Exhibit 10.9

 

LAST SENT FILE PERUPETRO

 

NUMBER:

 

KARDEX:86481

 

DRAFT:

 

LICENSE AGREEMENT FOR HYDROCARBON EXPLORATION AND DEVELOPMENT IN BLOCK XXII

 

BETWEEN

 

PERUPETRO S.A.

 

AND

 

BPZ EXPLORACION & PRODUCCION S.R.L.

 

WITH PARTICIPATION OF

 

BPZ ENERGY INC.

 

AND

 

THE CENTRAL RESERVE BANK OF PERU

 

IN THE CITY OF LIMA, ON THE TWENTY FIRST DAY OF NOVEMBER OF TWO THOUSAND SEVEN,
I, RICARDO FERNANDINI BARREDA, NOTARY IN AND FOR LIMA, ISSUE THIS DEED WITH THE
INTERVENTION OF

 

PURSUANT TO ARTICLE 54, PARAGRAPH H, OF LAW 26002. 

 

 THERE APPEARED BEFORE ME

 

PERUPETRO S.A. WITH SINGLE TAX PAYER REGISTRATION Nº 20196785044, ADDRESS OF
RECORD AT AVENIDA LUÍS ALDANA Nº 320, SAN BORJA, LIMA, REPRESENTED BY ITS
GENERAL MANAGER CARLOS EDGAR VIVES SUÁREZ, WHO DECLARED BEING PERUVIAN, MARRIED,
AN ENGINEER, IDENTIFIED WITH NATIONAL IDENTITY DOCUMENT Nº 08725702, A VOTER,
WITH POWER OF ATTORNEY REGISTERED UNDER ENTRY C00039 OF ELECTRONIC DOCKET Nº
00259837, OF THE COMPANY REGISTRY OF LIMA, AND PURSUANT TO BOARD OF DIRECTORS’
AGREEMENT Nº 117-2007 DATED SEPTEMBER 27, 2007 AND SUPREME DECREE Nº
                      PUBLISHED ON … OF 2007, SAME WHICH ARE INCLUDED IN THIS
DEED.

 

AND:

 

BPZ EXPLORACIÓN & PRODUCCIÓN S.R.L., IDENTIFIED WITH SINGLE TAX PAYER
REGISTRATION  Nº 20503238463, A COMPANY ORGANIZED AND EXISTING PURSUANT TO THE
LAWS OF THE REPUBLIC OF PERU, REGISTERED IN ENTRY A00001 OF DOCKET N° 11985400
OF THE COMPANY REGISTRY OF LIMA, AND IN ENTRY A00002 OF DOCKET N° 11328132 OF
THE BOOK OF OPERATIONS CONTRACTORS IN THE PUBLIC HYDROCARBONS REGISTRY, WITH
ADDRESS OF RECORD AT  CALLE MANUEL DE FALLA N° 297, DISTRICT OF SAN BORJA,
PROVINCE AND DEPARTMENT OF LIMA, REPRESENTED BY ITS GENERAL MANAGER LUIS RAFAEL
ZOEGER NÚÑEZ, WHO DECLARED BEING PERUVIAN, MARRIED, AN ENGINEER, IDENTIFIED WITH
NATIONAL IDENTITY DOCUMENT N° 08212579, A VOTER, AUTHORIZED BY POWER OF ATTORNEY
REGISTERED UNDER ENTRY A00001 OF DOCKET N° 11985400 OF THE COMPANY REGISTRY OF
THE REGISTRY OFFICE OF LIMA.

 

WITH THE PARTICIPATION OF: 

 

BPZ ENERGY INC., WITH ADDRESS OF RECORD AT 580 WEST LAKE PARK BOULEVARD, SUITE
525, TEXAS 77079, UNITED STATES OF AMERICA, REPRESENTED BY LUIS RAFAEL ZOEGER
NÚÑEZ, WHO DECLARED

 

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BEING PERUVIAN, MARRIED, AN ENGINEER, IDENTIFIED WITH NATIONAL IDENTITY DOCUMENT
N° 08212579, A VOTER, AUTHORIZED BY POWER OF ATTORNEY REGISTERED IN ENTRY A00001
OF DOCKET N° 11992608 OF THE BOOK OF POWERS OF ATTORNEY GRANTED BY ESTABLISHED
COMPANIES OR AFFILIATES ESTABLISHED OVERSEAS OF THE COMPANY REGISTRY OF LIMA.

AND THE CENTRAL RESERVE BANK OF PERU, IDENTIFIED WITH SINGLE TAX PAYER
REGISTRATION Nº 20122476309, WITH ADDRESS OF RECORD AT JR. ANTONIO MIRO QUESADA
Nº 441, LIMA, REPRESENTED BY ITS GENERAL MANAGER, RENZO GUILLERMO ROSSINI MIÑAN,
WHO SAID HE WAS PERUVIAN, MARRIED AN ECONOMIST, IDENTIFIED WITH NATIONAL
IDENTITY DOCUMENT Nº 08727483, A VOTER, APPOINTED BY BOARD OF DIRECTORS’
AGREEMENT NUMBER Nº 4059 AND CARLOS AUGUSTO BALLON AVALOS, WHO DECLAREDVHE WAS
PERUVIAN, MARRIED, AN ECONOMIST, IDENTIFIED WITH NATIONAL IDENTITY DOCUMENT Nº
08757380, A VOTER, IN HIS POSITION AS INTERNATIONAL OPERATIONS MANAGER APPOINTED
BY BOARD OF DIRECTORS’ AGREEMENT Nº 3737, BOTH DULY AUTHORIZED AS REPORTED IN
THE LETTER FROM THE BANK’S GENERAL MANAGEMENT OFFICE Nº 129-2007-BCRP, DATED
OCTOBER 25, 2007, ATTACHED TO THIS PUBLIC DEED, BOTH WITH ADDRESS OF RECORD AT
JR. ANTONIO MIRO QUESADA Nº 441, LIMA.

I DECLARE I VERIFIED THE IDENTIFICATION OF THE PERSONS APPEARING BEFORE ME AND
THAT THEY ACT IN THEIR FULL CAPACITY, WITH FREEDOM AND KNOWLEDGE OF THEIR ACTS,
THAT THEY ARE SKILLED IN THE SPANISH LANGUAGE AND THAT THEY HAVE DELIVERED TO ME
A DULY SIGNED AND AUTHORIZED DRAFT CONTRACT, WHICH I FILED IN THE CORRESPONDING
DOSSIER TO REGISTER IT AS A PUBLIC DEED, AND WHICH READS AS FOLLOWS:

DRAFT: MR. NOTARY RICARDO FERNANDINI BARREDA, Esq.:

Please register in your Public Deed Registry the license contract for the
exploration and development of hydrocarbons in Block  XXII, entered into by and
between, on the one hand PERUPETRO S.A., identified with RUC N° 20196785044,
with address of record at Avenida Luis Aldana N° 320, District of San Borja,
Province and Department of Lima, represented by its General Manager Carlos Edgar
Vives Suárez, a Peruvian, identified with DNI N° 08725702, with address of
record at Av. Luis Aldana 320, San Borja, with power of attorney registered in
Entry C00039 under Electronic Docket Nº 00259837 of the Company Registry of
Lima, pursuant to provisions of the PERUPETRO Board of Directors’ Agreement N°
117-2007 dated September 27, 2007, the text of which, Mr. Notary, you will
attach hereto.  And, on the other hand, BPZ EXPLORACIÓN & PRODUCCIÓN S.R.L.,
identified with RUC N° 20503238463, a company organized and existing pursuant to
the laws of the Republic of Peru, registered in Entry A00001 under Docket N°
11985400 of the Company Registry of Lima and in Entry A0002 under Docket N°
11328132 of the Operations Contractors Book of the Public Registry of
Hydrocarbons, with address of record at Calle Manuel de Falla N° 297, District
of San Borja, Province and Department of Lima, represented by its General
Manager Luis Rafael Zoeger Núñez, a Peruvian, identified with DNI N° 08212579,
authorized by power of attorney registered in Entry A00001 of Docket N° 11985400
of the Company Registry of Lima; with the participation of BPZ ENERGY INC., with
address of record at 580 West Lake Park Boulevard, Suite 525, Texas 77079,
United States of America,

 

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represented by Luis Rafael Zoeger Núñez, a Peruvian, identified with DNI N°
08212579, authorized by power of attorney registered in Entry A00001 under
Docket N° 11992608 of the Book of Powers of Attorney Granted by Established
Companies or Affiliates Established Overseas, of the Company Registry of Lima,
and the Central Reserve Bank of Perú, with address of record at Jr. Antonio Miro
Quesada N° 441, District of Cercado de Lima, Province and Department of Lima,
represented by its officials Renzo Rossini Miñán, a Peruvian, identified with
DNI N° 08727483, in his condition as General Manager appointed by the Board of
Directors’ Agreement N° 4059 dated October 14, 2004 and Carlos Augusto Ballón
Avalos, a Peruvian, identified with DNI N° 08757380, in his condition as Manager
for International Operations, appointed by Board of Directors’ Agreement N°
3737, dated May 21, 1998, both authorized pursuant to the Bank’s General
Management Office letter N° 129-2007-BCRP dated October 25, 2007, which you
Mr. notary will attach hereto, and by Supreme Decree N° XXX-2007-EM, published
on XX November, 2007 which approves and authorizes the signing of this Agreement
under the terms and conditions described in the following clauses.

 

LICENCE AGREEMENT FOR HYDROCARBONS EXPLORATION AND DEVELOPMENT IN BLOCK XXII

 

BETWEEN

 

PERUPETRO S.A.

 

AND

 

BPZ EXPLORACION & PRODUCCION S.R.L.

 

CONTENTS

 

CLAUSE INTRODUCTION

 

GENERAL

CLAUSE 1

 

DEFINITIONS

CLAUSE 2

 

OBJECT OF THE CONTRACT

CLAUSE 3

 

TENURE, CONDITIONS AND GUARANTEE

CLAUSE 4

 

EXPLORATION

CLAUSE 5

 

DEVELOPMENT

CLAUSE 6

 

REPORTING AND STUDIES

CLAUSE 7

 

OVERSIGHT COMMITTEE

CLAUSE 8

 

ROYALTIES AND VALUATION

CLAUSE 9

 

TAXES

CLAUSE 10

 

CUSTOMS DUTIES

CLAUSE 11

 

FINANCIAL RIGHTS

CLAUSE 12

 

LABOR

CLAUSE 13

 

ENVIRONMENT AND COMMUNITY RELATIONS

CLAUSE 14

 

HYDROCARBON CONSERVATION AND LOSS PREVENTION

CLAUSE 15

 

TRAINING AND TECHNOLOGY TRANSFER

CLAUSE 16

 

ASSIGNMENT AND PARTNERSHIPS

CLAUSE 17

 

ACT OF GOD AND FORCE MAJEURE

CLAUSE 18

 

ACCOUNTING

CLAUSE 19

 

SUNDRIES

CLAUSE 20

 

NOTIFICATIONS AND COMMUNICATIONS

CLAUSE 21

 

PERUVIAN LAW APPLIES AND CONFLICT RESOLUTION

CLAUSE 22

 

TERMINATION

ANNEX “A”

 

DESCRIPTION OF AGREEMENT AREA

ANNEX “B”

 

MAP OF AGREEMENT AREA

 

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ANNEX “C-1” to “C-5”

 

WARRANT BONDS FOR MINIMUM WORK PROGRAM

ANNEX “D”

 

CORPORATE GUARANTEE

ANNEX “E”

 

ACCOUNTING PROCEDURE

ANNEX “F”

 

EXPLORATION WORK UNITS - TABLE OF EQUIVALENCE

 

LICENSE AGREEMENT FOR HYDROCARBONS EXPLORATION AND DEVELOPMENT IN BLOCK XXII

 

BETWEEN

 

PERUPETRO S.A.

 

AND

 

BPZ EXPLORACION & PRODUCCION S.R.L.

 

PRELIMINARY CLAUSE.- GENERAL

 

I.          With the participation of PERUPETRO, pursuant to the powers grated
by Law N° 26221 to sign the License Agreement for Hydrocarbons Exploration and
Development in Block XXII.

 

II.         The “in situ” hydrocarbons are a property of the State. The property
rights over the extracted hydrocarbons are transferred by PERUPETRO to the
Contractor on the day of XXXX pursuant to the provisions in the Agreement hereto
and in Article 8º of Law N° 26221.

The Contractor commits to pay the State through PERUPETRO, the cash royalties
under the conditions and at the time established in the Agreement.

 

III.       Pursuant to Article 12º of Law N° 26221, this Agreement is governed
by Peruvian private law, and is comprised in the scope of Article 1357º of the
Civil Code.

 

IV.       For all purposes related to and derived from this Agreement, the
parties hereto agree that the names of the clauses do not modify the
interpretation of the Agreement’s contents.

 

V.         All references to the agreement include its annexes; in case of
discrepancy between the annexes and the provisions in the body of the agreement,
the latter will prevail.

 

CLAUSE ONE.- DEFINITIONS

 

The definitions accepted by the Parties by means of this clause serve the
purpose of providing the meaning required by the terms used in the Agreement,
and such meaning will be the only one accepted for purposes of interpreting and
executing the Agreement, unless otherwise expressly provided by the Parties in
writing.

