondary liability for financial obligations for the cost of


implementing site clean-up, decommissioning and abandonment. Such financial obligation


shall be limited to possible costs related to installations, sites, petroleum facilities and Wells,


which existed at the time of the assignment, and is limited to a share of the costs calculated


on the basis of the size of the Participating Interest assigned. The Contractor shall put in


place an adequate security for such secondary liability.


44. JOINT OPERATING AGREEMENT


44.1 Where the Contractor consists of more than one Contractor Entity, the Contractor shall


execute a Joint Operating Agreement hptween those entities, within forty-five (45) days of


the Effective Date, or such longer period as may be agreed to by the Government The said


agreement shall be consistent with the provisions of this Agreement and shall provide for,


among other things:


44.1.1 the appointment, resignation, removal and responsibilities of the Operator;


44.1.2 the establishment of an operating committee comprising of an agreed number of


representatives of the companies comprising the Contractor chaired by a


representative of the Operator;


44.1.3 functions of the said operating committee taking into account the provisions ot the


Agreement, procedures for decision making, frequency and place of meetings; and


44.1.4 contribution to costs, default, sole risk, disposal of Petroleum and assignment as


between the Parties to the Joint Operating Agreement


The JOA shall be considered to include any other agreements (i) made between the Parties


to the jOA or their affiliates and (ii) relating to Petroleum Operations and the rights and


obligations detailed in this Agreement.


44.2 Operator shall provide to the Ministry a copy of the duly executed JOA within thirty (30)


days of its execution date or such longer period as may be agreed to by the Government.


44 3 In case a single Person constitutes the Contractor, the provisions of Clauses 44.1 and 44.2


v shall not be applicable However, in case of increase in the number of persons of the








67 (4








 Contractor, the provisions of Clauses 44.1 and 44.2 shall apply from the date of such


increase in the number of persons.





45. FORCE MAJEURE


45 1 In this Clause, "Force Majeure" shall mean any event or circumstance or combination of


events or circumstances beyond the reasonable control of a Party occurring on or after the


fcffective Date that materially and adversely affects the performance by such affected Party


of its obligations under or pursuant to this Agreement; provided, however, that such


material and adverse effect could not have been prevented, overcome or remedied by the


affected Party through the exercise of diligence and reasonable care.


45.1.1 Force Majeure shall include Acts of God; fires; epidemics; storms; floods;


earthquakes; any act, event, happening or occurrence due to natural causes;


unavoidable accidents, strikes, riots or labour disturbances; acts of war or


conditions attributable to or arising out of war (declared or undeclared);


Insurrections, hostile acts of hostile forces constituting direct and serious threat to


life and property,, terrorism or sabotage of a political nature; and all other matters


or events of a like or comparable nature beyond the control of a Party which


prevents that Party (the "Affected Party") from performing one or more


obligation(s) under this Agreement.


45.2 If the Affected Party desires to invoke Force Majeure as a cause for relief or failure in


performance of any of its obligations under this Agreement (other than payment of money),


it shall


45.2.1 as soon as reasonably practicable and, in any event no later than ten (10) days


following the time at which performance of the Affected Party's obligations is


impacted by the occurrence or ongoing prevalence of Force Majeure, give notice to


the other Party of the circumstance, event or condition which it alleges constitutes


the Force Majeure Event and an estimate of its likely duration. If the Affected Party


does not deliver such notirp in accordance with the terms hereof, such Affected


Party shall not be entitled to invoke the benefits of this Clause 45,





45.2.2 continue to perform its obligations under this Agreement to the extent not


prevented by such Force Majeure;


45.2.3 use all reasonable endeavours to mitigate the effects of the Force Majeure Event


and to resume full performance of its obligations, as it becomes possible, without


undue delay;


45.2.4 at the request of the other Party, use its reasonable endeavours to allow access at


all reasonable times for a reasonable number of reoresentatives or experts to


examine the scene of the Force Majeure Event;





45.2.5 within twenty (20) days of the date of a notice issued pursuant to Clause 45.2.1 ,


provide a report concerning the Force Majeure and its effects, including particulars


of the circumstance, event or condition, a general description of the obligations


likely to be affected, an estimate of its likely duration and a statement of the actions


\ to be taken in order to comply with its obligations under this Clause 45;








68











45.2.6 from time to time at reasonable intervals and upon any reasonable request from


the other Party, provide updates as to the matters set out in Clause 45 2 5 ;


45.2.7 within seventy two (72) hours following the permanent cessation of any Force


Majeure, submit to the other Party reasonable proof of the nature of such delay


and its effect upon the performance of its obligations under this Agreement;


45.2.8 as soon as reasonably possible, and in accordance with International Petroleum


Industry Practice, ensure the resumption of normal performance of this Agreement


after the cessation of any Force Majeure Event.


45 3 The Affected Party shall not be liable for any delay or failure in performing its obligations


under this Agreement due to a Force Majeure Event, provided that no relief shall be granted


to the Affected Party pursuant to this Clause 45 to the extent that such failure or delay


would have nevertheless been experienced by the Affected Party had the Force Majeure


Event not occurred


45.4 Where the non-Affected Party disputes the existence of Force Majeure, the relevant Dispute


shall be referred to arbitration in accordance v/ith Clause 48.


45.5 I he Contractor may terminate this Agreement upon a three (3) month written notice to


Minister if the fulfilment of the obligation of either Party under this Agreement is affected


by a Force Majeure event during the Exploration Period or any extension thereof for a


continuous period exceeding one hundred and eighty (180) days without further obligation


and liabilities of any kind.


45.6 Subject to Clause 45.5 , the term of the Agreement shall be automatically extended for the


period of the Force Majeure.


WAIVER


46.1 NO waiver by either Party of any default by the other Party in the performance of any of the


provisions of this Agreement:


46.1.1 shall operate or be construed as a waiver of any other or further default or defaults


whether of a like or different character; or


46.1.2 shall be effective unless in writing duly executed by a duly authorised


representative of such Party.


