Exhibit 10.35

CONTRACT

for production of hydrocarbons in South Alibek Oil Field

located within the limits of blocks XXII-23 A (partially), D

(partially), and E (partially) in the territory of Mugalzhar

(Mugodzhar) region,

Aktyubinskaya Oblast, Republic of Kazakhstan

between

THE MINISTRY OF ENERGY AND MINERAL RESOURCES

OF THE REPUBLIC OF KAZAKHSTAN

(the “Competent Body”)

and

JOINT-STOCK COMPANY CASPI NEFT TME

(the “Contractor”)

Astana – 2006

 

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INDEX   ARTICLE I.   DEFINITIONS AND INTERPRETATION ARTICLE II.   OBJECT OF THE
CONTRACT ARTICLE III.   CONTRACT TERM ARTICLE IV.   CONTRACT AREA ARTICLE V.  
RIGHT OF OWNERSHIP TO ASSETS AND INFORMATION ARTICLE VI.   REPUBLIC’S RIGHT TO
REQUISITION AND ACQUISITION OF HYDROCARBONS ARTICLE VII.   GENERAL RIGHTS AND
OBLIGATIONS OF THE PARTIES ARTICLE VIII.   WORK PROGRAMS ARTICLE IX.  
PRODUCTION ARTICLE X.   ASSOCIATED GAS ARTICLE XI.   ACCOUNTING AND REPORTING
ARTICLE XII.   MEASUREMENT OF PETROLEUM ARTICLE XIII.   SUBCONTRACTING AND
PERFORMANCE OF SUBCONTRACT WORKS ARTICLE XIV.   FINANCE AND BANKING ARTICLE
XIV-I.   SOCIAL FUND AND PENSION CONTRIBUTIONS ARTICLE XIV-II.   ACCOUNTING
ARTICLE XV.   TAXES AND OTHER OBLIGATORY PAYMENTS ARTICLE XVI.   GUARANTEES OF
STABILITY OF CONTRACT ARTICLE XVII.   INSURANCE

 

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ARTICLE XVIII.   ABANDONMENT AND ABANDONMENT FUND ARTICLE XIX.   SUBSOIL AND
ENVIRONMENTAL PROTECTION ARTICLE XX.   PUBLIC AND PERSONNEL SAFETY ARTICLE XXI.
  PARTIES LIABILITY FOR BREACHING THE TERMS OF THE CONTRACT ARTICLE XXII.  
TERMINATION AND BREACH OF THE CONTRACT ARTICLE XXIII.   FORCE MAJEURE ARTICLE
XXIV.   CONFIDENTIALITY ARTICLE XXV.   TRANSFER OF RIGHTS AND OBLIGATIONS
ARTICLE XXVI.   APPLICABLE LAW ARTICLE XXVII.   DISPUTE SETTLEMENT PROCEDURE
ARTICLE XXVIII.   LANGUAGE OF CONTRACT ARTICLE XXIX.   MISCELLANEOUS APPENDIXES:
 

    1.   Mining allotment; 2.   Expert opinion of State Commission on Mineral
Resources on reserves of mineral resources dated April 22, 2005; 3.   Agreement
on acquisition of information # 247 of October 21, 1999 and Agreement on
acquisition of information # 844 of September 9, 2002; 4.   Work Program; 5.  
Technical and Economic Feasibility.

 

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ATTACHED DOCUMENTS:

    1.   Minutes of direct negotiations between Ministry of Energy and Mineral
Resources of the Republic of Kazakhstan and Caspi Neft TME JSC on granting of
subsoil use right for production of hydrocarbon raw materials at the oilfield
South Alibek, located on Actobe region dated June 27 and 29, 2005; 2.   Minutes
No267/2005 of the session of Technical Committee of TD Zapkaznedra of September
12, 2005; 3.   Expert opinions of Ministers and governmental agencies; 4.   The
Minutes of session of Working Committee of the Ministry of Energy and Mineral
Resources of the Republic of Kazakhstan dated September 13, 2005.

 

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This Contract for the Production of Hydrocarbons in the South Alibek Oil Field
located within the limits of blocks XXII-23 A (partially), D (partially), and E
(partially) in the territory of Mugalzhar (Mugodzhar) region, Aktyubinskaya
Oblast, Republic of Kazakhstan, is entered into on December 29, 2006 by and
between:

the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan (the
“Competent Body”) representing the Republic of Kazakhstan, and

Caspi Neft TME, a joint stock company registered in accordance with the
legislation of the Republic of Kazakhstan (the “Contractor”).

The Competent Body and the Contractor shall be hereinafter referred to
individually as the “Party” and collectively as the “Parties”.

WITNESSETH:

 

1. WHEREAS, in accordance with the Constitution of the Republic of Kazakhstan,
Subsoil and mineral resources including oil located therein are owned by the
Republic of Kazakhstan;

 

2. WHEREAS, the Republic of Kazakhstan wishes to rationally and effectively use
mineral resources including the Production of Hydrocarbons;

 

3. WHEREAS, the Contractor wishes and has financial capabilities to carry out
Production of Hydrocarbons under the Contract in the rational and efficient way;

 

4. WHEREAS, in accordance with Article 6 of the Law “On Petroleum” and
Government Resolution No. 1105 of October 28, 2004 (the “Resolution No. 1105”),
the Government vested the Competent Body with the right to execute and implement
subsoil contracts;

 

5.

WHEREAS, on March 7, 2000, the Competent Body and the Contractor entered into
the Contract for the Exploration of Hydrocarbons in the South Alibek Oil Field
located within the limits of exploration blocks XXII-23 A (partially), D
(partially), and E (partially) in the territory of the Mugodzhar Region,
Aktyubinskaya

 

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Oblast, Republic of Kazakhstan according to which in the event of a Commercial
Discovery the Contractor has the exclusive right to negotiate and execute the
contract for the production of Hydrocarbons in the Contract Area;

 

6. WHEREAS, the Contractor has declared a Commercial Discovery in the Contract
Area in accordance with the Exploration Contract;

 

7. WHEREAS, the Competent Body, pursuant to the Protocol of direct negotiations
between the Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan and Caspi Neft TME SJSC regarding granting the subsoil right to
produce hydrocarbons in the South Alibek Oil Field in the Aktyubinskaya Oblast
dated June 29, 2005, has granted to the Contractor the exclusive right to
execute the contract for Production of Hydrocarbons in the Contract Area;

 

8. WHEREAS, the Competent Body and the Contractor have agreed that this Contract
shall regulate their reciprocal rights and obligations in carrying out the
Production; and

 

9. WHEREAS, the Parties wish to conclude this Production Contract pursuant to
the Law “On Petroleum”;

NOW, THEREFORE, in consideration of the premises, mutual covenants and
conditions contained herein, the Parties have agreed as follows:

ARTICLE I. DEFINITIONS AND INTERPRETATION

 

1.1 Definitions and terms not defined in this Article shall have the meaning
ascribed to them in the Law No.2350 of the Republic of Kazakhstan “On Oil” (the
“Petroleum Law”) dated June 28, 1995 (as amended), Law No.2828 of the Republic
of Kazakhstan “On Subsoil and Subsoil Use” (the “Subsoil Law”) dated January 27,
1996 (as amended), and other regulatory legal acts applicable to subsoil use.
The following capitalized terms, when used in this Contract, unless otherwise
expressly specified herein, shall have the respective meanings set forth below:

 

  1.1.1 “Budget” means the estimate of costs associated with Production itemized
by categories and included in the Work Program;

 

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  1.1.2 “Reimbursable Expenses” means Exploration costs including without
limitation exploration costs deductible from the taxable income of the
Contractor gained in the process of Production of Hydrocarbons under this
Contract in the form of depreciation deductions or any other form and determined
in accordance with the Exploration Contract and the applicable legislation as of
the effective date of the Exploration Contract.

 

  1.1.3 “Geological Information” means all existing geophysical, engineering,
environmental, and geodesic data (including the data on the magnetic tape),
maps, reviews, reports, and research files which the Contractor considers
necessary for conducting of Petroleum Operations including magnetic, gravimetric
and seismic exploration, well logging and analysis of well logging data,
analysis of core samples, well files, geological and geophysical maps and
reports, Field studies of the Oilfield, assessment of reserves, exact geodesic
coordinates of all wells, seismic line and other data regarding the Contract
Area.

 

  1.1.4 “Contract Year” means a period of 12 consecutive calendar months under
the Gregorian Calendar beginning on the Effective Date or any anniversary
thereof.

 

  1.1.5 “Annual Work Program” means a plan of actions of the Contractor for a
certain calendar year including the volumes and activities on Production and
financial expenditures.

 

  1.1.6 “Mining Allotment” means the annex to this Contract which constitutes an
integral part thereof and schematically defines and depicts a section of subsoil
where the Contractor is entitled to carry out Production under this Contract.

 

  1.1.7 “State Agency” means the central executive agency of the Republic of
Kazakhstan empowered to perform certain functions on behalf of the Republic of
Kazakhstan.

 

  1.1.8 “Effective Date” has the meaning ascribed thereto in the Article 3.1. of
this Contract.

 

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  1.1.9 “Effective Legislation” means laws, resolutions, and other regulatory
legal acts of the Republic of Kazakhstan, including as the case may be,
principles of international law and international agreements ratified by the
Republic, which became effective and are in effect as of the Effective Date of
this Contract.

 

  1.1.10 “Day” means a calendar day.

 

  1.1.11 “Production” means the entire range of works (operations) related to
the extraction of Hydrocarbons from the Subsoil onto the surface including among
others:

 

  (i) construction, operation, servicing, maintenance and repair of production
and injection wells;

 

  (ii) extraction of oil onto the surface, and the organization and maintenance
of working procedures in development wells, recycling and other secondary and
tertiary recovery projects;

 

  (iii) construction, operation, maintenance, repair and decommissioning of
underground and ground equipment and facilities, including Contractor’s pipeline
for the oil transportation from the Production site to the point of transfer of
oil to the main pipeline and/or other transportation means;

 

  (iv) processing (including treatment and refining of oil to remove stratum
water and mechanical inclusions), loading, storing, transportation and delivery
of Hydrocarbons to the Processing Point;

 

  (v) extraction of associated components from oil and utilization of natural
and associated gas;

 

  (vi) subsurface injection of drilling wastes;

 

  (vii) and other operations related to and pertaining to extraction of
hydrocarbons from Subsoil onto the surface.

 

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  1.1.12 “Dollar” or “US$” means the lawful currency of the United States of
America.

 

  1.1.13 “Tax Law” means Law No. 2235 of the Republic of Kazakhstan “On Taxes
and Other Compulsory Payments to the Budget” dated April 24, 1995 as amended as
of March 7, 2000.

 

  1.1.14 “Subsoil Law” means Law No. 2828 of the Republic of Kazakhstan “On
Subsoil and Subsoil Use» dated January 27, 1996 (as amended).

 

  1.1.15 “Petroleum Law” means Law No. 2350 of the Republic of Kazakhstan “On
Oil” dated June 28, 1995 (as amended).

 

  1.1.16 “Foreign Exchange” means any lawful currency other than the currency of
the Republic of Kazakhstan.

 

  1.1.17 “Calendar Year” means a period of twelve (12) consecutive months
beginning on January 1st and ending on December 31st in the same year, according
to the Gregorian Calendar.

 

  1.1.18 “Calendar Quarter” or “Quarter” means a period of three consecutive
months beginning on January 1st, April 1st, July 1st and October 1st of each
Calendar Year.

 

  1.1.19 “Commercial Discovery” means discovery of one or more commercially
feasible Fields of Hydrocarbons in the Contract Area.

 

  1.1.20 “Competent Body” means the Ministry of Energy and Mineral Resources of
the Republic of Kazakhstan acting in accordance with the Resolution No. 1105 as
the agency authorized to execute and implement subsoil use contracts, and as any
lawful successor of the Ministry.

 

  1.1.21 “Contract” means the present Contract for Production of Hydrocarbons in
South Alibek Oil Field located within the limits of blocks XXII-23 A
(partially), D (partially), and E (partially) in the Mugalzhar (Mugodzhar)
Region, Aktyubinskaya Oblast, Republic of Kazakhstan, executed between the
Competent Body and the Contractor together with Annexes hereto.

 

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  1.1.22 “Exploration Contract” means the Contract for Exploration of
Hydrocarbons in South Alibek Oil Field located within the limits of blocks
XXII-23 A (partially), D (partially), and E (partially) in the territory of the
Mugodzhar Region, Aktyubinskaya Oblast, Republic of Kazakhstan, state
registration number No. 419 of March 7, 2000 (as amended).

 

  1.1.23 “Contract Area” means the area delineated in the Mining Allotment, in
which the Contractor has the right to carry out Production under this Contract.

 

  1.1.24 “Abandonment Fund” means the fund formed by the subsoil user in
accordance with the Article XVIII hereof to eliminate consequences of subsoil
use operations in the Republic.

 

  1.1.25 “Person” means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
agency or department thereof or any other entity.

 

  1.1.26 “Field” means one or several hydrocarbon accumulations within a
geological structure of all types.

 

  1.1.27 “Month” or “Calendar Month” means a calendar month.

 

  1.1.28 “Tax Legislation” means the Tax Code (as amended) or other legislative
act adopted to replace it as well as other legislative and regulatory legal acts
regulating the procedure for the assessment and payment of taxes, as amended.

