Exhibit 10.1

 

EXPLORATION AND

PRODUCTION SHARING

CONTRACT

BETWEEN THE

REPUBLIC OF GABON

AND

VAALCO GABON (ETAME), INC.

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TABLE OF CONTENTS

 

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Page

Article 1 GENERAL CONDITIONS

9 

Article 2 TECHNICAL CONSULTING COMMITTEE

10 

Article 3 EXPLORATION PERIODS

11 

Article 4 WORK COMMITMENTS DURING THE EXPLORATION PERIOD

12 

Article 5 PREPARATION AND APPROVAL OF ANNUAL WORK PROGRAMS AND CORRESPONDING
BUDGETS

14 

Article 6 RELINQUISHMENTS

15 

Article 7 INSUFFICIENCY OF EXPLORATION WORK

15 

Article 8 CONTRACTOR’S OBLIGATIONS DURING THE EXPLORATION PERIODS

16 

Article 9 RIGHTS IN CONNECTION WITH THE EXPLORATION PERIODS

18 

Article 10 OWNERSHIP OF THE ASSETS

19 

Article 11 ACTIVITY REPORTS DURING THE EXPLORATION PERIODS

19 

Article 12 NATURAL RESOURCES

21 

Article 13 UTILIZATION OF LAND

22 

Article 14 UTILIZATION OF FACILITIES

22 

Article 15 EXPIRATION OF CONTRACT AT THE END OF THE EXPLORATION PERIOD

23 

Article 16 DISCOVERY AND EXPLOITATION OBLIGATION

23 

Article 17 APPLICATION FOR EXCLUSIVE EXPLOITATION AUTHORIZATION AND DELIMITATION
OF EXPLOITATION AREAS

25 

Article 18 TERM OF VALIDITY OF THE EXCLUSIVE EXPLOITATION AUTHORIZATION

26 

Article 19 STATE PARTICIPATION

27 

Article 20 DEVELOPMENT PROGRAM

29 

Article 21 OBLIGATIONS OF THE CONTRACTOR DURING THE DEVELOPMENT AND EXPLOITATION
PERIODS

30 

Article 22 CONTRACTOR RIGHTS IN CONNECTION WITH EXCLUSIVE EXPLOITATION
AUTHORIZATIONS

31 

Article 23 PRODUCTION MARKETING OBLIGATION

32 

Article 24 RECOVERY OF PETROLEUM COSTS

32 

Article 25 PRODUCTION SHARING

33 

Article 26 FISCAL SYSTEM

35 

Article 27 VALORIZATION OF HYDROCARBONS

42 

Article 28 BONUSES

43 

Article 29 MEASUREMENT AND METERING OF THE HYDROCARBONS

44 

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Article 30 NATURAL GAS

45 

Article 31 CURRENCY EXCHANGE CONTROL

46 

Article 32 EXEMPTION FROM THE OBLIGATION RELATIVE TO EQUIPMENT BONDS AND
INVESTMENT CERTIFICATES

46 

Article 33 ACCOUNTING METHOD AND MONETARY UNIT USED FOR BOOKKEEPING PURPOSES

46 

Article 34 CUSTOMS SYSTEM AND IMPORT AND EXPORT DOCUMENTS

47 

Article 35 CONTRIBUTION TO MEETING THE NEEDS OF TEE DOMESTIC MARKET

49 

Article 36 EXPORTING, TRANSFER OF TITLE AND REGULATIONS FOR MAKING THE
HYDROCARBONS AVAILABLE

49 

Article 37 PROTECTION OF RIGHTS

50 

Article 38 PERSONNEL

51 

Article 39 TRAINING OF GABONESE NATIONALS OTHER THAN THOSE EMPLOYED BY THE
CONTRACTOR

51 

Article 40 ACTIVITY REPORTS DURING THE DEVELOPMENT AND EXPLOITATION PERIOD

52 

Article 41 PAYMENTS

53 

Article 42 ASSIGNMENT OF INTERESTS

53 

Article 43 APPLICATION OF THE CONTRACT

55 

Article 44 PENALTIES AND TERMINATION

55 

Article 45 OPERATIONS ON BEHALF OF THE STATE

56 

Article 46 JOINT LIABILITY AND GUARANTEES

57 

Article 47 FORCE MAJEURE

57 

Article 48 AUDITS, VERIFICATIONS AND CONTROLS

58 

Article 49 ARBITRATION

60 

Article 50 EFFECTIVE DATE

62 

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EXPLORATION AND PRODUCTION

SHARING CONTRACT

BETWEEN

The Republic of Gabon, herein represented by PAUL TOUNGUI, Minister of Mines,
Energy and Petroleum, as the party of the first part,

AND

1.Vaalco Gabon (Etame), Inc., a company incorporated under the laws of the State
of Delaware, United States of America, with main office in Houston, Texas,
United States Of America, at 4600 Post Oak Place, Suite 309, and represented by
Charles W. Alcorn duly authorized to this effect;

The company Vaalco Gabon (Etame), Inc. is a subsidiary guaranteed by its parent
company Vaalco Energy, Inc., whose net assets were US$ 13,681,000 on December
31, 1994, incorporated under the laws of the State of Delaware, United States of
America, with main office in Houston, Texas, United States of America, signatory
of the commitment set forth in Article 46 of the Contract and the subject of
Attachment 3;

2.Vaalco Energy (Gabon), Inc., a company incorporated under the laws of the
State of Delaware, United States of America, with main office in Houston, Texas,
United States Of America, at 4600 Post Oak Place, Suite 309, and represented by
Charles W. Alcorn duly authorized to this effect;

The company Vaalco Energy (Gabon), Inc. is a subsidiary guaranteed by its parent
company Vaalco Energy, Inc., whose net assets were US$ 13,681,000 on December
31, 1994, incorporated under the laws of the State of Delaware, United States of
America, with main office in Houston, Texas, United States of America, signatory
of the commitment set forth in Article 46 of the Contract and the subject of
Attachment 3; as the party of the second part,

The two above mentioned companies constitute the Contractor; The Republic of
Gabon and the Contractor being also hereinafter called jointly “the Parties” and
individually “the Party”.

Whereas:

the State is the owner of the natural resources from the surface and subsurface
of its territory, from offshore areas under its sovereignty or which are part of
its economic zone,

·

the discovery and production of Hydrocarbon natural resources are an important
factor for the implementation of the economic and social development policy of
the country and for the advancement of the welfare of its in habitants,

·

to this end, exploration and exploitation of the national resources are
considered to be of public usefulness,

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·

pursuant to Law No. 15/62 of June 2, 1962, establishing a Mining Code in the
Republic of Gabon and subsequent amendments, to Decree, No. 981/PR of October
16, 1970, establishing .the conditions for application of the Mining Code; and
to Law No. 14/82 of January 24, 1983 regulating Hydrocarbons exploration and
exploitation activities, the State wishes to undertake the exploration,
exploitation, transportation, storage and marketing of Hydrocarbons,

·

it is in the State’s interest that the above-mentioned operations be carried out
in strict compliance with adequate methods and with the speed compatible with
the prevailing practices of the Hydrocarbon industry, and so as to achieve the
above-mentioned objectives;

·

the Contractor possesses the capital, technical and commercial competence, the
required personnel and organizational expertise necessary to successfully carry
out the operations specified hereunder and wishes to cooperate with the State by
helping it to develop. a Hydrocarbons industry thereby promoting economic
expansion of the country and the social welfare of its inhabitants;

·

and, it being specified that, for the purposes of the interpretation of this
Contract, the following definitions are adopted:

·

Calendar Year signifies a period of twelve consecutive months starting on
January first and ending on the following December thirty-first, in accordance
with the Gregorian calendar;

·

Contractual Year signifies a period of twelve consecutive months from the
Effective Date or’ the anniversary of said Effective Date;

·

Exclusive Exploration Authorization signifies the administrative instrument
whereby the State authorizes Contractor to undertake on an exclusive basis in
the Delimited Area all prospection, exploration and research work aimed at the
discovery of Hydrocarbons;

·

Exclusive Exploitation Authorization signifies the administrative instrument
whereby the Government authorizes Contractor to undertake on an exclusive basis
all the development, exploitation, and production work on the Fields within the
Exploitation Area;

·

Barrel signifies one US Barrel, i.e. 42 US gallons, measured at a temperature of
60°F;

·

Budget signifies the estimated expenses, broken down by budget item, relative to
the Petroleum Operations appearing in the Annual Work Programs;

·

Condensate signifies Liquid Hydrocarbons obtained through the expansion of
Natural Gas;

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·

Contract signifies this document and its Appendices, which are part of the
Contract, and any renewal, extension, replacement or amendment to the Contract
which may be decided by the Parties;

·

Contractor signifies the State’s contracting Parties, as well as any
organizations, establishments, public or private entities, companies to which
any interest may be transferred in ¬application of the provisions of Articles 19
or 42;

·

Petroleum Costs signifies all the expenditures effectively borne and paid by
Contractor for the performance of the Petroleum Operations, as determined
according to the Accounting Agreement in Attachment 2, for which said Contractor
is recognized the right to recovery of their amounts;

·

Effective Date signifies the date on which the Contract goes into effect, such
as defined in Article 50 hereinbelow;

·

State signifies the Republic of Gabon, owner of the natural resources from the
surface and subsurface of the national territory, marine areas under its
sovereignty or part of .its’ economic zone; the State alone owns the mining
titles.  Depending on the case, it exercises the prerogatives of a Public
Authority and has the powers attributed thereto or acts as Contractor‑State,
within the framework of partnerships or joint ventures with companies or as a
shareholder either through Administrations and agents of public services or
through companies it controls.  The State may be referred to as, “the Ministry
in charge of Hydrocarbons”, “the Administration” or “The Departments in charge
of Hydrocarbons”, or, in general, “the Administration”;

·

Exploration Well signifies any well intended to detect a Field or to determine
its extension and magnitude;

·

Development Well signifies Hydrocarbons from the Field;any well intended to
produce Hydrocarbons from the Field;

·

C.F.A. Franc signifies the currency defined in Title 11 of the Monetary
Cooperation Convention between the Member Countries of the Bank of the Central
African States (B.E.A.C.) and the Republic of France, signed in Brazzaville on
November 23, 1972;

·

Natural Gas signifies methane, ethane, propane, butane and, more generally, all
gaseous Hydrocarbons, either dry or wet, whether or not associated with liquid
Hydrocarbons;

·

Field signifies an accumulation of Hydrocarbons in the subsurface;

·

Hydrocarbons signifies Crude Petroleum, Condensates, and Natural Gas;

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·

Operator signifies the company duly designated by the Contractor to conduct and
perform the Petroleum Operations in the name and on behalf of, and under the
responsibility of the latter;

·

Petroleum Operations signifies all Hydrocarbon prospecting, exploration,
development, production, transportation and storage operations and, more
generally, all other operations directly connected with the above, carried out
under this Contract, with the exception of refining and marketing operations;

·

Crude Petroleum signifies crude mineral oil, condensate, asphalt, ozokerite and
any type of Hydrocarbons and bitumen, both solid and liquid, in their natural
state or obtained from Natural Gas through condensation or extraction;

·

Total Available Production signifies the total Hydrocarbon production from the
exploitation of all the Fields located within the Delimited Area, computed on
said area after degassing, dehydration, stabilization, decantation, desalting
and gasoline recovery (for the Natural Gas), at the time when it is sent towards
the evacuation lines or, if no pipelines are available, towards storage
facilities; the following is deducted from this production:

·

Hydrocarbons re-injected into the Field or used in the Petroleum Operations,
under the conditions set forth in Article 26.1,b of the Contract;

·

Hydrocarbons burned or destroyed provided that Contractor has abided by the
regulations in force and the guidelines and applicable recommendations of the
Administration.

·

Net Production signifies the Total Available Production of Hydrocarbons less the
proportional mining royalty;

·

Remaining Production signifies the Net Production less the removals of
hydrocarbons made by Contractor in connection with the recovery of the Petroleum
Costs;

·

Annual Work Program signifies all the Petroleum Operations that Contractor
agrees to perform during a Calendar Year in the Delimited or Exploitation Area,
appearing in a document describing on an itemized basis these Petroleum
Operations;

·

Affiliated Company signifies a company or any other business:

·

which controls one or more companies comprising Contractor,

·

or which is controlled by one or more companies forming Contractor,

·

or which is controlled by a company that itself controls the Contractor.

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Such control signifies the direct or indirect ownership of more than fifty
percent of the stock of the capital of the controlled company and thus entitling
the controlling company to the absolute majority of the voting rights;

·

Non-Affiliated Company or Third Party signifies a company or any entity other
than the Parties which does not fall under the preceding definition.

·

Underlifting signifies a situation in which one of the Parties, at a given time
and in proportion to its rights, has failed to remove and dispose of the full
share of Hydrocarbons to which it is entitled in application of the provisions
of the Contract;

·

Overlifting signifies a situation in which one of the Parties, during a given
period, has already removed and disposed of a quantity of Hydrocarbons in excess
of that to which it is entitled in application of the provisions of the
Contract;

·

Delimited Area signifies the surface area within the perimeter described in
Attachment 1;

·

Exploitation Area signifies a surface area located within the Delimited Area on
which the State grants the Contractor, according to the applicable laws and the
Contract, an Exclusive Exploitation Authorization.

The above having been stated, the following is mutually agreed and established:

 

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Article 1

GENERAL CONDITIONS

1.1.This Contract is a Hydrocarbon exploration and production sharing agreement.
Its clauses are governed by the laws and regulations in effect in Gabon.

1.2.It defines the rights and obligations of the Parties, governs their mutual
relationship and establishes the rules and terms for exploration, exploitation
and production sharing. It applies to the Petroleum Operations that Contractor
is to perform on an exclusive basis in the Delimited Area and any Exploitation
Area, it being understood that all substances and products other than
Hydrocarbons are beyond the Contract’s scope of application.

1.3.For all the work required for performance of the Petroleum Operations,
Contractor is required to comply with generally accepted Hydrocarbon industry
practices.

1.4.Contractor shall supply all the financial and technical means necessary for
the proper performance of the Petroleum Operations.  Subject to written approval
of the Petroleum Operations, the Contractor may use Third Parties or Affiliated
Companies Funds for the financing of corresponding investments.

The Contractor shall send to the Hydrocarbon Services a certified copy of the
loans agreements and contracts which have been obtained and must be concluded
under the condition that the above-mentioned approval has been obtained.

However, interest, agios, financial charges of any nature and currency exchange
losses arising from such financing, whatever their source and payment terms, are
deductible for the purposes of Article 26.4 or chargeable to Petroleum Costs
which give rise to recovery under Articles 24 and 26.10, only in the cases and
according to the modalities and restrictions provided in said Articles and in
the Accounting Agreement.

1.5.The Contractor shall alone bear the financial risk attached to the
performance of the Petroleum Operations, subject to the provisions of Article
19.

1.6.Throughout the term of the Contract, the total production originating from
the Petroleum Operations will be shared between the Parties according to the
terms defined in Articles 24, 25, and 26.

1.7.The Delimited Area is defined in Attachment 1.

1.8.In the month following the Effective Date, the Contractor shall inform the
Administration of the name of the designated Operator who will be responsible
for performing the Petroleum Operations.

The Operator, in the name and on behalf of the Contractor, shall communicate to
the Administration all reports, information and data mentioned in the Contract
as well as any contract or convention binding the companies comprising the
Contractor.  The Operator will act as the designated representative of all the
companies forming the Contractor, for the performance

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of the Petroleum Operations.  The Contractor may at any time designate another
Operator, subject to prior approval from the Administration.