46.2 Neither the failure by a Party to insist on any occasion upon the performance of the terms,


conditions and provisions of this Agreement nor time or other indulgence granted by one


Party to the other Party shall act as a waiver of such breach nor as an acceptance of any


variation, or as the relinquishment of any such right or any other right hereunder.


GOVERNING LAW


47.1 This Agreement and any disputes arising out of or in relation to it (including any non¬


contractual dispute) shall be governed by, interpreted and construed in accordance with the


laws of England and Wales.


 47.2 The Contractor agrees that it will obey and abide by all Laws





48. SETTLEMENT OF DISPUTES


48 1 Except as otherwise specified in this Agreement, if any dispute or difference of any kind


whatsoever (a "Dispute") shall arise between the Parties arising out of or in connection with


this Agreement, or the hreach, termination or validity hereof, the Parties shall attempt, for a


period of thirty (30) days after the receipt by one Party of a notice from the other Party of


the existence of the Dispute, to settle such Dispute in the first instance by mutual


discussions between the Parties.


48 2 If a Dispute cannot be settled by mutual discussion with such period of thirty (30) days, then


such Dispute shall be finally settled by, and the Parties consent to submit to, arbitration


pursuant to the Convention on the Settlement of Investment Disputes between States and


Nationals of Other States (the "Convention*) at the International Centre for Settlement of


Investment Disputes (thp Centre").


48.3 It is hereby stipulated that the transaction to which this agreement relates is an investment.


48.4 It is hereby agreed that the Contractor is Controlled by nationals of the United Arab


Emirates and shall be treated as a national of those States for the purposes of the


Convention.


48.5 Any arbitral tribunal constituted pursuant to this Agreement shall consist of one arbitrator


appointed by each Party, and an arbitrator, who shall be President of the Tribunal,


appointed by jointly by the two Party-appointed arbitrators.


48.6 Any arbitral tribunal constituted pursuant to this Agreement shall apply the laws of England


and Wales.


48.7 Without prejudice to the power nf the arbitral tribunal to recommend provisional measures,


either party hereto may request any judicial or other authority to order any provisional or


conservatory measure, including attachment, prior to the institution of the arbitration


proceeding, or during the proceeding, for the preservation of its rights and interests.


48.8 In any arbitration proceeding conducted pursuant to this Agreement, the fees and expenses


of the members of the arbitral tribunal as well as the charges for the use of the facilities of


the Centre shall be allocated in such manner as the arbitral tribunal shall finally determine


48.9 Notwithstanding the existence of any Dispute or the pending of any procedures pursuant to


this Clause 48 the Parties agree and undertake that all payments not in dispute shall


continue to be made and all obligations not in dispute shall continue to be performed.





48.10 The Parties hereby, to the fullest extent permitted by law, irrevocably waive any right to


challenge or contest the validity or enforceability of the arbitration agreement set out in this


Clause 48 or any arbitration proceeding or award brought in conformity with this Clause 48,


including any objection based on venues or inconvenient forum


The Government hereby irrevocably and unconditionally:











70


 48.11.1 agrees net to claim any immunity from proceedings brought by the


Contractor against the Government in relation to this Agreement and to


ensure that no such claim is made on its behalf





48 11.2 consents generally to the giving of any relief or the issue of any process in


connection with those proceedings; and





48.11.3 waives any right of sovereign immunity as to it and its property in any


jurisdiction including ir respect of any proceedings contemplated, and the


enforcement and execution of any award rendered by an arbitral tribunal


constituted pursuant to, this Clause 48.





49. STABILITY PERIOD





49.1 The obligations of the Contractor resulting from this Agreement shall not be aggravated by


the Government and the general and overall equilibrium between the Parties under this


Agreement shall not be affected in a substantial and lasting manner.





Without limitation to the generality of the preceding sub-clause, the Contractor’s and its


49.2


Affiliates' capital property and assets shall not be expropriated except for public purposes


or interest and only in accordance with due process of law on a non-discriminatory basis and


with the condition of prompt, adequate and effective compensation by the Government


according to applicable laws.


The Government guarantees to the Contractor, for the entire duration of this Agreement,


49.3


that it will maintain the stability of the fiscal and economic conditions of this Agreement, as


they result from this Agreement and as they result from the Laws in force on the Effective


Date. The Contractor has entered into this Agreement on the basis of the legal fiscal and


economic framework prevailing at the Effective Date. If there are any changes with respect


to any provisions of any Law which may detrimentally and unfairly affect the Contractor's


economic position during the Stability Period, this Agreement shall be amended as may be


necessary to restore the Contractor to the economic position it would have enjoyed during


the Stability Period but for such changes


If the Contractor believes that its economic position has been detrimentally and unfairly


49.4


] affected as provided in Clause 49.3 , upon the Contractor's written request, the Parties shall


meet to agree on any additional necessary measures with a view to re-establishing the


economic equilibrium between the Parties and restoring the Contractor to the position it


was in prior to the occurrence of the change having such detrimental effect Should thp


Parties be unable to agree on the merit of amending this Agreement and/or on any


amendments to be made to this Agreement within ninety (90) days of Contractor's request


(or such other period as may be agreed by the Parties), the Contractor may refer the matter


J in dispute to arbitration as provided in Clause 48.





49.5 Without prejudice to the generality of the foregoing, the Contractor shall be entitled to


J request the benefit of any future changes to petroleum legislation or any other legislation


complementing, amending or replacing it.


The Parties agree to cooperate in all possible ways with a view to fully achieving the


objectives of this Agreement. The Government shall facilitate the performance of the


Petroleum Operations by promptly granting to the Contractor any necessary authorisation,





71


 permit, licence or access right and making available any existing fac lities and services with a


view to the Parties obtaining maximum mutual benefit from the Coiiiiact.





49.7 For the avoidance of doubt, nothing in this Agreement shall be read to affect or limit the


power of the Government to tax gams realized by domestic or non-resident persons relating


to the sale or other disposition of any interest, direct or indirect, in the Contractor or Crude


Oil or Natural Gas.





