Exhibit 10.08

PRODUCTION SHARING CONTRACT
BETWEEN

THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE
REPRESENTED BY
AGENCIA NACIONAL DO PETROLEO DE SAO TOME AND PRINCIPE

BP EXPLORATION (STP) LIMITED
AND
KOSMOS ENERGY SAO TOME AND PRINCIPE

FOR
BLOCK 10

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TABLE OF CONTENTS

Clause
Title
Page Number

 
 
 
1
DEFINITIONS AND INTERPRETATION
3

2
BONUSES AND SOCIAL PROJECTS
9

3
SCOPE
10

4
TERM
10

5
COMMERCIAL DISCOVERY AND DECLARATION OF COMMERCIALITY
11

6
RELINQUISHMENT OF AREAS
12

7
MINIMUM WORK PROGRAM AND BUDGET
13

8
STATE PARTICIPATION AND CARRY
16

9
RIGHTS AND OBLIGATIONS OF THE PARTIES
17

10
RECOVERY OF OPERATING COSTS AND SHARING OF PETROLEUM PRODUCTION
20

11
VALUATION OF CRUDE OIL
22

12
PAYMENTS
24

13
TITLE TO EQUIPMENT / DECOMMISSIONING
25

14
EMPLOYMENT AND TRAINING OF NATIONALS OF THE STATE
27

15
BOOKS AND ACCOUNTS, AUDIT AND OVERHEAD CHARGES
28

16
TAXES AND CUSTOMS
30

17
INSURANCE
30

18
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
32

19
ASSIGNMENT
33

20
TERMINATION
34

21
FORCE MAJEURE
36

22
LAWS AND REGULATIONS
36

23
NATURAL GAS
36

24
REPRESENTATIONS AND WARRANTIES
37

25
CONCILIATION AND ARBITRATION
38

26
EFFECTIVE DATE
41

27
REVIEW / RE-NEGOTIATION OF CONTRACT AND FISCAL TERMS
41

28
OPERATOR
41

29
CONFLICT OF INTERESTS
42

30
NOTICES
42

31
LIABILITY
43

32
MISCELLANEOUS
43

SCHEDULE 1 CONTRACT AREA
46

SCHEDULE 2 ACCOUNTING PROCEDURES
49

SCHEDULE 3 ALLOCATION AND LIFTING PROCEDURES
59

SCHEDULE 4 PROCUREMENT AND PROJECT IMPLEMENTATION PROCEDURES
62

SCHEDULE 5 SALE OF ASSETS PROCEDURE
69

SCHEDULE 6 FORM OF PARENTAL GUARANTEE
70

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THIS PRODUCTION SHARING CONTRACT is made and entered into on this 9th day of
March 2018 by and between:

(1)
THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE represented by the AGÊNCIA
NACIONAL DO PETRÓLEO DE SÃO TOMÉ E PRÍNCIPE;

and

(2)     
BP EXPLORATION (STP) LIMITED, a company organized and existing under the laws of
England, whose registered office is at Chertsey Road, Sunbury-on-Thames,
Middlesex TW16 7LN, United Kingdom, with a branch registered at Guiché Único de
São Tomé e Princípe under nº 8042/20180308 and offices located at Avenida da
Independência no. 392, II/III, São Tomé – São Tomé e Príncipe, hereinafter
referred to as “BP” and

 
(3)  
KOSMOS ENERGY SAO TOME AND PRINCIPE, a company organized and existing under the
laws of Cayman Islands, whose registered office is at c/o Circumference
(Cayman), P.O. Box 32322, 4th floor, Century Yard, Cricket Square, Elgin Avenue,
George Town, Grand Cayman, KY1, 1209 with a branch registered in Sao Tome and
Principe with the Guiché Único under nº 5492/2016 at Condomínio da Praia Lagarto
C.P. 987 Distrito de Agua Grande, São Tomé - São Tomé e Príncipe, hereinafter
referred to as “Kosmos” 

 
(BP and Kosmos are together the “Contractor”).

BACKGROUND:

(A)
All Petroleum existing within the Territory of Sao Tome and Principe, as set
forth in the Petroleum Law, are natural resources exclusively owned by the
State.

(B)
The Agência Nacional do Petróleo de São Tome e Príncipe, with the approval of
the Government of Sao Tome and Principe, has the authority to enter into
contracts for the conduct of Petroleum Operations in and throughout the area,
whose co-ordinates are described and outlined on the map in Schedule 1 of this
Contract, which area is hereinafter referred to as the Contract Area.

(C)
The State wishes to promote Petroleum Operations in the Contract Area and the
Contractor desires to join and assist the State in accelerating the exploration
and exploitation of potential Petroleum resources within the Contract Area.

(D)
The Contractor has the necessary financial capability and technical knowledge
and ability to carry out the Petroleum Operations hereinafter described in
accordance with this Contract, the Petroleum Law and Good Oil Field Practice.

(E)
Pursuant to and in accordance with the Petroleum Law, this Contract has been
entered into by and between the State and the Contractor for the purpose of
Petroleum Operations in the Contract Area.

(F)
BP is hereby designated as the Operator under Clause 28 of this Contract.

IT IS AGREED as follows:

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1.    DEFINITIONS AND INTERPRETATION

1.1
Except where the context otherwise indicates or as defined in the Petroleum Law
and Petroleum Operations Regulation, the following words and expressions shall
have the following meanings:

"Accounting Procedures" means the rules and procedures set forth in Schedule 2;
"Affiliate" means in respect of a Party, a Person that Controls, is Controlled
by, or is under the common Control with, the Party or any such Person, as the
case may be;
"Allocation and Lifting Procedures" means the allocation and lifting procedures
set forth in Schedule 3 until a lifting agreement has been agreed between the
Parties pursuant to Clause 9.2(j) after which references to the "Allocation and
Lifting Procedures" shall be deemed to be references to such agreement;
"Appraisal" means the activities carried out after the discovery of a Petroleum
deposit with the objective of defining the parameters of the deposit in order to
determine its commerciality including, but not limited to, the following:
(a)    drilling of Appraisal Wells and running tests; and
(b)
running supplementary studies and acquisition, processing and interpretation of
geophysical and other data;

"Appraisal Well" means any well whose purpose at the time of commencement of
drilling such well is the determination of the extent or volume of Petroleum
contained in a Discovery;
“Associate” means any Affiliate, subcontractor or other Person associated with a
Contractor in the conduct of Petroleum Operations;
"Associated Natural Gas" means all Natural Gas produced from a Reservoir the
predominant content of which is Crude Oil and which is separated from Crude Oil
in accordance with generally accepted international petroleum industry practice,
including free gas cap, but excluding any liquid Petroleum extracted from such
gas either by normal field separation, dehydration or in a gas plant;
"Available Crude Oil” means the Crude Oil recovered from the Contract Area, less
quantities used for Petroleum Operations;
"Barrel" means a quantity or unit of Crude Oil, equal to 158.9874 liters
(forty-two (42) United States gallons) net of basic sediment and water at a
temperature of fifteen point five six degrees (15.56°) Centigrade (sixty degrees
(60°) Fahrenheit) at one (1) atmosphere of pressure;
"Budget" means the cost estimate of items included in an approved Work Program;

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"Calendar Year" or "Year" means a period of twelve (12) months commencing from
January 1 and ending the following December 31, according to the Gregorian
calendar;
"Commercial Discovery" means any Discovery, which has been declared to be
commercial by the Contractor;
"Contract" means this production sharing contract, including its Recitals and
Schedules;
"Contract Area" means the geographic area within the Territory of Sao Tome and
Principe which is the subject of this Contract and as described in Schedule 1,
as such area may be amended in accordance with the terms herein;
"Contractor’s Intellectual Property Rights" means  any and all of Contractor’s
patents, patent applications, patent disclosures, inventions and improvements
(whether patentable or not), copyrights and copyrightable works (including
computer programs) and registrations and applications therefor any software,
firmware, or source code, trade secrets, know-how, database rights, and all
other forms of intellectual property created, as well as any other data and
information developed or conceived by Contractor prior to the Effective Date,
but specifically excludes the National Petroleum Agency’s right to have legal
title to and keep originals of all data and information resulting from Petroleum
Operations including geological, geophysical, engineering, well logs,
completion, production, operations, status reports and any other data and
information as the Contractor may compile during the term of this Contract;
"Cost Oil" means the quantum of Available Crude Oil allocated to the Contractor
for recovery of Operating Costs after the allocation of Royalty Oil to the
State;
"Control" means, in relation to a Person, the power of another Person to secure:
(a)
by means of the holding of shares or the possession of voting power, directly or
indirectly, in or in relation to the first Person; or

(b)
by virtue of any power conferred by the articles of association of, or any other
document regulating, the first Person or any other Person,

so that the affairs of the first Person are conducted in accordance with the
decisions or directions of that other Person;    
"Crude Oil" means crude mineral oil and liquid hydrocarbons in their natural
state or obtained from Natural Gas by condensation or extraction;
"Decommissioning" means to abandon, decommission, transfer, remove and/or
dispose of structures, facilities, installations, equipment and other property
and other works used in Petroleum Operations in the Contract Area, to clean the
Contract Area and make it good and safe, and to protect the environment, as
further set out herein, and in the Petroleum Law and other applicable laws and
regulations;
"Delivery Point" means the point located within the jurisdiction of the State at
which Petroleum reaches (i) the inlet flange at the FOB export vessel, (ii) the
loading facility

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metering station of a pipeline or (iii) such other point within the jurisdiction
of the State as may be agreed between the Parties;
"Development" means activities carried out for a commercial discovery in order
to achieve Production including, without limitation:
(a)
geological, geophysical and reservoir studies and surveys;

(b)
drilling of production and injection wells; and

(c)
design, construction, installation, connection and initial testing of equipment,
pipelines, systems, facilities, machinery and related activities necessary to
produce and operate said wells, to take, treat, handle, store, re-inject,
transport and deliver Petroleum, and to undertake re-pressuring, recycling and
other secondary and tertiary recovery projects;

"Development Area" means the extent of an area within the Contract Area capable
of Production of Petroleum identified in a Commercial Discovery, and agreed upon
by the National Petroleum Agency following such Commercial Discovery;
"Discovery" means any geological structure(s) in which, after testing, sampling
and/or logging an Exploration Well, the existence of mobile hydrocarbons has
been made probable and which structure(s) the Contractor deems worthy of
evaluating further by conducting Appraisal operations;
"Effective Date" has the meaning ascribed to it in Clause 26.1;
"Exploration" means the set of operations carried out through the use of
geological, geochemical and/or geophysical methods, with a view to locating
Reservoirs, as well as the processing, analysis and interpretation of data so
acquired as well as regional studies and mapping, in each case leaving an
appraisal or better knowledge of the Petroleum potential of a given area and the
drilling and testing of wells that may lead to the discovery of Petroleum;
"Exploration Period" has the meaning ascribed to it in Clause 4.1;
"Exploration Well" means a well on any geological structure(s), whose purpose at
the time of commencement of such well is to explore for an accumulation of
Petroleum whose existence at the time was unproven by drilling;
"Field Development Program" means the program of activities presented by the
Contractor to the National Petroleum Agency for approval outlining the plans for
the Development of a Commercial Discovery. Such activities include:
(a)
Reservoir, geological and geophysical studies and surveys;

(b)
drilling of production and injection wells; and

(c)
design, construction, installation, connection and initial testing of equipment,
pipelines, systems, facilities, plants and related activities necessary to
produce and operate said wells, to take, save, treat, handle, store, transport
and deliver

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Petroleum, and to undertake re-pressurizing, recycling and other secondary or
tertiary recovery projects;
"Force Majeure" has the meaning ascribed to it in Clause 21;
"Good Oil Field Practice" means the standards, methods and practices generally
used in good and prudent international offshore oil and gas field practice;
"Government" means the government of Sao Tome and Principe, as provided for in
article 109 of the Constitution;
"Gross Negligence" or "Willful Misconduct" means any act or failure to act
(whether sole, joint or concurrent) by a person or entity which was intended to
cause, or which was in reckless disregard of or wanton indifference to, harmful
consequences such person or entity knew, or should have known, such act or
failure would have on the safety or property of another person or entity;
"LIBOR" means the London interbank offered rate for six (6) month deposits
denominated in United States dollars as published electronically by ICE
Benchmark Administration Limited (or any other person which takes over the
administration of that rate). The applicable rate for each month or part thereof
within an applicable interest period shall be the interest rate published on the
last business day of the immediately preceding calendar month. If no such rate
is published during a period of five (5) consecutive business days, another rate
chosen by mutual agreement between the National Petroleum Agency and the
Contractor shall apply;
"Minimum Financial Commitment" has the meaning ascribed to it in Clause 7.3(a);
"Minimum Work Obligations" has the meaning ascribed to it in Clause 7.2;
"National Petroleum Account" means the account established in accordance with
the Oil Revenue Law;
"National Petroleum Agency" or "Agência Nacional do Petróleo" means the State
regulatory agency established by the Government Decree-Law 5/2004 of the 30th of
June, which is responsible for the regulation and supervision of Petroleum
Operations or any agency which succeeds the National Petroleum Agency with
respect to some or all of its powers;
"Natural Gas" or “Gas” means all gaseous hydrocarbons and inerts, including wet
mineral gas, dry mineral gas, gas produced in association with Crude Oil and
residue gas remaining after the extraction of liquid hydrocarbons from wet gas,
but not including Crude Oil;
"Oil Revenue Law" means the oil revenue law of the State, Law No. 8/2004 of the
30th of December, as amended, supplemented or replaced from time to time;
"Operating Costs" means expenditures incurred and obligations made as determined
in accordance with Article 2 of the Accounting Procedures;

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"Parties" or "Party" means the parties or a party to this Contract;
"Person" means any individual or legal entity, consortium, join venture,
partnership, trust, heir, unincorporated or incorporated organization, or
government or any agency or local entity, whether national or foreign, Resident
or Non-Resident (as defined in the Petroleum Taxation Law) of Sao Tome and
Principe;
"Petroleum" means:
(a)
any naturally occurring hydrocarbon, whether in a gaseous, liquid or solid
state;

(b)
any mixture of naturally occurring hydrocarbons, whether in a gaseous, liquid or
solid state; or

(c)
any Petroleum (as defined above) that has been returned to a Reservoir;

"Petroleum Law" means the Fundamental Law on Petroleum Operations, Law no.
16/2009 of 31 December, 2009, as amended or supplemented from time to time, and
regulations made and directions provided under such law;
"Petroleum Operations" means activities undertaken in the Contract Area for the
purposes of:
(a)
the Exploration, Appraisal, Development, Production, transportation, sale or
export of Petroleum;

(b)
the construction, installation or operation of any structures, facilities or
installations for the Development, Production and export of Petroleum, or
Decommissioning or removal of any such structure, facility or installation;

"Petroleum Operations Regulation" means the rules on petroleum operations
published in the Official Journal, Supplement nº 28, dated 31st December 2010;
"Petroleum Taxation Law" means the Petroleum Taxation Law, Law no. 15/2009 of 31
December, 2009, as amended, supplemented or replaced from time to time;
"Proceeds" means the amount in United States dollars determined by multiplying
the Realizable Price by the number of Barrels of Available Crude Oil lifted by a
Party;
"Production" means the activities involved in the extraction of Petroleum
including, without limitation, the running, servicing, maintenance and repair of
completed wells, as well as of the equipment, pipelines, systems, facilities and
plants completed during Development including all activities related to the
planning, scheduling, controlling, measuring, testing, gathering, treating,
storing and dispatching of Petroleum from the underlying Reservoir to the
designated exporting or lifting locations and furthermore, the Decommissioning
of wells, facilities, pipelines and Reservoirs and related activities;
"Production Period" has the meaning ascribed to it in Clause 4.6;

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"Profit Oil" means the balance of Available Crude Oil after the allocation of
Royalty Oil and Cost Oil;
"Quarter" means a period of three (3) consecutive Months starting with the first
day of January, April, July or October of each Year;
"Realizable Price" means the price in United States dollars per Barrel
determined in accordance with Clause 11;
"Relinquished Area" means that portion of the Contract Area that is relinquished
pursuant to and in accordance with Clauses 5.1(d) and/or 6;
"Reservoir” means a porous and permeable underground formation containing an
individual and separate natural accumulation of producible Petroleum that is
confined by impermeable rock and/or water barriers and is characterized by a
single natural pressure system;
"Retained Area" means that portion of the Contract Area that is retained after a
relinquishment under Clauses 5.1(d) and/or 6;
"Royalty" or "Royalty Oil" means the quantum of Available Crude Oil allocated to
the State, based on a percentage calculated as a function of daily production
rates as set forth in Clause 10.1(a);
"State" means the Democratic Republic of Sao Tome and Principe;
"State Entity" means any entity or body which integrates the public
administration’s structure of the State or, in any other way, an entity in which
the State has a full equity or full interest ownership designated by the State
under Clause 8 of this Contract;
"Tax" means the tax payable pursuant to the Petroleum Taxation Law;
"Unassociated Natural Gas" or “Unassociated Gas” means that part of Natural Gas
which is not Associated Natural Gas; and
"Work Program" means the work commitments itemizing the Petroleum Operations to
be carried out in the Contract Area for the required period as defined in Clause
7.
1.2
Unless the context otherwise requires, reference to the singular shall include
the plural and vice versa and reference to any gender shall include all genders.

1.3
The Schedules form an integral part of this Contract.

1.4
The table of contents and headings in this Contract are inserted for convenience
only and shall not affect the meaning or construction of this Contract.

1.5
References in this Contract to the words "include", "including" and "other"
shall be construed without limitation.

1.6
In the event of any inconsistency between the main body of this Contract and any
Schedule, the provisions of the former shall prevail.