The terms defined and used in the Agreement, whether in singular or plural will
be capitalized and will bear the following meanings:

 

1.1                     Affiliate. Any entity the voting share capital of which
is the direct or the indirect property, to a proportion equal to fifty percent
(50%) or more, of PERUPETRO or the Contractor, or any entity or person who owns
directly or indirectly fifty percent (50%) or more of the voting share capital
of PERUPETRO or the Contractor, or any entity who owns directly or indirectly
fifty percent (50%) or more of the voting share capital of the same shareholder
or shareholders who own, directly or

 

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indirectly, fifty percent (50%) or more of the voting share capital of PERUPETRO
or the Contractor.

 

1.2                     Year. A period of twelve (12) months in the Gregorian
Calendar, starting on a specific date.

 

1.3                     Agreement Area.  The area described in Annex “A” hereto
and appearing in Annex “B”, called Block XXII, located in the provinces of
Sullana, Paita, Talara and Piura, in Piura Department over a surface area of
three hundred seventy nine hundred forty three eight hundred seventeen hectares 
(369,043.817 ha).  The Agreement Area will be redefined after excluding the
areas released by the Contractor, pursuant to the terms of the Agreement. 
Likewise, when the exploration results warrant a new Agreement Area
configuration, and at the request of the Contractor, supported by a report
addressed to PERUPETRO, including proposals for working in the new area, and
after approval by PERUPETRO, the Agreement Area may be re-demarcated.  The
change will be approved pursuant to existing law.  Under no circumstance the new
demarcation shall increase the original Agreement’s area.  Should any
discrepancies arise between Annex B and the description in Annex A, Annex A
shall prevail.

 

1.4                     Barrel.  A capacity measurement unit for Controlled
Liquid Hydrocarbons, equivalent to forty two gallons of the United States of
America at sixty degrees Fahrenheit (60° F), at sea level pressure, without
water, mud or other sediments (BS&W).

 

1.5                     Btu.  British thermal unit.  The unit measuring the
amount of heat required to increase temperature one degree Fahrenheit (1° F) of
one (1) pound of water equivalent to 1055.056 joules.

 

1.6                     Act of God or Force Majeure.  These terms include, but
are not limited to, fires, tremors, earthquakes, tidal waves, landslides,
avalanches, floods, hurricanes, storms, explosions, unforeseeable fortuitous,
war, guerrillas, terrorist acts, sabotage, civil unrest, blockades,
uncontrollable delays in transportation, strikes, stoppages, inability to secure
the appropriate facilities and authorizations, licenses and permits issued by
competent authorities for the transport of materials, equipment and services
despite having taken the necessary precautions, or any other cause, similar to
or different from those specifically listed here, beyond reasonable control and
that may have not been foreseen or which having been foreseen, could not be
avoided.

 

1.7                     Oversight Committee.  A body created by the Parties
through which PERUPETRO oversees the compliance with and the execution of the
Agreement and the membership and attributions of which are established by clause
seven.

 

1.8                     Technical Conciliation Committee.  A transitory body
created to give an opinion on the discrepancies that may emerge connected to the
Operations, same which will be organized pursuant to heading 21.2 of the
Agreement.

 

1.9                     Condensates. Liquid hydrocarbons created by the
condensation of hydrocarbons isolated

 

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from natural gas by applying pressure or temperature when the natural gas
flowing from the reservoirs is produced or resulting from one or more
compression stages of natural gas. They remain liquid at atmospheric temperature
and pressure.

 

1.10              Controlled Condensates. Condensates produced in the Agreement
Area and measured at a Production Control Point.

 

1.11              Contractor.  BPZ EXPLORACION & PRODUCCION S.R.L., registered
in the Hydrocarbons Public Registry under Docket Nº 11328132, Entry A00002 of
the Operations Contractors Book.

 

1.12              Agreement. This agreement, entered into by and between the
Parties, which sets forth the terms and conditions included in this document and
its Annexes including the additional agreements reached by the Parties by virtue
of this document, as amended, pursuant to law.

 

1.13              Development.  Any activity for the production of hydrocarbons,
including well drilling, completion and deepening, as well the design,
construction and installation of equipment, tanks, storage tanks and other means
and facilities, including the use of artificial production methods and primary
and improved recovery systems in the Agreement Area and outside of it, as
needed.  It includes the construction of the transportation and storage systems,
the facilities at the Production Control Point, the main pipeline and, if
appropriate, primary distillation plants for the manufacturing of products to be
used in the operations and facilities of the processing plants for treating gas
and natural gas.

 

1.14              Commercial Discovery.  The discovery of hydrocarbons reserves
that in the opinion of the contractor warrant commercial development.

 

1.15              Day.  A period of twenty four (24) hours starting at zero
hours (00:00) and ending at twenty four hours (24:00).

 

1.16              Business Day.  All days, from Monday to Friday, excepting days
declared totally or partially banking holidays, in the city of Lima, by the
competent authority.

 

1.17              Dollar or US$. Currency unit of the United States of America.

 

1.18              Main Pipeline.  Main pipeline the Contactor may build and
operate and which, starting at the end of the Transportation and Storage
Systems, drives hydrocarbons produced in the Agreement Area to a third party
property pipeline, to a sale or exportation point or to a production control
point, notwithstanding, if required, the approval provided in heading 2.3.  This
Main Pipeline may include the measurement points connected to the pipeline, the
required storage and shipping areas, smaller pipelines, pumping or compression
stations, communications systems, access and maintenance roads, and any other
facilities that may be necessary and required for transporting hydrocarbons in a
permanent and timely manner, including the design or construction, maintenance
and equipment of all the previously mentioned components.  Access will be
granted to any main pipeline from the beginning of the fifth year starting on
the Date of Beginning of Commercial Extraction.

 

--------------------------------------------------------------------------------

 

1.19              Exploration.  The planning, execution and assessment of all
types of geological, geophysical, geochemical and all kind of studies, as well
as the drilling of exploration wells and any other related activities, required
for the discovery of hydrocarbons, including the drilling of confirmation wells
to assess the discovered reservoirs.

 

1.20              Exploitation.  Development and/or Production.

 

1.21              Date of Beginning of Commercial Extraction.  Date when the
first measurement of hydrocarbons at a Production Control Point was made and
which triggers the payment of the royalty.  For purposes of this definition, the
volume produced for testing or other purposes specifically accepted by the
parties will not be considered.

 

1.22              Signing Date.  November 21, 2007, the date when PERUPETRO and
the Contractor signed the Agreement.

 

1.23              Effective Date.  Date when the Contractor will start the
operations, to be determined within sixty (60) starting on the signing date.

 

1.24              Control.  The actions that pursuant to legal regulations and
technical standards are undertaken by OSINERGMIN (Organismo Supervisor de la
Inversión en Energía y Minería – Supervising Body for Investments in Energy and
Mining) regarding the Exploration and Development carried out by the Contractor.

 

1.25              Natural Gas.  A mix of hydrocarbons in gas state or dissolved
with oil at initial reservoir conditions. It includes associated natural gas and
non-associated natural gas.

 

1.26              Associated Natural Gas.  Natural gas produced together with
the reservoir’s Liquid Hydrocarbons.

 

1.27              Controlled Natural Gas. Natural gas produced in the Agreement
Area and measured at a Production Control Point.

 

1.28              Non-Associated Natural Gas.  Natural gas that comes from a
reservoir where, under the initial conditions, no liquid hydrocarbons are
present.

 

1.29              Hydrocarbons.  All organic, gas, liquid or solid compounds,
consisting principally of carbon and hydrogen.

 

1.30              Controlled Hydrocarbons.  Hydrocarbons produced in the
Agreement Area and measured at a Production Control Point.

 

1.31              Liquid Hydrocarbons.  Oil, condensate, and generally, all
hydrocarbons, which at atmosphere temperature and pressure conditions, are found
in liquid state at the measurement site, including hydrocarbons found in liquid
state at a temperature above atmospheric temperature.

 

1.32              Controlled Liquid Hydrocarbons.  Liquid hydrocarbons in the
Agreement Area measured at a Production Control Point.

 

1.33              Law N° 26221.  Single Conformed Text of Law N° 26221, Organic
Hydrocarbons Law, enacted by Supreme Decree N° 042-2005-EM, as expanded,
regulated and amended.

 

1.34              LNG or Liquid Natural Gas.  Liquid hydrocarbons obtained from
natural gas and made up

 

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by ethane, propane, butane and other heavier hydrocarbons.

 

1.35              Controlled LNG or Controlled Liquefied Natural Gas.  Liquefied
Natural Gas measured at the Controlled Production Point.

 

1.36              Month.  A period of time starting any day of a calendar month
that ends the same day of the following calendar month or, if such day does not
exist, on the last day of the former.

 

1.37              SCF.  One thousand (1000) standard cubic feet (scf).  One
(1) scf is the volume of gas needed to fill one (1) cubic foot at 14.6959 pound
per inch absolute pressure at the base temperature of sixty degrees Fahrenheit
(60 °F).

 

1.38              Operations.  All exploration and development operations as
well as all other activities subject matter to the Agreement or related to its
execution.

 

1.39              Parties. PERUPETRO and the Contractor.

 

1.40              PERUPETRO.  PERUPETRO S.A., is the State-owned private law
company under the Ministry of Energy and Mines created by Law N° 26221.

 

1.41              Oil.  Hydrocarbons, which under initial pressure and
temperature reservoir conditions, are found in liquid condition, and which
mostly remain in liquid state under atmospheric conditions; Condensates, Natural
Gas Liquids or Liquefied Natural Gas are not included.

 

1.42              Controlled Oil.  Oil produced in the Agreement Area and
measured at the Production Control Point.

 

1.43              Heavy Crude.  Liquid hydrocarbons which, because of their
density and viscosity, require using non-conventional exploitation methods, and
the transportation of which, requires heating or other procedures, excluding
mixing with oil produced in the same deposit, which would result in light crude.

 

1.44              Confirming well.  A well drilled to confirm discovered
reserves or to delimit a deposit’s area.

 

1.45              Development well.  A well drilled for the production of
discovered hydrocarbons.

 

1.46              Exploratory well.  A well drilled to discover hydrocarbons
reserves or to determine the stratigraphy of a exploration area.

 

1.47              Production.  All activities performed in or outside the
Agreement Area, as required, for the extraction and handling of hydrocarbons
subject to the Agreement, including the operation and refurbishing of wells; the
installation and operation of equipment, pipes, transportation and storage
systems, Main Pipeline, hydrocarbon treatment and measurement, and all types of
primary and improved recovery measures.

 

1.48              Production Control Point.  The place or places identified by
the Contractor within the Agreement Area, or identified outside such areas
through an agreement between the Parties, where the volume measurements and
determination of water and sediment contents and other measurements are
performed to calculate the volume and quality of the controlled hydrocarbons,
pursuant to the AGA, API and ASTM standards are met.

 

1.49              Reservoir.  Stratum or strata under the surface which may be
part of a deposit under

 

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production or which has (or have) proven hydrocarbon production capacity, under
a common pressure system throughout their entire area.

 

1.50              Transportation and Storage System.  The set of pipelines,
pumping stations, storage tanks, riverine facilities, delivery system and roads,
and other types of facilities and means required and used for carrying
hydrocarbons produced in the Agreement Area from there to the Production Control
Point, the main pipeline or a third party pipeline, including the design,
construction, maintenance and equipping of all the abovementioned elements.

 

1.51              Subcontractor.  Any individual or company, whether national or
foreign, hired by the Contractor to provide services related to the Operations.

 

1.52              Oversight.  An initiative by PERUPETRO to verify the
Contractor’s compliance with its contract obligations.

 

1.53              Taxes. Taxes, contributions and rates, pursuant to the Tax
Code.

 

1.54              Exploration Work Unit (UTE). A measurement unit for the
exploration activities accepted by the Parties and detailed in the minimum work
programs, and which allows flexibility in executing the commitments made. Its
values are established as a function of the most representative work unit for
each exploration activity (km2, km, m, etc.).

 

1.55              Life of the Agreement.  The period comprised between the
Signing Date and the end of the relevant period established in heading 3.1 of
the Agreement.

 

1.56              Deposit.  Surface under which there exist one or more
reservoirs in production or with proven hydrocarbon production capacity.

 

CLAUSE TWO.- PURPOSE OF THE AGREEMENT.

 

2.1                     PERUPETRO authorizes the Contractor to perform the
Operations, pursuant to Law N° 26221, the relevant regulations and the
Agreement’s provisions for the shared objectives of discovering and producing
hydrocarbons in the Agreement Area.

 

2.2                     The Contractor will hold the ownership rights to the
hydrocarbons extracted in the Agreement Area, pursuant to paragraph  2 above.

 

2.3                     The Contractor will perform the Operations pursuant to
the provisions included in the Agreement and will perform them either directly
or through subcontractors. For field operations outside the Agreement Area,
PERUPETRO’S approval will be required.

 

2.4                     PERUPETRO will oversee the Operations, pursuant to the
law and the Agreement. OSINERGMIN will be charged with control initiatives, as
mandated by law.

 

2.5                     PERUPETRO representatives will carry out the oversight
at any time, after serving the corresponding notice, shall provide proper
personal identification, and be authorized to perform such functions by
PERUPETRO. The Contractor will provide its cooperation within the scope of its
Operations so that those representatives may perform their mission, which will
be carried so as not to interfere with the Operations.  The costs and expenses
of PERUPETRO’s representatives will be paid by PERUPETRO.

 

2.6                     The Contractor will provide and be responsible for all
technical, economic and

 

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financial resources required for executing the Operations.