50. NOTICES





50.1 Any notice, consent, demand, appioval, request or other communication required or


permitted to be given shall be in writing in the English languagp and shall be:


50.1.1 in the case of a notice, consent, demand, approval, request or other communication


given by the Government, signed on behalf of the Government by either the


Minister or permanent or principal secretary to the Ministry as their respective


responsibilities require: or





50.1.2 m the rase of a notice, consent, demand, approval, request or other communication


to be given by the Contractor, signed by a director or by the secretary of the


Contractor.





50.2 Each such notice, consent, demand, approval, request or other communication shall, as


elected by the Party giving such notice, be personally delivered or by International courier to


the other Party as follows:


Government





If by hand delivery --- Principal Secretary


Ministry of Mining


Private Bag 350


Capital Hill,


Lilongwe


Malawi


Contractor





If by hand delivery --- Mr. Golak Bihari Patnaik,


Senior-VicePresident


P.O.Box:31656


Telephone:+265111530770


E-mail: g patnaik®) pacificoilltd.com


Lilcngv/e


Malawi








50.3 Except as otherwise specified in this Agreement, all notices, consents, demands, approva s,


requests or other communication shall be deemed to have been duly given:





50.3.1 if delivered by email, upon production of a read receipt; and


50.3.2 if delivered personally, on the date of receipt.








72


50.4 Either Party may change its address by notice, consent, demand, approval, request or other


communication to the other Party in accordance with the provisions of this Clause.


50.5 The Contractor shall at all times maintain an address in Lilongwe for the purpose of service


of notice.


51. AMENDMENTS


51.1 This Agreement shall not be amended, modified or supplemented except by an instrument


in writing signed by the Part es.


IN WITNESS WHEREOF, the representatives of the Parties being duly authorised have hereunto executed this


Agreement on the date which first appears on page













































































(4


73


For the Government and the Republic of Malawi:






































Dr. Leonard Kalindekafe





Title: Principal Secretary, Ministry of Mining




















In the Presence of:


Witness





Signature


Name


fofcg* O Isl lOvM



































74


 APPENDIX "A1





Contract Area: BLOCK 6


Coordinates of License Area for Block - 6;








Projection System: Universal Transverse Mercator


Zone: 36 South


Datum: WGS 84





Points Easting (m) Northing (m)


A /60000 8218000


From A follow border between Malawi and Mozambique to D in dock-wise direction


D 640000 8259000


E 716000 8259000


F 716000 8218000


 APPENDIX "B"








ACCOUNTING PROCEDURE


TABLE OF CONTENTS


PART I - GENERAL PROVISIONS


1. Interpretation


2. Accounting Obligations of the Contractor


3. Language and Units of Accounts


4. Audits and Inspection Rights of the Government


5 Revision of Accounting Procedure


PART II CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS AND EXPENDITURES


6. Exploration Expenditures


7. Development and Production Expenditures


8. Operating Expenses


9. Service Costs


10. General and Administrative Expenses


PART III - COSTS, EXPENSES, FXPENDITURE AND CREDITS OF THE CONTRACTOR


11. Surface Rights


12. Labour and Related Costs


13. Materials


14. Transportation and Employee Relocation Costs


15. Damage and Losses to Joint Property


16. Insurance


17. Legal Expenses


18 Rentals, Duties and Taxes


19 Training Costs


20 Costs Not Recoverable Under This Agreement


21. Emergency and Other Expenditures Outside Work Programmes and Budgets


22. Miscellaneous Income and Credit Under Agreement


23. No Duplicate of Charges and Credits


PART IV - FINANCIAL REPORTS TO THE MINISTER


24. Profit Sharing Statement


25. Annual Submissions to the Ministry




















76


PART I • GENERAL PROVISIONS





The purpose of this Accounting Procedure is to establish methods and rules of accounting for Petroleum


Operations and the principles set forth herein shall apply to Petroleum Operations pursuant to the


production sharing contract (hereinafter referred to as the ' Agreement"), to which this Appendix is attached.


10 INTERPRETATION


1.1 Definitions


"Contractor' means, either jointly or individually. Pacific Oil Ltd , its Affiliates, successors or


any assignee or assignees of any interest of the signatory under this Agreement, provided


that the assignment of any such interest is accomplished pursuant to the provisions of


Clause 43 of the Agreement;


"Controllable Material" means Material which the Contractor subjects to record control and


inventory. A list of types of such material shall be furnished to the Government and Non-


Contractor(s);


Development Costs" shall consist of all expenditures directly or indirectly incurred in:


(a) studies of the subsurface for the purpose of determining the best manner of


recovering hydrocarbons, which include 2D and 3D geophysical surveys, production


geology, modeling and simulation of deposits as an integral part of economic


Reservoir exploitation and conservation,


(b) drilling Wells which are completed as producing Wells and drilling Wells for


purposes of producing from a Petroleum Reservoir already discovered whether


these Wells are dry or producing, and drilling wells for the injection of water or gas


to enhance recovery of Petroleum;


(c) completing Wells by way of installation of casing or equipment or otherwise, after a


Well has been drilled tor the purpose of bringing the Well into use as a producing


Well, or as a Well for the injection of water or Gas to enhance recovery of


Petroleum;


(d) the cost of Petroleum production, storage and transport facilities such as pipelines,


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


equipment, enhanced recovery systems. Offshore platforms, Petroleum storage


facilities and access roads for production activities;


(el the costs of engineering and design studies for facilities referred to in subsection;


and


(f) any allocated indirect costs and services.


Exploration and Appraisal Costs" means all direct and indirect expenditures incurred in the


Exploration Operations and Appraisal Operations in an area which is or was. at the time


when such were incurred, part of the Contract Area including;








77


(a) aerial, geophysical, geochemical, paleontological, geological, topographical and


seismic surveys and studies and their interpretation;


(b) core hole drilling and water Well drilling including:


(I) abour, materials and services used in drilling Wells with the object of


finding new Petroleum Reservoirs, or for the purposes of appraising the extent of


Petroleum provided such wells are not completed as producing Wells;


(c) facilities and assets used solely in support of the Exploration Operations and


Appraisal Operations; and


(d) any allocated indirect costs and services.