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2.    BONUSES AND SOCIAL PROJECTS

2.1
Signature Bonus

The Contractor shall pay to the State by deposit into the National Petroleum
Account a signature bonus in the amount of US$5,000,000 (five million United
States dollars) within thirty (30) days after both the execution of this
Contract and delivery to the Contractor of an instrument of ratification and in
immediately available funds.
 
2.2
Production Bonuses

The Contractor shall pay to the State by deposit into the National Petroleum
Account production bonuses based on attainment of cumulative Production of
Petroleum from each Development Area as follows:

Cumulative Production (millions of Barrels or Barrels equivalent)
Bonus (US$ million)
50
7.5
150
10
350
15
500
20

2.3
The production bonuses provided for in Clause 2.2 shall be payable to the State
by deposit into the National Petroleum Account within thirty (30) days of such
Production level being first attained in immediately available funds.

2.4
The signature and production bonuses provided for in this Clause 2 shall not be
recoverable as Cost Oil or deductible for Tax purposes.

2.5
Social Projects

The Contractor commits to undertake social projects during the Exploration
Period valued at US$17,000,000 (seventeen million United States dollars), capped
at US$15,000,000 (fifteen million United States dollars) in the Exploration
Phase I, US$1,000,000 (one million United States dollars) in Exploration Phase
II and US$1,000,000 (one million United States dollars) in Exploration Phase
III. If Petroleum is produced from the Contract Area, the Contractor shall
undertake additional social projects according to the following schedule:

Cumulative Production (millions of Barrels or Barrels equivalent)
Value (US$ million) of Project
20
2.5
40
5.0
60
7.5

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2.6
The details of the social projects to be undertaken by the Contractor in
accordance with Clause 2.5 shall be determined by agreement between the
Contractor and the National Petroleum Agency. Failing such agreement, the
Contractor and the National Petroleum Agency shall each submit a proposal to an
expert appointed by the World Bank and such expert shall determine which of the
two (2) proposals shall be implemented. The Contractor shall be solely
responsible for any and all costs and expenses associated with the foregoing
expert determination. The value of the projects provided for in Clause 2.5 above
shall not be recoverable as Cost Oil or deductible for Tax purposes.

2.7
The Contractor shall be responsible for the implementation of all agreed or
chosen social projects, which shall be undertaken using all reasonable skill and
care.

3.    SCOPE

3.1
This Contract is a production sharing contract awarded pursuant to the Petroleum
Law and governed in accordance with the terms and provisions hereof. The conduct
of Petroleum Operations and provision of financial and technical requirements by
the Contractor under this Contract shall be with the prior approval of or in
prior consultation with the National Petroleum Agency as required under this
Contract or the Petroleum Law. The State hereby appoints and constitutes the
Contractor as the exclusive company(ies) to conduct Petroleum Operations in the
Contract Area.

3.2
During the term of this Contract the total Available Crude Oil shall be
allocated to the Parties in accordance with the provisions of Clause 10, the
Accounting Procedures and the Allocation and Lifting Procedures.

3.3
The Contractor together with its Affiliates shall provide all funds and bear all
risk of Operating Costs and the sole risk in carrying out Petroleum Operations.

3.4
The Contractor shall engage in Petroleum Operations solely in accordance with
the Petroleum Law, the Petroleum Taxation Law, Good Oil Field Practice and all
other applicable laws and regulations.

4.    TERM

4.1
Save as otherwise provided in Clause 4.6 and the extensions granted by the
National Petroleum Agency, and subject to Clause 20, the term of this Contract
shall be for a period of twenty-eight (28) years from the Effective Date, with
an eight (8) year Exploration and Appraisal period, as extended pursuant to
Clauses 5.1(b) and/or (c) (the "Exploration Period") and a twenty (20) year
Production period, as extended pursuant to Clause 4.6.

4.2
The Exploration Period shall be divided as follows:

Phase I:    four (4) years from the Effective Date;

Phase II:
from the end of Phase I until two (2) years after the end of Phase I; and

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Phase III:
from the end of Phase II until two (2) years after the end of Phase II, as
extended pursuant to Clauses 5.1(b) and/or (c).

    
4.3
The Contractor shall commence Petroleum Operations no later than thirty (30)
days after the National Petroleum Agency has approved the first Work Program.

4.4
Provided the Contractor has fulfilled all of its obligations relative to the
current phase of the Exploration Period as described in Clause 7.2, the
Contractor may enter the next phase. The Contractor shall provide the National
Petroleum Agency with written notice of its intention to enter the next phase of
the Exploration Period at least sixty (60) days prior to the end of the relevant
phase. The report shall document that the work commitments for the phase are
fulfilled. The Ministry may, upon application, exempt Contractor from the work
obligations.

4.5
Provided the Contractor has fulfilled all of its obligations relative to the
current phase of the Exploration Period as described in Clause 7.2, the
Contractor may terminate this Contract at the end of any phase during the
Exploration Period in accordance with Clause 20.7.

4.6
The Contractor shall have the right to produce Petroleum from each Development
Area for a period of twenty (20) years from the date of the first commercial
Production in the relevant Development Area (the “Production Period”). This
Contract will terminate with respect to the relevant Development Area at the end
of such twenty (20) year period unless the National Petroleum Agency grants an
extension on application of the Contractor. The Contractor may, for any
Development Area, be granted one (1) or more five (5) year extension periods for
a Development Area until all Petroleum has been economically depleted. In
connection with any such extensions, the Parties agree to engage in good faith
to re-negotiate the commercial terms of this Contract governing the applicable
Development Area at least five (5) years prior to the expiration of the initial
twenty (20) year period and at least two (2) years prior to the expiration of
any subsequent extension period.

5.    COMMERCIAL DISCOVERY AND DECLARATION OF COMMERCIALITY

5.1
The sequence of Petroleum Operations to establish a Commercial Discovery of
Petroleum (other than Unassociated Natural Gas) shall be as follows:

(a)
the Contractor shall have a period of up to forty-five (45) days from the date
on which the drilling of the applicable Exploration Well terminates to declare
whether the Exploration Well has proven a Discovery;

(b)
the Contractor shall then have a period of two (2) years (unless otherwise
agreed by the National Petroleum Agency) from declaration of a Discovery to
declare the Discovery, either on its own or in aggregation with other
Discoveries, a

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Commercial Discovery, which may be extended for one (1) year, subject to the
approval of the National Petroleum Agency and observance of Clauses 2.5
(pro-rata per annum) and 14.7, if the results of those activities indicate that
further Appraisal is necessary;

(c)
if the Contractor declares a Commercial Discovery it shall have a period of two
(2) years (unless otherwise agreed by the National Petroleum Agency) from the
time the Contractor declares a Discovery or aggregation of Discoveries to be a
Commercial Discovery to submit a Field Development Program to the National
Petroleum Agency for approval;

(d)
in the event a Discovery is not determined to be a Commercial Discovery, upon
expiration of the period set out in Clause 5.1(b), the State may, provided it
gives at least eighteen (18) months' notice, require the Contractor to promptly
relinquish, without any compensation or indemnification whatsoever, the area
encompassing the Discovery, including all of its rights to Petroleum which may
be produced from such Discovery;

(e)
if a Field Development Program is approved by the National Petroleum Agency, the
Contractor shall initiate field development and production according to the time
schedule outlined in such Field Development Program.

5.2
Unassociated Natural Gas shall be developed in accordance with Clause 23.4.

6.    RELINQUISHMENT OF AREAS

6.1
The Contractor must relinquish the Contract Area or part thereof in accordance
with the following:

(a)
twenty-five percent (25%) of the initial surface area of the Contract Area shall
be relinquished at the end of Phase I of the Exploration Period;

(b)
a further twenty-five percent (25%) of the initial surface area of the Contract
Area shall be relinquished at the end of Phase II of the Exploration Period; and

(c)
the remainder of the Contract Area shall be relinquished at the end of Phase III
of the Exploration Period less:

(i)
any area which is the subject of an approved Appraisal program pursuant to
Clause 5.1(b) or any Development Area;

    
(ii)
areas for which the approval of a Field Development Program is pending, until
finally decided; and

(iii)
any area reserved for a possible Unassociated Natural Gas Appraisal in relation
to which the Contractor is engaged in discussions with the State in accordance
with Clause 23.4.

 

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6.2
Any Retained Area and Relinquished Area shall be, as far as possible, single
continuous units and delimited by meridians of longitude and parallels of
latitude defined in the relevant coordinate reference system using degrees,
minutes and seconds to the nearest whole minute to be approved by the National
Petroleum Agency. In the case where the Retained Area or Relinquished Area is
aligned with an international maritime boundary the international maritime
boundary shall define the relevant edges of the Retained Area or Relinquished
Area.

6.3
Any Relinquished Area shall revert to the State.

6.4
Subject to the Contractor's obligations under Clause 7 and its Decommissioning
obligations, the Contractor may at any time notify the National Petroleum Agency
upon three (3) months prior written notice that it relinquishes its rights over
all or part of the Contract Area. In no event shall any voluntary relinquishment
by the Contractor over all or any part of the Contract Area reduce the Minimum
Work Obligations or Minimum Financial Commitment set out in Clause 7.

7.    MINIMUM WORK PROGRAM AND BUDGET    

7.1
Within two (2) months after the Effective Date and thereafter at least three (3)
months prior to the beginning of each Calendar Year, the Contractor shall
prepare and submit for the approval of the National Petroleum Agency, a Work
Program and Budget for the Contract Area setting forth the Petroleum Operations
which the Contractor proposes to carry out during the ensuing Year, or in case
of the first Work Program and Budget, during the remainder of the current Year.

7.2
The minimum Work Program for each phase of the Exploration Period is as follows
(the "Minimum Work Obligations"):

(a)
Phase I: The Contractor shall: acquire six thousand eight hundred (6,800) square
kilometres (km2) 3D seismic.

(b)
Phase II: If the Contractor elects to enter Phase II, then during such Phase II
of the Exploration Period the Contractor shall drill one (1) well into the
Campanian/Santonian or to a total depth of five thousand, five hundred (5,500)
meters sub-sea in the Contract Area.

(c)
Phase III: If the Contractor elects to enter Phase III of the Exploration
Period, then during such Phase III the Contractor shall drill one (1) well.

7.3     Minimum Financial Commitments

(a)
The Contractor shall be obligated to incur the following minimum financial
commitment (the "Minimum Financial Commitment"):

Phase I:
US$15,000,000 (fifteen million United States dollars)

Phase II:    US$30,000,000 (thirty million United States dollars)
Phase III:    US$30,000,000 (thirty million United States dollars)

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(b)
If the Contractor fulfills the Minimum Work Obligations set forth in Clause 7.2
for each phase of the Exploration Period, then the Contractor shall be deemed to
have satisfied the Minimum Financial Commitments for each such phase.

If the Contractor fails to complete the Minimum Work Obligations for any phase
of the Exploration Period and such commitment has not been moved to the next
phase, if any, with the consent of the National Petroleum Agency, then the
Contractor shall pay to the State by deposit into the National Petroleum Account
(i) the difference between the Minimum Financial Commitment for the then current
phase and the amount actually expended in Petroleum Operations for such phase
and (ii) two percent 2% of the Minimum Financial Commitment for the subsequent
phase that is not initiated, as liquidated damages in full and final settlement
of all potential claims for breach of this Contract and, notwithstanding Clause
20, this Contract shall automatically terminate.

7.4
The Contractor shall be excused from any delay or failure to comply with the
terms and conditions of Clauses 7.2 and/or 7.3:

(a)
during any period of Force Majeure; or

(b)
if the National Petroleum Agency or any other State authority denies the
Contractor any required permissions to perform the Petroleum Operations which
constitute Minimum Work Obligations.

7.5
The time for performing any incomplete Minimum Work Obligations for any phase of
the Exploration Period and the term of this Contract shall be extended by the
following periods in the circumstances set out in Clause 7.4:

(a)
with respect to Clause 7.4(a), for the period during which Force Majeure is in
existence; and

(b)
with respect to Clause 7.4(b), for six (6) months to permit the Contractor time
to make a revised drilling plan or other work which is satisfactory to the
National Petroleum Agency.

7.6
If any circumstance described in Clauses 7.4 and 7.5 is not resolved within the
time periods specified above, then after consultation with National Petroleum
Agency, the Contractor shall be liable to pay into the National Petroleum
Account an amount corresponding to the unfulfilled work for that phase and,
notwithstanding Clause 20, this Contract shall automatically terminate.

7.7
Any unfulfilled Minimum Work Obligation in any phase of the Exploration Period
may, with the written consent of the National Petroleum Agency, be added to the
Minimum Work Obligation for the next succeeding phase.

7.8
Expenditures or work by the Contractor over and above the Minimum Work
Obligations or Minimum Financial Commitment for any phase shall be credited
against and reduce

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the Minimum Work Obligations or Minimum Financial Commitments for the next
succeeding phase.

7.9
For the purposes of determining whether an Exploration Well or an Appraisal Well
has been drilled in accordance with the Minimum Work Obligations, such a well
shall be deemed drilled if the minimum total depth has been reached or if any
one of the following events occurs prior to reaching the minimum total depth:

(a)
a Discovery is made and further drilling may cause irreparable damage to such
Discovery;

(b)    basement is encountered;

(c)
the National Petroleum Agency and the Contractor agree the well is drilled for
the purpose of fulfilling the obligation to complete the Minimum Work
Obligation; or

(d)
technical difficulties are encountered which, in the judgment of the Contractor
and in accordance with Good Oil Field Practice, makes further drilling
impracticable, uneconomic, unsafe or a danger to the environment.

7.10
The Exploration Period provided in Clause 4.2, may be extended for an additional
six (6) months to conclude the drilling and testing of any well for which
operations have been commenced by the end of Phase III of such period (as
extended); provided that if no Commercial Discovery has been declared by the
Contractor during the Exploration Period, as may be extended, this Contract
shall automatically terminate.

7.11
Performance Bond

(a)
Within thirty (30) days from the Effective Date, the Contractor shall submit a
performance bond in a form approved by the National Petroleum Agency and from a
reputable international financial institution approved by the National Petroleum
Agency to cover the Minimum Financial Commitment for Phase I of the Exploration
Period.

(b)
Should the Contractor satisfy in full the conditions for continuing Petroleum
Operations at the end of Phase I of the Exploration Period pursuant to Clause
7.2, a replacement performance bond in the same form and from a reputable
international financial institution unless otherwise agreed by the National
Petroleum Agency shall be submitted within thirty (30) days from the date of the
extension to cover the Minimum Financial Commitment for Phase II of the
Exploration Period.

(c)
Should the Contractor satisfy in full the conditions for continuing Petroleum
Operations at the end of Phase II of the Exploration Period pursuant to Clause
7.2, a replacement performance bond in the same form and from a reputable
international financial institution unless otherwise agreed by the National
Petroleum Agency shall be submitted within thirty (30) days from the date of the

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extension to cover the Minimum Financial Commitment for Phase III of the
Exploration Period.

7.12
The amount of a performance bond shall be reduced annually by deducting the
verified expenditures the Contractor has incurred in the previous year of each
phase and shall terminate at the end of each phase, if the Minimum Work
Obligations or Minimum Financial Commitment for that phase has been satisfied in
full.

7.13    Guarantee

Within thirty (30) days from date of execution of this Contract, the Contractor
shall submit a guarantee from a parent company approved by the National
Petroleum Agency in the form of Schedule 6 which shall be valid up to four (4)
years after the termination of this Contract. Wherever the Contractor is formed
by more than one entity, each entity shall present a parent company guarantee
approved by the National Petroleum Agency in an amount equal to its
participating interest share of the amount set forth in Schedule 6. The National
Petroleum Agency, or the other State Entity designated to participate in this
Contract, is not subject to this obligation while its participation is a carried
one, in which case the remaining parties to the Contract shall guarantee the
amount which will be incumbent to the former, in the proportion of their
participating interests in this Contract.

8.    STATE PARTICIPATION AND CARRY
 
8.1
The State, either through the National Petroleum Agency or any other State
Entity designated by the State, shall have as of the Effective Date a carried
interest of fifteen percent (15%) of the Contractor’s rights and obligations
under this Contract. The Contractor shall fund, bear and pay all costs, expenses
and amounts due in respect of Petroleum Operations conducted pursuant to this
Contract.

8.2
The National Petroleum Agency or other State Entity designated by the State
shall become a party to the Joint Operating Agreement in respect of its carried
interest referred to in Clause 8.1.

8.3
Upon the commencement of commercial Production the Contractor shall be entitled
to receive one hundred percent (100%) of Cost Oil in order to recover all costs,
expenses and amounts paid in respect of Petroleum Operations pursuant to Clause
8.1 and incurred on behalf of the National Petroleum Agency or other State
Entity designated by the State.

8.4
The National Petroleum Agency or other State Entity designated by the State
shall be entitled to receive fifteen percent (15%) of the Contractor's
entitlement to Profit Oil as provided for in Clause 10.1(d).

8.5
The National Petroleum Agency or other State Entity designated by the State
shall be entitled at any time, upon advance forty-five (45) days written notice
to the Contractor, to convert its carried interest into a full working
participating interest.  The National

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Petroleum Agency or other State Entity designated by the State shall be entitled
to fifteen percent (15%) of the Cost Oil to which the Contractor is entitled
pursuant to Clause 10.1 (b) and (c), after Contractor has recovered outstanding
cost, expense or any other amount incurred by the Contractor pursuant to Clause
8.1.