1.9.For the practical terms of performance of this Contract, the person
responsible for Departments in charge of Hydrocarbons represents the State; he
makes all the decisions, grants any necessary or useful authorization for the
performance of the Petroleum Operations.

1.10.During the term of the Contract, the State may at any time and particularly
at the time of participation pursuant to the provisions of Article 19, delegate
the management of its rights and obligations resulting from said participation
to a company or organization of its choice.

Article 2

TECHNICAL CONSULTING COMMITTEE

2.1.Within the month following the Effective Date, a Technical Consulting
Committee will be formed.  It will be composed of the same number of members
representing the State and the Contractor.  The representatives of the State
will be designated from among the Administration supervisory staff, from the
General Hydrocarbon Department and from the land, financial, or customs
Administration.  The Chairman of the Technical Consulting Committee shall be
selected from among the representatives from the General Hydrocarbons
Department.

2.2.The Technical Consulting Committee is a body responsible for issuing
opinions, suggestions and recommendations on:

·

the exploration, development and .production work on discovered Fields, and on
the related expenditures;

·

the application of the Field conservation rules pronounced by the Administration
or, in the absence of such rules, based on commonly accepted Hydrocarbon
industry practice;

·

anti-pollution measures and safety and health regulations on the work sites;

·

the choice between purchasing or renting, by the Contractor, of major equipment
and facilities, in application of the provisions of Article 10.2;

·

the programs and budgets provided by Articles 5.1 and 20.1, before they are
submitted to the Administration for approval;

·

the conditions for personnel employment, in accordance with the provisions of
Article 38;

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·

the provisions to be taken by Contractor for the training of Gabonese personnel
in application of the provisions of Article 39 and the implementation of said
provisions;

Within the framework of its powers, the Technical Consulting Committee may
assign studies to subcommittees created for that purpose.

2.3.The opinions, suggestions and recommendations of the Technical Consulting
Committee will be adopted by majority of votes, each member being entitled to
one vote and with the authority to represent only one other member of the
Committee.

The Technical Consulting Committee deliberates validly if at least two thirds of
its members are present or represented; the presence of the Chairman or of his
representative, if the former is unable to attend, is indispensable.

2.4.The Technical Consulting Committee meets at least twice a year in the
exploration period and at least four times a year during the development and
exploitation period. Meetings are called at the initiative of the Contractor or
the Administration and convened by summons from the• Chairman of the Technical
Consulting Committee issued at least fifteen days prior to the meeting date.  In
emergencies, the members meet as quickly as possible or consult by telex.

Contractor may request that the Technical Consulting Committee be convened in an
extraordinary meeting in order to submit specific questions to it.

The agenda is prepared by the Party requesting the meeting; the documents
necessary for the proper conduct of the meeting are prepared by Contractor or,
if applicable, by the Administration.  Contractor will hold the office of
Secretary of the Technical Consulting Committee.

2.5.The expenses deriving from the activity of the Technical Consulting
Committee, as well as those borne by the Administration within this context will
be borne by Contractor and considered as Petroleum Costs.

Article 3

EXPLORATION PERIODS

3.1.On the effective date, the Contractor is granted an Exclusive Exploration
Authorization on the Delimited Area for a first period of three years
Contractual Years.  This period may be extended at Contractor’s request,
presented at least forty‑five days before expiration of this period, by a
maximum of three months to permit Contractor to complete any drilling then in
progress.

This extension will be granted by decision of the Departments in charge of
Hydrocarbons.

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Nevertheless, Contractor shall make its best effort to start drilling so that,
under normal circumstances, the drilling operations can be completed before the
normal expiration of the above-mentioned Period.

3.2.If, during the first extension period granted pursuant to Article 3.1, the
Contractor has fulfilled the obligations deriving from this Contract, in
particular the work obligations defined in Article 4, the Exclusive Exploration
Authorization shall be extended at the request of Contractor for a second period
of three Contractual Years.

The second period may also be extended by a maximum of three months for the same
reasons and under the same conditions as those stated in Article 3.1.

Contractor must file its renewal application for the second period at least
thirty days prior to expiration of the first period. If Contractor has benefited
from the extension described in Article 3.1, the above-mentioned thirty‑day term
is counted from the end of said extension, in order to allow Contractor to
examine and evaluate the results from drilling and to determine the desirability
of filing a renewal application. Renewal will be granted through edict from the
Minister of Hydrocarbons.

3.3.At the end of the first period, in the event that that the Exclusive
Exploration Authorization is not renewed, Contractor must surrender all the
Delimited Area, with the exception of the Exploitation Areas or surface areas
for which it has filed an application for an Exclusive Exploitation
Authorization which is being processed.

Article 4

WORK COMMITMENTS DURING THE EXPLORATION PERIOD

4.1.During the exploration period defined in Article 3.1, Contractor shall
perform at least the following work:

·

acquire and process 1,500 km of 2-D seismic data and shoot one 3-D seismic
survey;

·

Re-process and make a reinterpretation of existing, available seismic data;

·

Prepare a feasibility study of the development of the Tchibala North South
discoveries within the first six months;

·

Drill one exploration well.

In order to carry out this work program under the best technical conditions in
accordance with generally accepted Hydrocarbon industry practices, Contractor
will invest an a mount estimated at US $7,800,000.

Contractor is required to start the geological and geophysical work covered by
the above commitments within four months after the Effective Date.

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4.2.During the second exploration period defined in Article 3.2, Contractor
shall carry out the following minimum work:

·

acquire and process 2,000 km of 2-D seismic data and shoot a 3-D seismic survey
if the exploration well was a discovery;

·

drill two exploration wells.

In order to carry out this work program under the best technical conditions in
accordance with generally accepted Hydrocarbon industry practices, Contractor
will invest an amount estimated at US $14,500,000.

4.3.The above-specified wells will be drilled to a minimum depth 2,500 (two
thousand rive hundred) meters or until the Gamba geological formation is
penetrated for at least fifty meters if it extends beyond the contractual
depth.  If at 2,500 meters, said geological formation has not been encountered,
the Parties will meet in order to examine the desirability of continuing the
Well in the interest of each.

Drilling will be stopped at a lesser depth than originally estimated if, having
drilled the well in accordance with approved practices of the Hydrocarbon
industry, the stoppage is justified by one of the following reasons:

·

the Gamba formation is encountered at a lesser depth than the contractual depth;
in this case, the Parties will meet to examine the desirability of continuing
the well in the interest of each;

·

basement is encountered at a lesser depth than projected;

·

continuation of drilling presents an obvious hazard because of the presence of
abnormal formation pressure;

·

rock formations are encountered the hardness of which renders it impractical to
continue drilling with standard equipment;

·

Hydrocarbon-bearing formations are encountered which; before being penetrated,
must be protected by setting casing, thus preventing attainment of the
contractual depth.

In the event that drilling is stopped for any of the above-listed reasons, the
well shall be considered to have been drilled to the contractual depth, provided
that the Contractor timely presents its reasons to the Administration and the
Administration accepts these reasons as justified.

4.4.The Contractor is required to meet its work commitments for an exploration
period even if this entails for the Contractor exceeding the amount estimated
for that period.

On the other hand, if Contractor has met the work commitments for an amount less
than the amount estimated for that period, it is considered to have met those
commitments.

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4.5.If the Administration notices that’ Contractor has not met its work
commitments during an exploration period, it will so advise Contractor in
writing. The procedure provided by Article 48.10 is then applicable, as
required.

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Article 5

PREPARATION AND APPROVAL OF ANNUAL WORK
PROGRAMS AND CORRESPONDING BUDGETS

5.1.Within a maximum of two months after the Effective Date, Contractor shall
submit to the Administration for approval an Annual Work Program and the
corresponding Budget for the entire Delimited Area, specifying the Petroleum
Operations for the period from the Effective Date until the following December
31.

By September 30 of the Calendar Year, Contractor shall submit to the
Administration for approval an Annual Work Program and the corresponding Budget
for the entire Delimited Area, specifying the Petroleum Operations it intends to
perform during the subsequent Calendar Year.

The Annual Work Program and the corresponding Budget mentioned above shall be
examined by the Technical Consulting Committee, in accordance with the
provisions of Article 2.2 prior to being submitted for Administration approval;
the advice, suggestions and recommendations of the Technical Consulting
Committee must be attached.

5.2.If the Administration believes that modifications of the Petroleum
Operations planned in the Annual Work Program are necessary or useful, it shall
notify the Contractor in writing, within thirty days after receipt of the
Program, stating the requested modifications and including any justifications it
deems appropriate.  The Administration and the Contractor will meet as soon as
possible in order to study the modifications requested and in order to prepare
by mutual agreement the Annual Work Program and the corresponding Budget in
their final form.

In any case, the parts of the Annual Work Program for which the Administration
did not request modifications are considered approved and must be completed by
the Contractor within the initially agreed times.

If the Administration does not address a request for modifications to the
Contractor before expiration of the thirty-day period, the Annual Work Program
and the corresponding Budget shall be deemed thereby approved.

5.3.If the information acquired as the operations progress or particular
circumstances justify certain minor changes in the Petroleum Operations planned
in the Annual Work Program which do not affect the pursuit of the primary
objectives by the Contractor, the Contractor may make the corresponding changes
after approval from the Hydrocarbon Departments, provided that the basic
established objectives are not changed.

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Article 6

RELINQUISHMENTS

6.1.Contractor may relinquish all or part of the Delimited Area, subject to
application of the provisions of Article 7.

6.2.During the first exploration period defined in Article 3.2, only to the
entire Delimited Area may be relinquished, subject to the provisions of Article
6.5.

6.3.During the second exploration period defined in Article 3.2, all or part of
the Delimited Area may be relinquished.

6.4.Contractor must inform the Administration in writing of its decision to
relinquish acreage, specifying, if applicable, the part of the Delimited Area
which is to be relinquished. Said relinquishment becomes effective six15ty days
after receipt of the above-mentioned written notice, unless the Administration
agrees to the effectiveness of the waiver for an earlier date.

Within thirty days after the effective date of the relinquishment, Contractor
must submit to the Administration a detailed report, together with appropriate
supporting documentation, on the work performed in the Delimited Area and the
corresponding expenses.

6.5.When relinquishing areas held under en exploration contract, Contractor has
the right to retain the Exploitation Areas or surface areas for which it has
filed an application which is being processed.

6.6.In the event of a partial relinquishment, each of the relinquished areas
must be sufficiently large to allow further hydrocarbon operations to be carried
out and must be of simple shape and defined by geographic coordinates.

6.7.Partial relinquishment during the second exploration period does not cause
the Contractor’s work commitments defined in Article 4.3 to be reduced; the part
of work not yet completed on the effective date of the partial relinquishment is
carried over to the remaining part of the Delimited Area.

Article 7

INSUFFICIENCY OF EXPLORATION WORK

7.1.In the event of relinquishment of all of the Delimited Area, as described in
Articles 6.1 or 6.2, and if Contractor’s work commitments as defined in Article
4, have not been met, Contractor is required to pay to the State, within thirty
days after the effective date of the relinquishment, on the basis of provisions
of Article 6.4, a compensation equal to the cost of the exploration commitments
which have not been met at the date of the relinquishment.

7.2.Within thirty days of the expiration of either the first or the second
exploration period defined in Article 3, Contractor presents to the
Administration a detailed report, with

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appropriate supporting documents, on the work performed in the Delimited Area
and on the corresponding expenditures.

7.3.If at the expiration date of any of the exploration periods, Contractor has
failed to meet its work obligations as defined in Article 3, Contractor is
required to pay to the State, within thirty days following the date of
expiration of the period involved, a compensation corresponding to the value of
the work not done, as estimated on that date.

7.4.In the event of a delay in the payment of the compensation due to the State
under the terms of Article 7.1 and 7.3 these amounts due will bear interest,
calculated from the day the payments were due until the date of payment by
Contractor, at the annual discount rate of the Bank of Central African States
(B.E.A.C.) plus three percentage points.

7.5.If the compensations estimated in Article 7.1 and 7.3 are less than those
actually due, the difference, plus the interest defined in Article 7.6,
calculated from the day on which these compensation payments should have been
made, is paid to the State as soon as possible.

7.6.The amounts which have not been paid on the dates due are increased by a
penalty interest defined by the annual discount rate of the, Bank of Central
African States (B.E.A.C.) plus three percentage points.

Article 8

CONTRACTOR’S OBLIGATIONS DURING
THE EXPLORATION PERIODS

8.1.The Contractor furnishes all the necessary funds for the expenses required
for the performance of the Petroleum Operations defined in the Annual Work
Program.

The Contractor will perform the Petroleum Operations by using either its own
materials, equipment and supplies or those acquired or rented to this effect,
subject to the provisions of Article 10.3.

8.2.The Contractor is responsible for the performance of the Annual Work
Programs. The work must be performed under the best conditions of cost and
efficiency; in general, the Contractor will utilize all appropriate means for
the execution of the Annual Work Programs under the best economical and
technical conditions for the Parties, in accordance with the most appropriate
practices generally accepted in the Hydrocarbon industry.

8.3.The Contractor agrees to take all practical measures in order to:

(a)ensure protection of the aquifers encountered:

·

while drilling, through proper cementing of the casing in the. wells,

when abandoning unproductive wells, by applying cement plugs so as to isolate
the formations under pressure from other reservoir horizons and from the
surface.

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(b)carry out the tests necessary to determine the value of the Hydrocarbon shows
encountered while drilling and the exploitability of any Fields discovered.

8.4.The facilities erected and work performed by the Contractor offshore under
this Contract shall, according to their nature and the circumstances, be built,
positioned, marked, buoyed, equipped and maintained in such fashion as to
permanently allow free safe passage to navigation at all times in the waters of
the Delimited Area.

Independently of the above provisions, in order to facilitate navigation, the
Contractor shall install sound or visual devices approved or required by the
competent authorities and maintain them to the satisfaction of said authorities.

8.5.At the time of construction and maintenance of the facilities necessary for
the performance of the Petroleum Operations, the Contractor shall not disturb
any previously installed cemetery or any existing building used for religious
purposes.  Moreover, Contractor must not in any way cause any problem which may
affect normal use of a building without the occupants’ consent.  The Contractor
is required to pay due compensation for damage or disturbance thereby caused to
Third Parties.

8.6.In application of the International Convention on the Pollution of Sea Water
by Hydrocarbons signed in London on May 12, 1954, its amendments and
implementation provisions, the Contractor undertakes to take all the necessary
precautions to prevent marine pollution.

To this effect, the State may decide, in agreement with the contractor, on any
additional measures it may deem necessary in order to ensure preservation of the
marine zone.

8.7.Under similar conditions of price, quality, and delivery, Contractor agrees
to use Gabonese companies for its procurement, work and service contracts.

For all contracts that may reach or exceed one million US dollars (US$
1,000,000), the choice of companies shall be by call for bids.

A copy of all the contracts mentioned in the preceding paragraph concluded by
the Contractor and pertaining to the Petroleum Operations will be addressed to
the Administration as soon as said contracts are signed.

The Contractor will inform the Departments in charge of Hydrocarbons at least
fifteen days in advance of the date, time and place of opening of the bids.  The
person responsible for these Departments or his representatives may participate
in the opening and examination of the bids.

The information made available to the participants in the opening and
examination of the bids must be communicated at the same time to the Departments
in charge of Hydrocarbons.

A list of all ‘the contracts concluded by the Contractor during each calendar
quarter for performance of the Petroleum Operations is forwarded for information
to the Administration, within fifteen days following the end of said calendar
quarter.  For each contract, the subject and

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the amount, together with the name of the co-contracting party will be
specified. The Contractor forwards to the Administration copies of the contracts
which may be requested by the latter.