"General and Administrative Expenses" means those expenses set out at paragraph 10 of


this Appendix;


"Joint Account" means the set of accounts maintained by the Contractor to record all


expenditure and other transactions under the provisions of the Agreement Such accounts


will distinguish between Exploration and Appraisal Costs, Development Costs and


Production Costs. After adoption of a Development Plan, a separate Joint Account shall be


maintained for each Development Area.


"Joint Property" means all property acquired and held in connection with Petroleum


Operations under the Agreement;


"Material" means moveable property, including supplies and equipment, acquired and held


for use in Petroleum Operations;


"Net cost" has the meaning prescribed to it in Paragraph 13.1.1 of this Accounting


Procedure;


"Non-Contractor" means the entities constituting the Contractor other than the Contractor,


and the Government when it participates;


"Operating Costs ' means all and any costs directly or indirectly associated with the day to


day operations of the Contractor as they relate to Commercial Production and include


Service Costs and General and Administrative Expenses; and


"Service Costs" means those costs set out at paragraph 9 of this Appendix.


Words not defined herein, but which are defined in the Agreement, shall have the meanings ascribed to them


therein.





1.2 Precedence of Document


In the event of conflict between the provisions of this Accounting Procedure and the


provisions of the Agreement, the provisions of the Agreement shall prevail.





2 ACCOUNTING OBLIGATIONS OF THE CONTRACTOR


2.1 The Contractor shall maintain financial accounts necessary to record in reasonable detail the


transactions relating to Petroleum Operations which shall be prepared in accordance with


generally accepted standards of the International Petroleum Industry Practice, as more


particularly, but not exclusively set out in this Accounting Procedure


2.2 The Contractor shall provide the Government with a description of its accounting


classifications and the Contractor shall use such classifications when preparing its accounts.


2.3 The Contractor shall provide details of the financial accounts in the form of monthly


statements which shall:


2.3.1 reflect all charges and credits related to Petroleum Operations;


2.3.2 be prepared on accrual basis so that expenditure is recorded as incurred when title


to goods passes or when work is executed; and


2.3.3 present the total accounts for the Contract Area and each Development Area and


the share of each Non-Contractor.


3. LANGUAGE AND UNITS OF ACCOUNTS


3.1 The Contractor shall maintain accounts in Malawi Kwacha and U.S. Dollars; however, the


U.S. Dollar accounts will prevail in case of conflict. Metric units and barrels shall be


employed for measurements required under the Agreement and this Appendix. I he


language employed shall be English. Where necessary for clarification the Contractor may


also maintain accounts and records in other units of measurement and currencies.


3.2 It is the intent of this Accounting Procedure that neithpr the Government nor the Contractor


should experience an exchange gain or loss at the expense of, or to the benefit of, the other.


However, should there be any gain or loss from exchange of currency, it will be credited or


charged to the accounts under the Agreement.


4 AUDITS AND INSPECTION RIGHTS OF THE GOVEKNMENI


4.1 The Government, upon at least thirty (30) days' advance written notice to the Contractor,


shall have the right at its sole expense to audit the Joint Account and related records for any


Calendar Year or portion thereof within the twenty-four (24) month period following the


end of such year. Notice of any exception to the accounts for any Calendar Year shall be


submitted to the Contractor within ninety (90) days of receipt by Government of the report


of its auditors


4.2 For the purposes of auditing, the Government may examine and verify, at reasonable times,


all charges and credits relating to the Petroleum Operations such as books of account,


accounting entries, material records and inventories, vouchers, payrolls, invoices and any


other documents, correspondence and records necessary to audit and verify the charges


and credits. Furthermore, the auditors shall have the right in connection with such audit, to


visit and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of


the Contractor directly or indirectly serving the Petroleum Operations including visiting


personnel associated with those operations.


4.3 All adjustments resulting from an audit agreed shall be rectified promptly in the Contractor's


accounts Any unresolved Dispute arising in connection with an audit shall be referred to


arbitration in accordance with Clause 48 of the Agreement.


4.4 The Minister shall require, at the Contractor's cost, an independent audit (starting, except in


the case of manifest error or fraud, within twenty four (24) months after the end of the


Calendar Year, and concluding within twelve (12) months of this start) of the Contractor s


books and accounts relating to this Agreement for any Calendar Year. The Contractor shall


forward a copy of the independent auditor's report to the Ministry within sixty (60) days


following the completion of the audit.


5. REVISION OF ACCOUNTING PROCEDURE


5.1 By mutual agreement between the Government and the Contractor, this Accounting


Procedure may be revised from time to time by an instrument in writing signed by the


Parties.


5.2 The Parties agree that if any procedure established herein proves unfair or inequitable to


any Party, the Parties shall meet and in good faith endeavour to agree on the changes


necessary to correct that unfairness or inequity.


PART II CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS AND EXPENDITURES


Petroleum Costs incurred in connection with Petroleum Operations carried out hereunder shall be classified,


defined and allocated as follows:


6. Exploration Expenditures are all direct and allocated indirect costs incurred in the search for


Petroleum in the Contract Area, including:


6.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and seismic


surveys and studies and their interpretations;


6.2 Core hole drilling and water Well drilling;


6.3 Labour, materials and services used in drilling Wells with the object of finding new


Petroleum Reservoirs or for the purpose of appraising the extent of Petroleum Reservoirs


already discovered provided that such Wells are not completed as producing Wells;


6 4 Facilities used solely in support of these purposes including access roads and purchased


geological and geophysical information;


6 b A portion of all Service Costs (as hereinafter defined) allocated to exploration Operations on


an equitable basis agreed to between the Advisory Committee and the Contractor;


6 6 A portion of all General and Administrative Expenses (as hereinafter defined) allocated to


exploration of Operations based on projected budget expenditures subject to adjustment on


the basis of actual expenditure at the end of the Calendar Year concerned; and


Contract Expenses incurred prior to the commencement of Commercial


in a Development Area and not otherwise covered by Paragraph 7 below.