9.    RIGHTS AND OBLIGATIONS OF THE PARTIES

9.1
In accordance with this Contract, the National Petroleum Agency shall:

(a)
pursuant to Clause 14, jointly work with the Contractor’s professional staff in
the fulfillment of Petroleum Operations under this Contract;

(b)
assist and expedite the Contractor’s execution of Petroleum Operations and Work
Programs including assistance in supplying or otherwise making available all
necessary visas, work permits, rights of way and easements as may be reasonably
requested by the Contractor. All expenses incurred by the National Petroleum
Agency at the Contractor’s request in providing such assistance shall be
reimbursed to the National Petroleum Agency by the Contractor in accordance with
Clause 12. Such reimbursement shall be made against presentation of invoices and
shall be in United States dollars. The Contractor shall include such
reimbursements in the Operating Costs;

(c)
have the right to recover from the Contractor all costs which are reasonably
incurred for purposes of Petroleum Operations, duly documented and previously
agreed with Contractor;

(d)
have legal title to and shall keep originals of all data and information
resulting from Petroleum Operations including geological, geophysical,
engineering, well logs, completion, production, operations, status reports and
any other data and information as the Contractor may compile during the term of
this Contract but excluding any Contractor’s Intellectual Property Rights;
provided, however, that the Contractor shall be entitled to keep copies and use
such data and information during the term of this Contract; and

(e)
not exercise all or any of its rights or authority over the Contract Area in
derogation of the rights of the Contractor otherwise than in accordance with the
Petroleum Law.

9.2    In accordance with this Contract, the Contractor shall:

(a)
promptly pay to the State by deposit into the National Petroleum Account all
fees, bonuses, and other amounts due to the State under the terms of this
Contract;

(b)
provide all necessary funds for the payment of Operating Costs including funds
required to provide all materials, equipment, facilities, supplies and technical
requirements (including personnel) whether purchased or leased;

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(c)
provide such other funds for the performance of Work Programs including payments
to third parties who perform services to the Contractor in the conduct of
Petroleum Operations;

(d)
prepare Work Programs and Budgets and carry out approved Work Programs in
accordance with Good Oil Field Practice with the objective of avoiding waste and
obtaining maximum ultimate recovery of Petroleum at a minimum cost;

(e)
exercise all the rights and comply with all the obligations under the Petroleum
Law and any other applicable laws and pay the following fees to the State by
deposit into the National Petroleum Account (all expressed in United States
dollars):

    
On application for the Production Period:
$500,000
To assign or otherwise transfer any interest during Exploration Period
$100,000
To assign or otherwise transfer any interest during Production Period
$300,000
On application to terminate this Contract:
$100,000
On application for the Contractor to commence drilling:
$25,000

(f)
ensure that all leased equipment brought into the Territory of Sao Tome and
Principe for the conduct of Petroleum Operations is treated in accordance with
the terms of the applicable leases;

(g)
have the right of ingress to and egress from the Contract Area and to and from
facilities therein located at all times during the term of this Contract;

(h)
promptly submit to the National Petroleum Agency for permanent custody originals
of all geological, geophysical, drilling, well production, operating and other
data, information and reports as it or its Associates may compile during the
term of this Contract;

(i)
prepare estimated and final tax returns and submit same to the relevant tax
authority on a timely basis in accordance with the Petroleum Taxation Law;

(j)
have the right to lift Available Crude Oil in accordance with the lifting
agreement to be agreed by the Parties pursuant to Schedule 3 no later than nine
(9) months prior to commencement of Production, and, in the event the Parties
have not agreed a lifting agreement by the commencement of Production then, in
accordance with the principles set forth in Schedule 3. Contractor shall have
the right to freely export Available Crude Oil allocated to it under this
Contract exempt from all and any customs duties, levies or charges (excluding
routine administrative fees associated with export documentation and inspection
of such export, if applicable), and retain abroad the Proceeds from the sale of
Available Crude Oil allocated to it under this Contract;

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(k)
in accordance with Clause 14, prepare and carry out plans and programs of the
State for industry training and education of nationals of Sao Tome and Principe
for all job classifications with respect to Petroleum Operations pursuant to and
in accordance with the Petroleum Law;

(l)
employ only such qualified personnel as is required to conduct Petroleum
Operations in accordance with Good Oil Field Practice and in a prudent and
cost-effective manner giving preference to qualified nationals of Sao Tome and
Principe;

(m)
give preference to such goods, material and equipment which are available in Sao
Tome and Principe or services that can be rendered by nationals of Sao Tome and
Principe in accordance with the Petroleum Law and this Contract;

(n)
the Contractor and its Associates shall, as the case may be, pay all charges and
fees as are imposed by law in Sao Tome and Principe. The Contractor and its
Associates shall not be treated differently from any other Persons engaged in
similar petroleum operations in the Territory of Sao Tome and Principe;

(o)
indemnify and hold the State, including the National Petroleum Agency, harmless
against all losses, damages, injuries, expenses, actions of whatever kind and
nature including all legal fees and expenses suffered by the State or the
National Petroleum Agency where such loss, damage, injury, expense or action is
caused by the Gross Negligence or Willful Misconduct of the Contractor, its
Affiliates, its sub-contractors or any other Person acting on its or their
behalf or any of their respective directors, officers, employees, agents or
consultants;

(p)
not exercise all or any rights or authority over the Contract Area in derogation
of the rights of the State or in breach of the Petroleum Law;

(q)
in the event of any emergency requiring immediate operational action, take all
actions it deems proper or advisable to protect the interests of the Parties and
any other affected Persons and any costs so incurred shall be included in the
Operating Costs. Prompt notification of any such action taken by the Contractor
and the estimated cost shall be given to the National Petroleum Agency within
forty-eight (48) hours of becoming aware of the event; and

(r)
have, as of the date of execution of this agreement, the participating interests
of:

BP –         50% (fifty percent);
Kosmos –     35% (thirty-five percent).
In accordance with Clause 8, the National Petroleum Agency has a participating
interest of fifteen percent (15%).

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10.
RECOVERY OF OPERATING COSTS AND SHARING OF PETROLEUM PRODUCTION

10.1
The allocation of Available Crude Oil shall be calculated on a Contract Area
basis for Royalty Oil, Cost Oil and Profit Oil. This allocation of Available
Crude Oil shall be in accordance with the Accounting Procedures, the Allocation
and Lifting Procedures and this Clause 10 as follows:

(a)
Royalty Oil shall be allocated to the State from the first day of Production,
based on the daily total of Available Crude Oil from the Contract Area, set at a
rate of 2%;

(b)
Cost Oil shall be allocated to the Contractor in such quantum as will generate
an amount of Proceeds sufficient for recovery of Operating Costs in the Contract
Area. All costs will be recovered in United States dollars through Cost Oil
allocation;

(c)
Cost Oil shall be not more than eighty percent (80%) of Available Crude Oil in
the Contract Area after deduction of Royalty Oil in any accounting period;

(d)
Profit Oil, being the balance of Available Crude Oil after deducting Royalty Oil
and Cost Oil shall be allocated to each Party based on the pre-tax, nominal rate
of return calculated on a quarterly basis for the Contract Area in accordance
with the following sliding scale:

Contractor’s Rate of Return for Contract Area (% per annum)
Government Share of Profit Oil
Contractor Share of Profit Oil
<19%
0%
100%
>=19 %< 22%
10%
90%
>=22%<26 %
20%
80%
>=26%<29%
40%
60%
>=29%
50%
50%

10.2
Beginning at the date of Commercial Discovery, Contractor’s rate of return shall
be determined at the end of each Quarter on the basis of the accumulated
compounded net cash flow for the Contract Area, using the following procedure:

(a)    The Contractor’s net cash flow for the Contract Area for each Quarter is:
    
(i)
The sum of Contractor’s Cost Oil and share of Contract Area Profit Oil regarding
the Petroleum actually lifted in that Quarter at the Realizable Price;

(ii)
Minus Operating Costs.

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(b)
For this computation, neither any expenditure incurred prior to the date of
Commercial Discovery for the Contract Area nor any Exploration Expenditure shall
be included in the computation of the Contractor’s net cash flow.

(c)
The Contractor’s net cash flows for each Quarter are compounded and accumulated
for the Contract Area from the date of the Commercial Discovery according to the
following formula:

ACNCF (Current Quarter) =
(100% + DQ) x ACNCF (Previous Quarter) + NCF (Current Quarter) 100%

where:

ACNCF = accumulated compounded net cash flow
NCF = net cash flow
DQ = quarterly compound rate (in percent)

The calculation will be made using quarterly compound rates (in percent) of
4.44%, 5.09%, 5.95%, and 6.57%, which correspond to annual compound rates (“DA”)
of 19%, 22%, 26%, and 29%, respectively.

(d)
The Contractor’s rate of return in any given Quarter for the Contract Area shall
be deemed to be between the largest DA which yields a positive or zero ACNCF and
the smallest DA which causes the ACNCF to be negative.

(e)
The sharing of Profit Oil from the Contract Area between the State and the
Contractor in a given Quarter shall be in accordance with the scale in Clause
10.1(d) above using the Contractor’s deemed rate of return as per paragraph (d)
in the immediately preceding Quarter.

(f)
In the Contract Area, it is possible for the Contractor’s deemed rate of return
to decline as a result of negative cash flow in a Quarter with the consequence
that Contractor’s share of Profit Oil from the Contract Area would increase in
the subsequent Quarter.

(g)
Pending finalization of accounts, Profit Oil from the Contract Area shall be
shared on the basis of provisional estimates, if necessary, of deemed rate of
return as approved by the National Petroleum Agency. Adjustments shall be
effected with the procedure subsequently to be adopted by the National Petroleum
Agency.

10.3
The quantum of Available Crude Oil to be allocated to each Party under this
Contract shall be determined at the Delivery Point.

10.4
Each Party shall lift and dispose of its allocation of Available Crude Oil in
accordance with the Allocation and Lifting Procedures. In the event of any
reconciliation, the records of the National Petroleum Agency shall be the
official, final and binding records.

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10.5
Allocation of Royalty Oil and the State’s Profit Oil shall be in the form of
delivery of Production of Petroleum to the National Petroleum Agency and the
National Petroleum Agency or other appropriate authority shall issue receipts
for such delivery within thirty (30) days of lifting such Royalty Oil and Profit
Oil. These receipts are issued by the National Petroleum Agency or other
appropriate authority on behalf of the Government of Sao Tome and Principe.

10.6
Any Party may, at the request of any other Party, lift such other Party’s
Available Crude Oil pursuant to Clause 10.3 and the lifting Party within thirty
(30) days from the end of the month in which the lifting occurred shall transfer
to the account of the non-lifting Party the Proceeds of the sale to which the
non-lifting Party is entitled. Overdue payments shall bear interest at the rate
of LIBOR plus two percent (2%).

10.7
The State may sell to the Contractor all or any portion of its allocation of
Available Crude Oil from the Contract Area under mutually agreed terms and
conditions.

10.8
The Parties shall meet as and when agreed in the Allocation and Lifting
Procedures to reconcile all Petroleum produced, allocated and lifted during the
period in accordance with the Allocation and Lifting Procedures.

10.9
Notwithstanding the above, in lieu of lifting the State's Profit Oil and/or
Royalty Oil, the State, upon one hundred eighty (180) days advance notice to the
Operator issued by the National Petroleum Agency, may elect to receive the
State’s allocation of Profit Oil and/or Royalty Oil in cash based on the
Realizable Price rather than through lifting regardless of whether or not the
Contractor sells the State's Profit Oil and/or Royalty Oil to a third party. If
the State elects to receive cash in lieu of lifting, the Operator shall lift the
State's allocation of Profit Oil and/or Royalty Oil and pay into the National
Petroleum Account cash in respect of such lifting within thirty (30) days from
the end of the month in which the lifting occurred. Every one hundred eighty
(180) days, the State may elect to have an entity designated by the State to
resume lifting the State’s allocation of Profit Oil and/or Royalty Oil upon one
hundred eighty (180) days' notice to the Operator prior to the date the State
elects to have an entity designated by the State to resume lifting.

11.    VALUATION OF CRUDE OIL

11.1
Unless a pre-marketing plan is agreed, and save as otherwise provided in this
Contract, Crude Oil shall be valued in accordance with the following procedures:

(a)
On the attainment of commercial production of Crude Oil, each Party shall engage
the services of an independent laboratory of good repute to undertake a
qualitative and quantitative analysis of such Crude Oil.

(b)
A trial marketing period shall be designated which shall extend for the first
six (6) month period during which a new stream is lifted or for the period of
time required for the first ten (10) liftings, whichever is longer. During the
trial marketing period the Parties shall:

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(i)
collect samples of the new Crude Oil upon which the qualitative and quantitative
analysis shall be performed as provided in Clause 11.1(a);

(ii)
determine the approximate quality of the new Crude Oil by estimating the yield
values from refinery modeling;

(iii)
market in accordance with their entitlement to the new Crude Oil and to the
extent that one Party lifts the other Party’s allocation of Available Crude Oil,
payments therefor shall be made by the buyers to the Operator which will be
responsible for distributing to the other Parties in accordance with their
entitlement, and Cost Oil and Profit Oil and the Contractor's accounting shall
reflect such revenues, in accordance with Clause 10;

(iv)
provide information to a third party who shall compile the information and
maintain all individual Party information confidential with regard to the
marketing of the new Crude Oil including documents which verify the sales price
and terms of each lifting; and

(v)
apply the actual F.O.B. sales price to determine the value for each lifting
which F.O.B. sales pricing for each lifting shall continue, as the Realizable
Price, after the trial marketing period until the Parties agree to a valuation
of the new Crude Oil but in no event longer than ninety (90) days after
conclusion of the trial marketing period.

(c)
As soon as practicable but in any event not later than sixty (60) days after the
end of the trial marketing period, the Parties shall meet to review the
qualitative and quantitative analysis, yield and actual sales data. The
Realizable Price shall be based on a single weighted average price for all
Available Crude Oil in the month, based on the international FOB market price at
the Delivery Point. It is the intent of the Parties that such price shall
reflect the true market value based on arm’s length transactions for the sale of
the new Crude Oil to independent parties.

(d)
Upon the conclusion of the trial marketing period, the Parties shall be entitled
to lift their allocation of Available Crude Oil pursuant to Clause 10.3 and the
Allocation and Lifting Procedures.

(e)
When a new Crude Oil stream is produced from the Contract Area and is commingled
with an existing Crude Oil produced which has an agreed Realizable Price basis
then such basis shall be applied to the extent practicable for determining the
Realizable Price of the new Crude Oil. The Parties shall meet and mutually agree
on any appropriate modifications to such agreed Realizable Price, which may be
required to reflect any change in the market value of the Crude Oils as a result
of commingling.

11.2
If the National Petroleum Agency or the Contractor are unable to agree the
valuation of Crude Oil produced in the Contract Area for a particular month,
then such Party may propose its alternative valuation to the other Parties. The
Parties shall then meet within thirty (30) days of such proposal and mutually
agree on such valuation with or without

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any appropriate modifications within thirty (30) days from such meeting, failing
which the issue shall be referred to a mutually agreed independent expert who
shall have the appropriate international oil and gas experience and who will
resolve and settle the matter in a manner as he shall in his absolute discretion
think fit and the decision of the expert shall be final and binding on the
Parties. If after a period of thirty (30) days, the Parties are unable to agree
on the identity of the expert, such expert shall be appointment by the
International Centre for Expertise in accordance with the provisions for the
appointment of experts under the Rules for Expertise of the International
Chamber of Commerce.

11.3
Segregation of Crude Oils of different quality and/or grade shall, by agreement
of the Parties, take into consideration, among other things, the operational
practicality of segregation and the cost benefit analysis thereof. If the
Parties agree on such segregation the following provisions shall apply:

(a)
any and all provisions of this Contract concerning valuation of Crude Oil shall
separately apply to each segregated Crude Oil produced; and

(b)
each grade or quality of Crude Oil produced and segregated in a given year shall
contribute its proportionate share to the total quantity designated in such year
as Royalty Oil, Cost Oil and Profit Oil.

    

12.    PAYMENTS

12.1
The Contractor shall make all payments to the State for which it is liable under
this Contract in United States dollars or such other currency agreed between the
Contractor and the National Petroleum Agency. Payments shall be made into the
National Petroleum Account in accordance with the Oil Revenue Law. Where a
payment is made in currency other than United States dollars, the exchange rate
used to convert the United States dollars liability into that currency shall be
the exchange rate published on the date of payment by the Central Bank of Sao
Tome and Principe for Dobras, and the Financial Times of London for other
currencies. Overdue payments shall bear interest at the annual rate of LIBOR
plus two percent (2%) from the due date until the date of actual payment.

12.2
The State shall make all payments to the Contractor for which it is liable under
this Contract in United States dollars or such other currency agreed between the
Contractor and the National Petroleum Agency. Where a payment is made in a
currency other than United States dollars, the exchange rate used to convert the
United States dollar liability into that currency shall be the exchange rate
published on the date of payment by the Central Bank of Sao Tome and Principe
for Dobras, and the Financial Times of London for other currencies. Overdue
payments shall bear interest at the annual rate of LIBOR plus two percent (2%)
from the due date until the date of actual payment.

12.3
Any payments required to be made pursuant to this Contract shall be made within
twenty (20) days following the end of the month in which the obligation to make
such payments is incurred.

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12.4
The Contractor shall have the right to pay their subcontractors and their
expatriates, in currencies they have agreed, either in Sao Tome and Principe or
abroad.