 

  1.1.29 “Tax Code” means Code No. 209-II of the Republic of Kazakhstan “On
Taxes and Other Mandatory Payments to the Budget” dated June 12, 2001 (the “Tax
Code”).

 

  1.1.30 “Subsoil” means a part of the earth’s crust located beneath the soil
layer, or if there is none, beneath the earth’s surface and the beds of seas,
lakes, rivers and other water bodies, extending to depths accessible for
Petroleum Operations with account of scientific and technical progress.

 

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  1.1.31 “Non-Associated Gas” means all gaseous hydrocarbons produced from gas
wells, and includes wet gas, dry gas and residue gas remaining after the
extraction of liquid hydrocarbons from wet gas.

 

  1.1.32 “Petroleum Operations” means all types of works on Production
(including the construction and operation of the underground and surface
equipment and facilities, extraction of Hydrocarbons onto the surface, and the
organization and maintenance of working procedures in development wells,
extraction of associated components from Hydrocarbons), storage and
transportation of Hydrocarbons (by pipelines, railway tanks or tankers).

 

  1.1.33 “Production Period” shall have the meaning ascribed thereto in
paragraph 3.2.

 

  1.1.34 “Contractor” means Joint Stock Company “Caspi Neft TME”.

 

  1.1.35 “Good Oilfield Practices” means all those practices that are
internationally accepted in carrying out Petroleum Operations as rational, safe,
necessary, and efficient in conducting of Production Operations.

 

  1.1.36 “Associated Gas” means hydrocarbons that are in a gaseous state under
normal atmospheric temperature and pressure and are produced in association with
Crude Oil, which Crude Oil in the reasonable opinion of the Contractor can be
commercially produced as such and separated therefrom in accordance with Good
Oilfield Practices.

 

  1.1.37 “Government” means the Government of the Republic.

 

  1.1.38 “Subsoil Use Right” means the right of possession and use of subsoil
within the limits of Contract Area granted to the subsoil user according to the
Subsoil Law.

 

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  1.1.39 “Natural Gas” means hydrocarbons that are in a gaseous state under
normal atmospheric temperature and pressure including wet gas, dry gas and
residue gas remaining after the extraction of liquid hydrocarbons from wet gas
and non-hydrocarbon gas, including Non-Associated and Associated Gas in its
natural state, produced together with liquid or gaseous hydrocarbons.

 

  1.1.40 “Measurement Point” means, with respect to Hydrocarbons from the
Contract Area, the first point in the territory of the Republic adjacent to and
technologically downstream of the handling, processing and storage facilities
for such Hydrocarbons at which such Hydrocarbons are measured in accordance with
Good Oilfield Practice.

 

  1.1.41 “Work Program” means aggregate of subsoil user’s plans for the period
of Contract term altogether, including any Annual Work Programs. The Work
Program is attached to this Contract in the form of Annex No.4.

 

  1.1.42 “Exploration” means works/operations associated with the search for
Hydrocarbons and their appraisal including:

 

  -  

geological and geophysical survey;

 

  -  

core drilling;

 

  -  

drilling test and exploratory wells and test operation of the field under
Exploration. The term “Explore” shall be construed accordingly.

 

  1.1.43 “Republic” (State) means the Republic of Kazakhstan.

 

  1.1.44 “Agreements on Acquisition of Geological Information” means the
Agreement No. 247 on Acquisition of Geological Information dated October 21,
1999 and the Agreement No. 844 on Acquisition of Geological Information dated
September 9, 2002 entered into with the Geology and Subsoil Use Committee of the
Ministry of Energy and Mineral Resources of the Republic of Kazakhstan.

 

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  1.1.45 “Term” shall mean the period during which this Contract shall remain in
force and be binding upon the Parties, in accordance with the Article III, and
subject to the other terms and conditions hereof.

 

  1.1.46 “Cure Period” shall have the meaning ascribed thereto in the Article
22.4.

 

  1.1.47 “Party” or “Parties” shall have the meaning ascribed to these terms in
the first paragraph of this Contract, and, for clarity and the avoidance of
doubt, shall mean the Contractor and the Competent Body.

 

  1.1.48 “Subcontractor” means any individual or legal entity that entered into
a contract with the Contractor to perform a part of Contractors obligations
under the Contract.

 

  1.1.49 “Fundamental Breach” means a breach, which inflicts such damage to the
other Party that the latter loses a material portion of what it expected to gain
when executing the Contract.

 

  1.1.50 “Crude Oil” means hydrocarbons regardless of their specific gravity
extracted from the subsoil in a liquid state under normal atmospheric
temperature and pressure, including liquid hydrocarbons known as distillate or
condensate formed from Natural Gas by means of natural condensation.

 

  1.1.51 “Current Legislation” means laws, resolutions and other regulatory
legal acts of the Republic of Kazakhstan including, as applicable, principles of
international law and treaties ratified by the Republic which have entered into
force and are in effect as of the date of occurrence of any legal fact or event
after signing of this Contract.

 

  1.1.52 “Third Party” or “Third Parties” means any individual or legal entity
other than the Parties to this Contract.

 

  1.1.53 “Termination Notice” has the meaning ascribed thereto in Article 22.6
hereof.

 

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  1.1.54 “Hydrocarbons” means Crude Oil, Natural Gas and condensate produced by
the Contractor in the Contract Area.

 

  1.1.55 “Subsoil Research and Use Authorized Agency” means the state agency
that realize regulation in the area of geological studies, efficient and
integrated use of subsoil, which at the time of signing of this Contract is the
Geology and Subsoil Use Committee of the Ministry of Energy and Mineral
Resources of the Republic of Kazakhstan including its territorial divisions.

 

  1.1.56 “Force Majeure” shall have the meaning ascribed thereto in the Article
23.5.

 

  1.1.57 “Operating Costs” means costs incurred by the Contractor in carrying
out its activities under the Contract, which are not subject to capitalization
in accordance with the Article 20 and the Article 23 of the Tax Law, and which
are stipulated in the Annual Work Program.

 

  1.1.58 “Expropriation” means expropriation, nationalization or any other
measure, or series of measures having the same consequences as nationalization
or expropriation, including illegal confiscation, nationalization, fiscal
expropriation, seizure, or other measure or series of measures, which adversely
affect the volume of the Contractor’s investment, assets, licenses, operations,
financial, or trading position, including revocation, cancellation, or
rescission of this Contract in violation of the terms of this Contract, or
material alteration, modification, or change in any of the terms and conditions
of this Contract without the Contractor’s prior written consent, or other acts,
including any impairment of the Contractor’s exclusive right to conduct
Petroleum Operations or any action in violation of the Contractor’s right to a
stable legal regime in accordance with the Article XVI hereof.

 

1.2 Unless the context requires otherwise, words importing the singular number
include the plural number and vice versa.

 

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1.3 Headings are inserted for convenience only and shall not affect the
construction of this Contract.

 

1.4 The Annexes to this Contract constitute an integral part of this Contract
and reference to this Contract shall include reference thereto. In the event of
any inconsistency between the provisions of an Annex and the provisions of this
Contract, the provisions of the latter shall prevail and govern the obligations
and rights of the Parties.

 

1.5 The terms “includes” and “including” shall have the meaning “including
without limitation”.

ARTICLE II. OBJECT OF THE CONTRACT

 

2.1 The object of this Contract is to define and legally formalize the
contractual relations between the Competent Body and the Contractor with respect
to Production of Hydrocarbons in the Contract Area.

 

2.2 Subject to the terms and conditions of the Contract, the Competent Body
acting on behalf of the Republic hereby grants to the Contractor the exclusive
right to carry out Production of Hydrocarbons in the Contract Area during the
Term of the Contract.

 

2.3 The Contractor, subject to the terms and conditions of this Contract, shall
have the exclusive right for Production and marketing of Hydrocarbons from the
Contract Area during the Term of the Contact.

ARTICLE III. CONTRACT TERM

 

3.1 The term of the Contract (the “Term”) shall commence on the date of state
registration thereof with the Competent Body, subject to the issuance of the
Registration Certificate (the “Effective Date”).

 

3.2

The Term of the Contract shall expire on the last day of the period of twenty
five (25) consequential years (the “Production Period”) from the Effective Date.
This Production Period may be extended upon request of the Contractor provided
that satisfied the requirements of the Article 26.2. of the Petroleum Law, after
that the Competent

 

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Body shall give consent to extend the Production Period in accordance with the
Petroleum Law, and the Parties shall insert the amendments and addenda to the
Contract.

 

3.3 The Contractor shall have the right to be granted such extension provided
that the Contractor has fulfilled the obligations set by this Contract and Work
Program, and that the application is filed to the Competent Body at least twelve
(12) Months prior to the expiry of the Production Period.

 

3.4 When extending the Term of the Contract, the terms and conditions of the
Contract should be amended upon the written consent of the Parties.

 

3.5 The application for extension of the Term of the Contract shall be
considered within not later than 3 months from the date of its receipt by the
Competent Body. In the event of the Competent Body’s authorization, the
Competent Body shall make the appropriate amendments to the Contract. The
Contract shall come into full force and be binding upon the Parties on the date
when the Contract signed in the established procedure is registered by the
Competent Body (the “Effective Date”).

ARTICLE IV. CONTRACT AREA

 

4.1 The Contractor shall carry out Production within the Contract Area in
accordance with the conditions of this Contract.

 

4.2 The Contract Area is defined by the geographical location and coordinates
stated in the Mining Allotment.

 

4.3 If in the course of the Petroleum Operations it becomes apparent that the
field which is located in the Contract Area, is also located in the adjacent
territory which is out of bounds of the Contract Area, the Contractor must apply
to the Competent Body with the application for extension of the Contract Area
within the possible limits of a discovered Field for further production, taking
into account the following :

 

  4.3.1

If Third Parties have no rights for the Contract Area, where the Field (or a
part thereof) is located as specified in the

 

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Article 4.3 above, the Contractor may file an application with the Competent
Body seeking to extend the Contract Area within the possible boundaries of the
Field discovered to carry out operational Exploration and Production. The
extension of the Contract Area shall be formalized by appropriately amending the
Contract and the Mining Allotment.

 

  4.3.2 If the Contractor finds out that any part of the Field determined in the
Article 4.3 is located within the Contract Area of other contractors, such
contractors, at their option, shall:

 

  4.3.2.1 transfer their rights to production in compliance with transfer
procedures as established for the transfer of subsoil use rights so that
eventually there is only one contractor who has rights to Production from such
Field or several contractors who have a partial subsoil use right on the basis
of one contract;

 

  4.3.2.2 enter into an agreement on joint production from the Field as a whole,
after having agreed this agreement with Competent Body;

 

  4.3.2.3 when executing the agreement on joint production, a consolidated work
program and annual work program for the Field shall be elaborated subject to
mandatory approval by the Subsoil Research and Use Authorized Agency;

 

  4.3.2.4 contractors conducting joint Production shall be jointly and severally
liable for the obligations specified by the contract, work program and annual
work program.

 

4.4 If the Contractor commits the Commercial Discovery in the territory granted
to the Contactor under the Exploration Contract, the Contractor shall have the
liberty upon authorization of the Competent Body to join the territory in which
the Commercial Discovery has been made, to the Contract Area under this
Production Contract by means of signing of an addendum to this Contract, in the
procedure established in accordance with Current Legislation.

 

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4.5 At any time the Contractor may voluntarily waive a right for all or any part
of the Contract Area. Any such waiver of the right for any part of the Contract
Area shall be credited toward any subsequent disclaimer of liabilities hereunder
with regard to such part of the Contract Area.

 

4.6 Any area designated under the Article 4.5 for relinquishment shall consist
so far as practicable of rectangular blocks. The area designated for
relinquishment should not constitute one whole area.

 

4.7 Without prejudice to the other provisions of Article IV, the Contractor
shall be entitled to terminate the Contract and relinquish the whole of the
Contract Area, without any further obligation to the Republic, with the sole
exception of its current obligations, its obligation to remove its property and
equipment from the Contract Area, and its obligation to leave the Contract Area
in a condition corresponding to the requirements of the effective rules for
development and sanitary control and protection of the subsoil and the
environment, by giving notice to the Competent Body within ninety (90) Days and
submitting a draft agreement on the termination of the Contract.

ARTICLE V. RIGHT OF OWNERSHIP TO ASSETS AND INFORMATION

 

5.1 Any assets, materials, goods or equipment acquired by the Contractor,
whether or not for the carrying out Production within the Contract Area,
including the entire volume of Hydrocarbons extracted onto the surface and all
Geological Information obtained by the Contractor under the Exploration Contract
shall be Contractor’s property.

 

5.2 The right of ownership to the assets described in Article 5.1 hereof and
rights arising under this Contract may be pledged or otherwise encumbered in
favor of a Third Party at the discretion of the Contractor, to secure financing
for the Petroleum Operations. In undertaking such a pledge the Contractor shall
comply with the Current Legislation.

 

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5.3 Information on the geological structure of subsoil, Minerals contained
therein, geological parameters of the Field, size of reserves, development
conditions, and other characteristics of Subsoil contained in the geological
reports, maps and other materials shall be the state property if it was paid for
from budget allocations and shall be the Contractor’s property if it was paid
for from Contractor’s own funds.

 

5.4 Information on subsoil at the Contract Area, which is the state property,
shall be obtained by the Contractor from the Authorized agency on subsurface use
and research in the procedure established by the legislation of the Republic.
The Contractor obtained the geological information pertaining to the Contract
Area and which belongs to the Republic, in accordance with the Agreements on
obtaining of the geological information. The compensation procedure for the past
costs is specified in the paragraph 7.2.27 herein.