 

CLAUSE THREE.- TERM, CONDITIONS AND GUARANTEE

 

3.1                     The term for the hydrocarbons’ exploration phase is
seven (7) years which may be expanded as provided by the Law. This term starts
on the effective date, unless such period may be modified pursuant to other
Agreement provisions. The term for the hydrocarbons development phase is the
period remaining after the exploration phase is completed until completing a
period of thirty (30) years starting on the effective date, unless other
Agreement provisions modify such term.  The term for the stage to develop
non-associated natural gas and non-associate natural gas and condensates, will
be the period remaining after the end of the exploration stage and until a
period of forty   (40) years is completed, starting on the effective date,
unless other Agreement provisions change that term.  

 

3.2                     The exploration stage is divided into five (5) periods:

 

Heading

 

Period

 

Duration

3.2.1

 

First period

 

Eighteen (18) months starting on the effective date.

3.2.2

 

Second period

 

Eighteen (18) months starting at the end of the term mentioned in heading 3.2.1.

3.2.3

 

Third period

 

Eighteen (18) months starting at the end of the term mentioned in heading 3.2.2.

3.2.4

 

Fourth period

 

Eighteen (18) months starting at the end of the term mentioned in heading 3.2.3.

3.2.5

 

Fifth period

 

Twelve (12) months starting at the end of the term mentioned in heading 3.2.4.

 

3.3                     During the exploration stage, the Contractor may begin
the subsequent period provided it notifies PERUPETRO thirty  (30) days in
advance of the ending day for the stage underway, or its intention to continue
with the subsequent stage, provided the Contractor has not incurred any of the
reasons for termination set forth in heading 22.3.1.  Termination for such
reason(s) will result in the execution of the corresponding warrant bond.

 

3.4                     If during any of these stages described in heading 3.2,
the Contractor is prevented, by properly grounded technical or economic reasons,
from concluding the corresponding minimum work program, such period may be
extended for a maximum of six (6) months, provided PERUPETRO’s approval has been
requested at least thirty (30) days before the end of the period underway, and
the reasons supporting the request have been verified and approved by PERUPETRO.
If so, before the end of the period underway, the Contractor will post a new
warrant bond or will extend the life of the existing one, to cover the new
required period, pursuant to the conditions set forth in heading 3.10. If the
awarded extensions consume the time for the last period of the exploration stage
and the Contractor chooses to continue with it exploration work, the obligations
for such period will be met during an extension of the exploration stage to be
agreed upon by the parties, pursuant to existing regulations. After the

 

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completion of the minimum work program for the period underway and within the
term established in heading 3.2, if the extensions described in the preceding
paragraph have been exhausted, as required, and provided the work performed,
included drilling at least one exploration well, the Contractor may ask
PERUPETRO to grant an extraordinary period of six (6) months to examine all the
information and findings gathered until the period underway, and thus prepare a
study that will lead to a decision whether or not to proceed to the next
period.  The approvals described in this heading will be awarded at PERUPETRO’s
sole criterion.

 

3.5                     The exploration phase may continue at the Contractor’s
choice, after the Date of Beginning of Commercial Extraction until the end of
the term fixed for this stage, as mentioned in heading 3.1. If so, the tax
exemption described in heading 10.3 will remain in force until the expiration of
the exploration stage, and the line amortization method described in heading 9.6
will be applied from the Date of Beginning of Commercial Extraction, as mandated
by law.

 

3.6                     If the Contractor makes one or more hydrocarbon
discoveries during any period of the exploration stage, which may not be rated
as commercial only for reasons of transportation, it may request a withholding
period of up to five (5) years for the discovered deposit or deposits while the
appropriate production transportation is arranged.  The withholding right will
be subject, at least, to meeting the following requisites:

 

a)                  The Contractor must demonstrate to PERUPETRO’s satisfaction
that the volumes of hydrocarbons found in the Agreement Area do not suffice to
economically warrant the building of the main pipeline;

 

b)                  The combined discoveries in adjoining areas added to the
Contractor’s discoveries are insufficient to economically warrant the building
of a main pipeline; and,

 

c)                  The Contractor shall demonstrate, on economic grounds, that
the discovery of hydrocarbons cannot be carried from the Agreement Area to
another place for their marketing by no means of transportation whatsoever. 

 

3.7                     If the Contractor finds Non-associated Natural Gas or
Non-associated Natural Gas or Condensates during any period of the exploration
stage, it may request a withholding period of up to ten (10) years for the
deposit found, while a market is created.

 

3.8                     If the Contractor finds oil and Non-associated Natural
Gas or Non-associated Natural Gas or Condensates during any period of the
exploration  stage, and the cases described in headings 3.6 and 3.7 occur, the
Contractor may request a withholding period for oil and another one for
Non-associated Natural Gas or Non-associated Natural Gas or Condensates for the
purposes described under those headings.

 

3.9                     The withholding periods described in headings 3.6 and
3.7 will provide an extension of the Agreement’s term for period equal to the
withholding period granted by PERUPETRO. The withholding period will be granted
in writing. For this purpose, the Contractor will submit a request to PERUPETRO,
enclosing the supporting documentation

 

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and a schedule of activities to be performed. The exploration stage concludes at
the beginning of the withholding period. The development stage starts when a
commercial discovery statement for that period is made. The award of the
withholding periods described in headings 3.6 and 3.7 and their duration will be
determined by PERUPETRO at its sole criterion, without any prejudice to or
reduction of the obligation to undertake the minimum work programs for the
period of the exploration stage underway.

 

3.10             The Contractor shall guarantee compliance with the minimum work
program for each of the periods of the exploration stage, pursuant to provisions
under headings 3.2 and 4.6, by providing a joint and several, unconditional,
irrevocable and automatic warrant bond, without the benefit of excussion to the
executed automatically in Peru, issued by a properly qualified entity of the
Peruvian financial system, and with address of record in Peru, that is
acceptable to PERUPETRO.  At the request of PERUPETRO, the Contractor will
replace any warrant bond already posted, and shall post a new warrant bond
within the period of fifteen (15) Business Days after the day when PERUPETRO’s
request was received by the Contractor.  The amount of the warrant bond for the
minimum work period for each of the periods of the exploration stage appears in
Annexes “C-1” to “C-5”, and is the result of multiplying the equivalent in
dollars which for this purpose is established in Annex “F”, by the number of
Exploration Work Units corresponding to each period, as described in heading
4.6. The warrant bonds will be issued for each minimum work program in the way
described in Annexes “C-1” to “C-5”, as appropriate.  The warrant bonds for the
minimum work program in each of the periods of the exploration stage, as
provided for in heading 4.6, will be delivered to PERUPETRO before the beginning
of each period; otherwise subheading 22.3.3 shall apply. The warrant bond
corresponding to the minimum work program for the first stage will be delivered
at the Date of Signing.   The warrant bonds, in case of extensions of the
periods corresponding to the exploration stage, will be replaced or extended by
the Contractor before the beginning of the corresponding extension; otherwise,
the approval granted by PERUPETRO for the extension requested by the Contractor
will be null and void. The warrant bond for the minimum work program of the
exploration stage will remain in full force and effect for a period exceeding by
thirty (30) business days the duration of the former’s life.  If any of the
warrant bonds provided by the Contractor expires during the established term,
the latter shall comply with delivering a new warrant bond or extending the
existing one within fifteen (15) days after the reception by the Contractor of 
PERUPETRO’s notification. Otherwise, subheading 22.3.3 shall apply.  When the
obligation guaranteed by each warrant bond is complied with, PERUPETRO will
immediately proceed to return to the issuer, through the Contractor, the
corresponding warrant bond. The execution of any warrant bond will have as a
consequence the termination of the Contractor’s obligations to perform the
minimum work program, notwithstanding the enforcement of the provisions included
in

 

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subheading 22.3.1. 

 

3.11              BPZ ENERGY INC. participates in this Agreement for purposes
for providing the corporate guarantee enclosed herewith as Annex   “D”. The
corporate guarantee will survive as long as the obligations of the Contractor
described in                Annex “D” remain enforceable. Subheading 22.3.5 will
apply if any of the events foreseen in that heading occurs and the Contractor
fails to provide a replacing guarantee within fifteen (15) business days after
the Contractors receives a PERUPETRO notification requiring such replacement.

 

CLAUSE FOUR.- EXPLORATION

 

4.1                     The Contractor shall start exploration activities of the
effective date.

 

4.2                     The Contractor may release itself from the entire
Agreement Area without any penalty by serving PERUPERTO notice with advance not
under thirty (30) days, provided the minimum work program for the corresponding
period of the exploration stage underway has been fulfilled. If the Contractor
releases itself of the entire Agreement Area, abandons it or allows the term of
the period underway to expire before fulfilling the corresponding minimum work
program, without any technical reason approved by PERUPETRO, the latter will
execute the warrant bond, notwithstanding the enforcement of provisions included
in subheading 22.3.3.  The Contractor may release parts of the Agreement Area by
serving notice to PERUPETRO at least thirty (30) days in advance, without being
subject to any penalty. However, this will not affect or reduce its obligation
to comply with the minimum work program for the period of the exploration stage
underway.  The Parties will certify and register the portions the Contractor
releases through the Oversight Committee. The Contractor may continue using the
surface of the released areas where it may have built facilities related to the
Operations.

 

4.3                     During the execution of the Contract, releases will be
made as follows:

 

a)                  At least twenty percent (20%) of the original Agreement Area
at the end of the third period described in subheading 3.2.3 and at least thirty
percent (30%) of the original Agreement area at the end of the forth period
described in subheading 3.2.4.

 

b)                  At the end of the fifth period described in subheading
3.2.5, the Contractor will have released fifty percent (50%) of the original
Agreement Area including for this purpose the release carried out pursuant to
paragraph a) above, unless the Contractor expressly commits to carry out
exploration activities pursuant to paragraph c) below. 

 

c)                  At the end of the exploration stage, the Contractor may keep
the unreleased Agreement Area, and not included in the provisions of paragraph
d) below, for which purpose it shall drill one (1) exploration well every two
(2) years.

 

d)                  If the Contractor decides not to continue the exploration
works described in paragraph c), or if such commitments are not met,
notwithstanding the enforcement

 

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of the corresponding contract-base conditions, it will be allowed to keep only
the deposits discovered and the surrounding five (5) kilometers area to the
limit of the Agreement Area. 

 

4.4                     For purposes of enforcing heading 4.2, the Agreement
Area has been divided into rectangular plots, to the extent possible, covering
twenty thousand hectares (20,000.00 ha) each and when not possible, covering a
different surface area. The areas subject to contractor release need not be
adjacent. 

 

4.5                     Any area released by the Contractor, including the
deposits comprised within it, will return to the State at no cost to it or to
PERUPETRO.

 

4.6                     The minimum work program for each of the periods during
the exploration stage includes the following:

 

Heading

 

Period

 

Activity

4.6.1

 

First Period

 

·     120 UTEs or
·     Purchasing, processing and interpreting 200 kms of 2D Seismic, and
·     Geological and comprehensive engineering study for the area.

4.6.2

 

Second Period

 

·     130 UTEs or
·     Drilling one (1) exploration well to a minimum depth of 2600 meters.

4.6.3

 

Third Period

 

·     130 UTEs or
·     Drilling one (1) exploration well to a minimum depth of 2600 meters.

4.6.4

 

Forth Period

 

·     130 UTEs or
·     Drilling one (1) exploration well to a minimum depth of 2600 meters.

4.6.5

 

Fifth Period

 

·     130 UTE sor
·     Drilling one (1) exploration well to a minimum depth of 2600 meters.

 

To comply with the obligations described in this heading, the following shall be
borne in mind.

 

a)      For registration of 2D seismic lines, the corresponding kilometers will
be recorded from the point where the initial shot was made to the point of the
final shot of each seismic line.

For registration of 3D seismic lines, the square kilometers will be calculated
as the surface area covered by the executed program.

 

b)      The Exploration Working Units mentioned in this heading will be
calculated pursuant to the table of equivalence attached as Annex “F” hereto.

 

c)      For drilling of exploration wells, the exploration work units that will
be accredited for future works will be calculated pursuant to Annex “F”, based
on the difference between the final stage depth and the depth established in
heading 4.7.

 

d)      Before the beginning of each period of the exploration stage, the
Contractor will send PERUPETRO the program for the planned exploration
activities that will allow

 

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to meet the number of committed exploration work units for such period. The
Contractor shall report to PERUPETRO any changes to the content of that program
before its execution by providing a supporting technical report.

 

4.7       The exploration wells drilled pursuant to the minimum work program
described in heading 4.6, and the Contractor’s compliance of its performance
obligation, will be deemed as completed and  met, respectively, when reaching a
minimum vertical depth (TVD) measured from the rotating table, or a minimum
fifty (50) meters depth within the formation agreed by the Parties before the
beginning of the drilling stage of any exploration well. In addition, if during
the drilling of any exploration well executed in compliance with a minimum work
program as described in heading 4.6, insurmountable problems, whether geologic o
mechanical, are met, the Contractor may request the acknowledgement of its
obligation to drill and shall support its request through a technical report
for  PERUPETRO’s approval.

 

4.8       If the Contractor chooses to make a commercial discovery statement, it
will send such statement to PERUPETRO and submit within one hundred eighty (180)
days after such statement an Initial Development Plan to make viable the
hydrocarbon’s discovery development, same which shall include, among others, the
following: 

 

a)                  Physical and chemical characteristics of the discovered
hydrocarbon and percent associated product and impurities.

 

b)                  Estimated production profiles during the life of the
agreement for the deposit(s).

 

c)                  The estimated number of development wells and their
corresponding production capacity.

 

d)                  The Transportation and Storage Systems and the projected
Production Control Points. 

 

e)                  Planned Main Pipeline, if appropriate. 

 

f)                    Security measures. 

 

g)                 Preliminary schedule for all activities to be undertaken.