13.    TITLE TO EQUIPMENT / DECOMMISSIONING

13.1
The Contractor shall finance the cost of purchasing or leasing all materials,
equipment and facilities to be used in Petroleum Operations in the Contract Area
pursuant to approved Work Programs and Budgets and such materials, equipment and
facilities, if purchased, shall become the sole property of the State when the
Contractor has recovered the cost of such materials, equipment and facilities
(as the case may be) in accordance with this Contract and free of all liens and
other encumbrances. Except as otherwise provided for in the Petroleum Law, the
Contractor shall have the right to use, free of any additional charge, all of
materials, equipment and facilities exclusively for Petroleum Operations in the
Contract Area during the term of this Contract and any extensions thereof. The
State, including the National Petroleum Agency, shall have the right to use all
such materials, equipment and facilities in the Contract Area during the term of
this Contract and any extensions thereof and such use shall be subject to terms
and conditions agreed by the Parties, provided that it is understood that
Petroleum Operations in the Contract Area hereunder shall take precedence over
such use by the State or the National Petroleum Agency.

 
Should the State or the National Petroleum Agency desire to use such materials,
equipment and facilities outside the Contract Area, such use shall be subject to
terms and conditions agreed by the Parties, provided that it is understood that
Petroleum Operations in the Contract Area hereunder shall take precedence over
such use by the State or the National Petroleum Agency. The Contractor shall
only lease materials, equipment and facilities with the approval of the National
Petroleum Agency, such approval not to be unreasonably withheld.

13.2
The Contractor’s right to use such cost recovered purchased materials, equipment
and facilities shall cease with the termination or expiration (whichever is
earlier) of this Contract, including any extensions hereof.

13.3
The provisions of Clause 13.1 with respect to the title of property passing to
the State shall not apply to leased equipment belonging to local or foreign
third parties, and such equipment may be freely exported from the Territory of
Sao Tome and Principe in accordance with the terms of the applicable lease.

13.4
Subject to Clause 13.1, all fixed assets purchased or otherwise acquired by the
Contractor for the purposes of Petroleum Operations hereunder shall become the
property of the State when the Contractor has recovered the cost of such
materials, equipment and facilities (as the case may be) in accordance with this
Contract. Upon termination of this Contract, the Contractor shall hand over
possession of such fixed assets to the State in good working order and free of
all liens and other encumbrances.

13.5
During the term of this Contract, any agreed sales of equipment, land, fixed
assets, materials and machinery acquired for the purpose of Petroleum Operations
shall be

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conducted by the Contractor on the basis of the procedure for sale of assets as
set forth in Schedule 5, subject to the consent of the National Petroleum
Agency.
13.6
Decommissioning

The expenditure for Decommissioning will be estimated on the basis of technical
studies undertaken by the Contractor to be agreed by the National Petroleum
Agency as part of each Field Development Program and revised as necessary.

13.7
Unless otherwise agreed with the National Petroleum Agency, the procedure for
the Contractor providing funds to meet its Decommissioning obligations shall be
as follows:

(a)
an amount shall be established on a Contract Area basis, commencing with effect
from the fourth (4th) anniversary after the start of commercial production, on a
unit of production basis as follows:

DP =        (PVDC – DF) * (P / RP), where:

DP =
Decommissioning provision for the period (millions of US dollars)

PVDC =
Present Value of Decommissioning costs (millions of US dollars)

DF =
Balance of Decommissioning fund at the start of the period (millions of US
dollars)

P =        Crude Oil production in the period (millions of Barrels)
RP =
Estimated remaining recoverable Crude Oil (millions of Barrels) from the
Contract Area

(b)
All Decommissioning provisions shall be held in a Decommissioning reserve fund,
which shall be an interest bearing escrow account jointly established by the
Parties at a first class commercial bank or other financial institution in
accordance with the Petroleum Law (the “Decommissioning Reserve Fund”). The bank
or financial institution shall have a long term rating of not less than "A
minus" by Standard and Poor’s Corporation or an "A3" rating by Moody’s Investor
Service or a comparable rating by another mutually agreed rating service.

(c)
For the purposes of calculating the present value of Decommissioning costs, the
following formula shall be used:

PVDC =     EDC / (1 + i) n, where:

PVDC =    present value of Decommissioning costs
EDC =
estimated value of Decommissioning costs in nominal terms at the expected date
of Decommissioning

i =
interest rate applicable to the escrow account in the current period

n =
number of Years between current period and expected date of Decommissioning

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13.8
The Decommissioning Reserve Fund shall be used solely for the purposes of paying
for Decommissioning activities. No Party may mortgage, pledge, encumber or
otherwise use such Decommissioning Reserve Fund for any purpose whatsoever
except as expressly provided herein or in the Petroleum Law. The Decommissioning
Reserve Fund may be invested in investments approved in advance by the
Contractor and the National Petroleum Agency.

13.9
The Contractor shall annually meet any shortfall between the actual
Decommissioning costs and the Decommissioning Reserve Fund for the Contract
Area, such amount to be deposited into the escrow account within thirty (30)
days after the end of each Calendar Year.

    
13.10
Any balance remaining in the Decommissioning Reserve Fund after all
Decommissioning costs in the Contract Area have been met shall be distributed
between the National Petroleum Agency and the Contractor in the same proportion
as the allocation of Available Crude Oil at the time of Decommissioning
operations.

13.11
Decommissioning expenditures incurred under these Decommissioning provisions are
both cost recoverable as Contract Area non-capital costs under the Accounting
Procedures and deductible for Tax purposes under the Petroleum Taxation Law.

14.    EMPLOYMENT AND TRAINING OF NATIONALS OF THE STATE

14.1
Each Calendar Year, the Contractor shall submit a detailed program for
recruitment and training for the following Calendar Year in respect of its
personnel from Sao Tome and Principe in accordance with the Petroleum Law.

14.2
Qualified nationals from Sao Tome and Principe shall be employed in all
non-specialized positions.

14.3
Qualified nationals from Sao Tome and Principe shall also be employed in
specialized positions such as those in exploration, drilling, engineering,
production, environmental safety, legal and finance. The Contractor shall have
the right, subject to applicable laws, rules and regulations, to employ
non-nationals of Sao Tome and Principe in such specialized positions where
qualified individuals from Sao Tome and Principe are not available, provided
that the Contractor shall recruit and train nationals from Sao Tome and Principe
for such specialized positions, such that the number of expatriate staff shall
be kept to a minimum.

14.4
Pursuant to Clause 9.2(k), qualified competent professionals of the National
Petroleum Agency shall be assigned to work with the Contractor and such
personnel and the Contractor's national personnel from Sao Tome and Principe
shall not be treated differently with regard to salaries and other benefits. The
Contractor and the National Petroleum Agency shall mutually agree on the numbers
of National Petroleum Agency's staff to be assigned to Petroleum Operations. The
costs and expenses of such National Petroleum Agency personnel shall be included
in Operating Costs. The Contractor shall not be liable for any damages resulting
from the Gross Negligence or Willful Misconduct of any National Petroleum Agency
employees assigned to work for the Contractor.

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14.5
The Parties shall mutually agree on the organizational chart of the Contractor
which shall include nationals of Sao Tome and Principe in key positions.

14.6
No Sao-Tomean who is employed by the Contractor shall be dismissed without the
prior written approval of the National Petroleum Agency, except in the case of a
serious misbehavior on the part of such employee, in which case a prior notice
of the dismissal to the National Petroleum Agency will be required. For the
purposes of this clause, a serious misbehavior means serious inadequate conduct
of the employee which corresponds to a violation of the employee’s duties under
the applicable Sao Tome and Principe labor legislation, which has been
investigated and proved by documentary evidence.

14.7
The Contractor shall spend point twenty-five percent (0.25%) of the Operating
Costs in each Year of the Exploration Period subject to a minimum of US$250,000
(two hundred and fifty thousand United States dollars) and a maximum of
US$300,000 (three hundred thousand United States dollars) in any Calendar Year
on scholarships for the training of nationals of Sao Tome and Principe at
institutions to be selected by the National Petroleum Agency subject to
compliance with the laws applicable to each Party and appropriate due diligence
by the Parties. In connection with the review of the annual Work Program and
Budgets, the National Petroleum Agency may propose additional budgets for
training and the National Petroleum Agency and the Contractor shall mutually
agree to such proposal.

14.8
The Contractor shall spend US$500,000 (five hundred thousand United States
Dollars) in each Calendar Year during the Production Period on scholarships for
the training of nationals of Sao Tome and Principe at institutions to be
selected by the National Petroleum Agency subject to compliance with the laws
applicable to each Party and appropriate due diligence by the Parties. In
connection with the review of the annual Work Program and Budgets, the National
Petroleum Agency may propose additional budgets for training and the Parties may
mutually agree to such proposal.

14.9
Amounts payable under Clauses 14.7 and 14.8 shall be recoverable as Contract
Area non-drilling exploration costs under the terms of the Accounting
Procedures.

15.    BOOKS AND ACCOUNTS, AUDIT AND OVERHEAD CHARGES

15.1    Books and Accounts

(a)
The Contractor shall be responsible for keeping complete books of accounts
consistent with Good Oil Field Practice and modern petroleum industry accounting
practices and procedures. The books and accounts maintained under and in
accordance with this Contract shall be kept in United States dollars. All other
books of accounts as the Operator may consider necessary shall also be kept in
United States dollars. Officials of the National Petroleum Agency and the

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Contractor shall have access to such books and accounts at all times upon
reasonable notice.

(b)
All original books of account shall be kept at the registered address or
principal place of business of the Contractor in Sao Tome and Principe.

15.2
Audits

(a)
The National Petroleum Agency shall have the right to inspect and audit the
accounting records relating to this Contract or Petroleum Operations for any
Calendar Year by giving thirty (30) days advance written notice to the Operator.
The Operator may request additional time. The Operator shall facilitate the work
of such inspection and auditing; provided, however, that such inspection and
auditing shall be carried out within three (3) Calendar Years following the end
of the Calendar Year in question. If not, the books and accounts relating to
such Calendar Year shall be deemed to be accepted by the Parties. Any exception
must be made in writing within ninety (90) days following the end of such audit
and failure to give such written notice within such time shall establish the
correctness of the books and accounts by the Parties.

(b)
The National Petroleum Agency may undertake the inspection and audit in Clause
15.2(a) either through its own personnel or through a qualified firm of
chartered accountants appointed for such purpose by the National Petroleum
Agency; provided, that transportation and per diem, in accordance with
Sao-Tomean legislation, are borne by the Contractor. The National Petroleum
Agency’s own personnel shall be borne by the Contractor as a general
administrative cost, as long as these are reasonable and are duly documented and
shall be cost recoverable. Costs for the qualified firm of chartered accountants
shall be borne by the National Petroleum Agency.

(c)
Notwithstanding that the said period of three (3) Calendar Years may have
expired, if the Contractor or any of its employees or any Person acting on its
behalf has acted with Gross Negligence or engaged in Willful Misconduct, the
National Petroleum Agency shall have the right to conduct further audit to the
extent required to investigate such Gross Negligence or Willful Misconduct in
respect of any earlier periods and all costs of such investigation shall be for
the account of the Contractor and shall not be cost recoverable.

15.3    Materials

The Contractor shall maintain physical and accounting controls of all materials
and equipment in stock in accordance with Good Oil Field Practice. The
Contractor shall make a total inventory at least once in a Calendar Year and
shall give the National Petroleum Agency four (4) weeks’ advance written notice
prior to the taking of such inventory. The National Petroleum Agency and/or its
external auditors shall be entitled to observe such inventory taking. The
National Petroleum Agency may also carry out a

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partial or total check of such inventories at its own expense, whenever it
considers it necessary, provided such exercise does not unreasonably disrupt
Petroleum Operations.

15.4
Home Office Overhead Charges

The Contractor shall include the following percentages of total annual
recoverable expenditures as overhead charges in calculating total Operating
Costs.

Expenditure Tranche (USD million)
% of Recoverable expenditures
< 200
1.00%
the next 200 OR >200 and<400
0.75%
the next 100 OR >400 and<500
0.50%
≥ 500
0.00%

    

16.    TAXES AND CUSTOMS

16.1
Tax

The Contractor shall be subject to Tax on income derived from Petroleum
Operations in accordance with the Petroleum Taxation Law. Such Tax shall be
payable by the Contractor in accordance with the Petroleum Taxation Law, except
as otherwise provided in this Contract.

16.2
The Realizable Price established in accordance with Clause 11 shall be used in
determining the amount of profits of a Contractor Party and its resulting Tax
liability under the Petroleum Taxation Law.

16.3
Customs

In accordance with the Petroleum Law, the Contractor, in its own name or in the
name of its sub-contractors or other Persons acting on its or their behalf, are
entitled to import and export all goods, materials and equipment destined
exclusively and directly for the execution of Petroleum Operations. Such goods,
materials and equipment shall be exempt from all and any customs duties,
notwithstanding the terms and conditions set out in the Petroleum Law or other
applicable laws and regulations.

17.    INSURANCE

17.1
The Contractor shall obtain and maintain such insurance as is customarily
obtained in accordance with Good Oil Field Practice with respect to Petroleum
Operations with an insurance company of good repute approved by the National
Petroleum Agency, in the names of the Parties and with limits of liability not
less than those required in accordance with Good Oil Field Practice. The premium
for such policies shall be included in Operating Costs. All policies shall name
the National Petroleum Agency as a co-insured

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with a waiver of subrogation rights in favor of the Contractor. Without
prejudice to the generality of the foregoing, such insurance may cover:

(a)    any loss or damage to all assets used in Petroleum Operations;

(b)
pollution caused in the course of Petroleum Operations for which the Contractor
or the Operator may be held responsible;

(c)
property loss or damage or bodily injury suffered by any third party in the
course of Petroleum Operations for which the Contractor, the Operator, the State
or the National Petroleum Agency may be held liable;

(d)
the cost of removing wrecks and cleaning up operations following an accident in
course of Petroleum Operations; and

(e)
the Contractor's and/or the Operator's liability to its employees and other
persons engaged in Petroleum Operations.

17.2
In case of any loss or damage to property, all amounts paid by an insurance
company shall be received by the Contractor for the conduct of Petroleum
Operations. The Contractor shall determine whether the lost or damaged property
should be repaired replaced or abandoned. If the decision is to repair or
replace the property in question, the Contractor shall immediately take steps to
replace or repair such lost or damaged property. Any excess cost of repair or
replacement above the amount reimbursed by the insurance company shall be
regarded as an Operating Cost. If the cost of repair is less than the amount
reimbursed by the insurance company, the difference shall be deducted from
Operating Costs. If the decision is to neither repair nor replace then the
proceeds of any coverage shall be credited to Operating Costs. In the event that
the loss or damage is attributable to the Contractor’s Gross Negligence or
Willful Misconduct, the excess cost of replacement or repair shall not be
reimbursed as an Operating Cost.

17.3
The Contractor shall obtain and maintain an insurance policy covering damage
caused to third parties as provided in Clause 17.1(c) as a direct or indirect
result of Petroleum Operations under this Contract.

17.4
All insurance policies obtained and maintained pursuant to this Clause 17 shall
be based upon Good Oil Field Practice and shall be taken out in Sao Tome and
Principe, except for those concerning risks for which the Contractor cannot
obtain local coverage with an insurance company holding a long term rating not
inferior to A minus by Standard and Poor’s Corporation or an A3 rating by
Moody’s Investor Service or an equivalent rating by any other mutually agreed
rating service, in which case it shall be taken out outside of the Territory of
Sao Tome and Principe.

17.5
In entering into contracts with any sub-contractor or other Person for the
performance of Petroleum Operations, the Contractor shall require, whenever
reasonably practicable, such sub-contractor or other Person to take out adequate
insurance in accordance with this Clause 17 and to properly indemnify the State
and its organs and agencies and the

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Contractor for any damage done and to fully indemnify and hold the State and its
organs and agencies and the Contractor harmless against claims from any third
parties.

17.6
The Contactor shall also maintain all other insurance policies required under
the laws of Sao Tome and Principe.

18.    CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

18.1
Subject to Clauses 18.4 and 18.5, the Contractor and the National Petroleum
Agency shall keep information furnished to each other in connection with
Petroleum Operations and all plans, maps, drawings, designs, data, scientific,
technical and financial reports and other data and information of any kind or
nature relating to Petroleum Operations including any discovery of Petroleum as
strictly confidential and shall ensure that their entire or partial contents
shall under no circumstances be disclosed in any announcement to the public or
to any third party without the prior written consent of the other. With regard
to data about aspects of geology, reservoir engineering or production
engineering, reports or other material submitted to public authorities, the
confidentiality obligations shall have the duration specified in Clause 18.3.

The provisions of this Clause 18 shall not apply to disclosure to:

(a)
Affiliates;

(b)
sub-contractors, auditors, financial consultants or legal advisers, provided
that such disclosures are required for the effective performances of the
aforementioned recipients’ duties related to Petroleum Operations and provided
further that they are under a similar undertaking of confidentiality as that
contained in this Clause 18;

(c)
comply with statutory obligation or the requirements of any governmental agency
or the rules of a stock exchange on which a Party’s or its Affiliates’ stock is
publicly traded in which case the disclosing Party will notify the other Party
of any information so disclosed prior to such disclosure;

(d)
financial institutions involved in the provision of finance for the Petroleum
Operations hereunder provided, in all such cases, that the recipients of such
data and information agree in writing to keep such data and information strictly
confidential;

(e)
a bona fide third party purchaser provided that such third party executes an
undertaking similar to the undertaking contained in this Clause 18 to keep the
information disclosed to it strictly confidential; and

(f)
in accordance with and as required by the Oil Revenue Law.

18.2
The Parties shall take necessary measures in order to make their directors,
officers, employees, agents and representatives comply with the same obligation
of confidentiality provided for in this Clause 18.