 

5.5 Geological Information obtained by the Contractor in the course of
Production operations in the Contract Area at the Contractor’s expense, and in
the course of implementation of the Exploration Contract shall be the
Contractor’s property. The right of ownership to Geological Information shall
remain with the Contractor during the Term of the Contract. Upon expiry of the
Term of the Contract, the right of ownership to Geological Information shall
pass to the Republic. The Contractor must transfer all documents and other
tangible mediums of Geological Information including the initial Geological
Information to the Authorized Agency on subsurface use and research, free of
charge.

 

5.6 Geological Information and other information on subsoil obtained by the
Contractor in the course of Production in the Contract Area shall be mandatory
transferred in accordance with established standards, to the Subsoil Research
and Use Authorized Agency for the purpose of storage, summarization and
systematization, free of charge.

 

5.7 Geological Information on Subsoil acquired at Contractor’s expense and
transferred to the Republic in accordance with Article 5.6 may be used for the
educational, scientific, commercial or other purposes based on a separate
agreement to be executed between the Contractor and the Authorized agency on
subsurface use and research.

 

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ARTICLE VI. REPUBLIC’S RIGHT TO REQUISITION AND ACQUISITION OF HYDROCARBONS

 

6.1 In the event of war, natural disasters, or in other circumstances stipulated
by legislation on emergency situations, the Republic shall have the right to the
requisition of Hydrocarbons in accordance with Article 36 of the Petroleum Law.
Hydrocarbons may be requisitioned from the Contractor on a non-discriminatory
basis in a proportion adequate to production rates of other subsoil users,
regardless of their form of ownership or whether or not they belong to the
state. The Republic shall guarantee a prompt payment of compensation for the
entire volume of Hydrocarbons requisitioned in accordance with Article 6.1
in-kind at world market prices applicable on the date of requisition or in cash
in the national currency at a fair market rate as of the date of payment.

 

6.2

Pursuant to Article 35 of the Petroleum Law, the Republic shall have a
preemptive right to acquire Hydrocarbons at world prices. The amount of
Hydrocarbons to be acquired by the Republic on the basis of the preemptive right
shall be determined on a non-discriminatory basis and may be in a proportion
adequate to respective production rates of other subsoil users, regardless of
their form of ownership or whether or not they belong to the state. If the
Republic intends to exercise its pre-emptive right to acquired Hydrocarbons, it
shall send a relevant notice to the Contractor at least ninety (90) calendar
days prior to the anticipated date of shipment of Hydrocarbons by the
Contractor. The Republic shall guarantee prompt payment of compensation for the
entire volume of Hydrocarbons acquired by the Republic (or by a person appointed
by the Competent Body to act on behalf of the Republic) in native currency at a
fair market rate on the date of payment and at world prices to be determined in
accordance with Article 6.3 hereof. The volume of Hydrocarbons to be sold to the
Republic under this Article and other sale and purchase conditions shall be
specified in a separate sale and purchase agreement to be executed between the
Contractor and the Republic (or the Contractor and a Person acting on behalf of
the Republic and

 

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expressly appointed by the Competent Body). However, in accordance with
conditions of such separate agreement, the price of Hydrocarbons to be acquired
may not be less than the market price as of the date of acquisition, and a
period for remittance of monies by the Republic (or by a person appointed by the
Competent Body to act on behalf of the Republic) for Hydrocarbons acquired may
not exceed thirty (30) calendar days of the date of shipment by the Contractor
of a corresponding amount of Hydrocarbons.

 

6.3 The market price of Hydrocarbons shall be determined as an average price for
a calendar month preceding the date of shipment of Hydrocarbons based on the
Platts Brent Index plus the amount of actual transportation expenses (including
reloading and storage at terminals) and other expenses associated with the
delivery of Hydrocarbons to the point of sale (shipment).

ARTICLE VII. GENERAL RIGHTS AND OBLIGATIONS OF THE PARTIES

 

7.1 Under this Contract the Contractor shall have the right:

 

  7.1.1 to carry out Production operations in the Contract Area on the exclusive
basis;

 

  7.1.2 to independently perform any legal acts with regard to subsoil use
operations within the Contract Area allocated to it in accordance with the
conditions specified in the Contract;

 

  7.1.3 to use at its own discretion results of its operations including
Hydrocarbons;

 

  7.1.4 to construct in the Contract Area and, if necessary, on other land plots
allocated to the Contractor in the established procedure, industrial and social
facilities required for carrying out Production operations;

 

  7.1.5 to use common-use facilities and utilities in the Contract Area and
beyond, subject to agreement with their owners,

 

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  7.1.6 to conduct negotiations on a priority basis regarding the extension of
the Contract in accordance with Article 3.3 of the Contract;

 

  7.1.7 to contract Subcontractors to carry out certain operations at the
discretion of the Contractor, associated with Production operations;

 

  7.1.8 to delegate its rights or part thereof to third parties subject to
conditions specified by this Contract and the Effective Legislation of the
Republic;

 

  7.1.9 to terminate its activity on conditions specified by the Contract and
the Effective Legislation;

 

  7.1.10 in the event of termination of the Contract, to independently dispose
of the property owned by it;

 

  7.1.11 during the Term of the Contract, to export Hydrocarbons in accordance
with the Current Legislation;

 

  7.1.12 to use, reproduce, process, and export all Geological Information
subject to the authorization by the Subsoil Research and Use Authorized Agency;

 

  7.1.13 to conduct within the Contract Area all geophysical, engineering,
environmental and geodetic studies which the Contractor considers necessary to
carry out Petroleum Operations, including but not limited to seismic surveys,
global positioning surveys, aerial photography, and the collection of soil,
water, oil, gas, and rock samples for scientific and environmental studies. The
Contractor shall be granted access to and/or permission to fly over the Contract
Area to conduct the said studies, subject to obtaining appropriate
authorizations;

 

  7.1.14 to import equipment and supplies necessary to conduct the said studies
as well as the right to export data, tapes and samples to laboratories outside
the Republic for further studies subject to compliance with the Current
Legislation.

 

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  7.1.15 The personnel of the Contractor and its Subcontractors (subject to
availability of an appropriate authorization of the Contractor), Contractor’s
representatives authorized in accordance with the Current Legislation, may enter
and exit the Contract Area and have free access to all facilities installed by
the Contractor or otherwise used in Production operations and to installations
used for Production beyond the Contract Area, in accordance with the Current
Legislation.

 

  7.1.16 Subject to appropriate authorizations, approvals or licenses issued by
authorized State Agencies, to utilize the surface and subsurface water necessary
for Petroleum Operations, if required by the Current legislation.

 

  7.1.17 The Contractor shall be entitled to compensation of Reimbursable
Expenses incurred by it within the framework of the Exploration Contract.

 

7.2 Under this Contract, the Contractor should:

 

  7.2.1 commence the performance of the Work Program agreed with Subsoil
Research and Use Authorized Agency not later than sixty (60) days after the
Effective Date of the Contract;

 

  7.2.2 when carrying out Production, select most efficient methods and
technologies based on standards of the good oilfield practices;

 

  7.2.3 provide funds and techniques required for Production operations and
perform other obligations under the Contract and shall be liable for the
performance of its obligations to the Republic;

 

  7.2.4 subject to other provisions of the Contract, diligently conduct
Production operations in compliance with Good Oilfield Practice and Current
Legislation;

 

  7.2.5 use Contract Area only for purposes specified by the Contract;

 

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  7.2.6 conduct Production operations in strict compliance with the Current
Legislation and Work Program;

 

  7.2.7 not impede other persons from moving within the Contract Area, unless
this breaches the confidentiality or security requirements, using facilities and
utilities in common use and carrying out any works including exploration and
mining of other minerals unless such activity breaches the safety of Production
operations carried out by the Contractor or disturbs the Production operations
carried out by the Contractor and is authorized by authorized State Agencies;

 

  7.2.8 comply with technological schemes and projects with regard to Production
which ensure safety of personnel and public and are approved in the established
procedure;

 

  7.2.9 mandatory use equipment, materials and finished goods produced in the
Republic in the amount of no less than 30% of the total value of purchased
goods, required for execution of works under the Contract, provided that such
equipment, materials and goods meet state and/or international standards and are
purchased based on the results of a tender to be conducted in the Republic in
the procedure specified by the Government of the Republic of Kazakhstan;

 

  7.2.10 mandatory contract Kazakhstani enterprises and organizations to execute
works and services for Production operations including services provided by air,
railroad, water and other types of transportation in the amount of no less than
60% of the total value of purchased works and services, required for execution
of works under the Contract, selected on a basis of tender to be conducted in
the Republic of Kazakhstan in the procedure specified by the Government of the
Republic of Kazakhstan;

 

  7.2.11 in case there is lack of any services in the Republic of Kazakhstan, to
use the services of foreign companies if authorized by the state agency.

 

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  7.2.12 in conducting Production operations, give preference to Kazakhstani
employees and create jobs. The share of the Kazakhstani employees shall
constitute no less than 95% in the case of laborers, 85% in the case of
engineers/technicians, and at least 70% in the case of management;

 

  7.2.13 should the Contractor fail to perform its obligations with regard to
Kazakhstani local content, the authorized State Agency may impose penalties and
fines on the Contractor in the amount specified by the Current Legislation;

 

  7.2.14 Annually provide funds for training and upgrading qualification skills
of Kazakhstani personnel employed to perform works under the Contract in an
amount of one percent (1%) of annual Operating Costs. In the event that the
funds allocated for mandatory training of Kazakhstani personnel exceed actual
needs for training personnel employed, the Contractor shall use the balance of
funds to finance priority projects of the secondary education system in
accordance with the Cooperation Agreement between the Ministry of Education and
Science and the Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan. Information on the size of the balance of funds allocated for
training shall be submitted to the Competent Body after the approval of the
Annual Work Program and Budget for the forthcoming Contract Year;

 

  7.2.15 Annually finance social projects in the region within entire term of
the Contract in the amount of one hundred thousand (US $100,000.00) US Dollars
per year as agreed with Oblast Akimat with due regard to needs of the region
where works are carried out;

 

  7.2.16 supply twenty percent (20%) of a total amount of Hydrocarbons produced
to oil refineries located in the territory of Kazakhstan, in accordance with the
terms of agreements on supplies of Hydrocarbons, signed by the Contractors with
correspondent plants subject to conditions that are not worse than the
conditions provided for other subsoil users in Kazakhstan;

 

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  7.2.17 provide State supervising authorities with required documents,
information and unrestricted access to work sites to perform their duties,
provided that they have appropriate powers, and shall promptly remedy violations
identified by them;

 

  7.2.18 To transfer the information regarding the production to the third
parties if necessary, only upon the written consent of the other Party (unless
otherwise specified in the Contract).

 

  7.2.19 provide the Competent Body with the Work Program and a full information
on the implementation thereof;

 

  7.2.20 pay taxes and other mandatory payments to the budget in due time as
well as fines for inefficient use of subsoil and environment pollution which
were legally imposed by a State Agency having appropriate powers;

 

  7.2.21 preserve in the course of carrying out its activity items of cultural
and historic value located in the Contract Area (if any) provided that they have
been granted a relevant status;

 

  7.2.22 forecast long-term environmental implications of its activity under the
Contract. The Contractor shall no later than two (2) years after the
commencement of works under the Contract provide the Competent Body and the
environment protection agency, on written requests, with the forecast of
long-term environmental implications and detailed reports on Contractor’s
actions aimed at minimizing adverse impact of its activity under the Contract;

 

  7.2.23 leave the Contract Area in a condition that meets the requirements of
regulations on mining and sanitary supervision, subsoil and environmental
protection;

 

  7.2.24 to restore land plots and other natural features which have been
disturbed as a result of Contractor’s activities under the Contract to a
condition suitable for further use, in accordance with the legislation of the
Republic.

 

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  7.2.25 to take onto a balance all previously drilled oil and gas fields
located in the Contract Area and keep monitoring.

 

  7.2.26 The Contractor shall assume obligation on insurance of property risks
and liabilities risks, in accordance with the Effective Legislation of the
Republic of Kazakhstan as specified by the Article XVII INSURANCE of herein.

 

  7.2.27 To provide utilization of associated gas and sulphur in order required
by legislation.

 

  7.2.28 Compensation of historical costs.

The Contractor undertakes to pay historical costs to the budget in accordance
with the provisions of the Agreements No. 844 on the Acquisition of Geological
Information dated September 09, 2002 and No. 274 dated October 21, 1999 signed
between the Committee on Geology and Conservation of Mineral Resources of the
Ministry of Energy and Mineral Resources of the Republic of Kazakhstan and Caspi
Neft TME JSC (hereinafter – the Agreements No.274 and No.844).

Pursuant to the Agreement No. 274 and Agreement No. 844 the historical costs
have been determined in the amount of Two Million Eight Hundred Thirty-One
Thousand Six Hundred Thirty (US $ 2,831,630) US Dollars and Two Million One
Hundred Seven Thousand Seven Hundred Seventy-Three (US $ 2,107,773) US Dollars,
respectively.