80


7. Development and Production Expenditures shall consist of all expenditures incurred in Development


Operations in relation to a Development Area including:


7.1 Drilling Wells which are completed as producing Wells and drilling Wells for purposes of


producing a Petroleum Reservoir already discovered whether these Wells are dry or


producing;


7.2 Completing Wells by way of installation of casing or equipment or otherwise after a Well has


been drilled for the purpose of bringing the Well into use as a producing Well;


7.3 Intangible drilling costs such as labour, consumable materials and services having no salvage


value which are incurred in drilling and deepening of Wells for production purposes;


7.4 The costs of field facilities including field gathering systems, field production and treatment


units, wellhead equipment, subsurface equipment, enhances recovery systems, offshore


platforms, Petroleum storage facilities in the field and related facilities, and field access


roads for production activities;


7.5 Engineering and design studies for field facilities;


7.6 A portion or all Service Costs allocated to the Development Operations on an equitable basis


in a manner agreed by the Advisory Committee;


7.7 A portion or all General and Administrative Expenses allocated to the Development


Operations based on projected budget expenditures which will be adjusted to actual at


Calendar Year end; and


7.8 Any other expenditures incurred in Development Operations prior to the commencement of


Commercial Production in a Development Area, other than those incurred in respect of


operations carried out beyond the Delivery Point.


8. Operating Expenses are all expenditures incurred in the Petroleum Operations hereunder after the


start of the Commercial Production which are other than exploration expenditures Development


and Production Expenditures and General and Administrative Expenses and Service Costs otherwise


allocated to Exploration Expenditures or Development and Production expenditures pursuant to


Paragraph 6 and 7 above; Operating expenses shall not, however, include tariff charges associated


with the transportation of Petroleum from the Delivery Point to the land or seaboard terminal point


of export


9. Service Costs are direct and indirect expenditures in support of the Petroleum Operations Including


warehouse, pie, marine vessels, vehicles, motorized rolling equipment, aircraft, fire and security


stations, workshops, water and sewage plants, power plants, housing, community and recreational


facilities and furniture, tools and equipment used in these activities. Service Costs in any Calendar


Year shall include the total costs incurred in such year to purchase and/or construct said facilities as


well as the annual costs to maintain and operate the same and includes the following:


9.1 The actual cost of contract services, professional consultants, and other services performed


by third parties other service provided by the Contractor or its Affiliate(s), but the prices


paid by the Contractor shall not be higher than those generally charged for comparable


services








81


9.2 Costs of technical services, such as but not limited to, engineering, and related data


processing, performed by the Contractor and its Affiliate(s) for the direct benefit of


Petroleum Operations, engineering, and related data processing, performed by the


Contractor provided such cost shall not exceed those currently prevailing if performed by


third parties in normal arm's length transaction for like services;


9.3 Costs of use of equipment and facilities for the direct benefit of the Petroleum Operations,


furnished by Contractor or its Affiliate(s) at rate commensurate with the costs of ownership,


or rental and the cost of operation thereof, but such rates shall not exceec those currently


prevailing in the general vicinity of the Contract Area in normal arm's length transactions on


the open market for like services and equipment; and


9.4 Costs associated with the Contractor’s main office or seat of management outside the


Republic of Malawi and its administration, including staff benefits, that are reasonably


allocable to the activities envisioned in, and undertaken further to, this Agreement.


All Service Costs will be regularly allocated as specified in subParagraphs 6.5, 7 6 and 8 to


Exploration Expenditures, Development and Production Expenditures and Operating


Expenses.


10. General and Administrative Expenses


General and Administrative Costs are expenditures incurred on general administration and


management primarily and principally related to Petroleum Operations in or in connection with the


Contract Area, and shall include:


expenditures related to mam office, field office and general administrative expenditures in


10.1


the Republic of Malawi including supervisory, accounting and employee relations services;


and


an annual overhead charge for services rendered by the parent company or an Affiliate to


10.2


support and manage Petroleum Operations under the Agreement, and for staff advice and


assistance including financial, Ipgal, accounting and employee relations services, but


excluding any remuneration for services charged separately under this Accounting


Procedure, provided that:


10.2.1 for the period from the Effective Date until the date on which the first Development





Plan under the Agreement is approved by the Government, the charge shall be the


Contractor's verifiable expenditure limited to two per cent. (2%) of Petroleum Costs


per month.


10.2.2 from the date on which the first Development Plan is approved, the charge shall be


verifiable expenditures restricted to the rate of one per cent. (1%) of Petroleum


Costs per month.





PART III COSTS, EXPENSES, EXPENDITURE AND CREDITS OF THE CONTRACTOR


Subject to the provisions of the Agreement, the Contractor shall bear and pay the following costs and


expenses necessary to conduct Petroleum Operations. These costs and expenses will be classified under the


headinf^\eferred to in Part II of this Appendix. Such Petroleum Costs are recoverable by the Contractor in


accordance with the provisions nf the Agreement.





82


11. SURFACE RIGHTS





All direct costs necessary to acquire and to maintain surface right to the Contract Area when such costs are


paid by the Contractor according to the provisions of the Agreement, including surfaces fees laid out in


Paragraph 8, shall be borne by the Contractor.


12. LABOUR AND RELATED COST





12.1 Gross salaries and wages, including bonuses, of the Contractor's employees directly and


necessarily engaged in the Petroleum Operations, irrespective of the location of such


employees, it being understood that in the case of those employees, only a portion of whose


time is wholly dedicated to Petroleum Operations, only that pro rata portion of applicable


salaries and wages will be charged,


12.2 Cost to the Contractor of established plans for employees' group life insurance,


hospitalization, Contractor pension, retirement and other benefits of a like nature


customarily granted to the Contractor's employees and the Contractor's expenditure


regarding holiday, vacation, sickness and disability payments applicable to the salaries and


wages chargeable under subparagraph (12.1) above shall be allowed at actual cost, provided


however that such total expenditure shall not exceed thirty-five per cent (35%) of the


Contractor's total labour expenditure under subparagraph (12.1) above.


12.3 Expenditure or contributions made pursuant to assessments or obligations imposed under





the Laws which are applicable to the Contractor's expenditure on salaries and wages


chargeable under subparagraph (12.1) above.