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18.3
The provisions of this Clause 18 shall terminate five (5) years after the
termination or expiration of this Contract.

18.4
Subject to Clause 18.1(c), the Contractor shall use best endeavors to ensure
that it, its Affiliates and Associates and each of their respective directors,
officers, servants, employees and agents shall not make any reference in public
or publish any notes in newspapers, periodicals or books nor divulge, by any
other means whatsoever, any information on the activities under the Petroleum
Operations, or any reports, data or any facts and documents that may come to
their knowledge by virtue of this Contract, without the prior written consent of
the National Petroleum Agency.

18.5
No announcement of a Discovery or Commercial Discovery may be made by the
Contractor otherwise than in accordance with this Clause 18 and unless and until
the Government has made a prior announcement of such Discovery or Commercial
Discovery in the national and international media.

19.    ASSIGNMENT

19.1
Subject to Clause 19.5, the Contractor may not sell, assign, transfer, encumber,
convey or otherwise dispose of part or all of its rights, interest and/or
obligations under this Contract to any third party without the prior written
consent of the National Petroleum Agency.

19.2
All changes in Control of a Contractor Party shall be subject to the prior
approval of the Government. Where a change in Control occurs without the prior
approval of the Government, the Government may terminate this Contract in
respect of such Contractor Party. This Clause 19.2 does not apply if the change
of Control is the direct result of an acquisition of shares or other securities
of a publicly traded company on a recognized stock exchange. Change of Control
includes a Person ceasing to be Controlled (whether or not another Person
becomes in Control), and a Person obtaining Control (whether or not another
Person was in Control).

19.3
When an assignment, transfer or other disposition of any rights under this
Contract, other than a transfer pursuant to Clause 19.5, is anticipated, the
assigning Contractor Party must notify in writing the National Petroleum Agency
as soon as practicable. The Government, acting through the National Petroleum
Agency or other nominee, shall then have the right to purchase the assigning
Contractor Party's interest under this Contract proposed to be assigned,
transferred or otherwise disposed of on the same terms and conditions as those
offered to a bona fide transferee provided that it gives notice to the
Contractor Party of its decision to exercise such right within thirty (30) days
of the Contractor Party’s notice pursuant to the first sentence above. This
right is in addition to any right of pre-emption granted under an applicable
Joint Operating Agreement.

19.4
If the written consent by the National Petroleum Agency is granted, the
assigning Contractor Party shall be relieved of its obligation and liabilities
under this Contract to

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the extent that the assignee or transferee accepts the assumption of such
obligations and liabilities under this Contract.

19.5
The Contractor may sell, assign, transfer, convey or otherwise dispose of part
or all of its rights and interest under this Contract to an Affiliate with a
prior written notice to the National Petroleum Agency, provided that the
relevant Contractor Party and the Affiliate shall remain jointly and severally
liable for all obligations and liabilities under this Contract notwithstanding
such assignment, transfer, conveyance or other disposal. If the Affiliate shall
cease at any time to be an Affiliate of the transferring Contractor Party, the
Affiliate shall immediately re-assign or re-transfer to the original Contractor
Party all rights and obligations transferred to it under this Contract.
Transfers of interests to an Affiliate of a Contractor Party shall not change
the nationality of the Contractor Party for the purpose of determining
jurisdiction of any arbitration tribunal.

19.6
Any request for consent pursuant to Clause 19.1 made by the Contractor to the
National Petroleum Agency shall include the assignment agreement and other
relevant information relating to financial and corporate standing of the
assignee, and its capability to contribute to the Petroleum Operations under
this Contract as required under the Petroleum Law.

20.    TERMINATION

20.1
The State, by decision of the Government, shall be entitled to terminate this
Contract with the Contractor (or in respect of any Party making up the
Contractor) if any of the following events occur:

(a)
the Contractor defaults in the performance of any of its material obligations
set forth in Clause 9;

(b)
the Contractor fails to execute the Minimum Work Obligations;

 
(c)
the Contractor assigns, transfers, conveys, encumbers or other disposes of its
rights, interests and/or obligations under this Contract otherwise than in
accordance with Clause 19 and/or the Petroleum Law;

(d)
the Contractor is adjudged insolvent or bankrupt by a court of competent
jurisdiction or acknowledges or claims that it is unable to pay its debts or
makes an application for bankruptcy protection that is not discharged within
thirty (30) days;

(e)
the Contractor ceases to carry on its business as carried on at the date of this
Contract or liquidates or terminates its corporate existence;

(f)
the warranties made by the Contractor under Clause 24 are found to have been
untrue when made;

(g)
the Contractor fails to make any payment to the State when due;

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(h)
the Contractor fails to submit the performance bond or guarantee when due;

(i)
the Contractor fails to initiate field development and production in accordance
to the time schedule outlined in the approved Field Development Program (Clause
5.1 (e)), except if that occurs for acceptable and duly demonstrated reasons; or
if, after production of Petroleum is initiated in the Contract Area, production
of Petroleum ceases for a period of more than four (4) months for causes which
are not acceptable, not attributable to Force Majeure or without the consent of
the National Petroleum Agency; and

(j)
the events provided for in the articles 34, 35 or 36 of the Petroleum Law.

20.2
If the cause for termination is an event specified in Clause 20.1(a), (b), (f),
(g), (h), (i) and/or (j) above, the National Petroleum Agency shall give written
notice thereof to the Contractor requiring it to remedy such default within a
period not more than thirty (30) days of receipt of the National Petroleum
Agency’s notice or such additional days as the National Petroleum Agency deems
appropriate in the circumstances in its sole discretion. If upon the expiration
of the said period such default has not been remedied or removed, the Government
may, by written notice issued by the National Petroleum Agency to the
Contractor, declare this Contract terminated.

20.3
Termination for any of the events specified in Clause 20.1(c), (d) and/or (e)
above, shall be with immediate effect and the Government may, by written notice
to the Contractor issued by the National Petroleum Agency, declare this Contract
terminated. Termination as to one Contractor Party shall not constitute
termination as to the other Contractor Party(ies).

20.4
Where this Contract is terminated with respect to only one Contractor Party, the
State shall have the option to assume the interests, rights and obligations of
such defaulting Contractor Party under this Contract. If the State elects not to
exercise this option, the interests, rights and obligations shall be assigned to
the remaining Contractor Parties who shall be liable jointly and severally.

20.5
In the event that any other Contractor Party(ies) fail to meet any and all
liabilities of the terminated Contractor Party as provided in Clause 20.4, the
State reserves the right to terminate this Contract, in respect of all other
Contractor Parties upon written notice.

20.6
Without prejudice to all other rights of the State, the Contractor shall upon
the termination of this Contract permit inspection, copying and auditing of its
accounts and records for the Petroleum Operations by the National Petroleum
Agency and/or its agents.

    
20.7
The Contractor shall have the right, at its sole discretion, to relinquish its
rights and to terminate this Contract without further obligations or
liabilities, upon completion of the stipulated Minimum Work Obligations and
Minimum Financial Commitment at the end of any phase of the Exploration Period,
upon giving a thirty (30) day advance notice to the National Petroleum Agency.
This Clause 20.7 shall not release the Contractor from any unfulfilled
obligations incurred prior to the termination of this Contract nor from

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any liabilities arising from acts or omissions taking place prior to the
termination of this Contract.

20.8
This Contract shall automatically terminate if no Commercial Discovery is made
in the Contract Area at the end of Exploration Period, as extended.

21.    FORCE MAJEURE

21.1
Any failure or delay on the part of any Party in the performance of its
obligations or duties (other than the obligation to pay money) under this
Contract shall be excused to the extent attributable to Force Majeure. A Force
Majeure situation includes delays, defaults or inability to perform under this
Contract due to any event beyond the reasonable control of the Party claiming
Force Majeure. Such event may be, but is not limited to, any act, event,
happening or occurrence due to natural causes and acts or perils of navigation,
fire, hostilities, war (whether declared or undeclared), blockade, labor
disturbances, strikes riots, insurrection, civil commotion, quarantine
restrictions, epidemics, storms, floods, earthquakes, accidents, blowouts and
lightning.

21.2
If Petroleum Operations are delayed, curtailed or prevented by an event of Force
Majeure, then the time for carrying out the obligation and duties thereby
affected, and rights and obligations hereunder, shall be extended for a period
equal to the period of such delay.

21.3
The Party who is unable to perform its obligations as a result of the Force
Majeure shall promptly notify the other Parties not later than five (5) days
after the establishment of the commencement of the event of Force Majeure,
stating the cause, and the Parties shall do all that is reasonably within their
powers to remove such cause.

21.4
The Contractor’s failure or inability to find Petroleum in commercial quantities
for reasons other than as specified in Clause 21.1 shall not be deemed an event
of Force Majeure.

22.    LAWS AND REGULATIONS

22.1
This Contract shall be governed by and construed in accordance with the laws of
the Democratic Republic of Sao Tome and Principe.

22.2
Subject to Clause 25.8 and to the principles of public international law, no
term of this Contract shall prevent or limit the State from exercising its
sovereign rights.

23.    NATURAL GAS

23.1
If the Contractor discovers a commercially viable quantity of Natural Gas, the
Contractor shall have the right to develop, commercialize, recover the costs and
share in the profits of a development of such Natural Gas under this Contract on
terms to be mutually agreed. Such terms when agreed shall become an integral
part of this Contract.

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23.2
Notwithstanding Clause 23.1, the Contractor may utilize, at no cost, Natural Gas
required as fuel for Petroleum Operations such as gas recycling, gas injection,
gas lift or any other Crude Oil enhancing recovery schemes, stimulation of wells
necessary for maximum Crude Oil recovery in the field discovered and developed
by the Contractor and such usage shall be with prior written consent of the
National Petroleum Agency, which consent shall not be unreasonably withheld.
This shall be included in a Field Development Program.

23.3
The attainment of recovery of Crude Oil through an efficient, economic and
technically acceptable method shall always be paramount in all decisions
regarding Associated Natural Gas. However, prior to the commencement of
Production of Crude Oil from the Contract Area, the Contractor shall submit to
the National Petroleum Agency, a program for the utilization of any Associated
Natural Gas that has been discovered in the Contract Area, which shall be
subject to the approval of the National Petroleum Agency.

23.4
If the Contractor discovers sufficient volumes of Unassociated Natural Gas that
could justify commercial development, the Contractor shall immediately report
the volume of potentially recoverable Natural Gas to the National Petroleum
Agency and shall promptly investigate and submit proposals to the National
Petroleum Agency for the commercial development of such Natural Gas taking in
consideration local strategic needs as may be identified by the National
Petroleum Agency, within two (2) years of the date of the relevant discovery.
Any cost in respect of such proposals or investigation presented by the
Contractor to the National Petroleum Agency shall be included in Operating
Costs. The Contractor and the National Petroleum Agency will determine the plan
and time needed, which shall be no more than five (5) years, unless otherwise
agreed by the National Petroleum Agency, to progress a commercial development
project, which shall include the terms for recovery of Operating Costs and
sharing of Natural Gas production, which terms when agreed shall form an
integral part of this Contract. If the Contractor fails to justify a commercial
development within the agreed timeframe and if the National Petroleum Agency
determines that a sufficient volume of Unassociated Natural Gas exists, the
National Petroleum Agency shall have the right to propose to the Contractor a
commercial development of such Natural Gas. The Contractor shall have the right
to participate in the commercial development under terms pursuant to Clause
23.1. If the Contractor declines to participate in the commercial development of
such Natural Gas as presented by the National Petroleum Agency and if the Field
Development Program does not hinder or jeopardize current Petroleum Operations,
the National Petroleum Agency may develop the Natural Gas in the manner
presented to the Contractor.

24.    REPRESENTATIONS AND WARRANTIES

24.1
In consideration of the State entering into this Contract, the Contractor hereby
represents and warrants to the State as follows:

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(a)
The Contractor has the power to enter into and perform this Contract and has
taken all necessary action to execute, deliver and perform this Contract in
accordance with the terms herein contained.

(b)
The execution, delivery and performance of this Contract by the Contractor will
not contravene, any of the provisions of:

(i)
any law or regulations or order of any governmental authority, agency or court
applicable to or by which the Contractor may be bound; and

(ii)
any mortgage, contract or other undertaking or instrument to which the
Contractor is a party or which is binding upon it or any of its respective
revenues or assets.

(c)
Full disclosure has been made to the National Petroleum Agency.

(d)
As of the Effective Date all facts in relation to the Contractor and its
financial condition and affairs as are material and ought properly to be made
known to the National Petroleum Agency and have been made so known in full.

(e)
The Contractor, together with its Affiliates, has sufficient funds both in
foreign and local currencies to carry out Petroleum Operations under this
Contract.

(f)
The representations and warranties set out in this Clause 24 shall remain in
full force and effect for the duration of this Contract.

24.2
In consideration of the Contractor entering into this Contract, the State hereby
represents and warrants to the Contractor as follows:

The State warrants the Contract Area that is the subject matter of this
Contract is within the territorial jurisdiction of the Democratic Republic of
Sao Tome and Principe.

25.    CONCILIATION AND ARBITRATION

25.1
Should there be a difference or dispute between the Parties concerning the
interpretation or performance of this Contract (a "Dispute") such that the
Dispute cannot be resolved by mutual agreement, the Parties may refer the matter
to an independent expert for an opinion to assist the Parties in reaching a
mutual agreement.

25.2
Where an independent expert is used, the National Petroleum Agency and the
Contractor shall furnish the expert with all written information which he may
reasonably require. The cost of the services of the expert, if appointed, shall
be shared equally between the National Petroleum Agency and each Contractor
Party.

25.3
If the Dispute cannot be settled by amicable agreement or through an independent
expert or if a Party does not agree to the use of an independent expert, then
either the National Petroleum Agency or the Contractor may serve on the other a
demand for arbitration in

38

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accordance with this Clause 25. The procedures set forth in this Clause 25 shall
be the exclusive procedures for arbitration of any and all Disputes arising
under or involving the interpretation of this Contract. No other arbitration
tribunal under any other procedure, agreement or international treaty shall have
jurisdiction over such disputes between the Parties.

25.4
If the relevant Parties have not reached a mutual agreement after three (3)
months of the date of a notice of a Dispute by one Party to another, unless the
Parties to the Dispute mutually agree to an extension, any Party to the Dispute
may refer the Dispute for resolution by final and binding arbitration to the
International Centre for the Settlement of Investment Disputes (the "Centre" or
“ICSID”) established by the Convention on the Settlement of Investment Disputes
between States and Nationals of other States, done at Washington, March 18, 1965
(the "ICSID Convention"); to the Additional Facility of the Centre, if the
Centre is not available; or in accordance with the Arbitration Rules of the
United Nations Commission on International Trade Law (UNCITRAL), if neither the
Centre nor the Additional Facility are available.

25.5    Seat and Language of Arbitration

The seat of the arbitration shall be Geneva, Switzerland. The languages of the
arbitration proceedings, and of all orders, decisions, and the award, shall be
Portuguese and English.

25.6    Number and Identity of Arbitrators

The arbitral tribunal shall be constituted by three (3) arbitrators selected
according to the following procedure:

(i)
The claimant and the respondent shall, within thirty (30) days from the day on
which a request for arbitration has been submitted, appoint an arbitrator each
(and if there is more than one claimant or more than one (1) respondent, then
the claimants and/or the respondents collectively shall each appoint a single
arbitrator), by giving notice in writing of such appointment to the
Secretary-General of ICSID and the other Party or Parties to the Dispute.

(ii)
If either the claimant or the respondent fails to comply with the time limit in
the preceding paragraph, the Chairman of the Administrative Council of ICSID
shall appoint the arbitrator or arbitrators that have not yet been appointed, at
the request of either the claimant or the respondent and after consulting the
claimant and the respondent as far as possible. The Chairman of the
Administrative Council of ICSID shall give notice in writing of such appointment
or appointments to the Secretary-General of ICSID and the claimant and the
respondent.

(iii)
The two (2) arbitrators so appointed shall, within thirty (30) days of their
appointment, agree upon the person to be appointed as the President of the
tribunal, and give notice of such appointment to the Secretary-General of ICSID
and the claimant and the respondent.

39

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(iv)
If the two (2) arbitrators fail to agree upon the person to be the President of
the tribunal, the Chairman of the Administrative Council of ICSID shall appoint
the President, at the request of either the claimant or the respondent, and
after consulting the claimant and the respondent as far as possible. The
Chairman of the Administrative Council of ICSID shall give notice in writing of
such appointment to the Secretary-General of ICSID and the claimant and the
respondent.

(v)
None of the arbitrators shall be a citizen of the countries of any of the
Parties to the Dispute (or in the case where the Party is a company or another
entity, any country or countries of nationality of such Party, including the
country of its ultimate parent).

25.7    Rules of Arbitration

The arbitration procedures initiated under this Contract shall operate under the
arbitration rules in effect for ICSID, the Additional Facility or UNCITRAL, as
the case may be, at the time of the filing of the request for arbitration, which
rules are deemed to be incorporated herein by reference in this Clause 25.

25.8    Binding Nature of Arbitration

The arbitration award shall be final and binding on the Parties and shall be
immediately enforceable, notwithstanding the remedies provided for in the ICSID
Convention and Arbitration Rules, in the Arbitration Rules of the Additional
Facility of the Centre, or in the UNCITRAL Arbitration Rules, as appropriate.
The Parties waive any right to refer any question of law, and any right of
appeal on the law and/or merits to any court. It is expressly agreed that the
arbitrators shall have no authority to award aggravated, exemplary or punitive
damages. The Parties acknowledge that the rights and obligations hereunder are
imminently of a commercial nature. The Parties waive any defense grounded on
sovereign immunity regarding the validity of this arbitration clause or any
decision issued in the arbitration.