Article 9

RIGHTS IN CONNECTION WITH THE EXPLORATION PERIODS

9.1.Subject to the special provisions of the Contract, Contractor has the rights
the exercise whereof affects the performance of the Petroleum Operations in the
Delimited Area and to all possible facilities to that end.  These rights include
specifically:

(a)Full responsibility for the administration, control, and conduct of all the
Petroleum Operations;

(b)The option to exercise the rights and powers conferred by the Contract
through independent agents and independent contractors whose salaries, expenses,
and fees it pays in compliance with the regulations in force in Gabon on
financial transactions and subject to the provisions of Article 8.7.

9.2.Subject to the regulations in effect and the provisions of Article 8.5, the
Contractor will have the right to clear the land, to excavate, drill, bore,
construct, erect, place, procure, operate, administer and maintain ditches,
tanks, wells, trenches, excavations, dams, canals, water mains, plants,
reservoirs, basins, offshore and onshore storage facilities, primary
distillation units, first extraction gasoline separation units, sulfur plants
and other facilities for the production of Hydrocarbons, in addition to
pipelines, pumping stations, generator sets, power plants, high voltage lines,
telephone, telegraph, radio systems and Other communications facilities,
factories, warehouses, offices, sheds, houses for employees, hospitals, schools,
premises, ports, docks, harbors, dikes, jetties, dredges, breakwaters,
underwater piers and other facilities, ships, vehicles, railways, roads,
bridges, ferryboats, airlines, airports and other transportation facilities,
garages, hangars, workshops, foundries, repair shops and all related auxiliary
services and, in general, all that which is necessary for performance of the
Petroleum Operations.

The location of these facilities may be selected by the Contractor subject to
the regulations and provisions of Articles 8.5, 13 and 14.

9.3.The agents, employees and representatives of the Contractor or of its
subcontractors shall be allowed to enter or leave the Delimited Area and to have
free access in keeping with their functions to all the facilities installed by
the Contractor for performance of the Petroleum Operations.

﻿

﻿

﻿

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Article 10

OWNERSHIP OF THE ASSETS

10.1.The real property such as wells, buildings and associated equipment, piers,
roads, bridges, canals, ports, docks, dikes, jetties, water mains, pipelines,
reservoirs, basins, railways, land, structures, warehouses, offices, plants and
permanently-installed machinery and equipment purchased or built by the
Contractor, as well as all movables thereby purchased or manufactured within the
framework of the Petroleum Operations are the property of the State.

The Contractor may utilize at no charge said real property and movables within
the framework of the Contract.  The Contractor may also use said property for
other petroleum operations under other contracts to which it is a. party,
subject to payment of a properly calculated rental price, approved by the
Administration.  These proceeds are entered in the Petroleum Costs account and
Will reduce said Costs.  They are paid to the State if the Petroleum Costs yet
to be recovered correspond only to exploitation expenses.

The Contractor will contract, regarding these assets, on behalf of the State,
all the necessary insurance policies, according to generally accepted
practices.  The insurance premiums paid to this effect are included in the
Petroleum Costs.  The indemnities collected in the event of claim are entered in
the Petroleum Costs account and will reduce said Costs.  They are paid to the
State if the Petroleum Costs yet to be recovered correspond only to exploitation
expenses, unless they are allocated to replacement of lost or destroyed assets.

10.2.The provisions of Article 10.1 above are not applicable to assets belonging
to Third Parties or Affiliated Companies and leased to Contractor under a lease
or simple rental agreement.

10.3.Under equivalent economic conditions, Contractor commits itself to give
priority to buying goods instead of leasing or renting.

For major equipment and facilities, before opting for purchase or lease,
Contractor shall procure the opinion, suggestions and recommendations of the
Technical Consulting Committee and submit its duly justified choice for the
Administration’s approval.  This choice will become final after the approval
from the Administration has been obtained.

At the time of review of the Annual Work Program and corresponding Budget, the
Administration will designate the major equipment and facilities appearing on
said documents, for which the Technical Consulting Committee must be consulted
and the Administration’s approval requested.

Article 11

ACTIVITY REPORTS DURING THE EXPLORATION PERIODS

11.1.The State, through the Departments in charge of Hydrocarbons, will have
access to all the original data in connection with the Petroleum Operations,
such as geological, geophysical, petrophysical, drilling and exploitation
reports, in addition to any technical,

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accounting and financial information which it may deem useful for the exercise
of its power of verification.

11.2.Immediately after they have been prepared or obtained, the Contractor shall
furnish the following reports or documents to the person responsible for the
Departments in charge of Hydrocarbons:

(a)a copy of the geophysical survey and interpretation reports and a complete
set of maximum processed seismic profiles on stable transparent material, such
as “Mylar”; a copy of the magnetic tapes will be kept by the Contractor and made
available to the person responsible for the Departments in charge of
Hydrocarbons;

(b)a copy of the daily telexes on the wells being drilled and a copy of the
spud-in and end-of-drilling reports for each well drilled, in addition to a
complete set of all logs recorded in reproducible form;

(c)a copy of the reports on production tests performed and of any study
pertaining to the commencement of production of a well;

(d)a copy of each core sample analysis report,

A representative portion of the cores or cuttings obtained at each well and
samples of the fluids produced during the production tests will also be
furnished within a reasonable period.  Any core samples and cuttings in the
Contractor s possession at the time of expiration of the Contract will be
delivered to the person responsible for Hydrocarbons.

11.3.During the second half of each month, the Contractor shall furnish to the
Departments in charge of Hydrocarbons a report on the Petroleum Operations of
the previous month.

11.4.Contractor is required to inform the Departments in charge of Hydrocarbons
in the shortest possible time of any discovery of mineral substances and to
report on any pertinent observations or information relative thereto.

11.5.The State is the owner of any original documents, reports prepared or
obtained by the Contractor or samples relative to the Petroleum Operations,
geological, geophysical, and petrophysical work, synthesis reports, well logs,
even if in the Contractor’s possession, to be used within the framework of the
Petroleum Operations.  The Contractor may retain copies of these samples,
documents and reports for the requirements of the Petroleum Operations.

Each Party assumes the obligation, each as applicable to it, in its own behalf
and in the behalf of the service companies or consultants working for it, to
consider these documents, reports, Operations, studies and samples confidential
and not to reveal them to Third parties without prior consent from the person
responsible for the Departments in charge of Hydrocarbons.  This obligation
continues, for the State, during the exploration periods defined in Article 3
and, in the event of total surrender, in application of the provisions of
Article 6, until the effective date of said surrender, and, for the Contractor,
even after the end of the Contract.

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Each entity forming the Contractor may, without the consent of the other
entities or of the Administration, disclose the following confidential
information and data:

(a)To each company interested in good faith in the realization of an eventual
transfer or of assistance in the framework of Petroleum Operations, after the
undertaking by said company to keep this information confidential and to use it
only for the realization of said transfer or assistance; or

(b)To any independent professional consultants operating within the framework of
the Petroleum Operations, after obtaining from them a similar confidentiality
agreement, provided that the Contractor reports immediately to the
Administration the names of said consultants and the information and data
disclosed thereto; or

(c)To any bank or financial institution with which the Contractor is attempting
to obtain or obtains financing, after obtaining a similar confidentiality
agreement from these concerns,

(d)When and insofar as the regulations of a recognized stock exchange require
it, unless this is in conflict with the laws of Gabon.

(e)Within the framework of any contentious judicial, administrative or arbitrage
procedure.

With prior written consent from the Administration, the Contractor may exchange
with any interested party any confidential information or data of this type
against other similar information or data.

Article 12

NATURAL RESOURCES

The Contractor shall have the right, if applicable, in exchange for payment of
any applicable royalty and subject to compliance with the regulations in force
and the provisions of Article 8.5, to remove and use the topsoil, fully-grown
timber, clay, sand, lime, gypsum, stones (other than precious stones) and other
similar substances which may be necessary for the performance of the Petroleum
Operations.

The Contractor shall make reasonable use of such materials for the performance
of the Petroleum Operations.

The Contractor may take or -use the water necessary for the Petroleum Operations
provided that existing irrigation or navigation does not thereby suffer and that
land, houses or watering points are not thereby deprived of their use.

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Article 13

UTILIZATION OF LAND

13.1.The State will make available to Contractor for the needs of the Petroleum
Operations, the State-owned land necessary for said operations.  The Contractor
may construct and maintain, above and below grade, the facilities necessary for
the Petroleum Operations.  The Contractor shall not request the use of said land
unless it has a real need therefor and it shall refrain from claiming any land
occupied by buildings or properties utilized by the Administration.  The
Contractor shall compensate the State for any damage to the land caused by the
construction, maintenance and use of its facilities.

Subject to the regulations in force, the Administration will authorize the
Contractor to construct, use and maintain telecommunication systems and
pipelines, above and below grade and along land which does not belong to the
State, provided the construction, maintenance and use of these systems cause the
least possible damage and that they are in accordance with the regulations.

13.2.In the event it is necessary -for the Contractor, in order to perform the
Petroleum Operations, to occupy and use land belonging to private parties, the
Contractor shall endeavor to reach an amicable agreement with the property
owners to determine equitable compensation for the loss of use suffered.  In the
event of disagreement, the Contractor shall inform the Administration which can:

either set a compensation to be paid by the Contractor, if the occupation of
the land is of short duration.  The amount of the compensation will then take
into account the effective use of the land by the landowner at the time of
occupation.

or expropriate the land, in accordance with the applicable regulations, if the
occupation is long-lasting or makes it henceforth impossible to resume the
original use of the land.  The rights are acquired and recorded by the
Government in the latter’s name but the Contractor is entitled to free use
thereof for the Petroleum Operations for the entire duration of the
Contract.  The costs, expenses and indemnities resulting from the expropriation
procedure will be borne by the Contractor.

Article 14

UTILIZATION OF FACILITIES

14.1.The Contractor will have the right to utilize, under the provisions of
common law, for the needs of the Petroleum.  Operations any railway, tramway,
road, airport, landing field, canal, river, bridge or waterway and any
telecommunication network, whether owned by the State or by private companies,
against payment of any royalties in force or to be established by mutual
agreement, in exchange for this use and their construction, operation and
maintenance. The Contractor will also have the right to use for the Petroleum
Operations any means of land,

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sea or air transportation, subject to the laws and regulations governing the use
of such means of transportation.

14.2.The State will have the right in exceptional cases to use any
transportation and communication facility installed by the Contractor, such as
in case of national necessity due to national catastrophes, disasters, internal
or external peril.  The Contractor shall make all its facilities available to
the State at the latter’s simple request or requisition.  In such case, the
request shall come from the Minister in charge of Hydrocarbons.

14.3.The State can construct, operate and maintain, above and below the land
made available to the Contractor or along roads, railways, airports, landing
fields, canals, bridges, flood Protection dams, police stations, military
installations, pipelines and telecommunication networks, provided this does not
compromise or significantly hinder the performance of the Petroleum Operations,
except in case of national necessity.

Article 15

EXPIRATION OF CONTRACT AT THE END
OF THE EXPLORATION PERIOD

If, during the exploration periods, Contractor has made no discovery of
Hydrocarbon deposits presumed to be commercially exploitable or declared as such
and giving entitlement to an Exclusive Exploitation Authorization, the Contract
is terminated at expiration of said period.

Expiration of the Contract will not relieve the Contractor of its contractual
obligations arisen prior to the date of said expiration and not yet honored,
entirely or in part, on said expiration day. The Contractor is required to meet
these obligations in accordance with the regulations and the contractual
provisions; the validity thereof is extended to this effect.

Article 16

DISCOVERY AND EXPLOITATION OBLIGATION

16.1.If the Contractor discovers Hydrocarbons, it shall notify the
Administration in writing within ten days after completion of the tests making
it possible to presume the existence of a field.

16.2.The commercial or presumed commercial nature of a Field is determined by
the Parties.  The Parties shall meet to this effect and shall record their
agreement on this matter in a jointly signed document.

16.3.To this end, Contractor is required to supply all information enabling the
Administration to make a detailed review of the data relative to the discovered
Field and to make its decisions in full cognizance of the facts as to the
commercially exploitable nature of the discovery.  This information is to be
supplied as it is obtained by Contractor.

16.4.Provided Contractor has met its commitments and obligations under the
Contract, and especially Article 16.3, a Field considered to be commercially
exploitable in application of

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the above provisions will entitle it .to an Exclusive Exploitation Authorization
on the area involved which will be considered an Exploitation Area after the
effective date of this Exclusive Exploitation Authorization and will be limited
to the presumed size of the Field, projected to the surface, determined on the
basis of available geological and geophysical data.

The Exclusive Exploitation Authorization is granted by official decision of the
Minister of Hydrocarbons at Contractor’s request, filed in the form and terms of
Article 17.1

16.5.If the Contractor makes several commercially exploitable discoveries within
the Delimited Area, each of these will entail a separate Exclusive Exploitation
Authorization corresponding to a separate Exploitation Area. However, for the
requirements of Articles 24, 25 and 26.1, the overall production from the
Exploitation Areas of the Delimited Area is taken into account.

16.6.The quantities of Hydrocarbons produced before a Field is declared
commercially exploitable in application of the provisions of Article 16.2, will
be measured in accordance with the provisions of Article 29 and will be subject
to the provisions of Articles 24 to 26, with the exclusion of those used for the
needs of the Petroleum Operations or lost, provided, however, that for these
quantities the Contractor supplies to the Administration all useful explanations
and justifications.

16.7.For any Field declared or presumed commercially exploitable in accordance
with the provisions of Article 16.2, the Contractor assumes the obligation to
perform all useful and necessary Petroleum Operations for exploitation of said
Field.

The Contractor is required to inform the Administration in writing of the
starting date of production as soon as this is effective.

After the award of an Exclusive Exploitation Authorization, the State shall not
require that the Contractor continue exploitation of the corresponding Field if
it provides evidence, on the basis of the technical information acquired on the
Field and of accounting and financial justifications, of the non‑profitability
of the exploitation.

In this case, the Exclusive Exploitation Authorization expires on the date on
which the operations or the production are stopped and the corresponding
Exploitation Area becomes free on said date.  The State has then the right to
exploit the Field on its own, without being required to pay any indemnity to the
Contractor.

16.8.Except for duly justified exceptional circumstances, if production from a
Field has not begun within three years after the date of award of the Exclusive
Exploitation Authorization, this authorization is canceled and the Contractor’s
rights are considered voluntarily relinquished. Cancellation is pronounced by
decree from the Minister in charge of Hydrocarbons.

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Article 17

APPLICATION FOR EXCLUSIVE EXPLOITATION AUTHORIZATION
AND DELIMITATION OF EXPLOITATION AREAS

17.1.To obtain an Exclusive Exploitation Authorization, Contractor must file an
application with the Minister in charge of Hydrocarbons.

The aforementioned application, as well as the attachments and data provided,
must be written in French or must be accompanied by a duly certified
translation.  They are to be dated and signed by the applicant.

The application, as well as the attachments and data provided, must be prepared
in triplicate; the first two copies, one of which must have a stamp, are to be
filed with the Directorate of Hydrocarbons, the- third is to be filed with the
Minister in charge of Hydrocarbons.

The applicant must prove his identity and indicate the elected domicile; if the
applicant is acting as a proxy, it must prove its identity, its domicile and its
powers.

The applications presented in application of this Article must provide, for all
companies making up the Contractor, information concerning their registered
offices, authorized capital and the full names, nationalities, titles, and
addresses of the persons making up, according to the bylaws, the management, the
administration and the board of these companies and persons with signatory
power.