Taking into consideration the paid amounts for the use of the geological
information in accordance with the Agreements No.274 and No.844 and the amount
of $201,196.15 (two hundred one thousand one hundred ninety six US Dollars
fifteen cents, that were paid during the period of the Exploration Contract),
the remaining full amount of historical costs in amount of $4,692,432.85 (four
million six hundred ninety two thousand four hundred thirty two US Dollars
eighty five cents) shall be paid by the Contractor quarterly by equal parts of
$48,880 USD (forty eight thousand eight hundred eighty USD) at the end of each
quarter beginning from January 1, 2007 till the end of the Validity period of
the Contract and till full settlement of the whole amount.

 

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7.3 Under the Contract, the Competent Body shall have the right:

 

  7.3.1 to represent the Republic in negotiation with the Contractor regarding
Contract conditions;

 

  7.3.2 to demand that the Contractor submit on a regular basis reports on the
performance of the Contract provisions and other information relating to the
Contract provisions;

 

  7.3.3 to inspect the progress of Production including the inspection of
Contractor’s documentation relating to the performance of the Contract
provisions;

 

  7.3.4 to have access to any works related to Production which are carried out
within the Contract Area.

 

7.4 The Competent Body shall have the following obligations under the Contract:

 

  7.4.1 to ensure the performance of Contract provisions and termination of the
Contract in the procedure and on grounds specified by the present Contract.

 

  7.4.2 to enable the Contractor to conduct Production operations in accordance
with the Work Programs, the Competent Body shall, subject to filing required
applications and meeting generally accepted requirements by the Contractor,
provide to the Contractor the extent of its powers and competence possible
assistance in conducting Production operations including reasonable assistance
in the event of an unlawful act or failure to act on the part of state agencies
which prevent the Contractor from exercising its right to unrestricted
Production.

ARTICLE VIII. WORK PROGRAMS

 

8.1 The Contractor shall carry out Production operations in accordance with the
Work Program approved by the Subsoil Research and Use Authorized Agency.

 

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8.2 The Work Program shall be prepared based on the feasibility studies and
calculations, expert assessment of reserves of the Field and other materials
taking into account the Good Oilfield Practice.

 

8.3 The Work Program under this Contract should contain the following:

 

Year

 

Required Amount in Physical Terms

   US Dollars

1st Year

  Elaboration of the design for pilot commercial development, including full
utilization of gas    50   Drilling of one well    4000

2nd Year

  Elaboration of the design for pilot commercial development, including full
utilization of gas    400   Drilling of one well    4000

3rd Year

  Elaboration of the field infrastructure development design for pilot
commercial development    150   Drilling of one well    4000

4th Year through 7th Year

  Drilling of four wells, one per year    16000   Construction of electricity
supply facilities    200   Construction of external oil pump station, lease
automatic custody transfer meter, and oil pipeline to Alibekmola GNPS (Main Oil
Pump Station)    2400   Construction of gathering facilities and infrastructure
development of South Alibek    3385   Construction of gas utilization facilities
considering the gas piston power plant    1500

 

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  Construction of a Field pressure maintenance system    2500   Construction of
a demercaptanization unit    6000   TOTAL for construction and assembly works   
15985   Total for oil gathering and processing    15180   TOTAL for the project
   59565

 

8.4

Not later than on 30th day of the month following the month of the Contract
Effective Date, the Contractor shall submit for approval a draft Annual Work
Program and Budget for the first Contract Year to the Subsoil Research and Use
Authorized Agency or to its local department.

 

8.5 Forty Five (45) Days prior to the end of each Contract Year, the Contractor
shall prepare and submit to the Subsoil Research and Use Authorized Agency or
its local department for review a draft Annual Work Program and draft Budget for
the next Contract Year together with such supporting data as may be requested by
the State Agency and the Competent Body.

 

8.6 The Contractor may propose amendments and/or addenda to an approved Work
Program. Amendments and addenda to the Work Program shall be made in writing
only by mutual agreement of the Parties.

 

8.7 Annual Work Programs with their respective Budgets and any proposed
amendments thereto shall be approved by the Subsoil Research and Use Authorized
Agency within a period specified by the Current Legislation, however, in any
event the Subsoil Research and Use Authorized Agency shall approve the Annual
Work Program or amendments thereto within seven (7) calendar days from the date
of submission.

 

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8.8 In accordance with the following provisions, the Contractor may incur
expenditures in excess of an approved Budget or out-of-approved Budget
expenditures in carrying out the approved Work Program, provided that the
objectives in the approved Work Program are not substantially changed, and
subject at all times to the following conditions:

 

  8.8.1 The Contractor may, without prior amendments to the Annual Work Program,
incur excess expenditures not exceeding ten percent (10%) of any specified
budgetary category in the approved Budget. The Contractor shall report each
Quarter the aggregate amount of all such excess expenditures to the Subsoil
Research and Use Authorized Agency.

 

  8.8.2 The Contractor may incur expenditures exceeding the approved Annual Work
Program and the Budget by more than 10% subject to appropriate amendments to the
Annual Work Program or the Budget in the procedure specified by this Contract
and the Effective Legislation.

 

  8.8.3 The Contractor may carry forward the over-fulfillment of the Annual Work
Program to the next year. However, the next-year Annual Work Program may not be
less than a minimum work program determined based on the Annual Work Program
(Article 8.3) for the corresponding calendar year.

 

8.9 The Subsoil Research and Use Authorized Agency may not unreasonably withhold
the approval of the Contractor’s Annual Work Program and Budget or subsequent
amendments thereto as well as may not extend the approval period specified by
the Contract and the Current Legislation.

 

8.10 Subject to the other provisions of this Article VIII, the Contractor shall
conduct Production operations only in accordance with the approved Annual Work
Program and the Budget.

 

8.11 If as a result of Force Majeure a Work Program is suspended on the grounds
specified in Article XXIII, any such Work Program and the Term shall be extended
to the extent necessary for the performance of the Work Program in accordance
with the provisions of Article 23.1.

 

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ARTICLE IX. PRODUCTION

 

9.1 The Contractor shall be granted the exclusive right to conduct Production
operations in the Contract Area within twenty-five continuous years of the
Effective Date which period may be extended in the procedure specified in the
items 3.2.-3.5 hereof.

 

9.2 The Contractor shall commence the Production not later than sixty
(60) calendar days after the Effective Date.

 

9.3 The Contractor shall provide all resources required for the Production in
accordance with Work Programs. With the view to providing required resources,
the Contractor may raise credits, loans and investments.

 

9.4 The Contractor shall be entitled to freely use Hydrocarbons produced from
the Contract Area to the extent required for Petroleum Operations to be carried
out under the Contract in accordance with Good Oilfield Practices.

ARTICLE X. ASSOCIATED GAS

 

10.1 The Contractor shall ensure that Associated Gas is utilized in the
procedure specified by the Current Legislation, this Contract and the Work
Program.

 

10.2 Associated Gas produced within the Contract Area shall be used primarily
for purposes related to Petroleum Operations including, treatment of
Hydrocarbons, gas injection, gas lifting and power generation.

 

10.3

Based on the principle of optimum utilization of Associated Gas (and without
impeding the normal Production of Crude Oil), Work Programs shall include a plan
for the utilization of Associated Gas. If there is any excess Associated Gas
remaining in the Contract Area after utilization of Associated Gas pursuant to
this Article 10.1 (“Excess Associated Natural Gas”), the Contractor shall have
the right to use such Associated Gas for commercial purposes at its own

 

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discretion. However, the Contractor’s decision with regard to the commercial use
of Associated Gas shall not be deemed to be a commercial discovery of Natural
Gas and Article 30-4 of the Petroleum Law or any other provisions of the Current
Legislation pertaining to commercial discovery of natural gas shall not apply.

ARTICLE XI. ACCOUNTING AND REPORTING

 

11.1 The Contractor shall maintain books and keep during a specified period
accounting documentation relating to Production under the Contract, in
accordance with the Current Legislation of the Republic.

 

11.2

The Contractor shall submit to the Competent Body annual quarterly reports on
its operation before 25th day of the month following the reporting period,
enclosed with reporting documents in accordance with the Form No. 2 LKU (Report
on the performance of license/contractual conditions.

 

11.3 The Contractor shall submit to the state agencies the reports on its
activity within the terms and in the procedure specified by the Current
Legislation.

 

11.4 The Competent Body has the right to check the Contractor’s compliance with
the Contract conditions and can oversee (through his representatives) the
Production operations carried out by the Contractor without interfering with the
normal and legal course of Petroleum Operations.

ARTICLE XII. MEASUREMENT OF HYDROCARBONS

 

12.1 All produced Hydrocarbons shall be measured and weighed at the Measurement
point in accordance with methods and practices generally accepted in the
Republic.

 

12.2 The Competent Body and the Contractor with the participation of
representatives of the authorized State Agency for metrology and standardization
shall be entitled to periodically inspect the measuring equipment installed and
all charts and other measurement or test data at all reasonable times. The
accuracy of measuring equipment must be verified by tests at regular intervals
as specified or upon request by either the Competent Body or the Contractor,
using means and methods generally accepted in the Republic.

 

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12.3 If in the course of testing or inspection the equipment or devices prove to
have defects which caused mismeasurements, the Contractor shall use all
reasonable efforts to determine the accurate production figures for the period
during which mismeasurments occurred and correct previously used readings. The
Contractor shall submit to the Competent Body a report on the corrections made.
If it proves impossible to determine when the measuring error first occurred,
the commencement of the error shall be deemed to be the point in time halfway
between the date of the last previous test and the date on which the existence
of the measuring error was first discovered.

 

12.4 If the Contractor finds it necessary to alter the applied methods or
replace measuring devices installed, it shall accordingly inform the authorized
State Agency for metrology and standardization at least 15 days in advance to
enable its representatives to oversee such alterations or replacements.

ARTICLE XIII. SUBCONTRACTING AND PERFORMANCE OF SUBCONTRACT WORKS

 

13.1 As a part of the Annual Work Program the Contractor shall provide the
Competent Body with the plan for subcontract works, list of subcontracts for
procurement of supplies, equipment, works, and services which should be executed
in the following calendar year and calculations of the value of subcontracts.

 

13.2 The Contractor shall, as a rule, contract Subcontractors on a competitive
basis.

 

13.3 The Contractor shall be liable for the performance of subcontracts in
accordance with the Current Legislation.

 

13.4 The Contractor shall be entitled to employ local and foreign employees in
the proportion as stipulated by this Contract, may arrange for the import of
foreign labor into Kazakhstan and obtain all necessary permits with respect to
such employment in connection with the performance of Petroleum Operations in
accordance with the Current Legislation.

 

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13.5 Conditions of labor relations between the Contractor and employees shall be
determined by the Current Legislation and conditions of employment agreements
both with the Kazakhstani and foreign personnel must be non-discriminatory in
comparison with minimum requirements specified by the Current Legislation.

 

13.6 The Contractor may without any limitations select and employ personnel at
its own discretion.

ARTICLE XIV. FUNDING AND BANKING

 

14.1 The Contractor undertakes to fully finance its activity under the Contract
in accordance with the Work Program agreed by the Parties.

 

14.2 The Contractor may freely obtain loans in any currency in and beyond the
Republic to finance its activity unless it conflicts the legislation of the
Republic.

 

14.3 The Contractor and its shareholders shall be entitled in the procedure
established by the Current Legislation and the National Bank of the Republic to
open and operate bank accounts in the national and foreign currency in and
beyond the Republic with a view to performing the Contract and to freely receive
funds in the form of revenues and income under the Contract.

 

14.4 All types of settlements under the Contract shall be performed in the
procedure determined in accordance with the legislation of the Republic
applicable in accordance with the conditions of this Contract.

 

14.5 The Contractor and Subcontractors shall settle accounts in accordance with
Current Legislation on currency regulation.

 

14.6 The Contractor and its shareholders may in the procedure specified by the
applicable Legislation convert all monies gained in the Republic, into Foreign
Exchange and transfer such monies to bank accounts beyond the Republic after all
applicable Taxes and charges for the money transfer have been paid.

 

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14.7 Subject to necessary permits and/or licenses to be issued by the National
Bank (or other authorized agencies) of the Republic, the Contractor and its
Shareholders may in the procedure specified by the applicable Legislation
possess, gain, and keep beyond the Republic and to use all monies directly or
indirectly gained by them from Petroleum Operations, without obligation to
repatriate or return monies to the Republic including but not limited to all
revenues from the export of Hydrocarbons.

 

14.8 The Contractor and its Shareholders may in the procedure specified by the
legislation applicable in accordance with the Contract import Foreign Exchange
required for Petroleum Operations into the Republic.

 

14.9 The Contractor and its Shareholders may in the procedure specified by the
legislation applicable in accordance with the Contract effect beyond the
Republic any payments for goods, works, and services in connection with
Petroleum Operations under the Contract without prior transfer of monies to the
Republic to effect such payments.

 

14.10 The Contractor may purchase local currency with Foreign Exchange and
convert local currency into Foreign Exchange through banks which are authorized
to conduct banking operations in the Republic.

 

14.11 The Contractor may pay beyond the Republic the principal and interest on
loans used to finance Petroleum Operations without prior transfer of monies to
Republic to effect such payments.

 

14.12 The Contractor may pay remuneration, salary, wages, and benefits to its
foreign employees working in the Republic in Foreign Exchange (in full or in
part) beyond the Republic.