25.9    Costs of Arbitration

The costs of arbitration shall be charged in accordance with the directions of
the arbitration tribunal, failing which they shall be borne equally by the
Parties to the Dispute. The costs of the Parties comprising the Contactor shall
not be recoverable.

25.10    Payment of Awards

Any monetary award issued shall be expressed and payable in United States
dollars.

40

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26.    EFFECTIVE DATE

26.1
This Contract shall come into force on the date (the “Effective Date”) of the
instrument of ratification executed by the Prime-Minister on behalf of the
Government. Record of such ratification shall be annexed to this Contract as
proof of the Effective Date.

  
26.2
Failure by the Contractor to meet its obligation to pay the signature bonus in
accordance with the terms of Clause 2.1 shall mean that this Contract shall be
null and void.

27.    REVIEW / RE-NEGOTIATION OF CONTRACT AND FISCAL TERMS

27.1
The Parties agree that the commercial terms and conditions of this Contract have
been negotiated and agreed having due regard to the existing fiscal terms in
accordance with the provisions of the Petroleum Law and the Petroleum Taxation
Law in force at the time of the Effective Date. If such fiscal terms are
materially changed to the detriment of the Contractor, the Parties agree to
review the terms and conditions of this Contract affected by such changes and to
align such terms and conditions with the fiscal terms as at the Effective Date.

27.2
If at any time or from time to time, there is a change in legislation or
regulations, or a change to the interpretation of such legislation or
regulations, which materially affect the commercial benefit afforded to the
Contractor under this Contract, the Parties will consult each other and shall
agree to such amendments to this Contract as are necessary to restore as near as
practicable such commercial benefits which existed under this Contract as of the
Effective Date.

27.3
Where the parties cannot agree on new terms within one hundred and twenty (120)
days of the Contractor’s request for review of the terms and conditions of the
Contract affected by the changes, the matter may be submitted to arbitration
pursuant to Clause 25.

28.    OPERATOR

28.1
BP is hereby designated as the Operator under this Contract to execute, for and
on behalf of the Contractor, all Petroleum Operations in the Contract Area
pursuant to and in accordance with this Contract and the Petroleum Law.

28.2
The Operator, for and on behalf of the Contractor, shall have the exclusive
control and administration of Petroleum Operations under this Contract. The
Operator, for and on behalf of the Contractor, and within the limits defined by
the National Petroleum Agency, this Contract and the Petroleum Law, shall have
the authority to execute all contracts, incur expenses, make commitments, and
implement other actions in connection with the Petroleum Operations.

41

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29.    CONFLICT OF INTERESTS

29.1
Each Party represents and warrants that it did not engage any person, firm or
company as a commission agent for purposes of this Contract and that it has not
given or offered to give nor will it give or offer to give to or to accept from
(directly or indirectly) any person any bribe, gift, gratuity, commission or
other thing of significant value, as an inducement or reward for doing or
forbearing to do any action or take any decision in relation to this Contract,
or for showing or forbearing to show favor or disfavor to any person in relation
thereto.

29.2
The Contractor further represents and warrants that no loan, reward, offer,
advantage or benefit of any kind has been given to any public official or any
person for the benefit of such public official or person or third parties, as
consideration for an act or omission by such public official in connection with
the performance of such person's duties or functions or to induce such public
official to use his or her position to influence any act or decisions of the
Administration with respect to this Contract. Any breach of this representation
shall cause this Contract to be declared invalid and voidable by the State
Administration.

30.    NOTICES

30.1
Any notice or other communication required to be given by a Party to another
shall be in writing (in Portuguese and English) and shall be considered as duly
delivered if given by hand delivery in person, by courier or by facsimile at the
following addresses:

Agência Nacional do Petróleo de São Tomé e Príncipe (ANP-STP)
Avenida Nações Unidas, 225
C.P.1048
Sao Tome, Sao Tome and Principe

Attention: Executive Director
Fax: +239-226937
Tel: +239-226940

THE CONTRACTOR

BP Exploration (STP) Limited
Chertsey Road
Sunbury-on-Thames
Middlesex TW16 7LN
United Kingdom

Attention: Vice President, African New Ventures and General Manager, BP
Exploration (STP) Limited

42

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Kosmos Energy Sao Tome and Principe
c/o Circumference (Cayman)
P.O. Box 32322
4th floor, Century Yard
Cricket Square
Elgin Avenue
George Town
Grand Cayman, KY1, 1209

Attention: General Counsel
Fax: +1 214 445 9705

30.2
All notices and other communications shall be deemed to have been duly delivered
upon actual receipt by the intended recipient.

30.3.
Each Party shall notify the other promptly of any change in the above address.

31.    LIABILITY    

Where the Contractor is comprised of more than one Party, the liabilities and
obligations of such Parties under this Contact shall be joint and several.

32.    MISCELLANEOUS

32.1
No supplement or modification of any provision of this Contract shall be binding
unless executed in writing by all Parties.

32.2
No waiver by any Party of any breach of a provision of this Contract shall be
binding unless made expressly in writing. Any such waiver shall relate only to
the breach to which it expressly relates and shall not apply to any subsequent
or other breach.

32.3
The validity and effectiveness of this Contract shall be subject to the full
compliance with all applicable administrative procedural rules relating to State
contracting.

32.4
This Contract is prepared and filed in the Portuguese and English languages. In
case of non-conformity, the Portuguese language version shall prevail.

32.5
This Contract shall be made public and a copy hereof shall be provided to the
Public Registration and Information Office within ten (10) days from its
execution.

43

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IN WITNESS WHEREOF the Parties have caused this Contract to be executed the day
and year first above written.

SIGNED AND DELIVERED for and on behalf of:
THE STATE represented by the
AGÊNCIA NACIONAL DO PETRÓLEO DE SÃO TOMÉ E PRÍNCIPE

By: /s/ Orlando Sousa Pontes

Name: Orlando Sousa Pontes

Designation: Executive Director

In the presence of:

Name: Alvaro Silva

Signature: /s/ Alvaro Silva

Designation: Legal and Economic Director

SIGNED AND DELIVERED for and on behalf of:
BP EXPLORATION (STP) LIMITED

By: /s/ I. J. Evans

Name: I. J. Evans

Designation: VP Africa New Ventures

In the presence of:

Name: P. D. Garforth-Bles

Signature: /s/ P. D. Garforth-Bles

Designation: Solicitor

44

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SIGNED AND DELIVERED for and on behalf of:
KOSMOS ENERGY SAO TOME AND PRINCIPE

By: /s/ John W. Cappon

Name: John W. Cappon

Designation: VP and Country Manager

In the presence of:

Name: Alissa Eason

Signature: /s/ Alissa Eason

Designation: VP Legal

45

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SCHEDULE 1

CONTRACT AREA
Block 10

Coordinate Reference System

The coordinate reference system (CRS) shall be defined as WGS 84 / UTM zone 32N
(EPSG code 32632).

The Well Know Text (WKT) for WGS 84 / UTM zone 32N (EPSG code 32632) is as
follows –

PROJCRS["WGS 84 / UTM zone 32N",
BASEGEODCRS["WGS 84",
DATUM["World Geodetic System 1984",
ELLIPSOID["WGS 84",6378137,298.257223563,LENGTHUNIT["metre",1.0]]]],
CONVERSION["UTM zone 32N",
METHOD["Transverse Mercator",ID["EPSG",9807]],
PARAMETER["Latitude of natural origin",0,ANGLEUNIT["degree",0.01745329252]],
PARAMETER["Longitude of natural origin",9,ANGLEUNIT["degree",0.01745329252]],
PARAMETER["Scale factor at natural origin",0.9996,SCALEUNIT["unity",1.0]],
PARAMETER["False easting",500000,LENGTHUNIT["metre",1.0]],
PARAMETER["False northing",0,LENGTHUNIT["metre",1.0]]],
CS[cartesian,2],
AXIS["easting (E)",east,ORDER[1]],
AXIS["northing (N)",north,ORDER[2]],
LENGTHUNIT["metre",1.0],
ID["EPSG",32632]]

Boundary Definition

The boundary turning/corner points shall be defined by geographic coordinates
(latitude and longitude) in the defined CRS.

The lines between the turning/corner points shall be defined on the ellipsoid as
a projected curve including parallels (line of equal latitude), meridians (line
of equal longitude) and geodesic (shortest distance on the ellipsoid).

46

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Boundary Turning/Corner Point Coordinates

Block 10
WGS 84 / UTM zone 32N (EPSG code 32632)
Point
DMS Latitude
DMS Longitude
DD Latitude
DD Longitude
Easting (X)
Northing (Y)
1
01° 10' 00.000"N
06° 40' 00.000"E
1.1666666667
6.6666666667
240,339.676
129,059.597
2
01° 10' 00.000"N
06° 52' 45.967"E
1.1666666667
6.8794352778
264,028.631
129,040.841
3
01° 10' 00.000"N
07° 03' 14.854"E
1.1666666667
7.0541261111
283,475.668
129,026.784
4
01° 10' 00.000"N
07° 13' 01.000"E
1.1666666667
7.2169444444
301,599.199
129,014.771
5
01° 10' 00.000"N
07° 22' 30.099"E
1.1666666667
7.3750275000
319,194.095
129,004.114
6
01° 10' 00.000"N
07° 30' 00.000"E
1.1666666667
7.5000000000
333,102.747
128,996.389
7
01° 10' 00.000"N
07° 40' 00.000"E
1.1666666667
7.6666666667
351,650.464
128,987.049
8
01° 00' 00.000"N
07° 40' 00.000"E
1.0000000000
7.6666666667
351,642.355
110,560.290
9
00° 52' 06.901"N
07° 40' 00.000"E
0.8685836111
7.6666666667
351,636.841
96,030.833
10
00° 45' 47.831"N
07° 40' 00.000"E
0.7632863889
7.6666666667
351,632.983
84,389.130
11
00° 40' 00.000"N
07° 40' 00.000"E
0.6666666667
7.6666666667
351,629.880
73,706.820
12
00° 40' 00.000"N
07° 33' 42.659"E
0.6666666667
7.5618497222
339,963.727
73,710.104
13
00° 40' 00.000"N
07° 26' 13.388"E
0.6666666667
7.4370522222
326,073.027
73,714.338
14
00° 40' 00.000"N
07° 20' 00.000"E
0.6666666667
7.3333333333
314,527.871
73,718.125
15
00° 40' 00.000"N
07° 14' 27.448"E
0.6666666667
7.2409577778
304,244.850
73,721.703
16
00° 40' 00.000"N
07° 08' 28.088"E
0.6666666667
7.1411355556
293,132.307
73,725.786
17
00° 40' 00.000"N
07° 00' 00.000"E
0.6666666667
7.0000000000
277,419.540
73,731.945
18
00° 35' 26.807"N
07° 00' 00.000"E
0.5907797222
7.0000000000
277,416.324
65,339.001
19
00° 30' 00.000"N
07° 00' 00.000"E
0.5000000000
7.0000000000
277,412.986
55,298.949
20
00° 30' 00.000"N
06° 50' 00.000"E
0.5000000000
6.8333333333
258,855.507
55,304.840
21
00° 30' 00.000"N
06° 40' 00.000"E
0.5000000000
6.6666666667
240,295.972
55,311.204
22
00° 40' 00.000"N
06° 40' 00.000"E
0.6666666667
6.6666666667
240,303.620
73,748.284
23
00° 50' 00.000"N
06° 40' 00.000"E
0.8333333333
6.6666666667
240,313.454
92,185.374
24
00° 58' 06.768"N
06° 40' 00.000"E
0.9685466667
6.6666666667
240,323.037
107,143.027
25
01° 05' 04.382"N
06° 40' 00.000"E
1.0845505556
6.6666666667
240,332.405
119,975.688
1
01° 10' 00.000"N
06° 40' 00.000"E
1.1666666667
6.6666666667
240,339.676
129,059.597
DMS – Degrees, Minutes and Seconds and DD – Decimal Degrees

47

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Map (for purposes of illustration only)

mapofblock10.jpg [mapofblock10.jpg]

48

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SCHEDULE 2

ACCOUNTING PROCEDURES

1.    GENERAL PROVISIONS

1.1    Definitions

These Accounting Procedures attached to and forming a part of the Contract are
to be followed and observed in the performance of the Parties’ obligations
thereunder. The defined terms appearing herein shall have the same meaning as is
ascribed to them in the Contract.

1.2    Accounts and Statements

The Contractor’s accounting records and books shall be kept as provided under
Clause 15 of the Contract in accordance with generally accepted and
internationally recognized accounting standards, consistent with modern
petroleum industry practices and procedures and in accordance with Good Oil
Field Practice.

1.3
In the event of a conflict between the terms of these Accounting Procedures and
the Contract, the terms of the Contract shall apply.

1.4
These Accounting Procedures may be amended from time to time by the mutual
agreement of the Parties.

2.    Operating Costs

2.1
Operating Costs shall be defined as all costs, expenses paid and obligations
incurred in carrying out Petroleum Operations and shall consist of:

(a)    Contract Area Non-capital Costs;
(b)    Contract Area Capital Costs;
(c)    Contract Area Non-Drilling Exploration Costs; and
(d)    Contract Area Unsuccessful Exploration and Appraisal Costs.

Operating Costs shall be recorded separately for each Development Area and
calculated on the basis of the Contract Area.

49

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2.2    Contract Area Non-capital Costs
    
Contract Area Non-capital Costs means those Operating Costs incurred that are
chargeable to the current year’s operations. Contract Area Non-capital Costs
include the following:

(a)
General office expenses - office, services and general administration services
pertaining to Petroleum Operations including services of legal, financial,
purchasing, insurance, accounting, computer, and personnel department;
communications, transportation, rental of specialized equipment, scholarships,
charitable contributions and educational awards.

(b)
Labor and related costs - salaries and wages, including bonuses, of employees of
the Contractor who are directly engaged in the conduct of Petroleum Operations,
whether temporarily or permanently assigned, irrespective of the location of
such employee including the costs of employee benefits, customary allowance and
personal expenses incurred under the Contractor’s practice and policy, and
amounts imposed by applicable governmental authorities which are applicable to
such employees.

These costs and expenses shall include:

(i)
cost of established plans for employee group life insurance, hospitalization,
pension, retirement, savings and other benefit plans;

(ii)
cost of holidays, vacations, sickness and disability benefits;

(iii)
cost of living, housing and other customary allowances;

(iv)
reasonable personal expenses, which are reimbursable under the Contractor's
standard personnel policies;

(v)    obligations imposed by governmental authorities;

(vi)
cost of transportation of employees, other than as provided in paragraph (c)
below, as required in the conduct of Petroleum Operations; and

(vii)
charges in respect of employees temporarily engaged in Petroleum Operations,
which shall be calculated to reflect the actual costs thereto during the period
or periods of such engagement.

(c)
Employee relocation costs - costs for relocation, transportation and transfer of
employees of the Contractor engaged in Petroleum Operations including the cost
of freight and passenger service of such employees’ families and their personal
and household effects together with meals, hotel and other expenditures related
to such transfer incurred with respect to:

50

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(i)
employees of the Contractor within Sao Tome and Principe including expatriate
employees engaged in Petroleum Operations;

(ii)
transfer to Sao Tome and Principe for engagement in Petroleum Operations;

(iii)
relocation costs and other expenses incurred in the final repatriation or
transfer of the Contractor's expatriate employees and families in the case of
such employees’ retirement, or separation from the Contractor, or in case of
such employees’ relocation to the Contractor’s point of origin, provided that
relocation costs incurred in moving an expatriate employee and his family beyond
point of origin, established at the time of his transfer to Sao Tome and
Principe, will not be recoverable as Operating Costs; and

(iv)
Sao-Tomean employees on training assignments outside the Contract Area.

(d)
Services provided by third parties - cost of professional, technical,
consultation, utilities and other services procured from third party sources
pursuant to any contract or other arrangements between such third parties and
the Contractor for the purpose of Petroleum Operations.

(e)
Legal expenses - all costs or expenses of handling, investigating, asserting,
defending and settling litigation or claims arising out of or relating to
Petroleum Operations or necessary to protect or recover property used in
Petroleum Operations including, but not limited to, legal fees, court costs,
arbitration costs, cost of investigation or procuring evidence and amounts paid
in settlement or satisfaction of any such litigation, arbitration or claims in
accordance with the provisions hereof.

(f)
Head office overhead charge – parent company overhead in the amount specified in
Clause 15.4 of the Contract.

(g)
Insurance premiums and settlements - premiums paid for insurance normally
required to be carried for the Petroleum Operations together with all
expenditures incurred and paid in settlement of any and all losses, claims,
damages, judgments, and other expenses, including fees and deductibles relating
to the Contractor's performance under the Contract.

(h)
Duties and taxes - all duties and taxes, fees and any Government assessments,
including gas flare charges, license fees, custom duties, other than Royalty and
Tax.

(i)
Operating expenses - labor, materials and services used in day to day oil well
operations, oil field production facilities operations, secondary recovery

51

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operations, storage, transportation, delivering and marketing operations; and
other operating activities, including repairs, well workovers, maintenance and
related leasing or rental of all materials, equipment and supplies.

(j)
Successful Exploration drilling - all expenditures incurred in connection with
the drilling of any Exploration Well which results in a Commercial Discovery.

(k)
Successful Appraisal drilling – all expenditures incurred in connection with the
drilling of Appraisal Wells on a Commercial Discovery.

(l)
Unsuccessful Development drilling - all expenditures incurred in connection with
drilling of development wells which are dry, including costs incurred in respect
of casing, well cement and well fixtures.