Any application filed for a company must include the powers of attorney of the
person(s) who signed the application, as well as a certified copy of the bylaws
of the company, of the certificate of its incorporation and of the balance
sheets of the last three financial years.

The application must include:

·

the proposed limits of the Exploitation Area, which must be strictly confined to
the presumed size of the Field discovered, as projected to the surface;

·

supporting documents (geological and geophysical interpretations, wireline logs,
etc.) used as basis for determination of the presumed extent of the Field;

·

the provisional estimate of recoverable reserves and the annual production of
the Field;

·

a plat of map on a scale of 1:200,000 showing the geographic boundaries of the
Area of the application;

·

a report summarizing the results of the exploration efforts carried out in the
Delimited Area and providing the location, a description and the characteristics
of the Field;

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·

a general outline of the development plan for the Field and an estimate of the
capital expenditure required for the development and the exploitation of the
Field;

·

a provisional program for the training of Gabonese Nationals.

17.2.Any later modification in the bylaws, legal form or capital of the
companies forming the Contractor, as well as any change of the individuals
mentioned in the fifth paragraph of Article 17.1, must be reported without delay
to the Minister in charge of Hydrocarbons and to the person responsible for the
Departments in charge of Hydrocarbons.

The Contractor is to send annually to the aforementioned copies of its
constituent entities’ balance sheets and accounting records submitted for
approval to their stockholders’ meetings and any reports from their management
and administration presented at these meetings to this effect.

17.3.The right to obtain an Exclusive Exploitation Authorization will remain in
effect only if the application is received by the Administration within six
months after the date of the signature of the document specified in Article 16.2
and, in any case, before the expiration date of the second exploration
period.  If a reply is not received within the above-mentioned time frame after
receipt of the application, the latter is considered accepted by the
Administration.

17.4.The applications for renewal of the Exclusive Exploitation Authorization
mentioned in Article 18.1 must be presented not later than 90 days prior to the
expiration date of the previous Exclusive Exploitation Authorization under the
same forms as those set forth in Article 17.1.

17.5.If, during the course of the year following the award of an Exclusive
Exploitation Authorization, the extensions of the Field appear to be greater
than those of the Exploitation Area, the Minister of Hydrocarbons will grant by
Edict to the Contractor, at the latter’s request, within the framework of the
previously granted Exclusive Exploitation Authorization, an additional surface
area such that the entire Field may thus be covered, on the condition, however,
that said additional surface area is part of the initial Delimited Area.  The
Contractor may not benefit from such an extension if the surface area in
question has already been awarded to a third party or is the subject of an
application for award then being reviewed.

Article 18

TERM OF VALIDITY OF THE EXCLUSIVE
EXPLOITATION AUTHORIZATION

18.1.The Exclusive Exploitation Authorization is granted to the Contractor
through Edict by the Minister in charge of Hydrocarbons; it will go into effect
on the date of the award. Its maximum duration is ten years.

If, at the end of ten-year term, commercial exploitation of an Exploitation Area
is still possible, the Exclusive Exploitation Authorization for that
Exploitation Area is renewed at the Contractor’s request, through Edict from the
Minister of Hydrocarbons for a maximum of five years, provided that the
Contractor has met its obligations and commitments under this Contract.

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The Exclusive Exploitation Authorization is renewed a second time for a maximum
of five years, under the same conditions as stated above.

When a renewal is considered and taking into account the financial results
obtained by the Parties during the preceding Period, said Parties may agree to
new provisions for Articles 24 through 26.

18.2.At any time, the Contractor may relinquish an Exclusive Exploitation
Authorization.  The Contractor must inform the Administration by letter of its
decision to relinquish it and this renunciation will become effective sixty days
after receipt of this letter, unless the Administration agrees to a closer date
of effectiveness of said renunciation. In the event of relinquishment, the
Exploitation Area becomes free on the effective date of the relinquishment.

18.3.The Contract expires on the date of expiration of the last Exclusive
Exploitation. Authorization or, when applicable, on the effective date of the
above-mentioned relinquishment; however, the Parties are not released from their
contractual obligations arisen prior to exploitation of the Contract which may
not yet have been honored, entirely or in part, on the date of said
expiration.  The Parties are required to comply with the regulations and
contractual provisions; the validity of these is extended to this effect.

Article 19

STATE PARTICIPATION

19.1.As soon as a Field is placed on production, the State automatically
participates, at a rate of 7.5 percent, in the rights and obligations deriving
from the Contract, unless it expressly waives the right to participate within
ninety days after the above-mentioned production starting date.

The State participates, at the above-mentioned percentage, in the Petroleum
Costs regarding development and exploitation of the Exploitation Area, except
for any exploration expense.

If the State wishes to take an additional interest, it will inform the
Contractor in writing, specifying the percentage interest which it decides to
hold.  The conditions for acquisition of the additional interest are mutually
agreed upon between the Parties.

19.2.The State may at any time transfer to an entity of its choice all or part
of its interest.

This state may, however, transfer its interest only to a company controlled by
the State or to a company with a well-established technical and financial
reputation; if the assignee is a subsidiary, or a branch office, the State will
assure that the parent company guarantees its commitments as per provisions in
Article 46.2.  The Contractor will be consulted prior to any transfer of
interest.

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The rights and obligations arising from the partnership agreements binding the
entities comprising the Contractor must in no event limit the State’s rights or
aggravate its obligations under its participation, nor shall they decrease the
extent or effects of said participation.

19.3.As from the date on which production begins, the State reimburses, in cash
or in kind, its share of the Petroleum Costs incurred for development since the
award date of the Exclusive Exploitation Authorization to the companies forming
the Contractor, in addition to the sums corresponding to the calls for funds for
the Petroleum Costs advanced by the other partners for the exploitation costs.

The above-mentioned choice of payment is exercised by the State through letter
addressed to the Contractor within ninety days; failing this, it is considered
having opted for payment in kind.

If the State chooses to pay in cash, payment will be made from the net proceeds
from the sale of the production share to which it is entitled as a result of its
participation, in accordance with the provisions of Article 41.

If the State chooses to pay in kind, payment will be made at the end of each
calendar month, by turning over a portion of the production to which it is
entitled as a result of its participation.

Whatever the method of payment, the amount to be paid by the State is limited to
seventy percent of the net production, or as the case may be, of the portion of
the production to which it is entitled as a result of its participation during
the calendar month considered.  The unpaid balance, if any, is added to the
payments owed at the end of the following month; this carrying forward shall
not, however, cause the above-mentioned seventy percent limit to be exceeded.
Consequently, the total of any balances and of subsequent calls for funds is
obligatory only to the above limit, and the surplus will be carried forward and
paid under the same conditions defined hereinabove.

Payments made on behalf of the State which have not been recovered by
Contractor, constitute a credit due to the Contractor and can be recovered
without limitations from the last lifting preceding the expiration of the
Contract.

For the purposes of this Article, the quantities of Hydrocarbons turned over as
payment by the State will be calculated at the “Fixed Price” defined in Article
27.

19.4.The Contractor will keep up-to-date a “State-Participation” account.  This
account will be debited with the Petroleum Costs that are attributable to the
State by reason of the period prior to its assumption of its participation, as
well as at the end of each calendar month, of its monthly share of the Petroleum
Costs.  The account is credited, at the end of each calendar month, by the Fixed
Price of the Hydrocarbons delivered as payment by the State for said month and
by the amounts paid by the latter.

The payments owed by the State as reimbursement of its share of Petroleum Costs
for development and exploitation, are increased, if applicable, by simple
interest calculated at the annual discount rate of the Bank of Central African
States (B.E.A.C.).

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Article 20

DEVELOPMENT PROGRAM

20.1.Within one hundred and eighty (180) days after the award of an Exclusive
Exploitation Authorization, the Contractor must prepare and submit to the
Administration for approval a detailed development and production program
specifying notably:

·

item by item, the equipment and operations necessary for placement into
production, such as the number of development wells, the number of platforms,
the pipelines, the production, processing, storage and loading facilities
required;

·

the corresponding cost estimates;

·

the projected schedule for performance of the above-mentioned work, equipment
and facilities;

·

the estimated production starting date;

·

the estimate of recoverable reserves and annual Production.

This development and production program must have been examined by the Technical
Consulting Committee. in accordance with Article 2.2, before being submitted to
the Administration together with the Committee’s advice, suggestions and
recommendations.

20.2.If the Administration believes that modifications to the above-mentioned
development and production program are necessary or desirable, it must inform
the Contractor in writing, specifying the modifications which it requests,
supported by those justifications which it may deem useful.

The Administration and the Contractor will then meet, as soon as possible, in
order to examine the changes requested and prepare, through mutual agreement,
the program in its final form. This program is considered approved on the date
of said agreement.

In any case, the parts of the program for which the Administration did not
request changes will be considered approved and the Contractor will be able to
realize them within the initially planned periods of time.

If, at the time of expiration of the above-mentioned term, the Administration
has not presented to the Contractor any request for modifications, the program
is considered approved.

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Article 21

OBLIGATIONS OF THE CONTRACTOR DURING
THE DEVELOPMENT AND EXPLOITATION PERIODS

21.1.Unless otherwise stipulated, Articles 5, 8, 10, and 11 of the Contract are
applicable, mutatis mutandis, to Petroleum Operations conducted within the scope
of the Exclusive Exploitation Authorizations.

21.2.Upon obtaining an Exclusive Exploitation Authorization, the Contractor
agrees to proceed with diligence to drill the necessary development wells with
such intervals between wells as to guarantee maximum economic recovery for the
Parties, of the Hydrocarbons contained in the Field, in keeping with
internationally accepted good practices in the Hydrocarbon industry.

Except for duly evidenced unusual circumstances, the Contractor must start these
development operations no later than six months after acceptance by the
Administration of the development and production program defined in Article 20.

21.3.In the performance of its production operations, the Contractor is required
to observe all the internationally accepted standards and practices of the
Hydrocarbon industry which make it possible to obtain optimum economic recovery
of Hydrocarbons contained in the Field for the Parties.

21.4.The Contractor is required to proceed, as soon as technically feasible,
with enhanced recovery program studies for the Field and to implement at the
appropriate time this process if, under economic conditions acceptable to the
Parties, it can lead to an improvement in the rate of recovery of the
Hydrocarbons contained in the Field.

21.5.The Contractor agrees to provide the Administration with all the reports,
studies, results from measurements, tests and trials, and documents which make
it possible to verify the proper exploitation of the Fields in order to
guarantee that the exploitation is being conducted in the proper conditions, in
particular, in the light of the above provisions.

particular, it is required to carry out the following operations on each
producing well:

·

measurement of the production of Hydrocarbons daily, monthly and annually;

·

monthly control of the gas-oil ratio;

·

annual measurement of reservoir pressure, on a carefully selected group of
wells, representing at least one half of the wells in the Field.

The Contractor is required to implement every recommendations made by the
Administration, in agreement with the Contractor, on the subject of conservation
of the Fields and to comply with the regulations in effect regarding pollution
and the safety of property and persons.

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21.6.The Contractor is required to annually produce from each Field quantities
of Hydrocarbons in accordance with generally accepted international Hydrocarbon
industry practices, in particular in applying the standards for proper
conservation of the Fields making optimal recovery of the Hydrocarbon reserves
possible in minimal economic conditions for the Parties.

21.7.The Contractor contributes annually to a Hydrocarbon Support Fund created
for the purpose of developing petroleum research in Gabon.  Contractor’s
contribution to the Hydrocarbon Support Fund is calculated on the basis of the
Total Available Production equal to the C.F.A. Franc equivalent of US$ 0.05 per
Barrel produced.  This contribution will not be included in the Petroleum Costs.

The Hydrocarbon Support Fund will be managed by the Minister of Hydrocarbons.

Article 22

CONTRACTOR RIGHTS IN CONNECTION WITH
EXCLUSIVE EXPLOITATION AUTHORIZATIONS

22.1.Unless otherwise stipulated, Articles 9, 12, 13 and 14 of the Contract are
applicable mutatis mutandis to Petroleum Operations conducted within the scope
of Exclusive Exploitation Authorizations.

22.2.The Contractor is entitled, subject to regulations in effect, to build,
utilize, operate and maintain all the Hydrocarbon production, storage and
transportation facilities which are necessary for the production,
transportation, delivery and loading of the products extracted, subject to the
provisions of Article 10.3.

22.3.If no available or sufficient evacuation means exist, the Contractor can,
under the conditions set forth by the regulations, construct a pipeline that
will allow it to evacuate the production.  To that end, the Contractor will
submit for the approval of the Administration, and before the commencement of
any work, plans corresponding to the layout it has established and to the
projected location of all the pipelines it intends to build.  All the pipelines
crossing or running along roads or thoroughfares (other than those reserved for
the Petroleum Operations) shall be built so as not to obstruct traffic.  The
conditions of transportation and the safety regulations for these structures
will comply with the applicable regulations in force.

22.4.Within the limits of available capacity not used by the Contractor and at
normal and nondiscriminatory prices, Contractor is required to allow free use by
Third parties of the Hydrocarbon transportation, processing and storage
infrastructures set up for the needs of the Petroleum Operations.

The pricing conditions applied shall be duly evidenced and submitted for
approval to the Departments in charge of Hydrocarbons.  The rate is to be
established so that it permits recovery of the cost of operation of the
installation, including a portion of the cost price of the facilities at least
equal to the fiscal depreciation in effect or usually applied in Gabon and
computed on the original acquisition value, plus a reasonable profit margin
representing remuneration for the capital invested for the construction of the
given infrastructure.

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Article 23

PRODUCTION MARKETING OBLIGATION

23.1.As soon as the production of a Hydrocarbon Field becomes regular,
Contractor is required to make every effort to ensure the best valorization of
the extracted product such that the marketing of the share of these products to
which it is entitled does not unfavorably affect the prices of Gabonese
Hydrocarbons on the international market.

23.2.The Contractor is required to make every effort so that the prices obtained
for exported Gabonese Hydrocarbons are in agreement with those existing on the
international market at the time of the sale, for equivalent duality, quantity,
freight and payment terms.

Article 24

RECOVERY OF PETROLEUM COSTS

24.1.The Contractor is entitled to recover the Petroleum Costs it has defrayed
within the Delimited Area, by lifting a portion of the Hydrocarbon production
exclusively from that area.  The recovery of Petroleum Costs may not in any case
be achieved by drawing on the production of Hydrocarbons from Fields outside the
Delimited Area.

For the application of the foregoing paragraph, the Contractor shall keep a
Petroleum Cost Account, in compliance with Article 26.9 and the Accounting
Agreement.

24.2.Contractor is entitled to recover the Petroleum Costs after production
begins and as production progresses.

This cost recovery right gives the Contractor the right to lift a portion of the
Net Production.  These liftings are limited to the balance of the Cost Account,
and, for any Calendar Year, shall not exceed seventy (70%) percent of the Net
Production obtained during said year.

The Hydrocarbons lifted by Contractor under the provisions of this Article are
valued at the “Fixed Price” as defined in Article 27, for the purposes of the
Petroleum Cost Account mentioned in Article 26.9.

24.3.The State will enjoy a preference right on the quantities of Hydrocarbons
to which the Contractor is entitled within the scope of the recovery of
Petroleum Costs, when these quantities are offered to Third Parties.

For the purposes of the application of the above provisions, the quantities of
Hydrocarbons that are given over within the scope of exchanges required by
technical constraints inherent in the Contractor’s facilities, or that are
intended to save time and transportation efforts, will not be considered as
sales to Third Parties but on the condition that the quantities exchanged are
actually intended for meeting the Contractor’s needs or those of its Affiliated
Companies.