 

h)                 Estimated date when the commercial extraction will begin.

 

The “Initial Development Plan” shall include the investments, expenditures and
specific costs estimated for developing the Commercial Discovery as well as any
other information the Contractor deems appropriate.  

 

4.9                     PERUPETRO will forward to the Contractor its comments
about the “Initial Development Plan” within sixty (60) days after having
received it and may object to the Date of Beginning of Commercial Extraction if
it does not seem reasonable.  In case of discrepancy, heading 21.2 will apply.

 

4.10              If the Contractor issues a announcement of commercial
discovery, it will be obliged to start development within one hundred and eighty
(180) days after the expiration of the sixty (60) days mentioned in heading 4.9
of the Agreement. The commercial discovery will not imply reducing or suspending
the obligations of the minimum work

 

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program for the period underway. 

 

4.11              The development of discovered hydrocarbons will take place
pursuant to the work programs submitted by the Contractor to PERUPETRO, and
pursuant to provisions in heading 5.3. The Parties agree that, when appropriate
and necessary, the terms for submitting the “Initial Development Plan” or annual
work plans, as appropriate, may be adjusted, extended or modified.  For this
purpose, the Contractor will submit the necessary proposals to PERUPETRO so that
such adjustments, extensions or modifications may be agreed upon.

 

4.12              The end of the exploration stage will not affect the terms and
conditions for the procedures described above that may be underway at the time
when such expiration date arrives. 

 

4.13              Under exceptional circumstances that make it impossible to
comply with the obligations and/or terms for the period of the minimum work
program provided in headings 4.6 and 3.2, respectively, and at request of the
Contractor who will submit a supporting report, the obligations comprised in the
minimum work program may be replaced and the deadlines for same postponed
provided PERUPETRO accepts and approves the Contractor’s request. Under no
circumstance whatsoever will such replacement modify the initial commitment in
exploration work units  for the exploration stage and in any way reduce the
Contractor’s obligations.  The changes accepted and approved by PERUPETRO to the
enforcement of the provisions of the preceding paragraph will lead to the
revision of the amounts and terms of the existing warrant bonds for which
purpose, if required, the Parties will recalculate the amounts of the warrant
bonds and the Contractor will comply with delivering a new warrant bond or
extending the existing one until reaching the new prescribed deadline, pursuant
to the requirements set forth in headings 3.4 and 3.10. The exploration work
units will also be recalculated for the new area included.  

 

CLAUSE FIVE. - DEVELOPMENT

 

5.1                     The development stage will start on the next day after
the end of the exploration stage provided during the exploration stage a
commercial discovery statement was made. However, at the Contractor’s choice the
development stage may be started in advance and terminate the exploration stage
at the day of beginning of commercial extraction. In case a withholding period
has been granted, the development stage will start once the commercial discovery
statement has been made.

 

5.2                     The Contractor will undertake reasonable initiatives so
that the Date of Beginning of Commercial Extraction will effectively be the date
established pursuant to headings 4.8 and 4.9.

 

5.3                     At least sixty (60) days before the ending of every
calendar year, starting with the filing of the Initial Development Plan, the
Contractor will submit to PERUPETRO, the following:

 

a)                  An annual work program and the detailed budget for revenues,
costs, expenses and

 

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investments for the following calendar year. 

 

b)      An annual work program and the detailed budget for revenues, costs,
expenses and investments for exploration aimed at identifying additional
reserves, as applicable.

 

c)                A work program and the corresponding revenues, costs, expenses
and investments estimates for development and/or production, for the next five
calendar days.

The Contractor may adjust or change such programs through the Oversight
Committee.

 

5.4                     For the execution of every work program, the Contractor
will deploy the equipment and/or methods that may be necessary or appropriate to
assess and follow up the operations.

 

5.5                     The Contractor is obliged to develop and undertake the
economic recovery of hydrocarbon reserves in the Agreement Area, pursuant to the
programs mentioned in this Clause Five, same which will be carried out following
the technical and economical principles generally accepted and in use by the
international hydrocarbons industry.  

 

5.6                     The Contractor has the right to use in its operations
the hydrocarbons produced in the Agreement Area at no cost, same which, however,
will not be considered for purposes of determining the royalties. Such
hydrocarbons may be processed in primary distillation plants belonging to the
Contractor to be used exclusively for the operations.   If the primary
distillation plant is located outside the Agreement Area, the parties will
determine the volume of hydrocarbons to be processed at the plant and the volume
of products obtained to be used as fuel. The balance of such volumes will be
considered for purposes of determining the royalty. 

 

5.7                     The Contractor will have the right to recover the liquid
hydrocarbons from any natural gas produced in the Agreement Area and extract
them at any handling stage of such Natural Gas.  The liquids so separated will
be considered as condensates for purposes of determining the Contractor’s
royalty, excepting that for economic or operational reasons their gathering may
not be feasible and they may be mixed with oil for controlling them together.

 

5.8                     Natural gas not used by the Contractor in the operations
pursuant to heading 5.6 may be sold, reinjected into the reservoir or both by
the Contractor. To the extent, the natural gas is not used, sold or reinjected,
the Contractor may fire the gas, after obtaining the Ministry of Energy and
Mines’ approval.

 

5.9                     When one or more deposits that may be commercially
developed extend continuously from the Agreement Area to one or more other
areas, the Contractor and the contractors who hold those areas shall reach an
agreement to prepare a single development plan or a common development plan. If
no such agreement is reached, the Ministry of Energy and Mines may decide to
submit the divergence to the Technical Conciliation Committee mentioned in
article 32º under Law N° 26221, the decisions of which will be mandatory for the
Parties.  Likewise, when one or more deposits subject to commercial

 

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development extend continuously from the Agreement Area to adjoining areas not
allocated to a contractor or that may not be comprised in negotiations,
competitions, deeds or contractor selection, and there is no limitation as
regards environmental protection issues, after obtaining PERUPETRO approval to
the Contractor’s request, those adjoining areas may be included in the Agreement
Area.  

 

5.10              After the drilling of one (1) well has been concluded, the
Contractor will report to PERUPETRO the date when the well will be tested, if
appropriate. The well test shall be carried out within three (3) months after
the end of drilling, excepting that for technical reasons, the Contractor may
require a longer period for the test.

 

5.11              PERUPETRO may at any time inspect and test the measurement
equipment and devices used to determine the volume and the quality of the
controlled hydrocarbons.  The equipments and measurement instruments will be
periodically calibrated in compliance with applicable standards. PERUPETRO
representatives may be present.

 

5.12              Before the Date of Beginning of Commercial Extraction and the
determination of the volume and quality of controlled hydrocarbons, the parties
will agree on the corresponding measurement equipment and procedures.

 

5.13              Heavy crude produced in the Agreement Area may be mixed with
light crude produced outside the Agreement Area. Such light crude will me
measured and controlled by the Parties at a measurement point when entering the
Agreement Area. The volume of such hydrocarbons produced outside the Agreement
Area will be subtracted from the volume controlled hydrocarbons produced in the
Agreement Area for purposes of determining the royalties to be paid by the
Contractor.

 

CLAUSE SIX.- INFORMATION AND STUDIES  

 

6.1                     The Contractor will keep PERUPETRO timely and
permanently informed about the Operations and will provide the information as
set forth in this clause, in the applicable regulations and in the form and
format PERUPETRO will determine. Likewise, it will provide information about
other natural resources or archaeological remains found or discovered during the
execution of the operations while the Contract is in force. Technical
information, studies, process and non-process data, as well as the other
findings that the Contractor may provide to PERUPETRO pursuant to this clause,
will be of the best possible quality available to the Contractor. If when
obtaining the information and findings, methods or systems were used that are of
a proprietary nature, the Contractor will not be obligated to disclose such
methods or systems when providing the information.  

 

6.2                     The Contractor shall provide a copy of the geological,
geophysical and reservoir studies related to the deposits’ development prepared
with technical information obtained for the Agreement Area. The Contractor will
also provide any clarification that may be required by PERUPETRO concerning such
studies.

 

6.3                     The Contractor will submit to PERUPETRO the information
and studies corresponding to its obligations under the minimum work program
before the exploration of each one

 

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such periods of the exploration stage as set forth in heading 3.2. In addition,
within ninety (90)days after the expiration of each period of the exploration
stage, the Contractor will submit to PERUPETRO a consolidation report including,
as appropriate, the studies and/or interpretation of the geological,
geophysical, geochemical, petrophysical and reservoir analysis related to the
exploration activities undertaken during the already concluded period and also
including those comprised in the corresponding minimum work program.

 

6.4                     The Contractor shall submit to PERUPETRO a “Monthly
Production Report” and a “Monthly Revenues and Expenses Report”. Both reports
will be submitted using the forms PERUPETRO will deliver to the Contractor for
such purpose at most thirty (30) days after the end of each calendar month.

 

6.5                     The Contractor will deliver to PERUPETRO a copy of all
the information provided to the Central Reserve Bank of Peru, pursuant to clause
11, and whenever required by  PERUPETRO.

 

6.6                     Within thirty (30) days after the end of each calendar
month, the Contractor will submit to PERUPETRO a list of the contracts signed
with its subcontractors for such month and, when so required, shall also deliver
a copy of the contracts if so requested by   PERUPETRO. 

 

6.7                     PERUPETRO or the Contractor may disclose the information
obtained from the Operations without approval from the other party, under the
following circumstances:

 

a)       When provided to an Affiliate;

 

b)       Concerning financing or contracting of insurance, after signing a
confidentiality agreement;

 

c)       If so required by law, regulations or the decision of a competent
authority including, but not limited to, regulations or decisions from
government officials, insurance organizations or stock markets where the stock
of such party or its affiliates may be registered; and,

 

d)       To consultants, accountants, auditors, lenders, professionals,
potential buyers or assignees of the Parties  or the Agreement’s
interest-holders as required by the Operations, after signing a confidentiality
agreement. 

 

When the Parties agree to disclose certain confidential or reserved information
to third parties, a statement about the confidential nature of such information
will be made so that such information will not disseminated by third parties. 

 

6.8                     PERUPETRO has the right to publish, or otherwise
disclose, the geological, scientific and technical data and reports referred to
the areas released by the Contractor. For the areas under operation, the right
mentioned in the preceding paragraph may be exercised at the end the second year
of having received such information or before, if the parties so agree.

 

CLAUSE SEVEN.- OVERSIGHT COMMITTEE

 

7.1                     The Oversight Committee will sit three
(3) representatives of the Contractor or its

 

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subordinates and three (3) members of PERUPETRO or its alternates. A
representative of PERUPETRO S.A. will chair the oversight Committee.  Such
Oversight Committee will be installed and approve its regulation operations
within sixty (60) days after the date of signing. 

 

7.2                     The Oversight Committee will enjoy the following
attributions:  

 

a)                  To exchange and discuss among its members all the
information related to the operations;

 

b)                  To assess the exception of the minimum exploration work
programs described in heading 4.6;

 

c)                  To assess the work plans and programs described in headings
4.8 and 5.3., as well as their execution;

 

d)                  To verify the execution of the operations for which purposes
the representatives accredited before the Oversight Committee may rely on the
necessary counseling;

 

e)                  To verify compliance with all the obligations related to the
operations as set forth in the agreements or to which the parties may agree by
virtue of a separate document; and,

 

f)                    All other attributions that may be established in the
Agreement or to which the Parties may agree.

 

7.3                     The Oversight Committee will sit whenever requested by
the Parties and with the frequency established by its own regulations. At least
one representing member from each of the parties will be required for the
Oversight Committee to be considered in session. Each of the parties will bear
the expenses of their respective members in the Oversight Committee.

 

7.4                     If a discrepancy appears and subsists among the Parties
at the Oversight Committee, each such Party may request the technical or legal
opinion it deems appropriate and it may submit it to the Oversight Committee at
an extraordinary meeting. If no agreement is reached in the extraordinary
meeting, the matter will be referred to the Parties’ General Management
Department for resolving the controversy. If the discrepancy persists,
provisions under heading 21.2 will apply.

 

CLAUSE EIGHT.- ROYALTIES AND VALUATION

 

8.1                     The Contractor will pay the royalty in cash based on the
value of Controlled Hydrocarbons measured at one or more Production Control
Points, pursuant to provisions under headings 8.3, 8.4 and 8.5.  In case of loss
of hydrocarbons, provisions under heading 14.2 will apply.

 

8.2                     For purposes of this clause, the terms below will have
the following meanings:

 

8.2.1                      Transportation and storage costs: the cost, in
dollars per barrel or dollars per MMBtu, as appropriate including:

 

a)         Rate paid to third parties or the Estimated Rate, expressed in
dollars per barrel or dollar per million Btu, as appropriate, for the necessary
transportation and storage of the controlled hydrocarbons from the

 

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Production Control Point to the point of sale or transportation, including
storage at that point; and,

 

b)  The cost of handling and dispatching, as well as for loading, as
appropriate, of controlled Hydrocarbons to the fixed ship connection clamp or to
the facilities needed to perform the sale.

 

8.2.2                      Valuation Period: Fifteen days (fortnight) of a
calendar month, in the understanding the first such fortnight is the period
comprised between the first until the fifteenth day of a calendar month, and the
second fortnight is the period remaining until the end of a calendar month.  By
agreement of the Parties, and to extent allowed by existing regulations, the
valuation period may be extended or reduced. 

 

8.2.3                      Basket price: The price expressed in dollar per
barrel representing the FOB value at a Peruvian export port, determined pursuant
to heading 8.4.1 and subheading 8.4.3 for Controlled Natural Gas.