(m)
Successful Development drilling - all intangible expenditures incurred in
connection with labor, fuel, repairs, maintenance, hauling, and supplies and
materials (not including, casing and other well fixtures) which are for or
incidental to drilling, cleaning, deepening or completion wells or the
preparation thereof incurred in respect of:

(i)
determination of well locations, geological, geophysical, topographical and
geographical surveys for site evaluation preparatory to drilling including the
determination of near surface and near sea bed hazards;

(ii)
cleaning, draining and leveling land, road-building and the laying of
foundations;

(iii)
drilling, shooting, testing and cleaning wells; and

(iv)
erection of rigs and tankage assembly and installation of pipelines and other
plant and equipment required in the preparation or drilling of wells producing
Crude Oil.

(n)
Decommissioning provisions - any deposits in the Decommissioning Reserve Fund
set aside for the purposes of Decommissioning pursuant to Clause 13 of the
Contract.

(o)
Affiliate services – professional, administrative, scientific and technical
services provided by Affiliates of the Contractor for the direct benefit of
Petroleum Operations including services provided by the Exploration, Production,
legal, financial, purchasing, insurance, accounting and computer services
departments of such Affiliates. Charges for providing these services shall
reflect costs only, and must be consistent with international market practices
and shall not include any element of profit.

52

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(p)
Pre-production Contract Area Non-capital Costs – all recoverable Contract Area
Non-capital Costs incurred before first production from the Contract Area are
accumulated and treated as if they had been incurred on the first day of
production from the Contract Area.

2.3
Contract Area Capital Costs

Contract Area Capital Costs mean those Operating Costs incurred that are subject
to depreciation. Contract Area Capital Costs includes the following:

(a)
Plant expenditures – expenditures in connection with the design, construction,
and installation of plant facilities (including machinery, fixtures, and
appurtenances) associated with the production, treating, and processing of Crude
Oil (except such costs properly allocable to intangible drilling costs)
including offshore platforms, secondary or enhanced recovery systems, gas
injection, water disposal, expenditures for equipment, machinery and fixtures
purchased to conduct Petroleum Operations such as office furniture and fixtures,
office equipment, barges, floating crafts, automotive equipment, petroleum
operational aircraft, construction equipment, miscellaneous equipment.

(b)
Pipeline and storage expenditure - expenditures in connection with the design,
installation, and construction of pipeline, transportation, storage, and
terminal facilities associated with Petroleum Operations including tanks,
metering, and export lines.

(c)
Building expenditure - expenditures incurred in connection with the construction
of buildings, structures or works of a permanent nature including workshops,
warehouses, offices, roads, wharves, furniture and fixtures related to employee
housing and recreational facilities and other tangible property incidental to
construction.

(d)
Successful Development drilling - all tangible expenditures incurred in
connection with drilling development wells such as casing, tubing, surface and
sub-surface production equipment, flow lines and instruments.

(e)
Material inventory - cost of materials purchased and maintained as inventory
items solely for Petroleum Operations subject to the following provisions:

(i)
the Contractor shall supply or purchase any materials required for the Petroleum
Operations, including those required in the foreseeable future. Inventory stock
levels shall take account of the time necessary to provide the replacement,
emergency needs and similar considerations;

(ii)
materials purchased by the Contractor for use in the Petroleum Operations shall
be valued so as to include invoice price (less prepayment discounts, cash
discounts, and other discounts if any) plus freight and forwarding

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charges between point of supply and point of destination but not included in the
invoice price, inspection costs, insurance, custom fees and taxes, on imported
materials required for the Contract;

(iii)
materials not available in Sao Tome and Principe supplied by the Contractor or
from its Affiliates stocks shall be valued at the current competitive cost in
the international market; and

(iv)
the Contractor shall maintain physical and accounting controls of materials in
stock in accordance with Good Oil Field Practice. The Contractor shall make a
total inventory at least once a year to be observed by the National Petroleum
Agency and its external auditors. The National Petroleum Agency may however
carry out partial or total inventories at its own expense, whenever it considers
necessary, provided such exercise does not unreasonably disrupt Petroleum
Operations.

(f)
Pre-production Contract Area Capital Costs – all recoverable Contract Area
Capital Costs incurred before first production from the Contract Area are
accumulated and treated as if they had been incurred on the first day of
production from the Contract Area.

2.4    Contract Area Non-Drilling Exploration Costs

Contract Area Non-Drilling Exploration Costs mean those Operating Costs incurred
anywhere in the Contract Area on Exploration or related activity not directly
connected with the drilling of an Exploration Well. Contract Area Non-Drilling
Exploration Costs are chargeable to the current year’s operations and may be
added to the Operating Costs of the Contract Area. Contract Area Non-Drilling
Exploration Costs include the following:

(a)
Geological and geophysical surveys - labor, materials and services used in
aerial, geological, topographical, geophysical and seismic surveys incurred in
connection with Exploration excluding however the purchase of data from the
National Petroleum Agency.

(b)
Pre-Contract seismic costs – reasonable costs associated with the acquisition of
seismic data covering the Contract Area, including third party processing but
not interpretation of the data by the Contractor or its Affiliates, which were
incurred prior to the Effective Date.

(c)    Annual scholarship payments as described under Clause 14 of the Contract.

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2.5    Contract Area Unsuccessful Exploration and Appraisal Costs

Contract Area Unsuccessful Exploration and Appraisal Costs mean those Operating
Costs incurred anywhere in the Contract Area in connection with the drilling of
any Exploration Well or Appraisal Well in the Contract Area which does not
result in a Commercial Discovery. Contract Area Unsuccessful Exploration and
Appraisal Costs are subject to depreciation over a five (5) year period in equal
installments of twenty percent (20%) per annum or the remaining life of the
Contract Area whichever is less, commencing with production. Unsuccessful
Exploration and Appraisal Costs in any period shall be allocated to the
Operating Costs of the Contract Area, subject to the following restrictions:

(a)
to the extent that the Contract Area has Available Cost Oil after recovering the
Operating Costs (other than Unsuccessful Exploration and Appraisal Costs)
related to that Contract Area; and

(b)
if there is insufficient Available Cost Oil in the Contract Area in any period
to fully recover Unsuccessful Exploration and Appraisal costs the unrecovered
amount may be carried forward and included in the next period’s Unsuccessful
Exploration and Appraisal costs account.

2.6    Non-Recoverable Costs

The following costs are not recoverable as Operating Costs:

(a)
bonuses and expenditure incurred by the Contractor in carrying out any
obligation to fund social projects as defined in Clause 2 of the Contract;

(b)
interest incurred under loans taken to finance Petroleum Operations from either
inter-Affiliate loans or loans from third parties; and

(c)
costs incurred in excess of five percent (5%) above costs budgeted for in a Work
Program and Budget, unless such costs are approved in advance by the National
Petroleum Agency, which shall not be denied in cases where costs reflect fair
market conditions or are technically supported.

3.    Computation of Royalty and Tax

3.1
The Contractor shall compute the amount of Royalty and Tax payable to the State
pursuant to and in accordance with the Contract. Such amounts shall be computed
in the manner

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set forth in the Petroleum Law, the Petroleum Taxation Law and the provisions
hereof as stated in Article 4 of this Schedule 2.

3.2
The Contractor shall compute the Royalty to be paid to the State in a given
month based on the Realizable Price of the Crude Oil produced during the second
preceding month. Tax payments shall be calculated and remitted in accordance
with the Petroleum Taxation Law.

4.    Accounting Analyses

4.1
The Contractor and the National Petroleum Agency shall agree within three (3)
months on a format for monthly accounting analysis reflecting the volumes lifted
in terms of Royalty Oil, Cost Oil, and Profit Oil, and Proceeds received by each
Party.

4.2
The Realizable Price and the quantities actually lifted by the Parties shall be
used to compute the Proceeds as reflected in the agreed monthly accounting
analysis format in Article 4.1 above and the allocation of such Proceeds in the
categories described under Clause 10 of the Contract shall be reflected.

4.3
The allocation of the quantity of Available Crude Oil to each Party pursuant to
Clause 10 of the Contract shall be according to and governed by provisions of
the Allocation and Lifting Procedures.

4.4
The priority of allocation of the total Proceeds for each period shall be as
follows:

(a)
Royalty Oil;

(b)
Cost Oil; and

(c)
Profit Oil.

4.5
The amount chargeable to and recoverable as Royalty Oil, and Cost Oil shall be
determined as follows:

(a)
Royalty Oil - The sum of royalties payable during such month.

(b)
Cost Oil - The Operating Costs applicable to such month for the purposes of Cost
Oil are as follows:

(i)
Contract Area Non-Capital Costs shall be the amount recorded in the books and
accounts of the Contractor for such month in accordance with these Accounting
Procedures and shall be recoverable in full in the period incurred.

(ii)
Contract Area Capital Costs shall be the amount recorded in the books and
accounts of the Contractor for such month in accordance with these Accounting
Procedures and shall be recoverable over the depreciation period as provided in
Article 6.1 below or the remaining life of the Contract, whichever is less.

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(iii)
Contract Area Non-Drilling Exploration Costs shall be the amount recorded in the
books and accounts of the Contractor for such month in accordance with these
Accounting Procedures and shall be recoverable in full in the period incurred.

(iv)
Contract Area Unsuccessful Exploration and Appraisal Costs shall be the amount
recorded in the books and accounts of the Contractor for such month in
accordance with these Accounting Procedures and shall be recoverable over the
depreciation period of five (5) years in equal installments of twenty percent
(20%) per annum or the remaining life of the Contract Area, whichever is less,
commencing with production from the Contract Area which costs are allocated to
the Contract Area in accordance with Article 2.5 of this Schedule 2.

(c)
Any carryover from previous months as provided under Article 4.6 of this
Schedule 2.

4.6
Any amounts chargeable and recoverable in excess of the allocation of Proceeds
for the month to Royalty Oil and Cost Oil shall be carried forward to subsequent
months. Carryovers shall be determined as follows:

(a)
A Royalty Oil carryover results when the Proceeds for such month are
insufficient for allocation of the Royalty Oil due for the month, as described
in Clause 10 of the Contract.

(b)
A Cost Oil carryover results when the Proceeds remaining, after allocating a
portion of the Proceeds to Royalty Oil, are insufficient for allocation of Cost
Oil due for the month, as described in Clause 10 of the Contract.

4.7
Profit Oil is available where Proceeds remain after allocations to Royalty Oil
and Cost Oil pursuant to Articles 4.5 and 4.6 above. Profit Oil shall be
allocated as described in Clause 10 of the Contract.

5.     Other Provisions

5.1
The Contractor shall open and keep bank accounts in United States dollars where
all funds remitted from abroad shall be deposited for the purpose of meeting
local expenditures. For purposes of keeping the books of accounts, any foreign
currency remitted by the Contractor shall be converted at the monthly exchange
rates published on the date of payment by the Central Bank of Sao Tome and
Principe for Dobras, and the Financial Times of London for other currencies. The
Contractor shall have the right to convert any currency into United States
dollars and transfer any funds irrespective of currency into or outside of Sao
Tome and Principe, free of any tax imposed by the State. It is understood that
commercial banks may apply routine charges or fees on such transactions.

5.2
The Contractor shall prepare financial accounting and budget statements in
accordance with the National Petroleum Agency’s prescribed reporting format.

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5.3
With respect to any agreed sum arising out of the Contract owing between the
Parties that is past due, any set-off pursuant to Clause 12 of the Contract
shall be exercised by giving the other Party written notice thereof accompanied
by sufficient description of the offsetting sums to allow the Parties to
properly account thereof.

    
The Contractor shall report on the cumulative production in the Contract Area in
a format to be agreed with the National Petroleum Agency.

6.    Depreciation Schedule

6.1
Any Operating Costs, which are to be depreciated, shall be depreciated according
to the following schedule:

Year
Depreciation Rate (%)
1
20%
2
20%
3
20%
4
20%
5
20%

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SCHEDULE 3

ALLOCATION AND LIFTING PROCEDURES

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1.
If Crude Oil is to be produced from the Contract Area, the Parties shall, in
good faith and not fewer than twelve (12) months before the commencement of
Production, as promptly notified by the Operator, negotiate and agree the terms
of a lifting agreement based on the 2001 version of the AIPN Model Lifting
Agreement to cover the offtake of Available Crude Oil produced under the
Contract. Consistent with the Field Development Program and subject to terms of
the Contract, the lifting agreement shall make provision for:

i)
The Delivery Point;

ii)
Operator’s regular periodic advice to the Parties of estimates of Available
Crude Oil for succeeding periods, quantities of each type and/or grade of Crude
Oil forecast to be produced consistent with the projected production schedule
approved as part of the approved Work Program and each Party’s entitlement for
as far ahead as is necessary for Operator and the Parties to plan lifting
arrangements, taking into account each such Party’s entitlement at the beginning
of, and scheduled liftings during, each period. Such advice shall also cover,
for each type and/or grade of Crude Oil, the Available Crude Oil and deliveries
for the preceding period, and overlifts and underlifts;

iii)
Nomination by the Parties to Operator of acceptance of their entitlements for
the succeeding period, with such nominations in any one period being for each
Party’s entire entitlement during that period, subject to overlifting limits,
underlifting limits, operational tolerances and minimum economic cargo sizes or
as the Parties may otherwise agree;

iv)
Timely mitigation of the effects of overlifts and underlifts;

v)
If offshore loading or a shore terminal for vessel loading is involved, vetting
procedures relating to risks regarding tankers and procedures for demurrage and
(if applicable) availability of berths;

vi)
Procedures to make available to each Party its nominated quantities of each type
and grade of Crude Oil, and to ensure that each Party takes delivery as it is
made available in each period of its respective entitlement of grades, gravities
and qualities of Crude Oil from the Contract Area;

vii)
To the extent that distribution of entitlements on such basis is impracticable
due to availability of facilities and minimum cargo sizes, a method of making
periodic adjustments; and

viii)
The right of the other Parties to sell an entitlement that a Party fails to
nominate for acceptance under paragraph (iii) above or of which a Party fails to
take delivery, in accordance with applicable agreed procedures, provided that
such failure either breaches Operator’s, or such Party’s, obligations under the
Contract, or is likely to result in the curtailment or shut-in of production.
Such sales shall be made only to the limited extent necessary to avoid
disruption in Petroleum Operations. Operator shall give all Parties as much
notice as is practicable of such situation and that a right of sale option has
arisen. Any sale shall be of the un-nominated or undelivered entitlement (as
applicable) and for reasonable periods of time (in

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no event to exceed twelve (12) Calendar Months). Payment terms for production
sold under this option shall be established in the lifting agreement.
2.
If a lifting agreement has not been agreed before the commencement of
Production, the Operator shall act as lifting coordinator and the Parties shall
be obligated to take and separately dispose of their entitlement to such Crude
Oil (taking overlifts and underlifts into account) and in addition shall be
bound by the principles set forth in this Schedule 3 until a lifting agreement
is agreed by the Parties.

    

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SCHEDULE 4

PROCUREMENT AND PROJECT IMPLEMENTATION PROCEDURES

1.    Application

1.1
These Procurement Procedures form part of the Contract and shall be followed and
observed in the performance of a Party’s obligations under the Contract.

1.2
These Procurement Procedures shall be applicable to all contracts and purchase
orders whose values exceed the respective limits set forth in Article 1.5 below
and which, pursuant thereto, require the prior approval of the National
Petroleum Agency.

1.3
In the event of a conflict between the terms of these Procurement Procedures and
the Contract, the terms of the Contract shall prevail.

1.4
These Procurement Procedures may be amended from time to time by the mutual
agreement of the Parties.

1.5
The Contractor shall have the authority to enter into any contract or place any
purchase order in its own name for the performance of services or the
procurement of facilities, equipment, materials or supplies, provided that:

(a)
prior approval of the National Petroleum Agency shall be obtained for all
foreign contracts and foreign purchase orders awarded to third parties where the
cost exceeds $2,000,000 or in another currency equivalent during the Exploration
Period and $3,000,000 or in another currency equivalent during the Production
Period;

(b)
prior approval of the National Petroleum Agency shall be obtained for all local
contracts and purchase orders where the cost exceeds $1,000,000 or in other
currency equivalent in utilization at the location of the contract or purchase;

(c)
the amount set forth in paragraphs (a), (b) and (h) of this Article 1.5 will be
reviewed by the Parties whenever it becomes apparent to a Party that such limits
create unreasonable constraints on Petroleum Operations or are no longer
appropriate. In the event of a significant change in the exchange rate of local
currencies to United States dollars compared to that which existed on the
Effective Date, the Parties shall review the limits set forth in paragraphs (a),
(b) and (h) of this Article 1.5;

(d)
such contracts shall be entered into and such purchase orders shall be placed
with third parties, which in the Contractor’s opinion are technically and
financially able to properly perform their obligations;

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(e)
procedures customary in the oil industry for securing best total value shall be
utilized at all times;

(f)
the Contractor shall give preferences to sub-contractors that are companies
organized under the laws of Sao Tome and Principe to the maximum extent possible
and in accordance with the Petroleum Law;

(g)
the Contractor shall give preference to such goods which are manufactured or
produced in Sao Tome and Principe or services rendered by nationals of Sao Tome
and Principe in accordance with the Petroleum Law; and

(h)
the above limits and these procedures shall not apply to purchases made for
warehouse replenishment stock not exceeding $1,500,000 or in another currency
equivalent nor shall they apply to the purchase of tubulars of less than
$1,500,000 or in another currency equivalent made in furtherance of planned
drilling programs. Where there are United States dollars and other currency
components of such purchases the total shall not exceed the equivalent of
$1,500,000.