12.4 Reasonable travel and personal expenditure of employees of the Contractor, including those


made for travel and relocation of the expatriate employees assigned to Republic of Malawi


and relocation costs from the Contract Area vicinity, except when an employee is reassigned


to another location classified as a foreign location by the Contractor, all of which shall be in


accordance with the Contractor's normal practice, provided such is consistent with


International Petroleum Industry Practice.


12.5 Charges for Services





12.5.1 the actual cost of contracts for technical and other services entered into by the


Contractor for the Petroleum Operations, made with third parties other than


Affiliates are recoverable, provided that the prices paid by Contractor are no higher


than those generally charged by other international or domestic suppliers for


comparable work and services;





12 52 Without prejudice to the charges to be made in accordance with this Paragraph


12.5 of this Appendix, in the case of services rendered to the Petroleum Operations


by an Affiliate the charges will be based on actual costs without profits and will be


competitive. The charges will be no higher than the most favourable prices charged


by the Affiliate to third parties for comparable services under similar terms and


conditions elsewhere. The Contractor will, if requested by the Advisory Committee


or Government specify the amount of the charges which contributes an allocated


proportion of the general material, management, technical and other costs of the


Affiliate, and the amount which is the direct cost of providing the services


concerned As requested by the Advisory Committee or Government certified





83


 evidence regarding the basis of prices charged may be obtained from the auditors


of the Affiliate such evidence to be certified by the Chief Financial Officer of the


Contractor or in the case of affiliates the Chief Financial Officer of the Contractor's


Parent.





13. MATERIAL


13.1. So far as it is reasonably practical and consistent with efficient and economical operations,


only such Material shall be purchased or furnished by the Contractor as may be required for


immediate use and/or for approved Work Programmes and the accumulation of surplus


stock shall be avoided.


13.1.1 Except as otherwise provided in sub-part 13.1.2 below, Material purchased, leased


or rented shall be charged at the actual Net Cost incurred by the Contractor. "Net


cost" shall include, but shall not be limited to, the invoice price less trade and cash


discount (if any), purchase and procurement fees plus freight and forwarding


charges between point of supply and point of shipment, freight to port of


destination, insurance, taxes. Customs Duties, consular fees, other items chargeable


against imported material and where practicable handling and transportation


expenses from point of importation to warehouse or operating site, and it should


not exceed that currently prevailing in normal arms length transactions on the open


market.


13.1.2 Material purchased or transferred from Affiliates shall be charged at the prices


specified here below:


13.1.2.1 New Material (condition "A") shall be valued at the current international


Net Cost which shall not exceed the price prevailing in normal arms


length transactions on the open market


13.1.2.2 Used Material (conditions "B", "C" and “D").


13.1.2.2.1 Material which is in sound serviceable condition and is


suitable for reuse without reconditioning shall be


classified as condition "B" and priced at seventy-five per


cent. (75%) of the current price of new Material defined


in sub-Paragraph 13.1.2.1 above.


13.1.2.2.2 Material which cannot be classified as condition "B" but


which after reconditioning will be further serviceable for


its original function as good second hand material or is


serviceable for original function but substantially not


suitable for reconditioning shall be classified as condition


"C" and priced at fifty per cent. (50%) of the current price


of new Material as defined in (13.1.2.1), above. The cost


of reconditioning shall be charged to the reconditioned


Material provided that the value of condition "C“


Material plus the cost of reconditioning do not exceed


1 \ the value of condition "B" Material.











84


 13.1.2.2.3 Material which cannot be classified as condition "B" or


condition "C“ shall be classified as condition "D" and


priced at a value commensurate with its use.





13 1.2.2.4 Material involving erection costs shall be charged at the


applicable conditions percentage of the current knocked-


down price of new Materials as defined in 13.1.2 1 above;





13 1 2 2 5 When the use of Material is temporary and its service to


the Petroleum Operations does not justify the reduction


in price as provided for in 13.1.2.2.2, such material shall


be priced on a basis that will result in a net charge to the


accounts under the Agreement consistent with the value


of the services rendered





13.1.3 The Contractor doesn't warrant Material beyond the supplier's or manufacturer's


guarantee and, in case of defective material or equipment, any adjustment received


by the Contractor from the supplier/manufacturer or their agents will be credited to


the accounts under the Agreement.





13.1.4 Inventories





13.1.4.1 At reasonable intervals, inventories shall be taken by the Contractor of


all Controllable Material The Contractor shall give thirty (30) days'





written notice of intention to take such inventories to allow the Minister


and Non-Contiactor(s) to be represented when any inventory is taken.


Failure of any party to be represented after due notice given shall bind


such party to accept the inventory taken by the Contractor.





13.1.4.2 The Contractor shall clearly state the principles upon which valuation of


the inventory has been based.


13.1.4.3 Whenever there is a sale or change of interest in the Joint Property, a





special inventory may be taken by the Contractor, provided the seller


and/or purchaser of such interest to bear all of the expense thereof. In


such cases, both the seller and the purchaser shall be entitled to be


represented and shall be governed by the inventory so taken





TRANSPORTATION AND EMPLOYEE RELOCATION COSTS





Transportation of Material and other related costs such as origin services, expediting, crating, dock


charges, forwarder's charges, surface and air freight, and customs clearance and other destination


services.





DAMAGES AND LOSSES TO JOINT PROPERTY





All reasonable costs or expenses necessary for the repair or replacement of Joint Property resulting


from damages or losses incurred by fire, flood, storm, theft, accident, or any other cause, except


insofar as those costs and expenses are caused by the negligence or willful misconduct of the


Contractor. The Contractor shall furnish the Government and Non-Contractor(s) written notice of











85


damages or losses for each damages or loss in excess of fifty thousand U.S. Dollars (USD50,000] as


soon after the loss as practicable.


16. INSURANCE


Insurance premiums and expenditure incurred for insurance pursuant to Clause 10 of the Agreement


are deductible. Expenditure and losses incurred as a consequence of events which are, and in so far


as, not made good by insurance are deductible, unless such expenditure has resulted solely from an


act of wilful misconduct or negligence of the Contractor.