 

8.2.4                      Realized Price: The price, expressed in dollars per
MMBtu, actually paid or to be paid by a buyer to the Contractor for the
Controlled Natural Gas and which should include all other components directly
derived from the sale of natural gas and the volume actually delivered of
Controlled Natural Gas. For the calculation of the realized price, the following
will not be taken into consideration:

 

a)         Any payment resulting from the reconciliation of natural gas volumes
contained in the corresponding purchase contracts; and 

 

b)         The Impuesto General a las Ventas (Sales Tax), the Impuesto Selectivo
al Consumo (Excise Tax), the Impuesto de Promoción Municipal (Municipal Tax)
and/or any other tax levied on consumption.  

 

8.2.5                      Estimated Rate: The cost in dollars per barrel  or
dollars per MMBtu, as appropriate, for the transportation from a Production
Control Point to a sale or export point or to a third party pipeline. This cost
will take into consideration the items, methodology and procedures mentioned in
the “Regulations for Transportation of Hydrocarbons by Pipelines” as amended, or
its successors.  

 

8.2.6                      Value of Controlled Oil: The product of multiplying
the Controlled Oil for a valuation period times the Basket Price Of Controlled
Oil for such period, from which the cost of transportation and storage if
applicable, will be subtracted.

 

8.2.7                      Value of Controlled Condensates: The product of
multiplying the Controlled Condensates of a Valuation Period times the Basket
Price of Controlled Condensates for such period, from which price the cost of
transportation and storage if applicable, will have been subtracted.

 

8.2.8                    Value of Controlled Natural Gas Liquids: The product of
multiplying the Controlled Natural Gas Liquids for a Valuation Period times the
basket price of

 

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the Controlled Natural Gas Liquids for that period, price from which the cost of
Transportation and Storage, if applicable will have been subtracted.

 

8.2.9                      Value of Controlled Natural Gas: The product of
multiplying the Controlled Natural Gas in terms of its caloric content in
million BTU for a Valuation Period times the Realized Price for such period,
from which price the cost of transportation and storage, if applicable, will
have been subtracted.

 

8.3                     The Contractor, when making a commercial discovery
statement for hydrocarbons, will choose one of the two methodologies described
in subheadings  8.3.1 and 8.3.2, after which it will not be allowed to change
the methodology during the life of the Agreement. 

 

8.3.1                      Scale of Production Method: Pursuant to this
methodology, a royalty percentage for Controlled Liquid Hydrocarbons and
Controlled Natural Gas Liquids will be established and another royalty
percentage will be established for the Controlled Natural Gas for each valuation
period, according to the following chart.

 

Controlled Production
MBCD

 

Percent royalty (%)

< 5

 

15.00

5 – 100

 

15.00 – 30.00

>100

 

30.00

 

MBDC: Millions of Barrels per Calendar Day

 

When the total average of Controlled Liquid Hydrocarbons and Controlled Natural
Gas Liquids is equal to or lower than 5 MBDC, the 15% royalty will apply. When
such average is equal to or higher than 100 MBDC, a 30% royalty will apply. When
said average falls between 5 MBDC and 100 MBDC, the royalty percentage to be
applied will result from applying a linear interpolation. The royalty paid by
the Contractor for the Controlled Liquid Hydrocarbons and the Controlled Natural
Gas Liquids will be the product of applying the royalty percentage obtained for
such hydrocarbons to the value of controlled oil, the value of the Controlled
Natural Gas Liquids and the value of the Controlled Condensates, during the
corresponding Valuation Period.  To determine the average in barrels per day for
Controlled Natural Gas, the following equation will be used: barrels will be
equivalent to the volume of Controlled Natural Gas in standard cubic feet
divided by five thousand six hundred twenty six (5,626) factor. The royalty the
Contractor shall pay for the Controlled Natural Gas will be the product of
applying the royalty percentage calculated for such hydrocarbon to the value of
Controlled Natural Gas during the respective valuation period.

 

8.3.2                      Economic Result Method (RRE): Pursuant to this
method, the royalty percentage will be the product of adding the 15% fixed
royalty percentage to the variable

 

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royalty percentage as follows:

 

RRE              =              15.00 %           +             VR

                               [g26621kg03i001.gif]

 

 

Where:

 

VR          :               Variable Royalty % t

 

FR t-1      :               R t-1  Factor

 

The Variable Royalty will apply when: FR t-1 ³ 1.15, within the range of:

 

0%         £             Variable Royalty       £        20%

 

For negative VR, 0% will apply; for VR above 20%, 20% will apply

 

X t-1:

 

Revenues corresponding to the annual period preceding the time when the Variable
Royalty calculation is made. They include ìtems applicable to Factor R t-1

Y t-1:

 

Expenses corresponding to the annual period preceding the time when the Variable
Royalty calculation is made. They include items applicable to Factor R t-1

R t-1 Factor:

 

Is the quotient between revenue and expenses from the Date of Signing until
period t-1, included

Period t-1:

 

Annual period before the time when the variable royalty was calculated.

 

where:

 

Accumulated revenues:

 

Acum[PFP*(PCP-CTAP)] + Acum[PFC*(PCC-CTAC)] +

Acum[PFG*(PRG-CTAG)] + Acum[PFL*(PCL-CTAL)] + Acum[OI]

 

PFP

 

Controlled Oil Production.

PCP

 

Oil Basket Price.

CTAP

 

Oil Transportation and Storage Cost.

PFC

 

Condensate Control Production.

PCC

 

Condensate Basket Price.

CTAC

 

Condensate Transportation and Storage Cost.

PFG

 

Natural Gas Controlled Production.

PRG

 

Natural Gas Realized Price.

CTAG

 

Natural Gas Transportation and Storage Cost.

PFL

 

Natural Gas Liquids Controlled Production.

PCL

 

Natural Gas Liquids Basket Price.

CTAL

 

Natural Gas Liquids Transportation and Storage Cost.

OI

 

Other incomes.

 

Accumulated expenses:

 

Acum    (Investment + Expenses + Royalties + Other Incomes)

 

Annex E-Accounting Procedures details the revenues and expenses and the times
for the registration the Factor Rt-1, component. The calculation of the variable
royalty percentage will be made twice yearly, once in January, with information
about the revenues and expenses incurred from January to December of the prior
calendar year;

 

--------------------------------------------------------------------------------

 

and again in July with information from July of the prior calendar year to
June of the current calendar year.

 

8.4                     For purposes of the Agreement, the price for each class
of Controlled Hydrocarbon will be expressed in dollars per barrel or dollars per
million Btu, and will be determined as follows:

 

8.4.1                      To determine the Basket Price of Controlled Oil the
following procedure shall apply:

 

a)         UTE.  At least ninety (90) days before the Date of Beginning of
Hydrocarbon Commercial Extraction, the Parties will decide the amounts of oil
that will be produced in the Agreement Area.

 

b)         Within thirty (30) days after the determination described in the
previous paragraph, the Parties will choose an Oil Basket including a maximum of
four (4) crudes with following characteristics. 

 

1.                          Their quality shall be similar to that of the oil to
be measured at a Production Control Point;

 

2.                          Their quotations will appear periodically in
“Platt’s Oilgram Price Report” or other source acceptable to the oil industry
and to the Parties; and,

 

3.                          They will be competitive in the market(s) where the
oil to be measured at a Production Controlled Point may be sold.

 

c)         Once the conditions described in the preceding paragraphs have been
met, the Parties will sign a Valuation Agreement establishing the additional
terms and conditions to those described in this subheading and which may be
required for its appropriate enforcement. The Valuation Agreement will determine
the adjustment procedures required for reasons of quality. The quality
adjustments will introduce premiums and/or penalties for improving and/or
degrading the quality of Controlled Oil compared to the types of oil included in
the basket. Likewise, the Valuation Agreement will determine a given period of
existence as well as the frequency with which the agreed methods and procedures
should be reviewed so that, at all times, a realistic determination of
controlled oil prices will be ensured. If any of the parties, at any time,
considers the enforcement of the methods and procedures established in the
Valuation Agreement does not result in a realistic determination of the FOB
value at the Peruvian exportation port for the Controlled Oil, the Parties may
agree to enforce other methods and procedures that effectively provide such
result.

 

d)         Every six (6) months or before if any of the Parties so requests, the
Parties may review the basket established for Controlled Oil valuation, and thus
ensure that the previously listed conditions continue to be met. If it is found
that any of such conditions no longer applies, the Parties may

 

--------------------------------------------------------------------------------

 

modify the basket within thirty (30) days after the date when the basket review
started. If that period expires and the Parties have not reached an agreement
about the new basket, the provisions set forth in subheading 8.4.5 shall apply.
If it is found that API (weighted average) degree, sulphur content or other
element used to measure the quality of Controlled Oil has changed significantly
compared to the quality of the basket components (simple arithmetical average),
the Parties will change the basket so that it will reflect the quality of the
Controlled Oil.

 

e)         In case the future price of one or more of the types of oil in the
basket were quoted in a currency other than the US dollars, such prices will be
converted into dollars at the exchange rate enforced on the date when each of
the referred quotations  was taken. The exchange rate to be used will be the
average of the exchange rate quoted by Citibank N.A. New York. If quotations
from that organization are not available, the Parties will agree on an
appropriate substitute.

 

f)           The Basket Price used to calculate the value of the Controlled Oil
for the Valuation Period will be determined as follows:

 

1.                          For each type of oil in the basket, the arithmetical
average of its published basket will be determined using quotations for the
Valuation Period. Only the days where all the components of the baskets wee
quoted will be considered. It is understood that if the regular edition of
“Platt’s Oilgram Price Report” shows two or more quotations for the same basket
component, the quotation for the date closer to the publication will be used
(“Prompt Market”); and,

 

2.                          The resulting average prices calculated following
the method above, for each basket component, will be again averaged out to
determine the basket price corresponding to the value of Controlled Oil. 

 

8.4.2                      To determine the Basket Price of Controlled
Condensates, the guidelines detailed in subheading 8.4.1 will apply, as
appropriate. The Parties may agree to the adjustments needed so the basket price
will best reflect the value of the Controlled Condensates. 

 

8.4.3                      To determine the Basket Price for Controlled Natural
Gas Liquids, the procedure established in subheading 8.4.1, will be followed, as
applicable. The Parties may agree to certain necessary adjustments so the Basket
Price will reflect as best possible the value of Controlled Natural Gas Liquids.

 

8.4.4                      The price of Controlled Natural Gas will be reflected
by the Realized Price, which should reflect the selling price in the domestic
market or at an export point within the national territory, as applicable. The
minimum value to be used as Realized Price will be 0.60 US$ / MMBtu.

 

8.4.5                      If the Parties cannot agree on any of the issues
described in this heading, the

 

--------------------------------------------------------------------------------

 

provisions in heading 21.2 will apply.

 

8.5                     Notwithstanding provisions in paragraph d) under section
2.5 of Annex “E”, Accounting Procedure, if at any time times the Parties
identify a mistake in calculating the factor  Rt-1 and that a different Rt-1
should have been applied or that said factor should have been applied at another
time, the corresponding correction will be introduced retroactively to the time
when the error was made and the percent royalty will be adjusted starting at
that period. All adjustments resulting from the lower payment of a royalty will
accrue interest on behalf of the affected party from the moment when the error
was made. Refunds to the Contractor for the payment of excess royalties will be
charged against the balances PERUPETRO may have to transfer to Treasury. 

 

8.6                     The amount of the royalty will be calculated for each
valuation period. The corresponding payment will be made in dollars, at the
latest in the second business day after the end of the corresponding fortnight,
and PERUPETRO will issue the corresponding certificate on behalf of the
Contractor  pursuant to law. The volume of Controlled Hydrocarbons for every
fortnight will be supported by the control vouchers PERUPETRO will deliver to
the Contractor after duly signing them, as proof of conformance.

 

8.7                     On the contrary, if the Contractor fails to pay
PERUPETRO the amount of royalties due, fully or partially, within the deadline
foreseen in heading 8.6, the Contractor will deliver to PERUPETRO the
hydrocarbons it owns and that were extracted from the Agreement Area in the
amount needed to pay the amount due, as well as the expenses incurred and
interests accrued, pursuant to heading 19.6. 

 

CLAUSE NINE – TAXES

 

9.1                     The Contractor will be subject to the ordinary tax
regime in force in the Republic of Peru, including the ordinary tax regime for
income tax, as well as the specific regulations set forth in this respect by Law
N° 26221, in force by the date of signing.  The State, through the Ministry of
Economy and Finance, guarantees the Contractor the benefit of tax stability
during the life of the Agreement, as a result of which the latter will be
subject only to the tax regime in force on the Date Of Signing, pursuant to
provisions in the “Reglamento de la Garantía de la Estabilidad Tributaria y de
las Normas Tributarias de la Ley N° 26221, Ley Orgánica de Hidrocarburos
(Regulations of the Tax and Tax Regulations Stability under Law  26221, Organic
Hydrocarbons Law)”, approved by Supreme Decree N° 32-95-EF, in the “Law
regulating stability contracts with the State under the protection of Sectorial
Laws – Law N° 27343” as applicable, and in the “Updated Law for Hydrocarbons –
Law N° 27377”.

 

9.2                     Export of hydrocarbons from the Agreement Area made by
the Contractor are tax exempted, including tax exemptions that require an
explicit statement.

 

9.3                     PERUPETRO will pay the “canon”, “surplus canon” and
participation in revenues and

 

--------------------------------------------------------------------------------

 

profits.

 

9.4                     The Contractor, pursuant to legal provisions in force,
will pay the taxes charged on imports of goods and services the Contractor may
require to perform the Operations, as required by law.