ARTICLE XIV-I. SOCIAL FUND AND PENSION CONTRIBUTIONS

 

14-1.1 The Contractor shall make deductions of mandatory pension contributions
to accumulative pension funds for its employees in the amount and procedure
specified by the legislation of the Republic of Kazakhstan on pension coverage
and shall be liable for the completeness and timeliness of social deductions to
the State Social Security Fund.

 

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ARTICLE XIV-II. ACCOUNTING

 

14-2.1. The Contractor shall keep full and accurate accounts of all income and
expenditures in connection with the Contract in accordance with the accounting
procedures established by the Current Legislation and this Contract.

 

14-2.2. All Contractor’s books and records shall be made available for
examination by the Competent Body and state agencies, subject to their
competence determined by the Current Legislation.

ARTICLE XV. TAXES AND OTHER OBLIGATORY PAYMENTS

 

15.1 With respect to the operations hereunder, the Contractor shall be liable
for payment of the following taxes and other budgetary payments.

 

  15.1.1 Subsoil user-specific charges and taxes, including:

- signature bonus;

- commercial discovery bonus;

- royalty;

- excess profit tax;

and also:

corporate income tax;

individual income tax;

value–added tax;

excise taxes;

social tax;

land tax;

property tax;

 

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vehicle tax;

fee for the state registration of legal entities;

fee for the state registration of immovable property and transactions therewith;

fee for the state registration of radio electronic devices and high frequency
devices;

fee for the state registration of motor vehicles and trailers;

fee for the state registration of marine, river, and small-sized vessels;

fee for the state registration of civil aircraft;

fee for the transit of motor vehicles through the territory of the
Republic of Kazakhstan;

auction fee;

license fee to engage in certain activities;

land use fee;

water use charge payable with respect to surface sources;

environmental pollution charge;

forest use charge;

charge for the use of specially protected natural areas;

radiofrequency spectrum use charge;

navigable waterways use charge;

payment for outdoor (visual) advertising;

state duty; and

customs duties.

 

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The Contractor shall not be responsible for any other taxes or other mandatory
payments to the budget, except for those listed above, in connection with the
operations hereunder.

 

15.2 With respect to the operations hereunder, the Contractor hereby agrees to
pay taxes and other mandatory payments to the budget in accordance with the Tax
Law, unless the Contract or an international treaty ratified by the Republic
provides otherwise.

 

15.3 The Contractor shall be liable for payment of the following taxes and other
mandatory payments to the budget:

 

  15.3.1 Corporate income tax

The Contractor shall be liable for payment of corporate income tax in accordance
with Section II of the Tax Law.

 

  15.3.2 Individual income tax

The Contractor shall be liable for payment of individual income tax in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued.

 

  15.3.3 Value-added tax

The Contractor shall be liable for payment of value-added tax in accordance with
the Tax Legislation in force as of the date on which the liability to pay the
same accrued.

 

  15.3.4 Excise taxes

The Contractor shall be liable for payment of excise taxes in accordance with
Section IV of the Tax Law.

 

  15.3.5 Social tax

The Contractor shall be liable for payment of social tax in accordance with the
Tax Legislation in force as of the date on which the liability to pay the same
accrued.

 

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  15.3.6 Subsoil user-specific charges

The Contractor shall be liable for payment of subsoil user-specific charges in
accordance with this Contract and the Tax Law.

 

  15.3.6.1 Signature bonus

The Contractor shall pay the signature bonus in the amount of six hundred
thousand US Dollars US $600,000. Such signature bonus shall be a one-time and
the only payment payable by the Contractor upon execution of this Contract.

 

  15.3.6.1.1 The signature bonus must be paid within thirty calendar days of the
Effective Date of this Contract.

 

 

15.3.6.1.2

The Contractor must file a tax return with respect to the signature bonus with
its registering tax authority by the fifteenth (15th) day of the month following
the month in which the payment became due.

 

  15.3.6.2. Commercial discovery bonus

 

  15.3.6.2.1 The Contractor shall pay the commercial discovery bonus only if it
declares Commercial Discovery of extra recoverable reserves, as compared to
those approved by the authorized agency as of the Effective Date of this
Contract. Such commercial discovery bonus shall be computed as 0.1% of the value
of the extra recoverable reserves in such Commercial Discovery as compared to
those approved by the authorized agency as of the Effective Date of the
Contract.

 

  15.3.6.2.2 The commercial discovery bonus shall be payable within 90 calendar
days of the date the Commercial Discovery was confirmed.

 

 

15.3.6.2.3

The Contractor must file a tax return with respect to the commercial discovery
bonus with its registering tax authority by the fifteenth (15th) day of the
month following the month in which the payment became due.

 

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  15.3.6.3 Royalty

The Contractor shall pay Royalty separately for Crude Oil and Associated Natural
Gas produced in the Contract Area, except for Crude Oil and Natural Gas used to
maintain the reservoir pressure.

 

  15.3.6.3.1 Royalty shall be assessed on the value of produced volumes of Crude
Oil and Associated Natural Gas as determined based on the average selling price
of Hydrocarbons in the reporting period, without considering indirect taxes, and
reduced by the amount of actual costs of transportation to the place of sale.

 

  15.3.6.3.2 The average selling price shall be computed separately for Crude
Oil and Associated Natural Gas.

The average selling price of Crude Oil shall represent the aggregate proceeds of
sales of the respective type of Hydrocarbons, less indirect taxes (excise tax,
and VAT), and cost of transportation, during the Reporting Period, divided by
the respective aggregate volume of Crude Oil sold during the Reporting Period.

Example

The proceeds gained by the Contractor from the sale of 4.5 million tons of Crude
Oil, without considering indirect taxes (excise tax, and VAT) comprised
110,000 million Tenge in the reporting period. The aggregate sales volume
comprised 4.5 million tons. The cost of transportation associated with the sale
of the above 4.5 million tons of Crude Oil amounted to 20,000 million Tenge.

The average selling price of Crude Oil is computed as (110,000 million Tenge –
20,000 million Tenge)/4.5 million tons = 20,000 Tenge/ton.

If no Crude Oil was sold during the Reporting Period, the average selling price
of Crude Oil shall be equal to the average selling price of Crude Oil in effect
during the previous Reporting Period in which Crude Oil was last sold.

 

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The value of Associated Natural Gas shall be determined based on the estimated
cost of Associated Gas in the forthcoming quarter (i.e. computed based on the
upcoming budgeted costs of production of Hydrocarbons) and the factor of
calculation of the volume of Associated Natural Gas produced during the
Reporting Period into Crude Oil. One thousand cubic meters of Associated Natural
Gas comprises 0.857 tons of Hydrocarbons.

 

  15.3.6.3.3 The Contractor shall pay royalty at rates determined using sliding
scale based on the levels of produced Crude Oil and Associated Natural Gas as
accrued for each calendar year of operations at the rates listed in the table
below:

 

Levels of accumulated production

of Hydrocarbons

(tons)

   Rates of royalty (%)

Up to 1,000,000

   2.0%

1,000,001 – 2,000,000

   2.2%

2,000,001 – 3,000,000

   2.5%

3,000,001 – 4,000,000

   3.0%

4,000,001 – 5,000,000

   4.0%

Over 5,000,001

   6.0%

 

  15.3.6.3.4 By decision of the Government, the royalty may be paid in kind,
rather than in cash, in the procedure established by an additional agreement
with the Competent Body.

 

  15.3.6.3.5 In the event of production of commonly occurring minerals and
subsurface water for own needs within the Contract Area, the Contractor shall
pay royalty in accordance with the Tax Legislation in force as of the date on
which the liability to pay the same occurred. Royalty shall not be payable with
respect to mined associated underground waters to be re-injected to maintain the
reservoir pressure.

 

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  15.3.6.4 Excess profit tax

 

  15.3.6.4.1 The Contractor shall compute the excess profit tax based on the
achieved level of the internal rate of return as of the end of the tax period
and using the following rates:

When computing the internal rate of return, the Contractor shall take into
account the annual cash flows arising out of operations under this Contract, as
adjusted by the inflation index.

 

Internal rate of return (“IRR”), %

   Rate of the excess profit tax
as a percentage of the net
income gained in the
Reporting Year

Up to and including 20

     0

Over 20, and up to and including 22

     4

Over 22, and up to and including 24

     8

Over 24, and up to and including 26

   12

Over 26, and up to and including 28

   18

Over 28, and up to and including 30

   24

Over 30

   30

 

  15.3.6.4.2 Internal rate of return

 

  15.3.6.4.2.1 The internal rate of return (“IRR”) shall be computed based on
the Contractor’s annual cash flows adjusted by the inflation index using the
following formula:

LOGO [g63968image_page043.jpg]

IRR – internal rate of return;

 

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NPV   

–  

   net present value; r1    –    discount rate (interest rate), which makes NPV
equal to the minimum positive value of (NPV (r1)); and r2    –    discount rate
(interest rate), which makes NPV equal to the minimum negative value of
(NPV (r2)).

 

  15.3.6.4.2.2 Net present value (NPV) shall be computed using the following
formula:

LOGO [g63968image_page044.jpg]

 

NPV   

–  net present value;

AACF   

–  adjusted annual cash flow;

AACF1   

–  adjusted annual cash flow in the first year;

AACF2   

–  adjusted annual cash flow in the second year;

…    AACFn   

–  adjusted annual cash flow in the nth year;

@r   

–  discount rate, which makes NPV equal to the minimum positive value (NPV(r1))
and maximum negative value (NPV(r2));

r        discount rate (interest rate); 1,2, ...n   

–  reporting year.

 

  15.3.6.4.2.3 The minimum positive value and maximum negative value shall mean
the value of NPV computed using the method of substitution accurate to one
hundredth (0.01).

 

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Example

It was determined by trial and error that with @r having the values as stated
below the NPV would be as follows:

 

@r

 

NPV

0.045

    5

0.046

    3

0.035

    0.05

0.031

  -0.05

0.025

  -1.85

0.022

  -4

When computing IRR, the following values of NPV shall be used: 0.05 (with @r =
0.035) and –4 (with @r = 0.022).

 

  15.3.6.4.2.4 The Contractor’s annual cash flow (ACF) shall be determined as a
difference between the Contractor’s aggregate annual gross receipts and the
costs it incurred hereunder during a reporting year.

 

  15.3.6.4.2.5 The amount of the aggregate annual gross receipts gained by the
Contractor from its operations under this Contract shall be determined in
accordance with the Tax Law.

 

  15.3.6.4.2.6 The costs incurred by the Contractor under this Contract during
the reporting year shall include the following costs actually incurred by the
Contractor in its operations relating to the Subsoil use under the Contract for
the Subsoil use during the reporting year:

 

  1) capital costs understood to mean costs capitalized in the conduct of
Contracted Operations and depreciated under Articles 20 and 23 of the Tax Law,

 

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  2) costs deducted upon computation of the taxable income in accordance with
the Tax Law, except for amounts of depreciation on capital costs and
remuneration (interest) on borrowed funds;

 

  3) amounts of Contractor’s corporate income tax and dividend tax assessed in
the reporting year, and also the amount of excess profit tax assessed for the
year preceding the reporting year, all computed in accordance with the Tax Law.

 

  15.3.6.4.2.7 The amount of Contractor’s annual cash flow as computed under
Articles 15.3.6.4.2.1 to 15.3.6.4.2.6 shall be adjusted by the inflation index
for the purposes of computing the IRR when calculating the excess profit tax.

 

  15.3.6.4.2.8 Annual cash flows shall be adjusted by the inflation index
commencing on the second year of operations under the Contract using the
following formula:

LOGO [g63968image_page046.jpg]

 

AACF (n)   

-   adjusted cash flow in the nth year;

ACF (n)   

-   Contractor’s cash flow in the reporting year as computed under Articles
16.2.4.4.2.4 to 16.2.4.4.2.6;

II   

-   inflation index;

1,2, n   

-   period of time (i.e. year).

When computing the excess profit tax, the inflation index (“II”) shall be used
as published by the state authority for statistics of the
Republic of Kazakhstan.

 

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  15.3.7 The Contractor shall be liable for payment of land tax in accordance
with the Tax Legislation in force as of the date on which the liability to pay
the same accrued;

 

  15.3.8 The Contractor shall be liable for payment of property tax in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued;

 

  15.3.9 The Contractor shall be liable for payment of vehicle tax in accordance
with the Tax Legislation in force as of the date on which the liability to pay
the same accrued;

 

  15.3.10 The Contractor shall be liable for payment of the fee for the state
registration of legal entities in accordance with the Tax Legislation in force
as of the date on which the liability to pay the same accrued;

 

  15.3.11 The Contractor shall be liable for payment of the fee for the state
registration of immovable property and transactions therewith in accordance with
the Tax Legislation in force as of the date on which the liability to pay the
same accrued;

 

  15.3.12 The Contractor shall be liable for payment of the fee for the state
registration of radio electronic devices and high frequency devices in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued;

 

  15.3.13 The Contractor shall be liable for payment of the fee for the state
registration of motor vehicles and trailers in accordance with the Tax
Legislation in force as of the date on which the liability to pay the same
accrued;

 

  15.3.14 The Contractor shall be liable for payment of the fee for the state
registration of marine, river, and small-sized vessels in accordance with the
Tax Legislation in force as of the date on which the liability to pay the same
accrued;

 

  15.3.15 The Contractor shall be liable for payment of the fee for the state
registration of civil aircraft in accordance with the Tax Legislation in force
as of the date on which the liability to pay the same accrued;

 

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  15.3.16 The Contractor shall be liable for payment of the fee for the transit
of motor vehicles through the territory of the Republic of Kazakhstan in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued;

 

  15.3.17 The Contractor shall be liable for payment of the auction fee in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued;

 

  15.3.18 The Contractor shall be liable for payment of the license fee to
engage in certain activities in accordance with the Tax Legislation in force as
of the date on which the liability to pay the same accrued;

 

  15.3.19 The Contractor shall be liable for payment of the land use fee in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued;

 

  15.3.20 The Contractor shall be liable for payment of the water use charge
payable with respect to surface sources in accordance with the Tax Legislation
in force as of the date on which the liability to pay the same accrued;

 

  15.3.21 The Contractor shall be liable for payment of the environmental
pollution charge in accordance with the Tax Legislation which is effective as of
the date on which the liability to pay the same accrued. The Contractor shall
pay the penalties for violation of the environmental protection legislation in
accordance with the Legislation effective as of the moment such violations
occur.