In exchange for the quantities of Hydrocarbons that are purchased in application
of the above provisions, the State will pay to the Contractor a sum equal to the
product of said quantities times

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the price agreed to by the Parties.  This price is determined by reference to
prices found on the international market at the time of the sale, for equivalent
quality, quantity, freight and payment terms.

The amounts paid by the State to the Contractor within the scope of the
preference right stipulated above will be posted to the credit of the Petroleum
Cost Account, these therefore being considered as having been recovered in cash.

24.4.When the State exercises its preference right stipulated in Article 24.3,
the Contractor will send to the Administration, no later than fifteen days
following the date of the loading of the quantity of Hydrocarbons given over to
the State, the corresponding invoice made out in United States dollars.

Within ninety days following the reception of that invoice, the State will
effect payment in freely exchangeable currency, according to the regulations in
force.  The amount due will be paid into the Contractor’s account in a bank
established in Gabon.  Should the State not make payment in the above time
frame, the amount due will carry an annual interest rate that is at most equal
to the discount rate of the Bank of Central African States (B.E.A.C.)?  If
payment of an invoice is not made by the State within the above mentioned time
frame, the preference right of the State is suspended for as long as the last
invoice remains unpaid.

Regardless of the means employed to recover Petroleum Costs, by drawing from the
Hydrocarbons in conformity with Article 24.2, by cash payments in application of
Article 24.3, or by a combination of these two methods, the total recovery,
during a Calendar Year, expressed in terms of the quantity of Hydrocarbons, may
not, for any reason, exceed the percentage of the Net Production for that
Calendar Year set in Article 24.2.

24.5.If in the course of a Calendar Year the Net Production from the Delimited
Area fails to permit the Contractor to recover Petroleum Costs in application of
the provisions of Articles 24.1 to 24.5, the amount of Petroleum Costs that are
not recovered in that Calendar Year will be carried forward to succeeding
Calendar Years until full recovery of the Petroleum Costs or expiration of the
Contract.

24.6.In the event of the discovery in the Delimited Area of deposits producing
Hydrocarbons of differing quality, the recovery of the Petroleum Costs shall be
by payment in kind or payment in cash in accordance with this Article, by taking
into account each of the qualities, proportionally to the Total Available
Production.

Article 25

PRODUCTION SHARING

25.1.After deduction by the Contractor on a part of the Net Production for the
recovery of the Petroleum Costs in application of the provisions of Article 24,
the Remaining Hydrocarbon Production is shared between the State and the
Contractor in the following terms:

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(a)When the average daily Total Available Production from the Delimited Area for
a given calendar month is equal to or less than ten thousand (10,000) Barrels,
the Remaining Production is shared between:

·

the State:fifty (50%) percent

·

the Contractor:fifty (50%) percent.

(b)When the average daily Total Available Production from the Delimited Area for
a given calendar month is greater than ten thousand Barrels and equal to or less
than twenty-five thousand (25,000) Barrels, the Remaining Production is shared
between:

·

the State:fifty-five (55%) percent

·

the Contractor:forty-five (45%) percent.

(c)When the average daily Total Available Production from the Delimited Area for
a given calendar month is greater than twenty-five thousand Barrels, the
Remaining Production is shared, between:

·

the State:sixty (60%) percent

·

the Contractor:forty (40%) percent.

In the event of a discovery in the Delimited Area of Hydrocarbons of different
qualities, the sharing between the State and Contractor of the Remaining
Hydrocarbon Production is made separately for each quality, proportionally to
the Total Available Production.

The Contractor is entitled to its share of Hydrocarbons from the start of the
production and as it develops.

25.2.The State draws its share of the production as defined in Article 25.1
above, in kind.

However, the Contractor is required, when requested by the State, .to sell all
or part of the latter’s share of Hydrocarbons under the terms of the
above-mentioned Article and reimburse the State. In this case, Contractor will
make its best effort to obtain a sales price on the market at least equivalent
to the “Fixed Price” defined in Article 27.  When this operation occurs,
Contractor will receive a sales commission in an amount established by mutual
agreement with reference to the applicable customary business practice.

In the event Contractor is unable to sell the State’s share of the production at
a price at least equal to the “Fixed Price”, Contractor will inform the State of
the best price proposed.  The State will then inform Contractor whether it
accepts the sale price Contractor can obtain or prefers to receive the
quantities involved in kind.

25.3.The State may request payment of the proceeds from sales of its production
share made by the Contractor in the foreign currency of its choice.  The choice
of payment currency

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shall be made known to Contractor at the time of the request mentioned in
Article 25.2, second paragraph.  In the absence of notification, payment shall
be made in the currency in which the “Fixed Price” defined in Article 27 is
expressed.

25.4.The State has a preference right on the Contractor’s share of production
defined in Article 25.1, under the same conditions and following the same
procedures as those set forth in Articles 24.5 and 24.4.

Article 26

FISCAL SYSTEM

In connection with the Petroleum Operations performed in the Delimited Area, the
Contractor is subject to the following taxes and royalties:

(a)the bonuses specified in Article 28; these are payable in cash;

(b)a proportional mining royalty, during the production phase, the rates of
which are defined as follows:

·

three percent (3%) when the Total Available Production during a calendar month
is equal to or less than five thousand (5,000) Barrels per day;

·

six percent (6%) when the Total Available Production during a calendar month is
greater than five thousand (5,000) and equal to or less than seven thousand five
hundred (7,500) Barrels per day;

·

nine percent (9%) when the Total Available Production during a calendar month is
greater than seven thousand five hundred (7,500) and equal to or less than ten
thousand (10,000) Barrels per day;

·

twelve percent (12%) when the Total Available Production during a calendar month
is greater than ten thousand (10,000) and equal to or less than fifteen thousand
(15,000) Barrels per day;

·

fifteen percent (15%) when the Total Available Production durng a calendar month
is greater than fifteen thousand (15,000) and equal to or less than twenty‑five
thousand (25,000) Barrels per day;

·

seventeen point five percent (17.5%) when the Total Available Production during
a calendar month is greater than twenty‑five thousand (25,000) Barrels per day;’

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The total Available Production subject to the proportional mining royalty is
reduced by the following quantities:

(1)quantities lost or burned at the time of the production tests or at the
production, gathering or storage facilities on the Exploitation Area, provided
that the Contractor has abided by the applicable regulations and the guidelines
and recommendations of the Administration on this matter;

(2)reinjected into the Field of the Exploitation Area;

(3)used for preparation of drilling fluids for the requirements of the Delimited
Area;

(4)used for operations performed, after drilling, on wells of the Field of the
Exploitation Area;

(5)consumed in the turbine engines providing the energy used:

(i)to drive the necessary pumping units on the wells of the Field of the
Exploitation Area,

(ii)to gather the Hydrocarbons on the Exploitation Area,

(iii)to operate the drilling facilities established on the Delimited Area for
the requirements of said Area.

The quantities lifted or used downstream from the point where the Total
Available Production is discounted for the above-mentioned requirements are
acceptable deductions from the proportional mining royalty base only after
exceptional authorization from the Administration, issued upon justified request
from the Contractor.

The proportional mining royalty is paid either in kind or in cash, at the
State’s option.  If the latter has failed to let its choice be known, it will be
considered having opted for payment in cash.

When the proportional mining royalty is paid in cash, it is computed on the FOB
value of the Hydrocarbons.  For determination of this FOB value, the price
adopted is the “Fixed Price” defined in Article 27.

Payment in cash of the proportional mining royalty is made to the office of the
tax collector not later than the twenty-eighth of each month, on the basis of
the average monthly production of the preceding calendar quarter.  Adjustment is
made not later than January 28th of each year, for the preceding Calendar Year,
on the basis of the taxable Total Available Production of said year and of the
corresponding “Fixed Price”.

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At the start of production and during the period when the above-mentioned
average monthly production cannot be determined, the amount of the royalty is
calculated on the basis of the effective production of each month considered and
is paid within the same above-mentioned periods of time.

If the State wishes to receive in kind all or part of the proportional mining
royalty, it advises the Contractor in writing to this effect at least one
hundred eighty days in advance, specifying the quantity which it wishes to
receive in this form during the period considered.

The proportional mining royalty is not included in the Petroleum Costs.

(c)the annual surface royalty set forth by the regulations in effect.  This
royalty, included in the Petroleum Costs, is paid in cash, in advance and per
full Calendar Year, on the basis of the surface area held on January 1st of each
year and, for the first year, on the surface area held on the Effective Date7.

(d)the duties and taxes collected at the time of importation by the Customs
Administration, such as defined in Article 34;

(e)The Tax on Profits and Revenues (Corporate Tax), which each entity forming
the Contractor has to pay and which is calculated applying the general tax rate
in force and in accordance with the provisions of Article 26.1.  Payment of the
Corporate Tax is made to the appropriate tax administration, by the State, for
the account of the above mentioned entities.  In accordance with Article 26.3,
this quantity is included in the portion due to the State under provisions of
Article 25.1.

The Corporate Tax thus due for a given Calendar Year and paid to the State in
kind, is determined on the basis, notably, of the gross revenue consisting of
the turnover from the quantity of Hydrocarbons available thereto in application
of Articles 24 and 25, or their equivalent in cash, as well as from the
quantities delivered to the State as payment for the Corporate Tax and, on the
other hand, from deductible expenses, including the bonuses as defined in
Article 28, the cost of materials, interests, and payments into the Hydrocarbon
Support Fund, as defined in Article 21.7, as indicated and defined in the tax
laws in effect and in Article 26.1.  The pertinent taxable profit is that from
the Annual Statistical and Fiscal Declaration mentioned in Articles 26.4 and
26.5.

26.2.In regards to the fiscal and customs regulations, each company which makes
up the Contractor is treated as a distinct entity.  However, if one of these
units does not meet its fiscal obligations resulting from this Contract, the
other entities will be substitutes thereof.

26.3.The quantity of Hydrocarbons which the State receives during any Calendar
Year in application of Article 25.1 includes:

(a)the part representing the mining rights other than the annual surface royalty
and the proportional mining royalty as defined in Article 26.1 above;

(b)and, in accordance with the provisions of the above Article 26.1 e), the part
which represents .the corporate tax to be imposed on the companies which make up

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the Contractor of the Hydrocarbon operations carried out in the Delimited Area,
and computed at the rates defined in the tax laws in effect.

26.4.Each company forming the Contractor will keep, by Calendar Year, separate
accounting records for the Petroleum Operations, rendering it possible to
determine, in particular, the profit and loss balance statement and a detailed
balance sheet showing both the results of said operations and the assets and
liabilities pertaining and related thereto.  This accounting system must be in
compliance with the applicable regulations in effect in Gabon, such as the
General Accounting Plan for Companies.  It has to include, in particular, all
the data required for the preparation of the Annual Statistical and Fiscal
Statement and its attachments.

26.5.Each of the companies forming the Contractor is required to deliver to the
person responsible for the Departments in charge of Hydrocarbons, not later than
April 30 of each year, a copy of the tax return regarding the Corporate Tax
pertaining to the previous Calendar Year, such as required by the applicable tax
regulations.

The profit and loss account and the balance sheet must clearly show the amount
of amortization and of write-offs done during the year.  As far as the
expenditures which have not yet been amortized are concerned, these
amortizations are calculated and accounted for as the difference, if it is
positive, between the maximum of the Cost Recovery Account as defined in Article
24.2 and the total of the charges debited to the profit and loss account.

26.6.The Tax Administration, after examining the above-mentioned documents, will
issue to each one of the companies forming the Contractor, within sixty days
after the date of presentation, the originals of the tax statements and all
other documents certifying that it has met its fiscal obligations resulting from
the applicable regulations, subject to the Administration’s rights to audit and
recovery set forth by the regulations in force.

Regarding tax regulations, the value of Hydrocarbons available to the Contractor
during a Calendar Year, in application of Articles 24 and 25.1 is considered as
representing the recovery of Petroleum Costs and the net profit after Corporate
Tax:

26.7.Apart from the bonuses defined in Articles 28.1 and 28.2, the taxes, rights
and royalties established in Article 26.1, the duties and taxes collected by the
Customs Administration, as established in Article 34, the contribution to the
Hydrocarbon Support Fund, established in Article 21.7, payments made under
Provisions of Article 39 and, with the exception of the property tax on
structures due under common law on residential buildings, the Contractor is
exempted, in connection with the Petroleum Operations, from any other taxes,
royalties, duties, imposts and contributions.

The Contractor’s suppliers, subcontractors, service contractors and Affiliated
Companies are exempted from the domestic Turnover Tax and the tax on
transactions due on sales made, work performed and services rendered within the
framework of the Contract.

The profit earned by the companies forming the Contractor within the framework
of the Petroleum Operations is exempt from any tax and withholding at the source
due in connection with distribution to stockholders or partners or allocation
thereof.

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When by mistake, one of the companies forming the Contractor has been assessed
with taxes, duties, imposts, withholding or royalties from which it is exempted
in application of the provisions of this Article, it may charge the amount
thereof to the Petroleum Costs, if it is not released from this payment
obligation one year after filing a claim to this effect with the proper
Administration.  This charge is subject to written prior approval from the
Minister of Hydrocarbons, so that the grounds thereof may be verified.

The above-mentioned exemptions are not applicable to duties and taxes due for
services rendered by Gabonese Administrations, communities and public
institutions used by the Contractor.  However, the rates applied to the
Contractor, its contractors, carriers and clients, and its agents must
correspond to the magnitude of the services rendered and be non-discriminatory.

More specifically, the Contractor will still be subject to local, municipal and
port charges in effect; however, the rates thereof must not be discriminatory in
regards to the Contractor with respect to those applied to companies conducting
similar activities.

26.8.Assignments of any nature between the companies signing the Contract and
their Affiliates are exempted from all duties and taxes due in this connection
to the Registration Administration.

26.9.Concurrently with the obligation to keep an accounting system in accordance
with that established by the applicable regulations and the provisions of the
Contract, the Contractor will keep a Petroleum Costs Account in which to enter,
on one hand, all the recoverable expenses, pursuant to the provisions of the
Contract and of the Accounting Agreement, incurred for the requirements of the
Petroleum operations, as they are actually incurred and, on the other hand, the
recovered amounts of the Petroleum Costs, as this recovery takes place, in
addition to receipts and proceeds of any nature to reduce or deduct from the
Petroleum Costs, as they are collected.

The Petroleum Costs Account shall be subdivided into subaccounts making it
possible specifically to show:

(a)exploration expenses:  payments of any nature coru1ected with geological,
geophysical, drilling well equipment and production testing operations (as well
as all related operations) aimed at discovering Hydrocarbons;

(b)appraisal expenses: payments of any nature connected with geological,
geophysical, drilling, well equipment and production testing operations aimed at
determining if the Field discovered is commercially exploitable and at
determining its boundaries;

(c)development expenses: payments of any nature, such as:  drilling, well
equipment and production testing, installation of platforms and pipelines and
all other operations performed for the production, transportation, processing
and storage of Hydrocarbons at the loading terminal;

(d)exploitation expenses: payments of any nature connected with the study, the
management and the execution of operations directly or indirectly connected with

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Hydrocarbon exploitation and maintenance of production, processing, storage and
transport facilities.

In order to be considered as Petroleum Costs, the above-mentioned expenses must
be strictly necessary for the requirements of the Petroleum Operations and must
meet the criteria stated in the Accounting Agreement.

Expenses incurred in connection with non‑deductible costs, those the recovery of
which is excluded by express provisions of the Contract or of the Accounting
Agreement, those of a sumptuary or exaggerated nature, gratuities not authorized
by the regulations and, in general, all those expenses which are not required
for proper management of the Petroleum Operations, are not recoverable;
consequently, they must not be debited to the Petroleum Costs Account.