2.    Project Implementation Procedure

2.1
The Contractor, realizing the need for a project or contract to which these
Procurement Procedures apply pursuant to Article 1.5, shall introduce it as part
of the proposed Work Program and Budgets to be developed and submitted by the
Contractor to the National Petroleum Agency pursuant to Clause 7 of the
Contract.

(a)
The Contractor shall provide full information with respect to a project
including the following:

(i)    a clear definition of the necessity and objectives of the project;

(ii)
the scope of the project; and

(iii)     the cost estimate thereof.

(b)
The Contractor shall transmit the project proposal along with the relevant
related documentation to the National Petroleum Agency for consideration.

(c)
The National Petroleum Agency shall consider the proposal and the recommendation
of the Contractor and whether to proceed with the Contractor’s proposal. If the
National Petroleum Agency does not object to the project or any part thereof
within thirty (30) days of the submission of the project, the project as
proposed by the Contractor shall be deemed to have been approved.

2.2
The project as approved pursuant to Article 2.1 shall form part of the Work
Program and Budget for Petroleum Operations. Such approval shall also constitute
all authorizations by the National Petroleum Agency to the Contractor to
initiate contracts and purchase

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orders relevant to the project proposal, subject to the provisions of Articles
1.5 and 3 of this Schedule 4.

2.3
The resources for the project design, supervision, and management shall first be
drawn from the Contractor’s available in-house expertise. If the National
Petroleum Agency approves the foregoing under the approved budget for the
project it may be performed by the Contractor. Competent Sao-Tomean engineering
and design companies shall be given priority over other third parties by the
Contractor for such projects in accordance with the Petroleum Law. Staff of the
National Petroleum Agency who shall be seconded pursuant to Clause 14 of the
Contract shall be fully involved in the project design, supervision and
management.

2.4
After approval of the project and its budget, the Contractor shall prepare and
transmit to the National Petroleum Agency complete details of the project
including the following:

(a)    project definition;

(b)
project specification;    

(c)    flow diagrams;

(d)
projects implementation schedule showing all phases of the project including
engineering design, material and equipment procurement, inspection,
transportation, fabrication, construction, installation, testing and
commissioning;

(e)    major equipment specifications;

(f)
cost estimate of the project;

(g)    an activity status report; and

(h)
copies of all approved authorization for expenditure (AFEs).

3.    Contract Tender Procedure

3.1
The following tender procedure shall apply to works contracts and contracts for
the supply of services and supply contracts not directly undertaken by the
Contractor or an Affiliate:

(a)
The Contractor shall maintain a list of approved sub-contractors for the purpose
of contracts for Petroleum Operations, (the "Approved Contractors’ List"). The
National Petroleum Agency shall have the right to nominate sub-contractors to be
included in and excluded, for good cause, from the list. The National Petroleum
Agency and the Contractor shall be responsible for pre-qualifying any
sub-contractor to be included in the Approved Contractors’ List.

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(b)
Sub-contractors included in the Approved Contractors’ List shall be both local
and/or overseas sub-contractors and entities. Where required by law, they shall
be registered with the National Petroleum Agency.

(c)
When a contract is to be bid, the Contractor shall present a list of proposed
bidders to the National Petroleum Agency for concurrence not less than fifteen
(15) working days before the issuance of invitations to bid to prospective
sub-contractors. The National Petroleum Agency may propose additional names to
be included in and excluded, for good cause, from the list of proposed bidders.
Contract specifications shall be in Portuguese and/or English and in a
recognized format used in the international petroleum industry.

(d)
If the National Petroleum Agency has not responded within fifteen (15) working
days from the date of the official receipt following the presentation of the
list of proposed bidders as aforesaid, the list shall be deemed to have been
approved.

3.2
The Contractor shall, for contracts above the limits set forth in Article 1.5,
establish a Tender Committee who shall be responsible for pre-qualifying
bidders, sending out bid invitations, receiving and evaluating bids and
determining successful bidders to whom contracts shall be awarded.

3.3
Before a contract is signed, the Contractor shall send analysis and
recommendations of bids received and opened by the Tender Committee to the
National Petroleum Agency for approval within thirty (30) days from the date of
the official receipt. Approval of the Contractor’s recommendations shall be
deemed to have been given if the National Petroleum Agency has not responded
within such period.

3.4
Prospective vendors and/or sub-contractors for work estimated in excess of
$2,000,000 for the Exploration Period and $3,000,000 for the Production Period
or their equivalent shall submit the commercial summary of their bids to the
Contractor in two (2) properly sealed envelopes, one addressed to the Contractor
and one addressed to the National Petroleum Agency. The Contractor shall retain
one and send one to the National Petroleum Agency properly enveloped, sealed and
addressed to National Petroleum Agency, together with the recommendation
provided for in Article 3.3.

3.5
In all cases, the Contractor shall make full disclosure to the National
Petroleum Agency of its relationship, if any, with any sub-contractors.

3.6
These Procurement Procedures may be waived and the Contractor may negotiate
directly with a sub-contractor:

(a)
in emergency situations provided that it promptly informs the National Petroleum
Agency of the outcome of such negotiations; and

(b)
in work requiring unusually specialized skills or when special circumstances
warrant, upon the approval of the National Petroleum Agency, which approval
shall not be unreasonably withheld.

    

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4.    General Conditions of Contracts

4.1
The payment terms, to the extent viable, shall provide that:

(a)
Contractor is required to include in the services contracts, terms and condition
that guarantees the appropriate security for the sub-contractor’s performance,
including but not limited to for example, industry standard warranties,
retention fees or other guarantees; and

(b)
a provision shall be made for appropriate withholding tax as may be applicable.

4.2
The governing law of all agreements signed with sub-contractors shall be, to the
extent feasible, Sao-Tomean law.

4.3
Sao-Tomean law shall apply to all sub-contractors performing work in the
Territory of Sao Tome and Principe. In as far as practicable, they shall use
Sao-Tomean resources both human and material in accordance with the Petroleum
Law.

4.4
Each contract shall provide for early termination where necessary and the
Contractor shall use all reasonable endeavors to obtain a termination provision
with minimal penalty.

4.5
Sub-contractors shall provide, in the case of a foreign sub-contractor, that the
local part of the work, in all cases, shall be performed by the sub-contractor’s
local subsidiary whenever possible.

5.    Materials and Equipment Procurement

5.1
The Contractor may, through itself or its Affiliates, procure materials and
equipment subject to conditions set forth in this Article 5 and these
Procurement Procedures.

5.2
The provisions of this Article 5 shall not apply to lump sum or turnkey
contracts/projects.

5.3
In ordering the equipment or materials, the Contractor shall obtain from vendors
/ manufacturers such rebates and discounts and such warranties and guarantees
that such discounts, guarantees and all other grants and responsibilities shall
be for the benefit of Petroleum Operations.

5.4
The Contractor shall:

(a)
by means of established policies and procedures ensure that its procurement
efforts provide the best total value, with proper consideration of safety,
quality, services, price, delivery and Operating Costs to the benefit of
Petroleum Operations;

(b)
maintain appropriate records, which shall be kept up to date, clearly
documenting procurement activities;

(c)
provide quarterly and annual inventory of materials and equipment in stock;

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(d)
provide a quarterly listing of excess materials and equipment in its stock list
to the National Petroleum Agency; and

(e)
check the excess materials and equipment listings from other companies operating
in the Territory of Sao Tome and Principe, to identify materials available in
the country prior to initiating any foreign purchase order.

5.5
The Contractor shall initiate and maintain policies and practices, which provide
a competitive environment and climate amongst local and overseas suppliers.
Competitive quotation processes shall be employed for all local procurement
where the estimated value exceeds the equivalent of $1,000,000 as follows:

(a)
fabrication, wherever practicable shall be done locally. To this effect, the
Petroleum Operations recognize and shall accommodate local offers at a premium
not exceeding ten percent (10%); and

(b)
subject to Article 3.1, the Contractor shall give preferences to Sao-Tomean
indigenous sub-contractors in the award of contracts. Contracts within the
agreed financial limit of the Contractor shall be awarded to only competent
Sao-Tomean indigenous sub-contractors possessing the required skill/capability
for the execution of such contracts and the Contractor shall notify the National
Petroleum Agency accordingly.

5.6
Analysis and recommendation of competitive quotations of a value exceeding the
limits established in Article 1.5 shall be transmitted to the National Petroleum
Agency for approval before a purchase order is issued to the selected
vendor/manufacturer. Approval shall be deemed to have been given if a response
has not been received from the National Petroleum Agency within thirty (30) days
of receipt by the National Petroleum Agency of the said analysis and
recommendations.

5.7
Pre-inspection of rig, equipment and stock materials of reasonable value shall
be jointly carried out at the factory site and/or quay before shipment at the
request of either Party.

6.    Project Monitoring

6.1
The Contractor shall provide a project report to the National Petroleum Agency.

6.2
For major projects exceeding $5,000,000 or its equivalent, the Contractor shall
provide to the National Petroleum Agency a detailed quarterly report which shall
include:

(a)
approved budget total for each project;

(b)
expenditure on each project;

(c)
variance and explanations;

(d)
number and value of construction change orders;

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(e)
bar chart of schedule showing work progress and work already completed and
schedule of mile-stones and significant events; and

(f)
summary of progress during the reporting period, summary of existing problems,
if any, and proposed remedial action, anticipated problems, and percentage of
completion,

provided that the National Petroleum Agency shall have the right to send its own
representatives to assess the project based on the report.

6.3
In the case of an increase in cost in excess of five percent (5%) of the
project, the Contractor shall promptly notify the National Petroleum Agency and
obtain necessary budget approval, in accordance with Article 2.6 (c) of Schedule
2.

6.4
Not later than six (6) months following the physical completion of any major
project whose cost exceeds $5,000,000 or its equivalent, the Contractor shall
prepare and deliver to the National Petroleum Agency a project completion report
which shall include the following:

(a)
a cost performance of the project in accordance with the work breakdown at the
commencement of the project;

(b)
the significant variation in any item or sub-item;

(c)
a summary of problems and unexpected events encountered during the project; and

d)
a list of excess materials.

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SCHEDULE 5

SALE OF ASSETS PROCEDURE

Upon the agreement of the National Petroleum Agency that identified assets are
to be sold, the following procedure shall apply:

1.
The Contractor shall call for a bid duly advertised, for example, online, in a
national newspaper, national radio station or national television station for
all assets not directly related to Petroleum Operations whose book values are
$10,000 and over, irrespective of length of ownership of such assets.

2.
All assets as described in paragraph 1 above, with book values of $10,000 and
over shall be sold with proof of highest bid, subject to the highest bidder not
being related to the Contractor.

3.
Sale of assets to the Contractor's Affiliate shall be brought to the express
attention of the National Petroleum Agency and only with the written consent
given by the National Petroleum Agency.

4.
The Contractor may dispose of all assets as described in paragraph 1 above, with
book values less than $10,000 in the best manner available to the Contractor on
the basis of the highest price available.

5.
The Contractor shall sell, in customary industry manner, all assets directly
related to Petroleum Operations, irrespective of length of ownership of such
assets.

6.
This Sale of Assets Procedure may be amended from time to time by the mutual
agreement of the Parties.

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SCHEDULE 6

FORM OF PARENTAL GUARANTEE

THIS GUARANTEE is made on this [INSERT DAY] of [INSERT MONTH AND YEAR]
BETWEEN:
(1)
[THE GUARANTOR], a company organized and existing under the laws of [insert
JURISDICTION], and having its registered office at [INSERT ADDRESS] (the
Guarantor); and

(2)
THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE (the "State"), represented for
the purposes of this Guarantee by the National Petroleum Agency.

WHEREAS, the Guarantor is the parent entity of [INSERT NAME OF COMPANY]
organized and existing under the laws of [INSERT JURISDICTION], and having its
registered office at [INSERT ADDRESS] (the "Company");
WHEREAS, the Company has entered into a production sharing contract (the
Contract) with, among others, the State in respect of the Contract Area;
WHEREAS, the State desires that the execution and performance of the Contract by
the Company be guaranteed by the Guarantor and the Guarantor desires to furnish
this Guarantee as an inducement to the State to enter into the Contract and in
consideration of the rights and benefits inuring to the Company thereunder; and
WHEREAS, the Guarantor accepts that it fully understands the contractual
obligations under the Contract of the Company.
NOW THEREFORE, it is hereby agreed as follows:
1.
Definitions and Interpretation

All capitalized words and expressions in this Guarantee have the same meaning as
in the Contract, unless otherwise specified herein.
2.
Scope of this Guarantee

The Guarantor hereby guarantees to the State the timely payment of any and all
indebtedness and the procurement of the timely performance of all obligations
whatsoever of the Company to the State arising under or in relation to the
Contract, including the payment of any amounts required to be paid by the
Company to the State when the same become due and payable; provided, however,
that the liability of the Guarantor to the State hereunder shall not exceed the
lesser of:

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(a)
the liabilities of the Company to the State;

(b)
Company’s paying interest share of ten million Dollars ($10,000,000) during the
Exploration Period, as may be extended in accordance with the Contract; and

(c)
Company’s paying interest share of two hundred and fifty million Dollars
($250,000,000) during the Production Period.

3.
Waiver of Notice, Agreement to All Modifications

The Guarantor hereby waives notice of the acceptance of this Guarantee by the
State and of the state of indebtedness of the Company at any time, and expressly
agrees to any extensions, renewals, modifications or acceleration of sums due to
the State under the Contract or any of the terms of the Contract, all without
relieving the Guarantor of any liability under this Guarantee.
4.
Absolute and Unconditional Guarantee

The obligations of the Guarantor shall be an absolute, unconditional and (except
as provided in Article 2 above) unlimited guarantee of payment and procurement
of performance to be performed strictly in accordance with the terms hereof, and
without respect to such defences as might be available to the Company.
5.
No Discharge of Guarantor

The obligations of the Guarantor hereunder shall not in any way be released or
otherwise affected by: a release or surrender by the Company of any collateral
or other security it may hold or hereafter acquire for payment of any obligation
hereby guaranteed; by any change, exchange or alteration of such collateral or
other security; by the taking of or the failure to take any action with respect
thereto either against the Company or against the Guarantor; or by any other
circumstance which might otherwise constitute a legal or equitable discharge or
defence of a guarantor.
6.
No Prior Action Required

The State shall not be required to make demand for payment or performance first
against the Company or any other Person or to proceed against any collateral or
other security which might be held by the State or otherwise to take any action
before resorting to the Guarantor hereunder.
7.
Cumulative Rights

All rights, powers and remedies of the State hereunder shall be cumulative and
not alternative, and shall be in addition to all rights, powers and remedies
given to the State by law or otherwise.

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8.
Continuing Guarantee

This Guarantee is intended to be and shall be considered as a continuing
guarantee of payment and performance and shall remain in full force and effect
for so long as the Contract and any amendments thereto shall remain outstanding
or there shall exist any liability of the Company to the State thereunder. In
any event this Guarantee shall terminate no later than 2068.
9.
Notice of Demand

Upon default in the performance of any of the obligations of the Company
guaranteed hereunder, and provided that the State has communicated to the
Company such default and the latter has not remedied or taken the necessary
steps to remedy such default within a reasonable period of time, the State or
its duly authorized attorney may give written notice to the Guarantor at its
principal office in [INSERT JURISDICTION] of the amount due, and the Guarantor,
within a period of ten (10) business days, will make, or cause to be made,
payment of such amount as notified, in United States dollars, at such bank or
other place in [insert jurisdiction] as the State shall designate and without
set-off or reduction whatsoever of such payment in respect of any claim the
Guarantor or the Company may then have or thereafter might have.
10.
Assignment

The Guarantor shall not in any way effect, or cause or permit to be effected,
the assignment or transfer of any of its obligations hereunder without the
express written consent of the State.
11.
Subrogation

Until all indebtedness hereby guaranteed has been paid in full, the Guarantor
shall have no right of subrogation to any security, collateral or other rights
which may be held by the State.
12.
Payment of Expenses

The Guarantor shall pay to the State all reasonable costs and expenses,
including attorney's fees, incurred by it in collecting or compromising any
indebtedness of the Company hereby guaranteed or in enforcing the Contract or
this Guarantee.
13.
Governing Law and Arbitration

This Guarantee shall be governed by and interpreted in accordance with the laws
of the State.
All disputes or claims arising out of or relating to this Guarantee shall be
finally settled by arbitration, in accordance with the procedure set forth in
the Contract; however, if in addition to the arbitration hereunder an
arbitration has also been commenced under the

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Contract with respect to obligations hereby guaranteed, the arbitration
commenced hereunder shall be consolidated with the arbitration commenced under
the Contract and the arbitral body appointed hereunder shall be the same
arbitral body appointed pursuant to the Contract. The arbitration shall be
conducted in the Portuguese and English languages and the decision shall be
final and binding on the parties.
14.
Severability of Provisions

In the event that for any reason any provision hereof may prove illegal,
unenforceable or invalid, the validity or enforceability of the remaining
provisions hereof shall not be affected.
15.
Confidentiality

The Guarantor agrees to treat this Guarantee and the Contract as confidential
and shall not disclose, willingly or unwillingly, to any third party, except to
the extent required by law or the requirements of any court or stock exchange on
which a Party’s or its Affiliate’s stock is publicly traded, the terms and
conditions hereof or thereof without the prior written consent of the State.
IN WITNESS WHEREOF, the Guarantor and the Company execute this Guarantee this
[INSERT DAY] day of [INSERT MONTH AND YEAR].

[GUARANTOR]

By: ___________________________
Title: __________________________

THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE
BY THE AGENCIA NACIONAL DO PETROLEO DE SAO TOME AND PRINCIPE

By: ___________________________
Title: __________________________

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