 

  15.3.22 The Contractor shall be liable for payment of the forest use charge in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued;

 

  15.3.23 The Contractor shall be liable for payment of the charge for the use
of specially protected natural areas in accordance with the Tax Legislation in
force as of the date on which the liability to pay the same accrued;

 

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  15.3.24 The Contractor shall be liable for payment of the radiofrequency
spectrum use charge in accordance with the Tax Legislation in force as of the
date on which the liability to pay the same accrued;

 

  15.3.25 The Contractor shall be liable for payment of navigable waterways use
charge in accordance with the Tax Legislation in force as of the date on which
the liability to pay the same accrued;

 

  15.3.26 The Contractor shall be liable for the payment for outdoor (visual)
advertising in accordance with the Tax Legislation in force as of the date on
which the liability to pay the same accrued;

 

  15.3.27 The Contractor shall be liable for payment of the state duty in
accordance with the Tax Legislation in force as of the date on which the
liability to pay the same accrued.

 

15.4 Customs duties

The Contractor shall pay customs duties in accordance with the Customs
Legislation in force as of the date on which the relevant customs declaration
was filed with the customs authorities of the State.

 

15.5 Employee taxation

Contractor’s employees shall be liable for payment of taxes and other mandatory
payments to the budget in accordance with the Tax Legislation in force as of the
time at which the liability to pay such taxes and other mandatory payments to
the budget accrued.

 

15.6 Subcontractor taxation

 

  15.6.1 Subcontractors and their respective employees providing services/work
to the Contractor shall be subject to taxation in accordance with the Tax
Legislation in force as of the time at which the liability to pay taxes and
other mandatory payments to the budget accrued.

 

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  15.6.2 The Contractor shall not be liable for any tax liabilities of its
subcontractors, except for the Contractor’s obligation to withhold the
withholding tax.

 

15.7 Transfer pricing

 

  15.7.1 Tax and customs authorities shall regulate the appropriateness of
setting prices in transactions in accordance with the procedure and in the
events stipulated by a regulation issued by the State on matters of governmental
control of transfer pricing.

 

  15.7.2 In the event a deviation of the transaction price from the market price
is revealed, tax authorities shall adjust the objects of taxation and tax
liabilities using fines and penalties in accordance with the legislation of the
State.

 

15.8 General tax liability

Taxes and other mandatory payments to the budget payable under this Contract
shall not release the Contractor from its liability to pay taxes and other
mandatory payments to the budget required by laws as of the date on which the
relevant tax liability accrued in connection with any business not stipulated by
this Contract.

 

15.9 Separate accounting

The Contractor must maintain separate accounts for tax liabilities under the tax
regime stipulated by the Contract and for those related to activities performed
not under this Contract.

The above provision does not apply to contracts for mining commonly occurring
minerals and/or underground waters that may be executed by the Contractor in the
future.

 

15.10 Payment and crediting of taxes and payments

Taxes and other mandatory payments to the budget shall be paid in Tenge, unless
laws of the State or provisions of this Contract provide for payment in kind or
in foreign currency.

 

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15.11 Liability for failure to comply with the Tax Legislation

Liability for failure to comply with the Tax Legislation shall be as established
by relevant laws.

 

15.12 Payment of penalty

Penalty shall be assessed on amounts of overdue tax liabilities at rates
established by the Tax Legislation in effect as of the due dates of payment of
such amounts.

 

15.13 Tax regime stability

 

  15.13.1 The Parties may agree on adjusting the terms of taxation as set forth
in this Contract due to changes in the tax legislation.

Where, as a result of changes in the tax legislation, the terms of taxation
applicable to the Contractor have been either improved or worsened, the terms of
taxation as set forth in the Contract shall be amended with a view to
reinstating the economic interests of the Parties.

 

  15.13.2 In the event certain types of taxes or other mandatory payments to the
budget as provided in the Contract have been abolished, the Contractor shall
continue paying the same to the budget in the procedure and amounts stipulated
in the Contract until the Contract is amended appropriately in accordance with
Article 15.13.1 hereof.

 

  15.13.3 If from time to time after the execution of this Contract the
legislation of the Republic is amended or modified, whereby the Contractor
becomes liable to pay taxes, bonuses or mandatory contributions which did not
apply in the Republic at the time of execution of the Contract or in accordance
with a special tax regime expressly provided by the Contract; or the rate or the
value of any Tax has been increased, which applied in Kazakhstan at the time of
execution of the Contract or was established by a special tax regime of the
Contract, then such amendments of the legislation shall be deemed to have
worsened the Contractor’s state and shall not apply to the Contractor.

 

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  15.13.4 The Parties agree that if the legislation is amended as set forth in
Article 15.13.3 of this Article, the Contractor shall be deemed to have complied
with the requirements of the legislation and the terms and conditions of this
Contract, if the Contractor has paid the Taxes and fulfilled its obligations
under the Effective Legislation or the legislation in force in other periods
applicable to the Contractor hereunder.

 

15.14 Access to information

 

  15.14.1 The Contractor acknowledges that tax authorities of the State shall
have access to the bank accounts in accordance with the legislation of the
State.

 

  15.14.2 The Contractor must provide officers of the tax authorities with
information on its operations hereunder in accordance with the legislation of
the State.

 

  15.14.3 In the events and procedure established by the Tax Legislation the
Contractor shall provide information on its financial and business operations to
the authorized agency in charge with taxpayer monitoring.

ARTICLE XVI. GUARANTEES OF STABILITY OF THE CONTRACT

 

16.1 If at any time after execution of the Contract an amendment is made to the
Effective Legislation which worsens the Contractor’s state, adversely affects
the manner in which the Contractor under this Contract is obliged to conduct
Production, then such amendment shall not apply to the Contract (and the
Contractor’s operations hereunder) executed prior to such amendment. The
guarantees stipulated by this Article shall not apply to amendments made to the
legislation of the Republic governing the areas of the defense capacity,
national security, environmental safety, and public health protection.

 

16.2 In the event an amendment is made to the legislation of the Republic, which
has prevented any operations hereunder, the Parties shall amend the Contract
accordingly so that to reinstate the Parties’ initial balance of interests.

 

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16.3 The Republic guarantees to the Contractor that no State Agency shall
undertake Expropriation with respect to the Contractor’s assets or its rights
hereunder, and that no measures similar to the Expropriation shall be taken in
respect of the same, except when such Expropriation is undertaken:

 

  (a) for a purpose complying with the national interests;

 

  (b) on a non-discriminatory basis;

 

  (c) subject to all proper legal procedures; and

 

  (d) with simultaneous and immediate payment of adequate and effective
compensation.

ARTICLE XVII. INSURANCE

 

17.1 Within one hundred and twenty (120) days of the Effective Date of this
Contract, the Contractor shall develop and provide for approval to the Competent
Body a scheme of insurance of business risks, assets, and liability related to
the Production and stipulated by the Effective Legislation and the Article 17.2
of this Contract.

 

17.2 Insurance shall cover property risks and risks of liability for:

 

  17.2.1 pollution of the environment, including land, and costs of curing the
effects of the damage caused to the environment, including land reclamation and
restoration;

 

  17.2.2 transportation and storage of goods delivered to the location of
Production;

 

  17.2.3 Contractor’s property used during the Production, including any
property in lease or financial lease; and

 

  17.2.4 general Third-Party liability.

 

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17.3 The Contractor shall insure against its civil liability for injury or death
of its employees while on labor duty as required by the effective legislation of
the Republic of Kazakhstan.

 

17.4 The Contractor shall select insurance companies at its sole discretion,
subject to the Effective Legislation.

ARTICLE XVIII. ABANDONMENT AND ABANDONMENT FUND

 

18.1 Within two years of the effective date of this Contract, the Contractor
shall provide for approval a damage control plan for the operations under the
Contract, including an estimate of clean-up costs.

 

18.2 The abandonment plan shall provide for the dismantling and/or removal of
facilities and equipment used in Petroleum Operations in the Contract Area and
the return of used areas to a condition that permits the use of such areas for
purposes similar to those uses existing prior to the commencement of Exploration
operations under the Exploration Contract.

 

18.3 In order to ensure the complete funding of the compliance with the
abandonment plan, the Contractor shall create an Abandonment Fund in the name of
the Contractor, which will be created exclusively to cover the clean-up costs
and expenses for site restoration. Payments to the Abandonment Fund shall be
made annually by the Contractor in the amount of one percent (1%) of Operational
Costs for Production to a special deposit account in any bank in the territory
of the Republic and shall be included into the costs connected with the
Hydrocarbon Production. The Abandonment Fund shall be used by the Contractor
with the consent of the Competent Body approved by the Authorized Agency for the
Study and Subsoil use.

 

18.4

If the Republic takes the decision to continue operation of all or some of the
facilities transferred to it by the Contractor after the expiry of the Contract
and to assume liability therefore, or if the Contract area upon decision of the
Republic will be transferred to another Contractor so that to ensure the
continuity of the

 

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operations, of which the Contractor is notified, the Contractor shall not be
responsible for carrying out the abandonment and site restoration plans, and the
right of ownership for all assets actually accumulated in the Abandonment Fund
shall vest exclusively in the Republic.

 

18.5 Unless at least ninety (90) days prior to termination of the Contractor’s
rights hereunder the Competent Body gives the Contractor a written notice as
referred to in paragraph 18.4 hereof, the Contractor shall be responsible for
carrying out the abandonment and site restoration plans and shall provide
additional funding of the abandonment if the funds on the account are
insufficient for this purpose.

 

18.6 If actual costs of abandonment exceed the size of the Abandonment Fund,
then the Contractor shall provide additional funding of the abandonment.

 

18.7 If the Contractor has discharged in full its obligations under paragraph
18.5 and surplus funds remain in the Abandonment Fund after meeting the
necessary costs, such surplus shall be transferred to the Contractor and shall
be subject to inclusion into taxable income of the Contractor.

ARTICLE XIX. SUBSOIL AND ENVIRONMENTAL PROTECTION

 

19.1 In process of the execution of the Contract, the Contractor shall observe
all requirements under the Current Legislation regulating the conservation of
mineral resources and environment, and shall take all measures which are
necessary to:

 

  19.1.1 protect health and safety of the population;

 

  19.1.2 enter into books and monitor all wells previously drilled within the
Contract Area;

 

  19.1.3 ensure efficient and multiple use of Mineral resources;

 

  19.1.4 preserve wild landscapes and reclamation of disturbed and polluted land
and of other geomorphologic structures;

 

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  19.1.5 preserve the properties of the energy state of the top portions of the
subsoil with a view to preventing an earthquake, landslide, underflooding, and
soil subsidence;

 

  19.1.6 protect the subsoil against negative factors reducing the quality of
the subsoil and impeding the development of Fields;

 

  19.1.7 protect the subsoil against any material damage that is above an
acceptable level in accordance with international technical standards and
operating practices; and

 

  19.1.8 comply with environmental requirements when storing and disposing of
industrial and domestic waste in order to prevent its accumulation within
drainage and subsurface water occurrence areas.

 

19.2 The Contractor shall ensure the compliance with the Current Legislation
regulating the subsoil and environment protection, and in the course of
Production, the Contractor shall meet the following as a matter of priority:

 

  19.2.1 environmental requirements:

 

  19.2.1.1 protection of the environment;

 

  19.2.1.2 prevention the man-made desertification of land;

 

  19.2.1.3 prevention of water and wind erosion of the soil;

 

  19.2.1.4 isolation of permeable and freshwater horizons to prevent them from
being polluted;

 

  19.2.1.5 prevention of the depletion and pollution of underground water;

 

  19.2.1.6 industrial monitoring of the environment in accordance with programs
approved by state agencies in the area of environmental protection;

 

  19.2.1.7 other requirements of the legislation on the subsoil use, and
environmental protection.