 

9.5                     Pursuant to provisions under article 87 of the Tax Code,
the Contractor may carry its books in dollars and, consequently, the calculation
of the basis for  tax payments under his responsibility as well as the amounts
of such taxes and their actual payment, will proceed pursuant to existing laws.

 

9.6                     The Contractor will enforce the linear amortization
method over a period of five (5) years starting on the year of the Date for the
Beginning of Commercial Extraction. This linear amortization will be applied to
all exploration and development expenses and to all investments made by the
Contractor starting on the Date of Signing of the Contract until the Date of
Beginning of Commercial Extraction. It is hereby set forth that the above
mentioned amortization period may be extended, but under no circumstance beyond
the term of the Agreement, if because of reasons related to prices or any other
circumstance, agreed by the Parties, and after applying the linear amortization
described in the previous paragraph, the Contractor’s financial statements yield
a negative bottom line or a fiscal loss that, in the Contractor’s view, it may
not be set off for tax purposes pursuant to tax regulation in force. The
extended amortization period will be reported in advance to the National
Superintendence for Tax Administration.

 

CLAUSE TEN – CUSTOMS DUTIES

 

10.1              The Contractor is authorized to import on a final or temporary
basis, and pursuant to legal provisions in force, any good it may need for the
economical and cost-effective and efficient execution of the operations.

 

10.2              The Contractor may import on a temporary basis, for a period
of two (2) years, all the goods required for its activities and have the
corresponding import duties suspended, including those requiring an express
suspension statement. If an additional extension is needed, the Contractor may
request such extension from PERUPETRO for periods of one year and for a maximum
two (2) such periods. PERUPETRO will obtain the Directorial Resolution from the
General Hydrocarbons Bureau. The National Superintendent for Tax Administration
will authorize the extension of the temporary importation regime based on the
mentioned documents. The procedure, records and guarantees needed to enforce the
temporary importation regime will follow the rules set forth in the General
Customs Law, as amended and regulated.

 

10.3              The importation of goods and inputs required by the Contractor
during the exploration stage for exploration activities is exempt from all
taxes, including exemptions requiring an express statement, provided they are
also comprised in the list of goods subject to such benefits, pursuant to
provisions in Article 56º of Law N° 26221. The benefit will apply during the
entire exploration stage.

 

--------------------------------------------------------------------------------

 

10.4              The taxes levied on the importation of goods and inputs
required by the Contractor for development and exploration activities during the
development stage will be paid and borne by the importer.

 

10.5              PERUPETRO may inspect the goods imported on either a
definitive or temporary basis as provided for in this clause for the exploration
activities during the exploration stage to certify whether those goods were
imported exclusively for the Operations.

 

10.6              The Contractor shall periodically report to PERUPETRO the
goods and inputs exempted from duties pursuant to provisions in article 56º of
Law N° 26221. The Contractor may not export back or use for other purposes the
goods and inputs described in the previous paragraph without PERUPETRO’s
authorization. After obtaining such authorization, the Contractor will pay the
corresponding taxes, pursuant to article 57 under Law N° 26221.

 

CLAUSE ELEVEN.- FINANCIAL RIGHTS

 

11.1              State Guarantee.

 

The Central Reserve Bank of Peru is Party to this Agreement, pursuant to
provisions of Law Nº 26221 and Legislative Decree Nº 668, so as to provide the
Contractor the State’s guarantees described in this clause and pursuant to the
legal regulations in force at the Date of Signing. The guarantees provided by
this clause also comprise an eventual cession, pursuant to the provisions of the
Hydrocarbons Law and this Agreement.

 

11.2              Exchange Rate Regime

 

The Central Reserve Bank of Peru, on behalf of the State and pursuant to legal
provisions in force at the date of signing guarantee the Contractor will enjoy
the exchange rate regime in force on the Date of Signing and, consequently, the
Contractor will enjoy the right to the free availability, holding, use and
disposition, both internally and externally, of foreign currency as well as free
conversion of domestic currency into foreign currency in the open exchange
market under terms and conditions set forth in this clause.  In this regard, the
Central Reserve Bank of Peru, on behalf of the State, guarantees the Contractor,
pursuant to the legal regime in force on the Date of Signing, the following:

 

a)                  Free availability to the Contractor of up to one hundred
percent (100%) of the foreign currency earned by its exports of Controlled
Hydrocarbons, same which may be deposited directly in its own bank accounts,
locally or overseas.

 

b)                  Free availability and right to freely convert into foreign
currency up to one hundred percent (100%) of the national currency earned from
its sales of Controlled Hydrocarbons in the domestic market, and the right of
deposit directly in its own bank accounts, locally or overseas, both the foreign
and domestic currencies.

 

c)                  Right to maintain, control and manage bank accounts in any
currency, both locally and overseas, and to control and freely use those
accounts,  and to freely

 

--------------------------------------------------------------------------------

 

maintain and dispose of abroad the funds deposited in those accounts without any
restriction whatsoever.

 

d)      Notwithstanding the above, the Contractor has the right to freely
dispose of, distribute, send or withhold abroad without any restriction
whatsoever its net annual profits calculated pursuant to regulations in force.

 

11.3              Foreign Currency Availability and Conversion

 

It is hereby agreed that the Contractor will convert currency through financial
system entities established in Peru, as described in paragraph b) under heading
11.2. If the availability of foreign currency may not be totally or partially
served by the above mentioned entities, the Central Reserve Bank of Peru
guarantees that it will provide the necessary foreign currency. For that
purpose, the Contractor will address the Central Bank in writing and send a
photocopy of the response letters received from not less than three
(3) financial system entities reporting their inability to serve, fully or
partially, the Contractor’s foreign currency requirements.  The letters from the
financial system entities will remain valid for two business days after the date
when they were sent.  Before 11:00 a.m. of the Business Day after the above
described documents were submitted, the Central Bank will inform the Contractor
on the exchange rate to be used for the required conversion, same which will
remain in force provided the Contractor delivers the matching value in domestic
currency for the requested transaction on the same day.  If, for any reason, the
matching amount is not delivered by the Contractor at the appointed time, the
Central Reserve Bank of Peru will report on the following Business Day, within
the same time restriction, the exchange rate to be used for the conversion if
undertaken on that same day. Notwithstanding the above, if the Central Reserve
Bank of Peru timely certifies said availability cannot be provided fully or
partially by the above mentioned entities, it may notify the Contractor to
deliver to the Central Reserve Bank of Peru the domestic currency in the amount
required to proceed to the currency conversion.

 

11.4              Changes to the exchange regime

 

The Central Reserve Bank of Peru, on behalf of the State, guarantees the regime
described in this clause will remain in force for the benefit of the Contractor
during the life of the agreement. If for any reason, the rates were not longer
fixed by supply and demand, the exchange rate applying to the Contractor will be
as follows:

 

a)                  If a single official exchange rate was established at one
single value for all currency transactions or foreign currency related
transactions, starting on the date of enforcement, the exchange rate will be
that provided for in this agreement.

 

b)                  If a system of multiple, differential exchange rates were
introduced or if different values were given to a single exchange rate, the
exchange rate to be used for all the Contractor transactions will be highest
foreign currency value.

 

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11.5              Enforcement of Other Legal Provisions

 

The guarantees provided by the Central Reserve Bank of Peru to the Contractor
will remain in force during the life of the Agreement. The Contractor will have
the right to embrace, totally or partially, as pertinent, the new legal
provisions regarding exchange rates or regulations issued during the life of the
Agreement, including those dealing with foreign currency exchange issues not
addressed in this clause, provided they are either of a general nature or apply
to the hydrocarbons industry. Embracing the new provisions  or regulations will
not affect the guarantees described in this clause, nor the exercise of
guarantees dealing with aspects other than those included in the new provisions
or regulations which the Contractor may have embraced. It is expressly agreed
that the Contractor may, at any time, adopt the guarantees it decided to dismiss
on a temporary basis and that returning to those guarantees does not create any
rights or duties to the Contractor concerning the period during which it decided
to adopt the new provisions or regulations described above.  In addition, it is
hereby explained that adopting such guarantees will not hamper those  or any
other guarantees, nor does it create any additional rights or duties to the
Contractor. The Contractor’s adopting the new legal exchange provisions or
regulations, as well as its decisions to return to the guarantees it decided to
dismiss temporarily, shall be reported in writing to both the Central Reserve
Bank of Peru and PERUPETRO. The provisions under this heading are established
notwithstanding those in the first paragraph under heading 11.4.

 

11.6              Economic Reporting

 

The Contractor will send monthly reports to the Central Reserve Bank of Peru 
relating its economic activity pursuant to article 74° of the Bank’s Organic law
enacted by Decree Law N° 26123.

 

CLAUSE TWELVE.- LABOR

 

12.1              The Parties agree that at the end of the fifth year after the
Date of Beginning of Commercial Extraction, the Contractor will have replaced
Peruvian personnel of equivalent professional qualifications for all its current
personnel. Exempted from the above are the foreign personnel filling management
positions and those needed to perform some specialized technical jobs, for the
Operations.  The Contractor agrees to train and form the Peruvian personnel to
undertake specialized technical tasks so they may gradually substitute for the
foreign personnel in performing such jobs.

 

12.2              At the beginning of Operations and the end of each calendar
year, the Contractor will deliver to PERUPETRO a statistical chart of the
personnel under its service who are performing the Operations, using the form
PERUPETRO will deliver to the Contractor.

 

CLAUSE THIRTEEN.- ENVIRONMENTAL PROTECTION AND COMMUNITY RELATIONS

 

13.1              The Contractor commits to follow the provisions under the
“Environmental Protection Regulations for Hydrocarbon Activities” enacted by
Supreme Decree N° 015-2006-EM as amended, Law N° 28611, the General
Environmental Law, as amended, and all other

 

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environmental provisions in force, as applicable.

 

13.2              The Contractor will undertake the operations in strict
compliance with sustainable development, conservation and environmental
protection guidelines, pursuant to the laws and regulations concerning
environmental protection, Amazon indigenous and peasant communities, and
international treaties ratified by the Peruvian State. In addition, it will
respect the culture, habits, principles and values of such communities and will
maintain harmonious relations with the Peruvian State and civil society.

 

13.3              The Contractor will use the best available methods available
from international industry practice, pursuant to environmental laws and
regulations, for prevention and control of environmental pollution from the
Operations; in addition, it will perform the Operations pursuant to existing
regulations on the preservation of biological diversity, natural resources, and
health and safety of its people and its own workers. 

 

CLAUSE FORTEEN – HYDROCARBON CONSERVATION AND LOSS PREVENTION

 

14.1              The Contractor shall adopt all reasonable measures to prevent
the loss or waste of the hydrocarbons on the surface or in the ground in any
possible during the prospecting and development activities.

 

14.2              The Contractor will immediately to PERUPETRO any report
surface oil spills in or outside the Agreement Area, pursuant to legal
provisions in force, indicating an estimated spill volume and the actions taken
to remediate the spill. PERUPETRO has the right to verify the spill volume and
analyze the underlying causes.  In case of surface losses in or outside the
Agreement Area before the Production Control Point caused by the Contractor’s
serious negligence or fraud, the loss volume will be valued according to Clause
Eight herein and included in the royalty calculations, notwithstanding
provisions under heading 13.1. In case of losses before the Production Control
Point, occurring under circumstances other than those described in the preceding
paragraph and that result in remedy pay to the Contractor by third parties, the
amount of the received compensation for the lost hydrocarbons, multiplied by the
factor resulting from a division between amount of the royalty paid for the
Controlled Hydrocarbons at the Production Control Point corresponding to the
lost hydrocarbons during the fortnight when the loss occurred times the value of
said Controlled Hydrocarbons calculated pursuant to heading  8.2  for the same
fortnight will be the amount the Contractor shall pay for the royalty for the
lost hydrocarbons, at the latest on the second business day after such remedy
was paid, notwithstanding provisions under heading 13.1.

 

CLAUSE FIFTEEN.- TRAINING AND TECHNOLOGY TRANSFER

 

15.1              Pursuant to article 29º of Law N° 26221, the Contractor
commits to make available to PERUPETRO, every year during the life of the
Agreement, the following amounts:

 

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Paragraph

 

 

 

Annual
Contribution
(in US$)

 

a)

 

Until the calendar year of the Date Of Beginning Of Commercial Extraction.

 

10,000.0

 

 

 

 

 

 

 

b)

 

After the Date Of Beginning Of Commercial Extraction.

 

 

 

 

 

Barrels per Day

 

 

 

 

 

From

0

to

500

 

10,000.0

 

 

 

From

501

to

1,000

 

15,000.0

 

 

 

From

1,001

to

1,500

 

20,000.0

 

 

 

From

1,501

to

2,500

 

30,000.0

 

 

 

From

2,501

to

5,000

 

40,000.0

 

 

 

More than 5,000

 

50,000.0

 

 

The first payment will be made on the Date of Signing in an amount that will be
determined by multiplying the annual contribution corresponding to paragraph a)
above plus the fraction resulting from dividing the number of days before
finishing the calendar year underway plus three hundred sixty five (365). The
annual training contribution under paragraph b) will correspond to the segment
of average daily production of Controlled Hydrocarbons for the prior calendar
year. This contribution will be determined by dividing the total volume of
Controlled Hydrocarbons of such year by the corresponding number of days. To
determine the Barrels/Day in case of controlled natural gas production, the
following equation will be used: Barrels will be equivalent to the volume of
natural gas expressed in standard cubic feet divided by the five thousand six
hundred twenty six (5,626) value. The payments described in this heading,
excepting the first payment, will be made in January each year. Payments may be
effected by bank transfer following PERUPETRO’s instructions in this regard.