17 LEGAL EXPENSES


17.1 All reasonable costs and expenses resulting from the handling, investigating, asserting,


defending, or settling of any claim or legal action necessary or expedient for the procuring,


perfecting, retention and protection of the Contract Area and in defending or prosecuting


lawsuits involving the Contract Area or any third party claim arising out of Petroleum


Operations under the Agreement, or sums paid in respect of legal services necessary for the


protection of the joint interest of Government and the Contractor, shall be recoverable.


Such expenditures shall include attorney’s fees, court costs, costs of investigation and


procurement of evidence and amounts paid in settlement or satisfaction of any such


litigation and claims provided such costs are not covered elsewhere in the Accounting


Procedure.


Where legal services are rendered in such matters by salaried or regularly retained lawyers


of the Contractor or an Affiliate, such compensation will be included instead under


Paragraph 12 above.


18. RENTALS, DUTIES AND TAXES


All rentals, taxes, levies, charges, fees, contributions and any other assessments and charges levied


by the Government in connection with Petroleum Operations, and paid directly or indirectly by the


Contractor, other than Tax on income imposed on the Contractor and its employees and


Government's share attributable pursuant to Clause 31 of the Agreement


19 TRAINING COSTS


All costs and expenses incurred by the Contractor in training of Malawi employees engaged in


Petroleum Operations and such other training as is required under Clause 15 of the Agreement.


20. COSTS NOT RECOVERABLE UNDER THE AGREEMENT





20.1 Ineligible Costs are:


20.1.1 Costs incurred before the date of the Petroleum Exploration Licence;


20.1.4 Costs relating to formation of corporations or of any partnerships or joint venture


arrangements, other than in respect of a unitisation as required by the Act,





20.1.5 Payments of dividends or the cost of issuing shares;


Repayments of equity or loan capital;





86





tA





20.1.7 Payments of private override royalties, net profits interests and the like;


20.1.9 Payments of taxes under the taxation law of Malawi, and all other taxes on


income, profit or gain wherever arising;


20.1.11 Costs incurred as a result of non-compliance by the Contractor with the law or


this Agreement, including costs Incurred as a result of any negligent act or


omission, or wilful misconduct, of the Contractor, its agents or Subcontractors,


including any amount paid in settlement of any claim alleging negligence or willful


misconduct, whether or not negligence or misconduct is admitted or whether


such sum is stated to be paid on an ex-gratia or similar basis;


20.1.12 Payment of compensation or damages under this Agreement;


20.1.13 Costs relating to the settlement of Disputes, which are not approved in advance


by the Minister, including all costs and expenses of arbitration or litigation


proceedings under this Agreement;


20.1.16 Except with the consent of the Minister, costs, including donations, relating to


public relations or enhancement of the Party's corporate image and interests;


20.1.17 Costs associated with local offices and local administration, including staff


benefits, which are excessive;


20.118 Costs which are not adequately supported and documented; and


20.1.21 Costs not falling within any of the above items which are stated elsewhere in this


Agreement not to be recoverable (including costs incurred without the consent or


approval of the Minister (where such is required).


EMERGENCY AND OTHER EXPENDITURES OUTSIDE WORK PROGRAMMES AND BUDGETS


21.1 Without further approval by the Minister, the Contractors may over-expend by ten per cent.


(10%) on any line item in an approved Work Programme and budget for a Contract Year.


21.2 Without further approval by the Minister, the total of all over expenditures under Paragraph


21.1 under that Work Programme and budget for that Contract Year shall not exceed 10 per


cent. (10%) of the total expenditures in that Work Programme and budget.


21.3 The Contractors shall promptly inform the Ministry if they anticipate (or should reasonably


anticipate) that any such limit in Paragraph 21.1 (in the accounting procedure) will be


exceeded and seek, in the manner provided in Paragraph 21.4, an amendment to the


appropriate Work Programme and budget.


21.4 In determining whether to approve the over expenditures contemplated at Paragraph 21.1


(in the accounting procedure) and Paragraph 21.2 (in the accounting procedure) the


Minister shall consider whether such increases are necessary to complete the Works


Programme, provided that such increase is not the result of any failure of the Contractors to


fulfil their obligations under this Agreement.


21.5 Nothing in Paragraph 21.1 (in the accounting procedure) precludes or excuses the


Contractor from taking all necessary and proper measures for the protection of life, health,


the environment and property if there is an emergency (including a significant fire,


explosion, Petroleum release, or sabotage incident involving loss of life, serious injury to an


employee, contractor or third party, or serious property damage; strikes and riots or


evacuation of the Contractor's personnel). As soon as reasonably practicable, the Contractor


will inform the Minister of the details of the emergency and of the actions it has taken and


intends to take.


22. MISCELLANEOUS INCOME AND CREDITS UNDER THE AGREEMENT


22.1 The proceeds received from or in connection with Petroleum Operations shall be credited to


the accounts under the Agreement and shall be treated as miscellaneous gross income


chargeable to both petroleum income tax and additional profits tax pursuant to the Taxation


Act. Such proceeds include but are not limited to the following:


22.1.1 The value of the Contractor's share of Profit Petroleum produced and save and


sold, or otherwise disposed of, from a Development Area and from any revenue


realized on the sale of Associated or Non-Associated Natural Gas;


22.1.2 Revenue received from outsiders for the use of property or assets charged to the


accounts under the Agreement;


22.1.3 Rentals, refunds or other credits received by the Contractor which apply to any


charge which has been made to the accounts under the Agreement;


22.1.4 Proceeds from all sales of surplus Material or assets charged to the account under


the Agreement;


22.1.5 The proceeds from the sale or exchange by the Contractor of plant or facilities


from the Block or plant or facilities the acquisition expenditure of which have


been charged to the accounts under the Agreement.


22.1.6 The proceeds from the direct or indirect sale or exchange by the Contractor or


any Affiliates of any Petroleum rights being an interest in its Block(s).