 

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  19.2.2 requirements in the area of protection of the subsoil:

 

  19.2.2.1 ensuring the completeness of the forestalled geological study of the
Subsoil for an accurate assessment of the size and structure of Hydrocarbon
reserves, Field and Subsoil blocks granted for subsoil use operations, including
for purposes not associated with Production;

 

  19.2.2.2 ensuring the sustained and comprehensive subsoil use resources at all
stages of Production;

 

  19.2.2.3 ensuring the completeness of extraction of Hydrocarbons;

 

  19.2.2.4 an accurate record of the reserves of principal and accompanying
minerals and associated components both recoverable and remaining in the
Subsoil, including the products of Processing of Hydrocarbons and production
waste from Field development;

 

  19.2.2.5 using the Subsoil in accordance with the requirements of the
environmental legislation of the State that protect the Subsoil against effect
of dangerous man-made processes associated with Production;

 

  19.2.2.6 protection of the Subsoil against floods, fires, explosions,
sloughing of superincumbent rock, and other disasters which reduce its quality
or complicate the operation and development of the Field;

 

  19.2.2.7 prevention of pollution of the Subsoil in the course of Hydrocarbon
Production;

 

  19.2.2.8 compliance with the procedures established by Article XXII of the
Contract regarding the suspension and termination of Hydrocarbon Production and
by Article XVIII of the Contract regarding the abandonment of facilities at the
developed Field; and

 

  19.2.2.9

compliance with the sanitary and environmental requirements when storing and
disposing of industrial and

 

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domestic waste in order to prevent its accumulation within drainage and
subsurface water occurrence areas;

 

  19.2.3 sanitary requirements:

 

  19.2.3.1 setting up a sanitary protection area;

 

  19.2.3.2 development of the sanitary protection area;

 

  19.2.3.3 all equipment, pipelines, used chemicals, etc. must be approved by
agencies for sanitary and epidemiologic supervision;

 

  19.2.3.4 carrying out sanitary measures as to maintaining the proper sanitary
condition, and preventing occupational deceases and injuries;

 

  19.2.3.5 creating favorable conditions for the employee health promotion;

 

  19.2.3.6 The Contractor shall ensure the completeness and reliability of
geological, hydrogeological, ecological, engineering/geological, and
technological study of the facilities of Hydrocarbons Production.

 

19.3 In the course of production under In performance of this Contract, the
Contractor shall take into account that the mandatory ecological requirement to
the conduct of subsoil use operations is obtaining a positive opinion of the
state expert examination on the conduct of such operations and nature use
licenses issued on the basis thereof by executive agencies in charge with the
matters of environmental protection.

The subsoil user shall be obliged to ensure that all pre-project and project
documentation is submitted for a state environmental expert examination, such
documentation to contain an assessment of the impact of the planned operations
on the environment and an “Environmental Protection” section including measures
to be taken during the production period and the termination of subsoil use
operations or temporary shutdown of field development.

 

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19.4 The Contractor must monitor the Subsoil and environment with a view to
studying the impact thereon of its operations hereunder and to taking measures
as to prompt elimination of any negative impact. Data obtained in such
industrial monitoring and environmental impact reports shall be submitted to the
authorized agency for environmental protection.

 

19.5 The Contractor must deal with any disturbed condition of the environment,
carry out recovery work, and fully compensate any damage caused to the nature.

 

19.6 The authorized agencies for environmental protection shall be in charge
with the state monitoring of the compliance with the legislation on the
protection of subsoil and environment.

 

19.7 The Contractor shall take measures as to the preservation of the condition
of the environment within the Contract Area.

 

19.8 After the expiry of the Contract or during a stage-by-stage relinquishment
of the Contract Area, the Contractor shall surrender the Contract Area in a
condition allowing its further use exactly as intended in accordance with the
legislation of the Republic.

 

19.9 Any disturbance (worsening) of the environmental condition and the Contract
Area itself throughout the term of this Contract shall be eliminated at the
Contractor’s expense up to a condition allowing its further use exactly as
intended.

 

19.10 In the event of emissions (discharge) into the environment above the
allowable level, or occurrence of accidents or emergencies, the Contractor must
promptly notify the Central Executive Agency for environmental protection to
that effect and take measures as to the elimination of consequences and
reparation of damage.

ARTICLE XX. PUBLIC AND PERSONNEL SAFETY

 

20.1

When conducting Production in accordance with this Contract, the Contractor
shall comply with the rules and standards governing industrial safety and public
safety as established by the

 

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Current Legislation, and shall take all reasonable effort for the prevention and
remedying of accidents and occupational diseases of the Contractor’s employees.

 

20.2 It’s forbidden to conduct production in the circumstances if it constitutes
a threat for the life and health of people.

 

20.3 State monitoring of compliance with the regulations and norms for technical
safety and industrial sanitation during Production shall be carried out by the
authorized state agencies to the extent of their respective competencies.

 

20.4 The main requirements for safety production are:

 

  20.4.1 permit to work only specially trained and qualified persons, and for
mining management—only appropriately educated persons who have an appropriate
qualification, and have an practical experience for specialty, and who passed
the qualification examinations for the knowledge of the rules of technical
operation of the equipment and the industrial safety rules;

 

  20.4.2 provide people employed in Exploration and Production with special
clothing, and personal and collective protective equipment;

 

  20.4.3 use certified machines, equipment, and materials permitted for
industrial use in accordance with the legislation of the Republic of Kazakhstan
and sanitary standards;

 

  20.4.4 record, properly store and expend explosive substances and devices, and
use them correctly and safely;

 

  20.4.5 carry out a range of geological, mine-surveying, and other observations
required to ensure the technological cycle of operations and forecast dangerous
situations;

 

  20.4.6 in a timely manner, determine and insert in mining plans of dangerous
areas;

 

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  20.4.7 in a timely manner, update the technical documentation and accident
action plans with data clarifying the boundaries of safety zone;

 

  20.4.8 comply with projects and flowcharts of Development of the Field;

 

  20.4.9 take sanitary and hygiene measures in order to prevent occupational
diseases and poisoning;

 

  20.4.10 organize laboratory and instrumental control over the condition of air
in the working area, and over dangerous negative physical industrial factors at
workplaces (such as noise, vibration, microclimate, hardness, and intensity of
work, etc.);

 

  20.4.11 provide the employees with quality drinking water in volumes required
by standards, and with the entire set of sanitary and daily life premises in
accordance with the standards.

 

20.5 In the event there is a threat of an industrial accident or a direct threat
to the life and health of the Contractor’s employees and/or the general public,
the Contractor’s officials shall immediately take all reasonable prevention
measures, including, as required by the circumstances, suspending operations,
transporting people who are at risk to a safe place, and informing the relevant
State Agency and local executive bodies of the situation occurred.

 

20.6 The Contractor shall redress an injury suffered by an employee while he
fulfills his Contractual and labor duties in accordance with the Current
Legislation of the Republic.

 

20.7 Officer at fault for failure to comply or improper compliance with the
existing norms, standards, and rules, or for creating conditions and
preconditions for accidents, disasters or calamities, or for failure to take
measures to protect the population, environment, or business facilities against
natural or man-caused emergencies, or for other unlawful actions shall be held
liable in accordance with the legislation of the Republic of Kazakhstan.

 

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ARTICLE XXI. PARTIES’ LIABILITY FOR BREACHING THE TERMS OF THE CONTRACT

 

21.1 Each of the Parties shall be fully liable to one another for the
consequences of their breach of this Contract in accordance with the Current
Legislation.

 

21.2 The Republic and Contractor shall be fully liable to one another for the
consequences of transactions or conduct breaching the terms and conditions
hereof in accordance with the Current Legislation.

 

21.3 Persons at fault for violation of the Subsoil Use Legislation, shall bear
the disciplinary, material, administrative, or criminal liability established by
law.

ARTICLE XXII. SUSPENSION, EARLY TERMINATION, AND TERMINATION

 

22.1 At any time, if in the opinion of the Contractor, acting reasonably and in
good faith, circumstances do not warrant continuation of Production, the
Contractor, by giving not less than ninety (90) Days’ written notice to that
effect to the Competent Authority, along with providing a draft termination
agreement, may relinquish its rights and be relieved of its obligations under
the Contract, except such rights and obligations as relate to the period
immediately prior to such relinquishment, including any obligation under Article
19.1.

 

22.2 The Competent Body obligatory suspend the Contract, by a written notice to
the Contractor (the “Suspension Notice”), if:

a direct threat has arisen to the life or health of people who work or reside in
the area affected by the operations relating to the Contract;

 

  22.2.1. The Competent Body may suspend this Contract by the Suspension Notice
to the Contractor, if:

 

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  22.2.1.1. the Contractor has performed any operations not stipulated by either
Work Program or Contract, subject to the provisions of this Contract;

 

  22.2.1.2. while conducting its operations, the Contractor has repeatedly
violated the legislation of the Republic to the extent it applies to the
protection of subsoil, environment, and safe operations;

 

  22.2.1.3. while conducting its operations, the Contractor has not complied
with the procedure for payment of taxes and other mandatory payments as
stipulated in the Contract;

 

  22.2.1.4. the Contractor’s rights hereunder have been transferred in whole or
in part to a third party in violation of the provisions of Article XXV of this
Contract and of the Effective Legislation;

 

  22.2.1.5. the Contractor has interrupted its operations under the Work Program
for a period exceeding one hundred and eighty (180) days, except when such
interruption was caused by Force Majeure Events; or

 

  22.2.1.6. the Contractor has repeatedly violated the Contract provisions
regulating the Contractor’s use of Kazakhstani goods, work, services, or
personnel.

 

22.3 Prior to the Suspension Notice, the Competent Body must give a written
notice to the Contractor on breaches revealed (the “Breach Notice”) and receive
written explanations from the Contractor of the reasons of such breaches.

 

22.4 In the event that: (i) the reasons of the breaches cannot be cured without
suspending the Production, or (ii) the Contractor within ten days of receipt of
the Breach Notice has not explained the reasons of such breaches, the Competent
Body may suspend Production hereunder by giving a substantiated Suspension
Notice to the Contractor, which Suspension Notice shall provide for a reasonable
period to cure such reasons (the “Cure Period”).

 

22.5

Once the reasons which entailed the suspension of Production have been cured,
the Contractor shall be notified in writing by the

 

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Competent Body or by the authorized agency for the study and use of the subsoil
that the Contract is resumed and the Contractor may continue Production
thereunder.

 

22.6 Subject to the remaining provisions of this Article 22, the Contract shall
pre-term terminate, provided that the Competent Body gives a written notice (the
“Notice of Termination”) to the Contractor only if:

 

  22.6.1. The Contractor has unreasonably refused to cure the reasons caused the
decision to suspend the Production, or has failed to cure the same within a
period reasonably sufficient for curing such reasons (if the Contractor did not
send on a timely basis a reasonably substantiated request with the Competent
Body seeking an extension of the Cure Period);

 

  22.6.2. The Contractor has failed to proceed with the Production within the
period stipulated by the Contract;

 

  22.6.3. The reasons caused the suspension of Production and relating to a
threat to the health and life of people cannot be cured; or the Contractor has
materially breached the obligations stated by the Contract and Work Program;

 

  22.6.4. The Contractor is a bankrupt for the purposes of the Current
Legislation, except when the right to use the subsoil granted to the Contractor
hereunder is pledged; or

 

  22.6.5. The Contract has been declared invalid under the legislation.

 

22.7. The Contract shall terminate based on the reasons specified in the
paragraph 22.6 of the Contract, sixty (60) days after the Contractor receives a
written notification from the Competent body about an early termination of the
Contract.

 

22.8. Having received a Notice of Termination from the Competent Body, the
Contractor may exercise its rights to refer to arbitration under Article 27.1,
and reference by the Contractor of any matter to arbitration shall immediately
suspend the Notice of Termination in accordance with this Contract, a
regulation, or on other grounds.

 

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22.9. The Parties shall not be released from their existing obligations which
remained unfulfilled by the time the Contractor was notified of termination of
the Contract.

ARTICLE XXIII. FORCE MAJEURE

 

23.1 Neither Party shall be liable if as a result of Force Majeure such Party is
rendered unable to carry out its obligations under the Contract or such Party’s
performance under the Contract is rendered inadequate, and the obligations of
such Party so far as and to the extent that the same are affected by such Force
Majeure, shall be suspended during the continuance of any inability so caused.

 

23.2 If Force Majeure has occurred, the affected Party shall notify the other
Party to that effect within fourteen (14) days of becoming aware of such Force
Majeure, by delivering or mailing a notice specifying the date of commencement
and giving particulars of Force Majeure.

 

23.3 If Force Majeure occurs, the Parties shall promptly meet to discuss the
ways of resolution of the situation, and shall use all effort to mitigate the
consequences of such event. The affected Party shall use all reasonable
diligence to remove or overcome the Force Majeure situation as quickly as
possible in an economically reasonable manner.

 

23.4 If the performance of this Contract has been suspended in whole or in part
due to Force Majeure, the term for such performance shall be extended by the
duration of Force Majeure, and also by a period as may be necessary for the
restoration of any damage done during such period.

 

23.5

“Force Majeure” shall mean extraordinary circumstances, which could not be
foreseen under the existing conditions and are beyond the reasonable control of
the affected Party, including natural disasters, work stoppages caused by the
need to protect the natural environment, wars (whether declared or undeclared)
or other military, terrorist or guerrilla activity, labor disputes, rebellion or
riot, civil commotion, and other reasons that may

 

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constitute Force Majeure for the purposes of the Current Legislation, including
international treaties to which the Republic of Kazakhstan is a party, and
including circumstances lawfully and legitimately declared as Force Majeure by
the Chamber of Industry and Trade of the Republic of Kazakhstan.

ARTICLE XXIV. CONFIDENTIALITY

 

24.1 Subject to the provisions of the Contract, the Parties agree that this
Contract (or drafts thereof) and its terms, and all information and Data,
including geological data, acquired or obtained by any Party in the course of
performance of this Contract shall be considered confidential. The Parties may
use Confidential Information when drawing up reports as may be required by the
Current Legislation of the Republic.