 

15.2              The Contractor will fulfill all the obligations stated by
heading 15.1 by making a deposit for the account PERUPETRO shall indicate.
PERUPETRO will deliver the Contractor a communication showing conformance of
payment within five (5) Business Days after receiving the contribution.

 

15.3              Training programs organized by the Contractor for its own
personnel, both in Peru and overseas, will be reported to PERUPETRO.

 

15.4              The Contractor commits, during the development stage and if
possible during the exploration stage, to put in place an internship program for
university students that will provide complementary training pursuant to their
respective universities’ requirements and existing law in Peru but without
creating any labor relationship between the Parties. In addition, the Contractor
will report such program to PERUPETRO.

 

CLAUSE SIXTEEN – CESSION AND ASSOCIATION

 

16.1              If the Contractor enters into an agreement to assign its
contract position or to partner with a third party within the Agreement, it will
report such agreement to PERUPETRO. The letter should include a request to
evaluate the potential assignee or third party who will attach the necessary
complementary information for its

 

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qualification as an oil company, pursuant to existing regulations. If PERUPETRO
grants the requested qualification, the assignment or association will be
performed through an amendment to the Agreement, pursuant to law.

 

16.2              After notifying PERUPETRO, the Contractor may assign its
contractual position or associate with an affiliate, pursuant to law.

 

16.3              The assignee or third party will provide al the guarantees and
will undertake all the rights, responsibilities and obligations flowing from the
Agreement.

 

CLAUSE SEVENTEEN - ACT OF GOD OR FORCE MAJEURE

 

17.1              Neither of the Parties may be imputed failure to execute an
obligation or for its partial, late or defective compliance with same during the
period while such Party is affected by an Act of God or Force Majeure, provided
it accredits such cause prevented it from complying.

 

17.2              The Party affected by the Act of God or Force Majeure will
report it in writing within five (5) days after such event takes place to the
other Party and will document the way in which such event prevents it from
complying with the corresponding obligation.   The other Party will reply in
writing accepting or rejecting such explanation within fifteen (15) days after
receiving the above letter.  Failure to respond by the notified Party within the
term foreseen will be construed as an acceptance of the proposed explanation. In
case of partial, late or defective execution of the obligation hampered by the
Act of God or Force Majeure, the obligated party will make its best effort to
carry it out so as to accomplish the objectives expressed jointly by the Parties
in the Agreement and the Parties will continue to undertake their Contract-based
obligations affected in anyway by such event. The Party affected by the Act of
God or Force Majeure will resume its obligations and contract-based conditions
within a reasonable period of time after said cause or causes have been cured,
and it will notify the other party in five(5) days after such cause was cured.
The harmless Party will cooperate with the affected party in its effort. In
cases of strike, stoppages or similar events, neither of the parties will be
allowed to impose the other a solution against its will.

 

17.3              The period during which the effect of the Act of God or Force
Majeure prevents compliance with  Contract-based obligations will be added to
the period foreseen to comply with such obligations and, if appropriate, to the
corresponding Agreement and the life of the Agreement.  If the Act of God or
Force Majeure affects the execution of any of the minimum work programs
described in heading 4.6, the warrant bond posted to guarantee such program will
remain in full force and effect and will not be executed during the period while
PERUPETRO does not issue a statement about the cause invoked by the Contractor,
and if any discrepancy shall emerge about the existence of such cause while the
discrepancy is resolved. With that goal in mind, the Contractor will extend or
replace such warrant bond, as appropriate.  Likewise, as long as PERUPETRO does
not make a statement about the reason invoked by the Contractor or

 

--------------------------------------------------------------------------------

 

while the discrepancy subsists about the existence of such cause, the period for
executing the minimum work program will be suspended. If PERUPETR accepts the
Act of God or Force Majeure invoked by the Contractor, the latter will resume
the execution of the minimum work program as soon as the effect of the invoked
cause ceases.

 

17.4              PERUPETRO will make every necessary effort to obtain the
assistance or cooperation of the corresponding document authorities so that the
necessary measures will be taken to ensure the continued and safe implementation
and operations of the activities foreseen in the Agreement.  It is hereby agreed
that when any of the Parties, at its sole criterion, considered its personnel or
its subcontractors’ personnel cannot operate within the agreement area under
appropriate conditions to guarantee their physical integrity, invoking such
situation as an Act of God or Force Majeure, will not be challenged by the other
party.

 

17.5              If the Contractor is affected by an Act of God or Force
Majeure preventing it for completing the execution of a minimum work program for
a period underway, at the end of twelve (12) consecutive months starting when
such cause emerged the Contractor may terminate the Agreement, for which purpose
it will communicate its decision to PERUPETRO at least thirty (30) days before
releasing the Agreement Area.

 

17.6              The provisions in this clause 17 do not apply to the
obligations to pay money.

 

CLAUSE EIGHTEEN - ACCOUNTING 

 

18.1              The Contractor will keep its accounting records following the
accounting principles and practices established and accepted in Peru. In
addition, it will keep and maintain all its books, detailed records and
documents as may be required to account for and oversee its activities in Peru
and abroad, as related to the purpose of the Agreement, and for properly
documenting its revenues, investments, costs, expenses and taxes for each fiscal
year. Moreover, within one hundred twenty (120) days starting of the Date of
Signing, the Contractor will deliver to PERUPETRO a copy in Spanish of the
Manual of Accounting Procedures it proposes to record its operations. The
“Manual of Accounting Procedures” shall include, among others, the following:

 

a)                  The language and currency for the accounting records;

 

b)                  Applicable accounting principles and practices;

 

c)                  Accounts structure and plan pursuant to requirements made by
the National Commission for the Supervision of Companies and Securities 
(Comisión Nacional Supervisora de Empresas y Valores - CONASEV);

 

d)                  Mechanisms to identify the accounts corresponding to the
agreement and other hydrocarbons agreements, their related activities and other
activities;

 

e)                  Mechanisms to attribute shared revenues, investments, costs
and expenses to the agreement, other hydrocarbon agreement, related activities
and other activities; and,

 

f)                    Determining the revenues and expenses accounts, as well as
the detailed records needed for computing the Rt-1 factor, and the detailed
procedures described in

 

--------------------------------------------------------------------------------

 

Annex “E” of the Agreement, as appropriate.

 

18.2              If the “Manual of Accounting Procedures” includes the items
described in paragraph f) above, within thirty (30) days after having receive
it, PERUPETRO will inform the Contractor of the approved accounting procedures
to calculate Rt-1 factor described in that paragraph or alternatively, the
suggestions it proposes to improve and/or expand such procedure. Failure by
PERUPETRO to provide such comment within the abovementioned period will be
construed as the granting of the approval to the procedure described in
paragraph f) under heading 18.1 in every respect. Within the same period of
thirty (30) days after receiving the “Manual of Accounting Procedures”,
PERUPETRO may make suggestions or remarks to improve, expand or delete one or
several of the accounting procedures proposed in the Manual.  All changes
concerning the accounting procedures for the approved Rt-1 factor will be
previously proposed to PERUPETRO for approval, following for that objective the
procedure established in the first paragraph under this heading. 

 

18.3              The Contractor’s accounting books, financial statements and
supporting documents will be made available to authorized PERUPETRO
representatives for verification in the Contractor’s offices at its address of
record, after having been served appropriate notice.

 

18.4              The Contractor will keep a record of all its movable and
immovable properties used in connection with the Agreement’s Operations pursuant
to the accounting regulations in force in Peru and international oil industry
generally accepted accounting practices. PERUPETRO may request the Contractor
all the information about its properties whenever it deems appropriate.
Likewise, PERUPETRO may request the Contractor to furnish its schedule of
physical inventory-taking of the goods used in its Operations, segregated by
type of property, whether belonging to the Contractor or third parties, and may
request to be allowed to participate in such inventory-taking, if it so
considers appropriate.

 

18.5              The Contractor will send, within thirty (30) days after its
issuance, a copy of its independent auditors’ report concerning the Contractor’s
financial statement for the prior economic year. If the Contractor has signed
more than one agreement with PERUPETRO or carries out activities other that
those foreseen in the Agreement, it will carry separate accounting to prepare
independent financial statement for each agreement and/or activity and,
therefore, the report prepared by its independent auditors shall also include
the financial statements for each contract and/or activity. 

 

18.6              The Contractor will send PERUPETRO, at the latter’s request,
the information included in its annual Income Tax Statement, filed with the
National Superintendence of Tax Administration or its successor.

 

C.-                    SUNDRIES

 

19.1              If in one or more cases any of the Parties fails to invoke or
insist on compliance

 

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with any of the provisions under the Agreement or to exercise any of the rights
awarded under the Agreement, such omission or failure to insist will not be
construed as a waiver of such provision or rights.

 

19.2              In executing the Operations, the Contractor will comply with
all the decisions made by competent authorities in the exercise of their legal
mandate.  Likewise, the Contractor commits to honor all the decisions of
competent authorities relating to national defense and security.

 

19.3              The Contractor has the right to freely enter and leave the
Agreement Area.

 

19.4              Pursuant to legislation in force, the Contractor will have the
right to utilize in the Operations, the water, wood, gravel and other
construction materials found within the Agreement Area with due respect for
third parties rights as appropriate. 

 

19.5              The license to use technical information concerning the
Agreement Area, and other areas, which the Contractor may wish to purchase from
PERUPETRO, will be granted pursuant to PERUPETRO’S policy for Managing
Exploration and Development Technical Information for which purpose the Parties
will sign a Letter of Agreement.

 

19.6              If one of the Parties fails to pay, within the agreed
deadline, the amount due, it will pay following interest trade starting on the
day after the date foreseen for that payment:

 

a)                  For debts payable denominated in domestic currency, the
applicable rate will be the active rate in domestic currency (TAMN) for loans
with tenure up to three hundred sixty (360) days as published by the
Superintendence for Banking and Insurance Companies or its successor, and
applied over the period elapsed between the due date and the actual payment
date; and,

 

b)                  For debts denominated in dollars, and payable in domestic
currency or in dollars, the applicable rate will be the U.S. Prime Rate plus
three percent (3%) points published by the Federal Reserve of the United States
of America, applied to the period running from the due date to the actual date
of payment, and in the absence of the latter rate, the Parties will agree on an
appropriate replacement. 

 

19.7              The provisions under heading 19.6 will apply to all debts
between Parties flowing from this Agreement or any other agreement or
transaction between the Parties. By written agreement between the parties, a
different provision may be introduced concerning the payment of interest. The
provisions herein applicable will not in any way modify the legal rights and
resources available to the Parties to enforce the payment of amounts due.  

 

19.8              In case of national emergency declared by law, by virtue of
which the State is obliged to purchase hydrocarbons from local producers, such
purchase will be made at the prices resulting from enforcing the valuation
mechanisms established by clause eight and shall be  payable in dollars within
thirty (30) after the delivery has been effected.

 

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19.9              Through the Ministry of Defense and Ministry of Internal
Affaire the State will give the Contractor within the Operations and to the
extent possible all necessary security measures.

 

19.10       The Contractor will hold PERUPETRO and the State free, and indemnify
them, as appropriate, from any claim, legal action or other charges, and
encumbrances from third parties that may result from the Operations and the
relations the Contractor may enter in connection with the Agreement and which
may flow from any contractual or extra-contractual relationship, excepting those
originating by actions of PERUPETRO itself or the State.

 

19.11       The Contractor will freely dispose of the hydrocarbons to which it
is entitled pursuant to the Agreement.

 

CLAUSE TWENTY – NOTIFICATIONS AND COMMUNICATIONS

 

20.1              Every notification or communication relating to the Agreement
will be considered as validly served if made in writing and delivered against a
slip or received by certified mail or facsimile or other means agreed upon by
the parties or addressed to the addressee during a business day at the following
addresses of record: 

 

PERUPETRO:

PERUPETRO S.A.

General Manager

Av. Luis Aldana Nº 320

Lima 41 - Perú

Fax: 6171801

 

Contractor:

BPZ EXPLORACION & PRODUCCION S.R.L.

General Manager

Manuel de Falla N° 297

Lima 41 - Perú

Telf. (511) 476-2244 / 476-3276 / 476-9919

Fax:  (511) 225-3289 / 476-7686

 

Corporate Garantor:

BPZ ENERGY INC.

President

580 Westlake Park Blvd., Suite 525

Houston, Texas 77079

Tel:  (281) 556-6200

Fax:  (281) 556-6377

 

20.2              Either of the Parties has the right to modify the address or
the number of facsimile for purposes of sending notifications and communications
by means of a notice sent to the other Party at least five (5) Business Days
before the change takes place.  Provisions included in the first paragraph under
this heading apply also to the

 

--------------------------------------------------------------------------------

 

corporate guarantor.

 

CLAUSE TWENTY ONE.- PERUVIAN LAW APPLIES. CONFLICT RESOLUTION

 

21.1              Peruvian Law applies.  This Agreement has been negotiated,
drafted and signed pursuant to legal regulations in force in Peru and its
contents, execution and derived consequences will be governed by the internal
laws and regulations in force in the Republic of Peru.