22.1.7 The proceeds from the sale of any Petroleum information which relates to the


Block(s) provided that the expenditure incurred in respect of the acquisition of


such information has been charged to the accounts under the Agreement; and


22.1.8 The proceeds derived from the sale or licence of any intellectual property the


development costs of which were incurred under the Agreement.


23. NO DUPLICATION OF CHARGES AND CREDITS


Notwithstanding any provision to the contrary in this Accounting Procedure, it is the intention that


there shall be no duplication of charges or credits in the accounts under the Agreement


PART IV - FINANCIAL REPORTS TO THE MINISTER





The reporting obligations provided for in this part shall, unless the contrary is stated, apply to the Contractor.


24. COST RECOVERY AND PROFIT PETROLEUM REPORTS





Not later than forty five (45) days after the end of the month in which the date of commencement of


commercial production first occurs, and not later than forty five (45) days after thp end of each


succeeding month, the Contractor shall supply to the Ministry a monthly Profit Petroleum report for


each Development Area showing:


24.1 unrccovcred Operating Costs and capital expenditures as at the beginning of the preceding


month;


24.2 Operating Costs and capital expenditures incurred during such preceding periods;


24.3 the value and volume of Cost Recovery Petroleum lifted by the Contractor during the


preceding periods;


24.4 unrecovered Operating Costs and capital expenditures carried forward for recovery in


succeeding periods;


24.5 the value and volume of Petroleum produced, used in Petroleum Operations, available for


lifting and actually lifted by the Parties, as at the end of the preceding month;


24.6 Profit Petroleum allocated to each of the Contractor Parties constituting the Contractor, and


the Ministry, during the preceding month.


25. OTHER FINANCIAL REPORTS


The Contractor shall submit annually to the Minister the following:


25.1 The annual Work Programme and budget three (3) months before the beginning of the year


to which they apply and the budget shall be analysed by item within the exploration


programme, Appraisal Programme, development programme and production programme


and show for each major budget item, with reasonable detail, the following:-


25.1.1 Latest forecast cumulative costs anticipated at the start of the budget year


25.1.2 Cumulative expenditure anticipated at the end of each quarter of the budget


year;


25.1.3 Expenditure anticipated in future years to complete the budget item.


25.1.4 A schedule of the service and supply contracts, to be let during the forthcoming


year which require payment in foreign currency exceeding the equivalent of five


hundred thousand U S. Dollars (USQ500.000 00) per contract, showing thp


anticipated tender date and approximate value and the goods or services to be


provided; and


25.1.5 The audit report required by sub-part 1.5.4. of this Accounting Procedure, stating


whether in the opinion of the auditors of the Agreement:











89


25.1.5.1 The last annual expenditure report records the expenditure of the


Contractor truly and fairly in accordance with the provisions of the


Agreement, and


25.1.5.2 The reports on Revenue submitted truly and fairly determined the arm’s


length value of disposals of Petroleum during the year


The Contractor shall submit quarterly within thirty (30) days of each Calendar Quarter to thp


Minister:


25.2.1 A report of expenditure and receipts under this Agreement analysed by budget


item showing:


25.2.1.1 Actual expenditure and receipts for the Calendar Quarter in question;


25.2.1.2 Actual cumulative cost to date;


25.2.1.3 Latest forecast cumulative cost at the year end;


25.2.1.4 Variations between budget costs and actual costs, and explanations


thereof; and


25.2.1.5 With effect from adoption of the Development Plan, the total payroll


costs segregated between Malawi and non-Malawi personnel and the


total expenditure segregated between Malawi and non-Malawi goods


and services.


25.2.2 A cost recover/ statement containing the following information:


25.2.2.1 Recoverable Petroleum Costs carried forward from the previous


Calendar Quarter, if any;


25.2.2.2 Recoverable Petroleum Costs incurred and paid during the Calendar


Quarter;


25.2.2.3 Total recoverable Petroleum Costs for the Calendar Quarter (25.2.2.1)


plus (25.2.2.3) above;


25.2.2.4 Quantity and value of Cost Oil taken and separately disposed of by the


Contractor for the quarter;


25.2.2.5 Amount of Petroleum recovered for the Calendar Quarter;


25.2.2.6 Amount of recoverable Petroleum Costs to be carried forward into the


next Calendar Quarter, if any; and


25.2.2 7 Value of Government's share of production taken by the Contractor


pursuant to Clause 30 of the Agreement.


25.3 A copv of each contract for goods or services requiring a foreign currency payment, shall be


provided to the Minister as soon as practicable after its execution, together with a contract


summary containing:


25.3.1 a description of the goods or services to be provided,


25.3.2 the approximate consideration for the contract;


25.3.3 the names of proposed bidders, contractors or suppliers; and


25.3.4 a brief description of the efforts made to find a Malawi supplier or contractor


including the names of businesses considered and the reasons for rejecting them


25 4 Annual Statement


Each Contractor shall prepare a final end-of-year statement. The statement will contain


information as provided in the production statement, value of production and pricing


statement, cost recovery statement and statement of expenditure and receipts, but will be


based on actual quantities of Petroleum produced and costs incurred. This statement will be


used to make any adjustments that are necessary to the payments made by the Contractor


under this Agreement. The final end-of-year statement of each Calendar Year shall be


submitted to the Minister within ninety (90) days of the end of such Calendar Year.


25.5 After thp commencement of production the Contractor shall, within fifteen (15) days after


the end of each month, submit a production report to the Minister showing for each


Development Area the quantity of Petroleum:


25.5.1 held in stocks at the beginning of the month;


25.5.2 produced during the month;


25.5.3 lifted, and by whom;


25.5.4 lost and consumed in Petroleum Operations; and


25.5.5 held in stocks at the end of the month.


25.6 A lifting party shall submit, within fifteen (15) days after the end of each month, a report to


the Minister stating;


25.6.1 The quantities and sales value of Arm's Length Sales of Petroleum made in that


month;


25.6.2 The quantities, sales value and arm's length value of disposals of Petroleum other


than by sale at Arm's Length Sales during the month;


25.6.3 and the total Revenue for that month














91