At any time, the balance of the Petroleum Costs Account shall show the amount
not yet recovered by the Contractor.

The practical methods for application of the provisions of this Article 26 are
defined in the Accounting Agreement, Attachment No. II of the Contract.

26.10.The Petroleum Costs account is debited notably for the expenses linked to:

(a)construction, manufacturing, creation, realization, purchase, renting,
maintenance and repair of the assets, including consumable materials;

(b)exploration and research;

(c)taxes, rights and duties assessed and paid in Gabon;

(d)personnel and personnel environment;

(e)services rendered by Third Parties, Affiliated Companies and companies
constituting the Contractor, including technical assistance;

(f)insurance policies subscribed and settlements of damages;

(g)legal costs;

(h)interest, agios and financial charges paid to creditors, for their real
amount and insofar as the loans and debts to which they are linked are necessary
for the Petroleum Operations and correspond to a real financing need for these
Operations.

However, the expenses of such nature are not chargeable to the Petroleum Costs,
giving right to recovery, according to articles 24, 26.9, in the following
cases:

·

in general, when the loans and debts to which they are linked are not necessary
for the financing needs of the Petroleum Operations;

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·

when they are linked to the loans and debts of the Contractor, which may be
contracted for financing prospection and exploration operations;

·

when they are linked and up to the portion of the loans and debts which exceeds
of the amount of development and production expenses.

The interest paid to shareholders, Affiliated Companies and companies
constituting the Contractor for the amounts thereby lent or advanced are
admitted within the same limits and under the same conditions as hereinabove,
but, moreover, within the maximum limit of the interest computed at the annual
discount rate of the Banque des Etats de l’Afrique Centrale plus two points.

(i)the exchange losses incurred in connection with the Contractor’s loans and
debts, under the same conditions and following the same procedures as those
provided in paragraph h) hereinabove.

Moreover, the Contractor should not be covered against exchange losses or loss
of profits arising from risks pertaining to the origin of the Contractor’s own
funds and to self‑financing, and the losses which may be thus incurred cannot,
in any case, be considered as Petroleum Costs; they can, consequently, neither
be entered in the Petroleum Costs account nor give right to recovery.  The same
provisions are applicable for insurance premiums and costs of policies which the
Contractor would have subscribed to cover such risks.

The exchange losses incurred and directly linked to claims concerning Petroleum
Operations and directly handled in foreign currency are also chargeable to the
Petroleum Costs;

(j)the costs incurred for controls and verifications made by the Administration;

(k)overhead expenses, under the conditions provided in the Accounting
Attachment.

Payments made for costs, charges or expenses not directly to the Petroleum
Costs. This concerns notably payments made for:

(a)costs of capital increase;

(b)marketing costs;

(c)costs related to the period prior to the Effective Date;

(d)costs of independent audits paid by the Contractor within the framework of
particular relations between the companies constituting the Contractor;

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(e)bonuses and Hydrocarbons Support Fund provided by articles 21.7 and 28;

(f)costs incurred for meetings, studies and works realized within the Joint
Operating Agreement between the companies forming the Contractor;

(g)interest, agios and financial charges which do not meet the conditions set
forth in paragraph 1, h) .hereinabove and in Article 1.4;

(h)any exchange losses which may be incurred and which do not meet the
conditions set forth in paragraph 1, (i) hereinabove;

(i)exchange losses which constitute losses of arising from risks connected with
the origin Contractor’s own funds and self-financing, such forth in paragraph 1,
(i), 2nd part hereinabove.

The following shall be deducted from the Petroleum Costs:

(a)the proceeds from the quantities of Hydrocarbons which belong to the
Contractor according to the provisions of article 24, by the corresponding Fixed
Price, such as defined in Article 27;

(b)the amounts which may be received for the recovery of Petroleum Costs,
according to the provisions of Article 24.3;

(c)all other related, closely related or accessory receipts, revenues, proceeds
and profits, directly or indirectly linked to the Petroleum Operations and such
as enumerated in the Accounting Attachment.

26.11.The Accounting Agreement, which is an integral part of the Contract,
establishes, although not mentioned in the Contract, the definition and nature
of the expenses to be considered as Petroleum Costs, those which do not entail
recovery and, limitations of the amount of the expenses which may entail entry
in the Petroleum Costs.  It establishes the Contractor’s obligations regarding
procedures and presentation of accounting records for the Petroleum Costs,
reports, minutes, statements and information to be furnished to the
Administration.

Article 27

VALORIZATION OF HYDROCARBONS

27.1.The quantities of Hydrocarbons,

·

drawn for the recovery of the Petroleum Costs according to provisions of Article
24,

·

representing the proportional mining royalty mentioned in Article 26.1, b,

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·

constituting the Contractor’s gross revenue specified in Article 26.1,e, second
paragraph,

·

representing the State’s share of production marketed by the Contractor at the
State’s request, in application of the provisions of Article 25.2,

·

delivered in order to contribute to the satisfaction of the internal consumption
needs pursuant to the provisions of Article 35,

·

received as payment from the State, in application of the provisions of Article
19.4,

are valorized by application of the price set by the Administration for Gabonese
Hydrocarbons, hereinafter referred to as the “Fixed Price”.

27.2.The “Fixed Price” is determined by the Administration by reference to the
official Hydrocarbon prices defined by the Organization of Petroleum Exporting
Countries (OPEC) taking into account the international market prices for
Hydrocarbons of similar quality.

It is calculated FOE value every six calendar months for the previous six
calendar month period on the basis of pertinent data and information; it is
notified to Contractor for application and any necessary adjustments,

If no “Fixed Price” has been provided to Contractor for a given six calendar
month period, the “Fixed Price” resulting from the most recent notification will
be used provisionally.

27.3.If, for a given period, the “Fixed Price” applied is higher than the market
price for sales to Third Parties of Hydrocarbons originating from the
Exploitation Area, the difference will be recovered by Contractor by recording a
debit in the Petroleum Cost Account.  If, conversely, the “Fixed Price” is lower
than the above-mentioned market price, the difference is credited to the
Petroleum Cost Account.

27.4.The market price mentioned in the above paragraph is determined by the
Parties who will meet periodically to this effect, on the basis of the evolution
of the international Hydrocarbon market, in accordance with procedures to be
defined.

Article 28

BONUSES

28.1.The Contractor will pay to the State the sum of US dollars five hundred
thousand (US$ 500,000) on the Effective Date.

28.2.In addition, the Contractor shall pay to the State the equivalent in CFA
francs of:

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(a)five hundred thousand (500,000) US dollars at the start of production from
the Delimited Area;

(b)two hundred thousand (200,000) US dollars when the rate of Hydrocarbon
production in the Delimited Area reached, for the first time, the level of
twenty thousand Barrels per day for a period of thirty consecutive days;

(c)two hundred thousand (200,000) US dollars when the rate of Hydrocarbon
production in the Delimited Area reached, for the first time, the level of
thirty thousand Barrels per day for a period of thirty consecutive days;

(d)Each of the amounts mentioned above will be paid within the next thirty days
after the starting date of production, for the first amount, and within thirty
days after the end of the corresponding reference period for the other two.

28.3.The payments mentioned in Articles 28.1 and 28.2 hereinabove cannot in any
case be considered as Petroleum Costs.

Article 29

MEASUREMENT AND METERING OF THE HYDROCARBONS

29.1.The Contractor shall measure and meter all the Hydrocarbons produced after
extraction of water and foreign substances.

The point where the quantities of Hydrocarbons are measured and metered and the
point where the instruments, equipment and facilities to which they are related
must mandatorily be approved by the Administration.

The authorized Administration representatives will verify these measurements and
counts and check the instruments, facilities and equipment used, at least once
every three months.  If the Contractor wishes to modify or change said measuring
instruments, facilities and equipment, it shall inform the Administration at
least fifteen business days in advance in order to enable the Administration
representative to be present at the time of said modification or change.

Modifications and changes affecting the points, instruments and equipment
mentioned in the above second paragraph must be previously approved by the
Administration.

29.2.In order to be deductible, the quantities of Hydrocarbons used for the
Petroleum Operations or lost must be the subject of a monthly detailed
explanatory statement addressed to the Administration.

29.3.If any measurement errors which would result in shortages or in excesses
are detected on the instruments, facilities and equipment used by the
Contractor, said errors shall be considered as having existed since the date
when the last verifications were or should have been made by the Administration
and corrections must be made accordingly.

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All expenses and all costs incurred by Contractor, its subcontractors and
suppliers and related to the lifting .of natural gas by the State shall not be
considered part of the Petroleum Costs but shall be charged to the State which
shall reimburse Contractor in accordance with a an agreement to be agreed upon
by both parties.

Article 30

NATURAL GAS

30.1.In the event of a Natural Gas discovery, the Contractor, after carrying out
the appropriate studies and after consultation with the Administration, shall
determine whether exploitation can be undertaken commercially.

All the provisions of the Contract shall be applicable mutatis mutandis and,
more specifically, those pertaining to the Set Price defined in Article 27, the
recovery of Petroleum Costs defined in Article 24, the Remaining Production
sharing regulations defined in Article 25, the bonuses defined in Article 28 and
the royalties and taxes defined in Article 26.1 and 26.7, if the discovery is
declared commercially exploitable.

However, in order to take the conditions particular to the exploitation of
Natural Gas into account and to promote its development, other specific benefits
may be granted the Contractor when they are duly justified.

Whenever it is necessary to determine the equivalence between Natural Gas and
Crude Oil and, More specifically, especially in order to determine the
procedures for lifting the quantities of Hydrocarbons allocated for recovery of
the Petroleum Costs defined in Article 24, the sharing of Remaining Production
defined in Article 25, and the bonuses defined in Article 28.2, it is agreed
that one hundred. Sixty‑five cubic meters of Natural Gas are equal to one barrel
of Crude Oil.  This equivalence shall be stated by mutual agreement.

30.2.If the Contractor does not consider the Natural Gas discovered to be
commercial, in this case, the Contractor forfeits any right to this discovery
deriving from the Contract.  The State is then entitled to exploit this
discovery on its own without the obligation to pay any indemnity to the
Contractor.

30.3.Any quantity of unmarketed associated Natural Gas, apart from the
quantities used for the Petroleum Operations, shall be utilized in order to
improve the Crude Petroleum recovery rate through reinjection pursuant to the
provisions of Article 21.4.  Flaring shall be limited to the hare minimum; the
Contractor is required to comply with the applicable regulations in force and
the pertinent recommendations from the Administration.

In addition, if the Government wishes to use the associated Natural Gas produced
in the Exploitation Area and not marketed or used by the Contractor in the
above-defined conditions, the Parties will decide by mutual agreement on any
additional technical actions which may be necessary for the shipment and use of
said Natural Gas.

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Article 31

CURRENCY EXCHANGE CONTROL

31.1.The Contract will be governed by the currency exchange regulation in force.

31.2.No restriction will be imposed on importation by the Contractor of the
funds intended for the performance of the Petroleum Operations.

31.3.The Contractor will be authorized to freely convert its assets in Gabon to
convertible currencies; it will also have the right to export the funds it owns
in Gabon in excess of its local needs, without being discriminated against.

31.4.In addition, the Contractor will have the right not to import into Gabon
the funds intended for performance of the Petroleum Operations requiring payment
to be made abroad when due.

Article 32

EXEMPTION FROM THE OBLIGATION RELATIVE
TO EQUIPMENT BONDS AND INVESTMENT CERTIFICATES

In view of the magnitude of the investments to be made by the Contractor, the
latter is exempt for the duration of the Contract from any obligations relative
to equipment bonds and investment certificates pursuant to Ordinance No. 3/63
dated January 24, 1963, and Ordinance No. 36/67 dated August 1, 1967.

Article 33

ACCOUNTING METHOD AND MONETARY UNIT
USED FOR BOOKKEEPING PURPOSES

33.1.The Contractor’s accounting records and books are kept in accordance with
the General Accounting Plan of Companies in effect in Gabon and, regarding
Petroleum Costs, with the Accounting Agreement even if the provisions of said
Agreement do not appear in the Contract The originals of said accounting records
and books as well as all supporting documentation shall be kept in Gabon, and
presented to the Administration simply at the latter’s request.

33.2.The accounting records and books for the Petroleum Operations are kept by
the Contractor in French and amounts are expressed in US dollars.  These
accounting books and records are used in order to determine the gross income,
the exploitation expenditures and net Profits and in order to prepare the tax
return.  These provisions also apply to the Petroleum. Cost Account mentioned in
Article 26.9 and in the Accounting Agreement.

The Contractor must indicate and justify the currency of origin and the exchange
rates used for keeping the accounting records and books and the Petroleum Costs
Account.

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33.3.Whenever it is necessary to convert the expenditures and incomes expressed
in another currency into CFA Francs, the exchange rates used will be equal to
the arithmetic average of the daily closing market sales rates for said currency
for the month in which the expenses were paid and the incomes received.  Until
the arithmetic average of the month considered is known, *the Contractor will
temporarily use the arithmetic average of, the previous month.

In the event of official devaluation or revaluation during a given month, two
arithmetic averages will be applied, the first calculated on the basis of the
daily closing market sales rates for the period from the first of the month up
to, but excluding, the date of said devaluation and revaluation, and the second
on the basis of the daily closing selling rates for .the period starting and
including the day of said devaluation or reevaluation until the last day of the
month considered.

Article 34

CUSTOMS SYSTEM AND IMPORT AND EXPORT DOCUMENTS

34.1.For the duration of the Contract, the Contractor will benefit from the
following customs privileges:

(a)Within the scope of the provisions of the Customs Code, importation by the
Contractor itself, Third Parties on its behalf and its subcontractors under the
temporary admission system (normal or special, depending on the case) of all the
equipment, materials, products, machines and tools required for the performance
of the Petroleum Operations and not owned by the state pursuant to the
provisions of Article 10.1, subject to the provisions of Article 10.3 and
provided that these goods are necessary, exclusively intended and actually used
for the Petroleum Operations and are to be re‑exported after they are used.

(b)Admission with complete exemption from all entry taxes and duties for
materials, products, equipment, machines and tools exclusively intended and
actually used for petroleum prospecting and exploration in the Delimited Area
and appearing on the list provided in Attachment II of Deed no. 13/65-UDEAC-35,
dated Dec ember 14, 1965 and subsequent amendments.

This exemption covers imports made directly by the Contractor itself, by Third
Parties on its behalf and by its subcontractors, subject to presentation of a
final utilization certificate.

(c)Under the same conditions as above, admission at the comprehensive 5% reduced
rate of the duties and taxes collected at importation of materials, products,
equipment, machines and tools which, although not falling in the category of
goods mentioned in the preceding paragraphs a) and b), are nevertheless
necessary for, intended and assigned to the production, storage, processing,
transportation, shipping and transformation of Hydrocarbons from the
Exploitation Area and provided that they appear in an approved development
program.

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The reduced rate benefit is granted by the Director of Customs and Indirect
Taxes at Contractor’s request:

·

upon presentation of a general importation program,

·

or following a special admission request formalities for the reduced rate
benefits to be filed at least fifteen days before arrival of the goods involved.

These requests must specify:

·

the trade name of the goods and the corresponding customs tariff code,

·

quantities and their FOB and CIF values.

(d)Effects and furnishing for personal and household use imported by
Contractor’s foreign personnel assigned to the Petroleum Operations at the time
of their change of residence are admitted tax free pursuant to the provisions
and limits established by the Customs Code, such as Articles 17 to 20 of Deed
13/65-UDEAC-35, dated December 14, 1965.