 

24.2 No Party may transfer or disclose Confidential Information to Third Parties
without the consent of the other Party, except and shall be kept confidential
and not be disclosed to any Person not a Party to the Contract, except:

 

  24.2.1 a disclosure to an Affiliate, provided that such Affiliate maintains
confidentiality as provided herein;

 

  24.2.2 when such information is used in court proceedings;

 

  24.2.3 when information is disclosed to a Third Party rendering services to
the Contractor, provided that such Third Party undertakes to treat such
information as confidential and only use it for the purposes and during the term
determined by the Parties;

 

  24.2.4 where information is disclosed to a bank or other financial
organization from which the Contractor receives funding, provided that such bank
or other financial organization undertakes to treat such information as
confidential and only use it for the purposes specified;

 

  24.2.5 to the extent such data and information must be disclosed pursuant to
any rules or requirements of any government or stock exchange having
jurisdiction over such Party, or its Affiliates;

 

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  24.2.6 to its respective employees for the purposes of Petroleum Operations,
subject to each Party taking customary precautions to ensure such data and
information is kept confidential; and

 

  24.2.7 to the extent that any data or information which, through no fault of a
Party, becomes a part of the public domain.

 

24.3 The Parties, according to legislation of the state set the Confidentiality
period with respect to all documents, information, and reports relating to the
Petroleum Operations.

ARTICLE XXV. TRANSFER OF RIGHTS AND OBLIGATIONS

 

25.1 Transfer of subsoil use right by subsoil user fully or partially to a third
party, for the fee or without fee’s charge, including transfer as a contribution
to charter capital of establishing legal entity, transfer of subsoil use right
as a part of selling property complex in the course of bankruptcy proceeding for
subsoil user, or in the course of privatization of subsoil users-state
companies, as well as pledge of subsoil use right, is a subject to the written
consent of the Competent Body. The Competent Body shall issue consent or
reasonably withhold its consent within forty five days of file an application
for such consent.

 

25.2 Having decided to assign its Subsoil Use Right or a part thereof, the
Contractor shall give a notice to the Competent Body to that effect, and such
notice shall contain a request for the consent of the Competent Body and shall
be attached with: (a) a copy of the draft agreement on the transfer or pledge
and/or (b) financial statements and other evidences reasonably satisfactory to
the Competent Body with respect to matters set forth in Article 25.4.1. The
Competent Body shall decide to issue or withhold its consent to the transfer of
the subsoil use right based on the Contractor’s request and attached information
on the proposed transferee being an individual or legal entity.

 

25.3

The Competent Body may withhold its consent to the transfer of the subsoil use
right if the proposed transferee is incapable of fulfilling the obligations in
whole or in part (if the subsoil use right is transferred in part) assumed by
the Contractor hereunder,

 

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or if the Contractor has willfully provided false information to the Competent
Body. If the consent to the transfer of the subsoil use right is unreasonably
withheld, this may be challenge in accordance with the legislation of the
Republic of Kazakhstan.

 

25.4 The Contractor may assign all or part of its Subsoil Use Right under the
Contract to a Third Party provided that the assignee:

 

  25.4.1 has, either itself or through a guarantor, the technical and financial
ability to perform the obligations to be assumed by it under the Contract;

 

  25.4.2 accepts and assumes all of the terms and conditions of the Contract,
including any amendments which may be concluded by the Parties hereto;

 

  25.4.3 is an entity with which the Republic can legally do business.

 

25.5 The transfer of the subsoil use right shall be deemed to have been
completed from the time of registration of the appropriate amendments to the
Contract.

 

25.6 All costs associated with the transfer of rights hereunder shall borne by
the Contractor or its assignee, and the Republic shall not be under obligation
to reimburse such costs.

 

25.7 Until the Contractor holds any interest in the Contract, the Contractor
shall bear joint and several liability hereunder with the Third Party to which
the Contractor transferred its rights and obligations under the Contract.

 

25.8. The Republic shall have the priority right before the other party of the
Contract or participants of legal entity, possessing the subsoil use right, and
other third parties, for acquisition of the alienated subsurface use right (or
its part) and/or partnership share (block of shares) of the legal entity,
possessing the subsurface use right, as well as the legal entity that has an
opportunity directly or indirectly govern the decisions and (or) affect to the
decisions taken by the subsoil users, if principal activity of this legal entity
referred to subsoil use in the Republic of Kazakhstan, on the terms not worse
than the terms proposed by other buyers.

 

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ARTICLE XXVI. APPLICABLE LAW

 

26.1 This Contract shall be governed by, and interpreted and construed in
accordance with legislation of the Republic, which shall apply in accordance
with the terms and provisions of this Contract.

 

26.2 The Parties shall cooperate in every possible way in order to achieve the
objectives of the Contract.

 

26.3 The Contractor hereby agrees to comply with the Republic’s international
commitments in the area of environmental protection within the Contract Area and
areas adjacent thereto.

ARTICLE XXVII. DISPUTE RESOLUTION

 

27.1 In the event of any difference or dispute arising out of or in connection
with this Agreement between any of the Parties, any Party may notify the other
Party(ies) of the nature of the dispute and the parties to the dispute (the
“Parties to the Dispute”) shall first in good faith and using all reasonable
efforts seek to settle the dispute amicably through negotiation between senior
executives of the Parties to the Dispute who have the authority to settle the
dispute. Within [twenty (20)] Days after delivery of said notice, such senior
executives of all Parties to the Dispute shall meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem necessary, to
exchange relevant information and to attempt to resolve the dispute. If the
matter has not been resolved within [sixty (60)] Days of the disputing Party’s
notice, or if the Parties to the Dispute fail to meet within [twenty (20)] Days,
any Party to the Dispute may initiate arbitration of the dispute as provided
hereinafter in Article 28.2. If a negotiator intends to be accompanied at a
meeting by an attorney, the other negotiator(s) shall be given at least [five
(5)] Days notice of such intention and may also be accompanied by an attorney.
All negotiations pursuant to this Article 27.1 are confidential and shall be
treated as compromise and settlement negotiations for all purposes including the
admission of evidence in any subsequent proceeding.

 

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27.2 The Republic hereby consents to submit to the International Centre for the
Settlement of Investment Disputes (the “Centre”) any dispute arising under this
Contract for settlement by arbitration pursuant to the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States
of 18th March 1965 (the “Convention”).

 

  (i) It is hereby stipulated that matters giving rise to disputes under this
Contract constitute matters “arising directly out of an investment” for all
purposes of the Convention.

 

  (ii) The party initiating an arbitration pursuant to this Article 27.2 shall
nominate one arbitrator, and the other party shall nominate one arbitrator
within 30 days of the nomination of the initial arbitrator, and the two
arbitrators so nominated shall agree on a third arbitrator within thirty
(30) calendar days after the nomination of the second arbitrator. Should either
nominating Party fail within the time designated therefore to nominate their
arbitrator, or should the two nominated arbitrators fail, within the 30-day time
period specified above, to reach an agreement on the third arbitrator, then the
arbitrators who have not been so nominated or agreed shall be appointed by the
Chairman of the Administrative Council of the Centre within 30 days of such
30-day period.

 

  (iii) Any arbitration proceeding shall be conducted in accordance with the
Arbitration Rules of the Centre in effect on the date on which the proceeding is
instituted.

 

  (iv) The venue for arbitration shall be agreed upon by the Parties, and
failing such agreement within thirty (30) Days of the date of notice on
referring the matter to arbitration in accordance with this document, the venue
for arbitration shall be Stockholm, Sweden.

 

  (v) Without prejudice to the power of the arbitral tribunal to recommend
provisional measures, any party to an arbitration pursuant to this Article 27.2
may request any judicial or other authority to order any provisional or
conservatory measure, including injunctive or other interim relief, prior to the
institution of the arbitration proceeding, or during the proceeding, for the
preservation of their rights and interest.

 

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  (vi) It is hereby agreed that the right to refer a dispute to the Centre
pursuant to this Agreement shall not be prejudiced by the fact that either Party
initiating arbitration pursuant to this Article 27.2 has received full or
partial compensation from any third party with respect to any loss or injury
that is the subject of the dispute.

 

  (vii) The award of the arbitrators shall be final and binding upon the parties
to the arbitration and all rights of appeal are hereby excluded. The award may
be enforced by any court of competent jurisdiction or other competent authority.

 

27.3 The Republic hereby irrevocably waives any right to rely on sovereign
immunity in respect of arbitral proceedings under this Article 27 and further
waives immunity:

 

  (i) in respect of proceedings to enforce any such award or decision including
immunity from service of process and from the jurisdiction of any court; and

 

  (ii) in respect of immunity from the execution of any such award or decision
against the property or assets of the Republic being property or assets not
being used for a commercial purpose.

ARTICLE XXIX. LANGUAGE OF CONTRACT

 

28.1 The text of this Contract shall be prepared in three (3) originals in the
Kazakh language, in three (3) originals in the Russian language, and in three
(3) originals in the English language, each having equal legal force and effect,
and all copies agree.

 

28.2 In the event of differences or disputes between the versions of this
Contract, the Russian version shall prevail for interpretative purposes and
shall be used as the authentic version to determine the rights and obligations
of the Parties.

 

28.3 All technical documentation, and information relating to the Production
shall be maintained in both the Kazakh and Russian languages.

 

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ARTICLE XXIX. FURTHER CONDITIONS

 

29.1 All notices and documents required in connection with the performance
hereunder shall be deemed to have been properly presented and delivered to each
of the Parties hereto only once received.

 

29.2 Notices and documents shall be delivered in person or by mail, registered
airmail, fax, telex or telegraph at the following addresses:

Competent Body:

The Ministry of Energy and Mineral Resources

of the Republic of Kazakhstan

 

 

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010000 Astana,

Republic of Kazakhstan

Tel: 8(3172) 979801

Fax: 8(3172) 976865

Attention: Minister/First Vice Minister

Contractor:

JSC “Caspi Neft TME”

50A Gaziza Zhubanova St.,

Aktobe, Republic of Kazakhstan

Tel: 8(3132) 595378

Fax: 8(3132) 595388

Attention: President & General Manager

 

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29.3 If any address stated herein is changed, the Parties shall notify each
other in writing to that effect.

 

29.4 Any Notice served in person shall be deemed given at the time of written
acknowledgment of this Notice by the office of the Competent Body (in the case
of the Republic), or by the Chairman or President & General Manager, or a person
duly authorized by the Chairman (in the case of the Contractor). Any Notice
served by fax shall be deemed given at the time of transmission if a clean and
correct transmission report is obtained by the sender and if the original is
sent by courier within five (5) Days after dispatch. Any Notice, when sent by
international courier from one country to another country, shall be deemed given
within seven (7) Days after dispatch or on the next Day after dispatch when sent
by intra-country courier. In proving the giving of Notice, it shall be
sufficient to prove by way of affidavit that the Notice was properly addressed
and sent by fax or courier, as the case may be.

 

29.5 If any Notice is sent or delivered to the recipient on a Day which is not a
business Day, or after 5:00 p.m. on any such business Day, such Notice shall be
deemed to be duly sent or received by the recipient at 9:00 a.m. on the first
such business Day thereafter.

 

29.6 In the event of any assignment in accordance with Article XXVI of this
Contract, the assigning Party shall procure that the incoming Party nominate by
Notice to the others one (1) entity to be the recipient of all Notices.

 

29.7 This Contract embodies the entire agreement and understanding between the
Republic and the Contractor relative to the subject matter hereof, and
supersedes and replaces any provisions on the same subject in any other
agreement between the Parties, whether written or oral, prior to the Effective
Date of this Contract.

 

29.8 This Contract may not be amended, modified, varied or supplemented, except
by an instrument in writing signed by the duly authorized representatives of the
Parties. Such instrument shall form an integral part of this Contract.

 

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29.9 If one or more of the provisions of this Contract are held to be invalid,
illegal or unenforceable in any respect and for any reason under Current
Legislation, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and this Contract shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein, and
the remaining provisions hereof shall be given full force and effect. To the
extent any such invalid provision affects the economic circumstances or
positions of the Parties, then the Parties shall negotiate in good faith to
restore the Parties to their economic positions under the Contract as applicable
prior to the exclusion of such illegal, unenforceable, or invalid provision from
the Contract.

 

29.10 The performance and/or delay of any obligation to be performed under this
Contract shall not be deemed to have been waived or postponed, except by notice
in writing signed by the Party granting such waiver or postponement.

 

29.11 Any waiver of an obligation of a Party must be in writing and signed by
duly authorized representatives of all of the Parties. Enforcement of any of the
provisions of this Contract shall not be affected by any previous waiver, course
of dealing or failure to exercise a remedy. Election of any particular remedy
shall not be exclusive of any other, except as expressly provided herein.

 

29.12 All annexes to this Contract shall form integral part hereof. In the event
of any discrepancies between provisions of such annexes and the Contract itself,
the Contract shall prevail.

 

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This Contract is executed this 29th day of December 2006.

 

«Competent Body»

    «Contractor»   Ministry of Energy of the Republic     Caspi Neft TME JSC  
and Mineral Resources       of the Republic of Kazakhstan       Signature:    

/s/ B.S. Izmyhambetov

    Signature:  

/s/ S. I. Paltseva

  Title:     Minister     Title:   Vice-President on Legal Affairs   Name:    
B.S. Izmyhambetov     Name:   S. I. Paltseva  

 

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