34.2.The Contractor, Third Parties importing on its behalf and its
subcontractors agree to import items required for the performance of the
Petroleum Operations only insofar as said goods are not available in Gabon under
similar price, quality and delivery schedule conditions.

34.3.All the goods not covered by, the above provisions are subject to the taxes
and duties levied by the Customs Administration under the common law system.

34.4.Insofar as they-have met all their customs obligations resulting from
Articles 34.1 to 34.3 and the regulations in force, the Contractor, Third Party
Importers for its account and its subcontractors, may re‑export free of all
taxes and duties the goods imported pursuant to the provisions of Article 34.1a,
and which are no longer necessary for the performance of the Petroleum
Operations.

34.5.All importations, exportations and re-exportations made under the Contract
are subject to the formalities required by the Customs Administration.

34.6.The Contractor is jointly and severally responsible with Third Parties
importing on its behalf and with its subcontractors towards the Customs
Administration for any abuse detected in the exercise of the benefits provided
by the provisions of this Article.  Any fines, penalties and payments of any
nature for which it may be liable in this regard do not constitute Petroleum
Costs.

34.7.All customs clearing operations performed within the framework of the
Contract are subject to the provisions of Ordinance No. 20/87 of October 24,
1987.

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Article 35

CONTRIBUTION TO MEETING THE NEEDS
OF TEE DOMESTIC MARKET

35.1.Contractor is required to contribute to meeting the consumption needs of
the Gabonese domestic market by delivering to the State or to an organization
designated by the State a quantity of Hydrocarbons in proportion to its
production share as defined in Articles 24.2 and 25.1 as compared to the total
production of Gabon.  The quantity to be delivered will be determined prior to
the end of each Calendar Year for the subsequent Calendar Year on the basis of
the projected production and domestic consumption for the Calendar Year
involved.  Any necessary adjustments will be made as soon as the actual final
data is available.

35.2.The price for the sale by Contractor of the portion of Hydrocarbons
intended to meet the needs of the domestic market is equivalent to the Set Price
less a twenty‑five percent discount.  It is payable in CFA Francs.  The
aforesaid discount is entered in the Petroleum Costs Account.

35.3.The Hydrocarbons sold under the provisions of this Article are to be
delivered by Contractor to the place of use or consumption designated by the
Administration, using available and customary means of transportation.

Article 36

EXPORTING, TRANSFER OF TITLE AND REGULATIONS
FOR MAKING THE HYDROCARBONS AVAILABLE

36.1.Subject to the regulations in force and for the entire duration of the
Contract, the Contractor, its customers and their carriers shall have the right
to export through the export point chosen to this effect, the share of
Hydrocarbons to which the Contractor is entitled under the terms of this
Contract, after deducting all the deliveries made to meet the needs of the
Gabonese domestic market pursuant to the preceding Article 35.

36.2.The ownership of the above-mentioned portion of Hydrocarbons is transferred
to the Contractor at the time it actually takes such share.  However, as the
production ‘is taken, the Contractor is required to subscribe to any necessary
insurance policies in order to cover any damages or losses which may arise and
affect the Hydrocarbons.

For the accounting requirements of the Petroleum Costs, lifting of the
above-mentioned Hydrocarbons is presumed to take place at the end of each
calendar month for quantities having left during that month the storage
facilities for the evacuation pipelines or the export loading facilities.

In case of exportation by tanker, the transfer of ownership takes place at the
connection point between the tanker and the loading facilities.

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The transfer of ownership of the Hydrocarbons assigned by the Contractor as
contribution to meeting the needs of the Gabonese domestic market occurs CIF at
the utilization site, at entry of the Storage facilities of the entities to
which these Hydrocarbons are allotted.

36.3.The Administration appoints a company or experts to monitor, inspect and
control the Hydrocarbon lifts and manage the loading terminal and its
facilities.

The expenditures entailed by these operations are reimbursed to the
Administration by the Contractor, which includes them in the Petroleum Costs
Account.

36.4.The Parties will meet periodically to establish a provisional lifting
schedule and will make their best effort to load jointly, if this should prove
necessary, in order to avoid Overlifting or Underlifting on the part of one
Party towards the other.

As soon as a sufficient quantity of Hydrocarbons is stored at the export point
to make it possible to load tankers, the first shipments are made for the
account of the State.  The Hydrocarbons are then available to the Contractor for
the next tanker loading operations for its own account, until an Underlifting
situation is created for the State.

Each of the subsequent loading operations shall be carried out for the account
of the Party which is in an Underlifting situation.

However, if one of the Parties cannot lift its share of production in a timely
manner, the other Party will have the option to dispose of it, provided that it
later gives an equivalent quantity of products to the defaulting Party.

The practical terms for application of the provisions of this Article can be
negotiated at any time by mutual agreement between the Administration and the
Contractor, such as within the framework of a lifting and availability
agreement.

Article 37

PROTECTION OF RIGHTS

37.1.The Contractor will take all the necessary action to achieve the objectives
of the Contract and give reasonable compensation to Third Parties for any damage
which it, its employees, contractors or subcontractors and their employees,
while carrying out their activities under the Contract, may cause to the person,
property or rights of Third Parties.  The Contractor will be civilly liable for
all losses or damages suffered by Third Parties due to its or their errors or
negligence and shall bear the cost of all compensation and damages payable.

37.2.The State will take all the necessary and possible actions in order to
facilitate the implementation of the Petroleum Operations and the achievement of
the objectives of the Contract and to protect the property and rights of the
Contractor, its employees and agents on the territory of Gabon and its
appurtenances.

37.3.At the Contractor’s request and against justification, the Administration
will prohibit the construction of residential or commercial buildings in the
vicinity of facilities which

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may be declared dangerous due to the Petroleum Operations and will take the
necessary precautions to prevent vessels from mooring or going near submerged
pipelines and to prohibit any interference with the use of any other facilities
required for the Petroleum Operations, both onshore and offshore.

Article 38

PERSONNEL

38.1.For the performance of the Petroleum Operations, the Contractor shall
employ, insofar as possible, Gabonese national labor in the minimum proportion
of seventy‑five percent of the total work force.  Specialized and qualified
personnel may be recruited outside Gabon if not available in Gabon.

The Contractor shall inform the General Hydrocarbons Department of any available
positions and of the action taken towards recruitment of Gabonese personnel.

38.2.The competent Administration will issue, in accordance with regulations,
the necessary documents for entry of foreign personnel into Gabon, such as
visas, work permits and residence cards.  The Contractor will take the necessary
measures to this effect.

At the Contractor’s request, the Administration may assist to facilitate all
immigration formalities with the proper authorities at the entry and exit points
in Gabon for the Contractor’s employees, contractors, subcontractors and agents
and their families.

38.3.The employees working for the Petroleum Operations shall be placed under
the authority of the Contractor or of its contractors, subcontractors and agents
in their capacity as employers.  Their work, working hours, salaries and any
other conditions related to their employment conditions will be determined by
the above-mentioned employers, in accordance with the labor and social laws in
force in Gabon.

38.4.The Contractor must train and take the necessary steps to ensure promotion
of its Gabonese employees in close cooperation with the Administration.  The
Technical Consulting Committee is informed of the procedures for application of
application of this provision.

Article 39

TRAINING OF GABONESE NATIONALS OTHER
THAN THOSE EMPLOYED BY THE CONTRACTOR

39.1.In addition to the obligation set forth in Article 38, the Contractor must
contribute to the training of other Gabonese nationals designated by the
Administration by allocating to said training for the entire duration of the
Contract:

(a)sixty thousand US dollars per Calendar Year during the period preceding
production;

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(b)one hundred thousand US dollars per Calendar Year from the start of
production.

The contributions defined in the preceding paragraphs (a) and (b) are allocated:

·

a portion for the training of Gabonese nationals in higher level schools or
universities of international reputation; the corresponding training program
will be determined by the Administration in charge of Hydrocarbons;

·

a portion for “on-the-job” training of Gabonese nationals.  This training will
take place at the Contractor’s jobsites and major centers of activity.  The
conditions of this on‑the‑job training will be defined in each case by the
Parties through mutual agreement;

·

a portion for training outside the Contractor’s structures, in the form of
seminars and assignments to other companies, of Gabonese nationals designated by
the Administration.

The terms for distribution of the sums mentioned in this Article will be decided
by mutual agreement between the Administration and the Contractor, depending on
national priorities.

39.2.The contributions mentioned in this Article are included in the Petroleum
Costs.

Article 40

ACTIVITY REPORTS DURING THE DEVELOPMENT
AND EXPLOITATION PERIOD

40.1.Unless otherwise specifically stated, the provisions of Article 11 of the
Contract pertaining to the documents and data relative to the exploration
operations, the activity reports and other information are applicable mutatis
mutandis to the development, exploitation and transportation operations.

40.2.The activity reports shall also include a statement of the production
obtained during the previous month and a statement of the quantities of
Hydrocarbons sold during the same month by the Contractor on its own behalf and,
if applicable, on behalf of the State in application of the provisions of
Article 25.2, specifying the reference data of the sale contract and,
especially, the buyer’s name, unit price and total amount of the sale,
characteristics of the Hydrocarbons sold and country of final destination.

40.3.The monthly activity reports must also include:

(a)data concerning all the exploitation, development, production and
exploitation operations performed during the Calendar Year, including the total
quantities of Hydrocarbons produced and sold;

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(b)data concerning all transportation operations and the location of any major
facilities constructed by the Contractor;

(c)a statement specifying the number of employees, their title, nationality and
the total amount of their salaries and wages, as well as a report on the medical
services and equipment made available to these employees;

(d)a descriptive statement of all the capital assets acquired or created with
the indication of the date and price or cost of acquisition.

40.4.Each entity forming the Contractor will also transmit to the Administration
in charge of Hydrocarbons by April 30 of each year a copy of its statistical and
tax declaration mentioned in Article 26.5 and information and documentation and
data to be attached.

40.5.The Contractor will notify the Hydrocarbons Administration in writing, as
promptly as possible, of any damage of any nature whatsoever caused to the
Fields or to the production facilities and will take all necessary action to
terminate and repair said damage.

40.6.The provisions of Article 11.5 are applicable, mutatis mutandis, to any
document or sample connected with the development, exploitation and transport
operations and the Parties are subject to the same obligations.

Article 41

PAYMENTS

The proceeds from Hydrocarbons sales made by either of the Parties for the
account of the other must be remitted within thirty days following the date of
the lift, unless otherwise agreed between the Parties in consideration of
specific marketing conditions.

Any other payment to the State must be made when due unless otherwise provided
in the Contract.

Hydrocarbons transfers to the State made within the framework of contribution to
the requirements of the domestic market as mentioned in Article 35 are paid for
within thirty days and, in the event of difficulties, within ninety days after
the delivery date.

Article 42

ASSIGNMENT OF INTERESTS

42.1.Each one of the companies forming the Contractor may assign all or part of
its interests deriving from the Contract to Third Parties, if their good
technical and financial reputation is well-established; the assignees will then
become jointly and severally responsible, with the other companies forming the
Contractor, for fulfillment of the clauses of the Contract. The assignor’s
rights and obligations related to the portion of interest thus assigned are
fully transferred to the assignees.

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Nevertheless, after start-up of production, the State has a preference right on
the above‑mentioned assignments under the conditions of and in accordance with
the procedures described below.  It then replaces Third party buyers at the same
terms and conditions.

42.2.Before an assignment to Third Parties goes into effect, the assignor must
obtain the approval of the Administration.  This approval cannot be withheld
without valid reasons.  To this effect, it is required to inform the
Administration in writing, specifying the names, capacities and nationalities of
the buyers, all data regarding their financial and technical capabilities, their
legal status in addition to the financial terms and procedures of the
assignment-planned, and to deliver a certified copy of the assignment agreement,
signed and executed subject to the suspensive condition of approval by the
Administration or waiver on the part of the State to exercise the preference
right described in Article 42.1.

If the Administration does not oppose the assignment in writing within thirty
days after the date of receipt of the above information and if the State does
not exercise its preference right stated in Article 42.1 within the same 30-day
period, this approval is considered granted.

42.3.If, due to partial assignment of its interest, the assignor earns a
financial profit, this will be deducted from the Petroleum Costs. If the
assignment pertains to all its interests, the assignor is subject under common
law to Corporate Tax on the amount of this profit.

For application of the preceding paragraph, the term “financial profit” refers
to the difference, if positive, between the assignment price and the
non-reevaluated amount of the Petroleum costs not yet recovered by the assignor
and computed, in the case of partial assignment, proportionally to the
percentage interests assigned.  The assignor communicates to the Administration
all information of such nature as to enable the latter to determine this profit.

When, in the case of partial assignment, the price obtained is less than the
share of unrecovered Petroleum Costs pertaining to the assigned interest, the
assignor records a decrease in its accounting of said share of Petroleum Costs
it loses any right to recover the negative difference involved.

The assignee enters in its accounting records the Petroleum Costs not recovered
by the assignor pertaining to the interest acquired or the actual acquisition
price if this is less than said Petroleum Costs not recovered by the assignor.

The assignee cannot in any case include in the Petroleum Costs the cost thereby
incurred, corresponding to this profit and paid to the assignor.

42.4.Each company forming the Contractor may assign freely and at any time all
or part of its interests deriving from the Contract, to one or more Affiliates
or to other companies forming the Contractor.  However, the assignor is required
to inform the Administration in writing.  These assignments must not in any case
be such as to harm the State’s interests, hinder performance of the Petroleum
Operations or reduce the technical and financial capabilities of the
Contractor.  If the Administration deems such to be the case, it may oppose the
assignment. Furthermore, the commitment stated in Article 46.2 involves
automatically the assignee Affiliated Company.

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The provisions of Article 42.3 are applicable to the assignments made within the
framework of this Article.

42.5.Any assignments made in violation of the provisions of Articles 42.1
through 42.4 are null and void.

Article 43

APPLICATION OF THE CONTRACT

43.1.Subject to the provisions of Article 43.4, the State guarantees to the
Contractor for the duration of the Contract the stability of the financial and
economic conditions, such as these conditions result from the Contract and from
the regulations in force on the Effective Date.

The obligations resulting from the Contract shall not be aggravated and the
general and overall equilibrium of this Contract shall not be affected in an
important and lasting manner for the entire period of validity hereof.  However,
adjustments and modifications may be agreed upon by mutual consent.

43.2.The Parties agree to cooperate in all possible ways in order .to achieve
the objectives of the Contract.  The Administration will facilitate the
performance of the Contractor’s activities by granting it any necessary permit,
license and access right and making available to it all the appropriate existing
facilities and services, so that the Parties can obtain the best possible profit
from sincere cooperation.  However, the Contractor shall comply with the
customary procedures and formalities and directly contact the competent
Administration departments to obtain the approvals and authorizations
necessary.  It must inform the Departments in charge of Hydrocarbons of the
formalities, contacts and correspondence it has and maintains with other
administrative departments.

43.3.Total or partial nationalization or expropriation of the Contractor’s
rights entail just and equitable compensation in accordance with internationally
accepted rules and principles.

43.4.The terms and conditions of the Contract shall be modified only in written
form and through mutual agreement.

Article 44

PENALTIES AND TERMINATION

44.1.Violation by the Contractor of the provisions of the Contract may entail
termination of the Contract by the Administration if, after notification with
acknowledgment of receipt to the Contractor, pursuant to the provisions of
Article 48.10., second paragraph to correct said violation and, if applicable,
the consequences thereof, the Contractor has not given any follow-up to the
Administration’s request. Termination is pronounced by Decree.

44.2.Independently of the penalties set forth in the regulations, the following
violations of the Contract will lead to termination of this Contract by decree,
after formal notice remaining

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without action fifteen days after its receipt.  Contractor will be required to
provide some explanations:

(a)refusal to provide to the Administration within the Prescribed periods the
information specified in Articles 5, 8.7, 11, 20.1, 21.1, 21.5, 26.5, 26.9, 33,
40 and 48.

(b)refusal to pay the bonuses and royalties-within the required periods of time
in the terms and conditions defined by Articles 26.1 b, 26.1 c and 28, as well
as the sums stipulated in Article 39.1.

(c)refusal to pay within the required periods of time the Proceeds from sale by
the Contractor of the State’s share of Hydrocarbons, when the Contractor handles
said sale, pursuant to the provisions of, Articles 25.2.

(d)refusal to deliver to the State its share of production in kind, pursuant to
Article 25.2 or of the mining royalty pursuant to the provisions of Article
26.1, b;

(e)suspension or serious restriction, without legitimate reason and in a manner
prejudicial to the general interest, of the exploitation activity of the Fields
discovered in the Delimited Area.

For the application of this paragraph and preceding provisions, modification
related to economic factors, such as variations in the international
Hydrocarbons market cannot be invoked as constituting a legitimate reason.

44.3.The Administration’s decision to terminate the Contract, under the
provisions of Articles 44.1 and 44.2, is communicated to the Contractor in
writing with return receipt; the latter automatically forfeits all its interests
deriving from the Contract and its right to recover its Petroleum Costs.

44.4.Termination of the Contract does not release the Contractor from its
contractual obligations arisen prior to termination of the Contract which may
not yet have been met on the date of said termination.

Article 45

OPERATIONS ON BEHALF OF THE STATE

45.1.If, during the exploration periods defined in Article 3, the State wishes
to survey and test deeper geological horizons than those proposed by the
Contractor or indicated in Article 4 for a given well, it will have the right to
ask the Contractor to continue drilling said well until the objectives set by
the State have been reached, at its exclusive expense and risk.  To do so, the
Administration will address a written request to the Contractor insofar as
possible prior to the start of said well or, if this is impossible, during the
drilling, but in no case after the Contractor has started completion or
abandonment operations on the well.

The above-mentioned request will establish the period of time beyond which the
Contractor is considered as having refused.

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The State can also contract, at its own risk, a third company to deepen a well
under conditions that it is free to establish and for the account of the State.

45.2.The Contractor may decide, before the start of the well‑deepening
operations, to take charge financially of said deepening operations, in which
case the corresponding expenses are included in the Petroleum Costs and any
Hydrocarbon discovery‑resulting from these well deepening operations will be
considered made within the framework of fulfillment of the Contract.

45.3.If the deepening of a well at the exclusive expense and risk of the State
leads to a discovery of Hydrocarbons, the State alone will have the right to
develop and exploit the discovery and dispose of all the Hydrocarbons produced.

Article 46

JOINT LIABILITY AND GUARANTEES

46.1.The clauses of the Contract are binding for the Parties and their
respective successors and assigns.  They constitute the only agreement between
them, no prior verbal or written promise or agreement between the Parties
pertaining to the purpose of the Contract can be invoked in order to modify them
or to give them a different interpretation.

The State guarantees that no other agreement exists concerning the Petroleum
Operations in the Delimited Area.

46.2.Each of the entities comprising the Contractor will have the option to
perform the Petroleum Operations through a subsidiary or ‘a branch registered in
Gabon and created to this effect.  If the signatory of the Contract is a
subsidiary thus created, the parent company of the signatory will give to the
Administration, prior to signature, a commitment, in accordance with the sample
enclosed with the Contract, guaranteeing proper performance by said subsidiary
of the obligations under the Contract.

In case of assignment, the commitments thus assumed by the signatories’ parent
companies will be replaced, regarding the rights assigned, by identical rights
of the assignees’ parent companies whose good financial and technical reputation
is well established; failing this, the assignment is considered null and void.

Article 47

FORCE MAJEURE

47.1.No delay or failure by one Party to fulfill or comply with any of the
clauses, or obligations of this Contract will be considered as a breach of said
Contract if said delay, or failure, is due to a case of Force Majeure.  The
duration of the resulting delay and such period as is necessary to repair any
damage caused during or by said delay will be added to the duration set by
Contract, if applicable.

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47.2.Force Majeure means any unforeseeable, unsurmountable and irresistible
event, not due to error or negligence by the Parties, but to circumstances
independent of their will.

Article 48

AUDITS, VERIFICATIONS AND CONTROLS

48.1.The Administration has the authority to exercise overall verification of
all the Petroleum Operations; to this effect, it has right to communication of
anything which is directly or indirectly connected with said Petroleum
Operations.

The Administration’s representatives may inspect, check and verify all the
phases of the Petroleum Operations and, specifically, they may be present during
the well tests.  To this effect, the Contractor is required to furnish all the
necessary assistance to the persons designated by the Administration and to
facilitate their tasks.

After the inspections, checks and controls of the Petroleum Operations, the
Administration may require that the Contractor perform any operation which the
Administration may deem necessary in order to ensure safety and hygiene at the
work sites, in the interest of both Parties.

The State, in its capacity as Contracting Party, and the entities forming the
Contractor included under the provisions of Article 19, may undertake, at their
cost, through experts of their choice or their own employees, all the
accounting, financial or technical examinations, verifications and audits which
they may deem necessary or useful for their information on the management and
development of the Contractor’s activities, on the technical methods thereby
employed and on the Petroleum Costs, as well as in the exercise of their right
to examine, check and audit these activities and the corresponding Petroleum
Costs.

Within the framework of the above-mentioned examination, verifications and
audits, the Contractor may be asked, in accordance with the procedure set forth
in Article 48.10, to make any adjustments, corrections, amendments or
modifications which are deemed necessary, useful or justified.

48.2.The above-mentioned examinations, verifications and audits must take place
within a period of two years after the end of the exploration periods specified
in Article 3, or, in the development and production phase, for a given Calendar
Year, within the same two-year period after the end of said Calendar Year.

The Contractor is notified by the Administration of the conclusions and results
of the examinations, verifications and audits thereby conducted.

48.3.A certified copy of the reports and conclusions following these
examinations, verifications and audits must obligatorily be delivered to the
Administration when these are conducted by the companies forming the
Contractor.  The Operator or the companies forming the Contractor are required
to inform the Administration of the follow-ups given to the conclusions and
recommendations of the reports prepared after the examinations, verifications
and audits conducted.

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48.4.Without any examinations, verifications and audits within the periods
specified in Article 48.3, first paragraph, no adjustment may be made later.

48.5.Notwithstanding the above provisions, the Administration may also, within
the normal context of its right to verification and repetition, such as set
forth by the applicable regulations, conduct at any time examinations,
verifications and audits through experts of its choice or its own employees.

48.6.For application of the provisions of this Article, the Contractor shall
deliver to the Administration, not later than April 30 of each year, a detailed
report on its activities of the preceding Calendar Year.  This report shall
include specifically, in addition to data of a technical nature, a detailed
account of the Petroleum Costs pertaining to that Calendar Year, presented in
accordance with the Accounting Agreement.  The Contractor’ files, as well as the
pertinent and necessary records, accounting and technical documents and vouchers
shall be available to the interested Parties in compliance with the above
provisions, and presented at their request or requisition.

48.7.The expenses incurred by the Administration in connection with
examinations, verifications and audits conducted in application of the
provisions of the above Articles are borne by or, if applicable, reimbursed by
the Contractor and included by the latter in the Petroleum Costs.

48.8.Subject to the prescription periods of time set forth by the applicable
regulations and by the Contract, and notwithstanding the provisions of Article
48.2, the Administration may request in writing all information, justifications
and clarifications, as well as any documents, reports, studies and accounting,
financial, legal and technical records which it may deem necessary or useful for
its information on the management and development of the Contractor’s activities
and on the Petroleum Costs, as well as for the exercise of its right to examine,
check and audit these activities and the Petroleum Costs.

48.9.If the Administration considers, on the basis of the data and information
available thereto or thereby secured either from the Contractor itself or from
Third Parties, that the reports, files, documents and accounting records contain
errors, inaccuracies, gaps or missing elements or that the Contractor has made a
mistake or committed an irregularity in the fulfillment of its obligations and
if it considers that corrections, adjustments, amendments or modifications
should be made, the Administration shall notify the Contractor in writing to
this effect within the time frame required by law.

The Contractor has then thirty days counted from the date of receipt of the
above‑mentioned notification, to make the corrections, adjustments, amendments
or modifications requested or to present its comments, either in writing or by
requesting a meeting to this effect with the Administration.  If necessary, the
Contractor may obtain, at its request, an additional period for making the
corrections, adjustments, amendments or modifications requested by the
Administration.

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The Administration shall notify the Contractor in writing of its position on the
corrections, adjustments, amendments or modifications requested and on the
explanations and justifications furnished.

If, after completion of the above procedure, a disagreement still exists between
the Administration and the Contractor, the dispute is settled by arbitration in
accordance with the provisions of Article 49.

Nevertheless, for differences of a technical nature and prior to the arbitration
procedure, the Parties may resort to the opinion of an expert selected through
joint agreement. The above-mentioned periods are then extended accordingly.

48.10.The notifications and other communications specified in the Contract are
considered as given by a Party when they are delivered into the hands of a
qualified representative of the other Party, at its domicile elected in Gabon,
sent by telegram, cable, telex or other means of telecommunication, all expenses
paid, or placed in an envelope and entrusted, as registered mail with the proper
postage, to the Postal Administration of Gabon. The notifications and other
communications shall be considered as made on the date of receipt by the
addressee.

Article 49

ARBITRATION

49.1.If, after completion of the procedure set forth in Article 48.10, any
disputes still exist between the Parties in connection with the application of
the clauses of the Contract or regarding the obligations resulting therefrom
shall be resolved through arbitration and, subject to the provisions
hereinbelow, pursuant to the Conciliation and Arbitration Regulations of the
International Chamber of Commerce.

The arbitration procedure is instituted by request addressed by the applicant
Party to the Secretary of the Arbitration Court within sixty days following
expiration of the thirty day period defined in Article 48.10; 4th paragraph,
plus, if applicable, the additional period defined in the same fourth paragraph
of said Article.  The starting point of proceedings is the date of receipt of
the aforesaid request by the Secretary of the Arbitration Court.

Each Party designates its arbitrator and notifies the other Party and the
Arbitration Court of that designation within thirty days after the start of the
arbitration proceedings as defined above.

If, at the end of this period, the applicant Party has not designated its
arbitrator, it is deemed to have renounced its request.  If the defending Party
has not designated its arbitrator by the end of the same period, the other Party
may directly inform the Arbitration Court of the International Chamber of
Commerce and request that it make the said designation within the shortest
possible time.

The arbitrators shall not be of the same nationality as that of any of the
Parties.

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Within forty-five days after the date of designation of the last of them, the
arbitrators thus designated select a third arbitrator, who becomes the President
of the Arbitration Court.  Failing agreement, the Arbitration Court of the
International Chamber of Commerce is requested by the more diligent Party to
make said designation within the shortest possible time.

The arbitrators are free to choose the procedure they intend to apply.

The decision of the arbitrators is final; it is binding on the Parties and is
immediately enforceable.

49.2.The place of arbitration will be Paris, France.  The arbitration language
will be French, the applicable law will be the law of Gabon, and the clauses of
the Contract are interpreted by reference to Gabonese law.

49.3.Each party bears the expenses and the fees of its own arbitrator.  The
expenses and the fees of the third arbitrator as well as the other expenses
related to the arbitration will be borne equally by the Parties.

49.4.The arbitration procedure does not cause the execution of the Parties’
contractual obligations to be suspended during the progress of the arbitration.

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Article 50

EFFECTIVE DATE

The Contract will be approved by Decree.  The Effective Date will be the date of
signature of the Contract.  In witness whereof, the Parties have signed the
Contract in ten duplicate originals.

﻿

 

﻿

Libreville, July 7, 1995

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

By:       /s/ Paul Toungui   

By:       /s/ Charles W. Alcorn, Jr.

Name:  PAUL TOUNGUI

Name:  Charles W. Alcorn, Jr.

Title: The Minister of Mines, Energy
and Petroleum

Title:  Chief Executive Officer for Vaalco Gabon (Etame), Inc. and Vaalco Energy
(Gabon), Inc.   

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

﻿

 

By:       /s/ Marcel Doupamby Matoka

 

Name:  MARCEL DOUPAMBY MATOKA

 

Title:    The Minister of Finance, Economy, Budget and Joint Ventures

 

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ANNEXE Nº 1

ZONE DELIMITEE

La Zone Délimitée d’ETAME dont les limites sont définies comme suit, les
coordonnées étant données dans le système de projection UTM, base sur
l’ellipsoïde de Clarke 1880, fuseau 32, ayant pour origine le point M’PORALOKO,
avec:

X = 500’000 mètres sur le meridian central 9º 00’ 00” EST;

﻿

Y – 10’000’000 mètres sur l’équateur

﻿

﻿

 

 

 

 

 

﻿

X

Y

 

X

Y

﻿

 

 

 

 

 

A

659,500

9,600,500

W

683,000

9,598,000

B

659,500

9,590,500

X

684,000

9,598,000

C

645,500

9,590,500

Y

684,000

9,597,000

D

645,500

9,546,189

Z

691,000

9,597,000

E

676,500

9,519,916

Z1

691,000

9,596,000

F

676,500

9,550,000

Z2

693,000

9,596,000

G

681,500

9,550,000

Z3

693,000

9,594,000

H

681,500

9,558,500

Z4

694,000

9,594,000

I

688,000

9,558,500

Z5

694,000

9,593,000

J

688,000

9,580,000

Z6

695,000

9,593,000

K

723,600

9,580,000

Z7

695,000

9,592,000

L

690,600

9,614,000

Z8

696,000

9,592,000

M

676,535

9,614,000

Z9

696,000

9,591,000

N

672,000

9,609,429

Z10

697,000

9,591,000

O

672,000

9,608,000

Z11

697,000

9,590,000

P

673,000

9,608,000

Z12

698,000

9,590,000

Q

673,000

9,602,000

Z13

698,000

9,586,000

R

681,000

9,602,000

Z14

688,000

9,586,000

S

681,000

9,601,000

Z15

688,000

9,583,800

T

682,000

9,601,000

Z16

683,000

9,588,000

U

682,000

9,600,000

Z17

665,091

9,602,240

V

683,000

9,600,000

Z18

661,498

9,598,502

﻿

La superficie de la Zone Délimitée est donc repute à 3,073.598 km2

 

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﻿

Picture 1 [egy-20171231xex10_1g001.jpg]

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EXHIBIT B
TO
PARTICIPATION AGREEMENT
SUMMARY OF ETAME PERMIT WORK PROGRAM AND BUDGET
EFFECTIVE DATE THROUGH JUNE 30, 1998
(SUMMARY OF ESTIMATED COSTS)

﻿

 

Acquisition and processing of 300 km. 2D and 385 sq. km. 3D seismic survey

$3,000,000 

﻿

 

﻿

 

Drilling, logging and testing of one exploratory well in accordance with Article
4 of the Contract

$6,800,000 

﻿

 

﻿

 

Geological, geophysical and reservoir engineering studies

$400,000 

﻿

 

﻿

 

Reprocessing of existing 2D seismic data

$270,000 

﻿

 

﻿

 

General and administrative

$500,000 

﻿

 

﻿

 

Overhead

$329,100 

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TOTAL

$11,299,100 

﻿

﻿

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