 

21.2              Technical Conciliation Committee.  The Technical Conciliation
Committee will convene within fifteen (15) Business Days after it has been
convoked by any of the Parties and will sit three (3) qualified members with
expertise in the topic to be addressed. Each of the Parties will choose one
(1) member and the third member will be appointed by those members already
designated by the Parties. If either of the Parties fails to designate its
representative within the foreseen period or if the designated members fail to
agree on the third member within the foreseen period or if the Technical
Conciliation Committee fails to issue an opinion within the foreseen period,
either of the Parties may submit the discrepancy for resolution pursuant to
provisions under heading 21.3 under this Agreement. Within sixty (60) days
starting on the Date of Signing, The Parties will agree on the procedure to be
followed by this Committee. The Technical Conciliation Committee’s resolutions
must be issued within thirty (30) days after its inauguration and will be
mandatory until a final arbitration decision, if such procedure is invoked, is
issued. Notwithstanding compliance with the decision issued by the Technical
Conciliation Committee any of the Parties may have recourse to arbitration
pursuant to heading 21.3 within sixty (60) days after the date when the
above-mentioned decision was notified and received.

 

21.3              Arbitration agreement. Any litigation, controversy, difference
or complaint resulting from or related to the Agreement, including its
interpretation, compliance, termination, effectiveness or validity, between the
Contractor and PERUPETRO, and which cannot be resolved by mutual agreement
between the Parties, will be resolved through international de jure arbitration
pursuant to article 68º of Law N° 26221. The Parties commit to do their best
effort to carry the arbitration proceeding to a successful end and execution.
The arbitration will be managed by the International Center for the Settlement
of Investment Related Disputes (hereafter ICSID) for all issues not foreseen by
this clause.  Arbitration will be organized and evolve pursuant to ICSID
arbitration rules in force at the Date of Signing. There will be three
(3) arbitrators, the Parties designating one each, and the third one being
appointed by the Party-designated arbitrators. In finding a solution to the
litigation, controversy, difference or complaint submitted to arbitration, the
arbitrators will enforce the domestic law of the Republic of Peru. Arbitration
may take place at the Permanent Arbitration Tribunal or at any other appropriate
institution, whether public or private, with which the Center has reached an
agreement for that purpose, or at any other venue approved by the Commission or

 

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Tribunal after consultation with the Secretary General. During the arbitration,
the Parties will continue to perform their Contract-derived obligations to the
extent possible, including those subject matter to arbitration. Notwithstanding
the above, if the issue under arbitration concerns compliance with Contract
obligations guaranteed by the warrant bond described in heading 3.10, the
respective terms will be suspended momentarily and such warrant bonds may not be
executed but shall be kept current during the arbitration proceeding. To that
end, the Contractor shall extend or replace such warrant bond as required. The
decision will be mandatory to the Parties and may not be appealed or in any
other way challenged, excepting under the provisions of the Convention for the
Settlement for Disputes Relating to Investments between States and Nationals
from Other States, hereafter the Convention.  The arbitration decision issued
under the Convention will be executed within the Peruvian territory, pursuant to
the regulations in force concerning the execution of court decisions. The
Parties waive their rights to filing diplomatic complaints.

 

21.4              This Agreement is drafted and interpreted in the Spanish
language for which reason the Parties agree this version in the only and
official version of same.

 

CLAUSE TWENTY SECOND.- TERMINATION

 

22.1              Agreement termination will be governed by its own provision,
complemented by regulations under Law N° 26221; and for whatever may not be
foreseen in that law, by Civil Code provisions. Excepting those cases foreseen
in heading 22.3, when one of the Parties fails to honor any of its obligations
pursuant to the Agreement for causes other than an Act of God or Force Majure or
other non-imputable causes, the other Party may notify the former party about
that breach and its intent to terminate the Agreement within sixty days, unless
the other non-complying party cures the above-mentioned breach or demonstrates
to the other Party proper cure is underway, within that period. If the notified
party challenges or rejects such breach, the party may refer the issue to
arbitration pursuant to clause twenty one herein within thirty (30) days after
notification was served. If so, the sixty (60) day period will be suspended
until the arbitration decision is notified to the Party, and the agreement will
be terminated, if after confirming the breach, the defending Party fails to
provide cure or to demonstrate before the other party such cure is underway,
within such period. The Agreement may be terminated before the expiration of the
Agreement’s life by express agreement between the Parties.

 

22.2              At the termination of the Agreement, all the parties’ rights
and obligations shall sees as specified in the Agreements while due
consideration will be given to the following:

 

a)                  The rights and obligations of the parties flowing from this
Agreement before such termination will be honored, including, inter alia,  the
Contractor’s rights to the extracted hydrocarbons and the guarantees set forth
in the Agreement;   and,

 

b)                  In case of breach by any of the Parties before the
termination of any of the

 

--------------------------------------------------------------------------------

 

obligations set forth in the Agreement, said breach will be cured by the
offending Party, excepting obligations which for their own nature are
extinguished when the Agreement itself is terminated. 

 

22.3              The Agreement will be resolved de jure and without further
procedure in the following cases:

 

22.3.1                       If the Contractor fails to execute the minimum work
program of any period during the exploration stage after having enjoyed the
postponements provided for in heading 3.4, if applicable, and without an
explanation provided to PERUPETRO’s satisfaction, excepting provisions under
headings 4.7 and 4.13.

 

22.3.2                       If at the end of the exploration stage or the
withholding period, whatever happens last, no announcement of commercial
discovery is made.

 

22.3.3                       In the cases specified under headings 3.10, 4.2 and
17.5.

 

22.3.4                       If the Contractor is declared insolvent, dissolved,
liquidated or bankrupt, and the Contractor fails to serve notice as described in
heading 16.1 within fifteen (15) days, identifying the third party that will
take its position in the Agreement. 

 

22.3.5                       If the corporate guarantee mentioned in heading
3.11 is not in force and the Contractor does not comply in replacing it within
fifteen (15) Business Days being served PERUPETRO’S notification requiring such
replacement, or if the entity that issued the guarantee described in heading
3.11 was declared insolvent, dissolved, liquidated or bankrupt and the
Contractor fails to consequentially report PERUPETRO within fifteen (15)
business Days after the request made by PERUPETRO and identify the third party
that will provide the corporate guarantee, provided PERUPETRO evaluates and
approves such candidate.

 

22.3.6                       By mandate of an arbitration decision declaring, in
the cases provided for under heading 22.1, that failure to comply was not cured
pursuant to provisions under that heading or by arbitration decision declaring
the termination of the Contract.

 

22.4              Pursuant to provisions under article 87 of Law N° 26221, in
case of breach by the Contractor of the provisions concerning environmental
issues, OSINERGMIN will impose the corresponding sanctions and the Ministry of
Energy and Mines may terminate the Agreement, after reporting to OSINERGMIN.

 

22.5              If the Contractor, or the entity that provides the guarantee
described in heading 3.11, requests protection against its creditors, PERUPETRO
may terminate the Agreement if it considers its rights under the Agreement are
not properly protected.

 

22.6              At the termination of the Agreement, the Contractor will turn
over to the State through PERUPETRO, as ownership, unless the latter does not
require them, with no charge or cost to it, in good state of repair, maintenance
and operation, taking account of normal wear resulting from normal wear and
tear, the properties, power facilities, campsites, means of communication,
pipelines and other production goods and facilities owned by the Contractor that
will allow continuing with the development operations. In case of joint
development of oil, non-associated natural gas and/or non-associated natural gas
condensates at the end of the term established in heading  3.1 for the oil
development stage, the Contractor will deliver as property to the State, through
PERUPETRO, unless the latter does not require them, without any charge or cost
to the latter, in good state of conservation and operation and taking into
account the normal wear and tear produced by the use of all the goods

 

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and facilities needed for developing oil that are not needed for developing
non-associated natural gas and/or  non-associated natural gas and condensates. 
The goods and facilities kept by the Contractor for developing non-associated
natural gas and/or non-associated natural gas or condensates that were also used
for developing oil, although still owned by the Contractor, will be used for
that development, for which purpose the Parties will sign an agreement. If the
Contractor has been using the goods and facilities described in the first
paragraph under this heading and they are not related exclusively to the
operations or its accessories, in other words, they have also been used for
operations in other areas under contracts in force for the exploration and
development of hydrocarbons in Peru, the Contractor will continue to own and
utilize such goods.

 

22.7              For purposes of the provisions under heading 22.6, during the
last year of life of the Agreement, the Contractor will provide PERUPETRO all
the facilities and will assist it in whatever may be necessary without
interfering with the Operations, so PERUPETRO can carry out all the acts and
enter into all agreements that would allow an ordered and uninterrupted
transition of the Operations underway at the date of termination of the
Agreement. 

 

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ANNEX “A”

 

DESCRIPTION OF BLOCK XXII

 

LOCATION

 

Block XXII is located in provinces of Sullana, Paita, Talara and Piura in Piura
Department, and it is demarcated as shown in Annex “B” pursuant to the following
description.

 

REFERENCE POINT

 

Reference Point (R.P.) is the Belco F-a station located at the Punta Arenas site
in Talara District, Province of Talara, Department of Piura.

 

DEPARTURE POINT

 

From the Reference Point (R.P.) a distance of 23,438.782 m is measured to the
East, then 11,775.863 m south until reaching Point (59) which is the Departure
Point (D.P.) of the Block’s perimeter.

 

BLOCK CONFIGURATION

 

From Point (59) or (P.P.) 8,000.000 m East are measured in a straight line with
Azimuth 90°00’00” until reaching Point (60).

 

From Point (60) 2,000.000 m are measured North in a straight line with Azimuth
00°00’00” until reaching Point (56).

 

From Point (56) 5,000.000 m are measured East in a straight line with Azimuth
90°00’00” until reaching Point (58).

 

From Point (58) 3,000.000 m are measured North in a straight line with Azimuth
00°00’00” until reaching Point (53).

 

From Point (53) 12,957.320 m are measured East in a straight line with Azimuth
90°00’00” until reaching Point (55).

 

From Point (55) 6,859.550 m are measured North in a straight line with Azimuth
00°00’00” until reaching Point (44).

 

From Point (44) 10,839.142 m are measured Northwest in a straight line with
Azimuth 304°30’25”20 until reaching Point (42).

 

From Point (42) 7,067.930 m are measured West in a straight line with Azimuth
270°00’00” until reaching Point (41).

 

From Point (41) 3,000.000 m are measured North in a straight line with Azimuth
00°00’00” until reaching Point (33).

 

From Point (33) 8,347.000 m are measured West in a straight line with Azimuth
270°00’00” until reaching Point (31).

 

From Point (31) 3,822.000 m are measured North in a straight line with Azimuth
00°00’00” until reaching Point (27).

 

From Point (27) 8,047.000 m are measured East in a straight line with Azimuth
90°00’00” until reaching Point (28).

 

From Point (28) 4,428.000 m are measured North in a straight line with Azimuth
00°00’00”

 

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until reaching Point (18).

 

From Point (18) 4,000.000 m are measured East in a straight line with Azimuth
90°00’00” until reaching Point (19).

 

From Point (19) 2,500.000 m are measured North in a straight line with Azimuth
00°00’00” until reaching Point (15).

 

From Point (15) 6,067.930 m are measured East in a straight line with Azimuth
90°00’00” until reaching Point (16).

 

From Point (16) 24,148.949 m are measured Southeast in a straight line with
Azimuth 99°45’07”26 until reaching Point (26).

 

From Point (26) 10,700.000 m are measured North in a straight line with Azimuth
00°00’00” until reaching Point (13).

 

From Point (13) 19,101.047 m are measured Northeast in a straight line with
Azimuth 53°43’48”13 until reaching Point (3).

 

From Point (3) 4,300.000 m are measured East in a straight line with Azimuth
90°00’00” until reaching Point (5).

 

From Point (5) 8,415.431 m are measured Northeast in a straight line with
Azimuth 54°58’43”19 until reaching Point (1) or International Intermediate South
Milestone.

 

From Point (1) we continue along the Peru Ecuador borderline around 63,774.478
m, through the Chorrera, Pulgueras, Ceibo Quemado, El Salto, Catana, Papaando
Pilares, Pilares Alamor Milestone, until reaching Point (30) or International
Chira Alamor Milestone.

 

From Point (30) 18,633.080 m are measured Southeast in a straight line with
Azimuth 228°22’59”40 until reaching Point (45).

 

From Point (45) 4,657.252 m are measured Southwest in a straight line with
Azimuth 194°55’53”10 until reaching Point (52).

 

From Point (52) 34,696.721 m are measured Southeast in a straight line with
Azimuth 213°53’46”20  until reaching Point (95).

 

From Point (95) 19,000.000 m are measured South in a straight line with Azimuth
180°00’00” until reaching Point (103).

 

From Point (103) 28,817.240 m are measured West in a straight line with Azimuth
270°00’00” until reaching Point (100).

 

From Point (100) 21,762.490 m are measured North in a straight line with Azimuth
360°00’00” until reaching Point (87).

 

From Point (87) 1,734.631 m are measured Southwest in a straight line with
Azimuth 266°15’41”70 until reaching Point (86).

 

From Point (86) 1,195.908 m are measured Southwest in a straight line with
Azimuth 255°30’16”30 until reaching Point (85).

 

From Point (85) 1,156.933 m are measured Southwest in a straight line with
Azimuth 249°48’54”50 until reaching Point (84).

 

From Point (84) 2,208.385 m are measured Southwest in a straight line with
Azimuth 242°55’56”30 until reaching Point (83).

 

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From Point (83) 1,379.331 m are measured Northwest in a straight line with
Azimuth 356°27’11”60 until reaching Point (82).

 

From Point (82) 1,499.920 m are measured Northeast in a straight line with
Azimuth 28°20’32”39 until reaching Point (81).

 

From Point (81) 768.224 m are measured Northeast in a straight line with Azimuth
15°02’02”01 until reaching Point (80).

 

From Point (80) 3,141.192 m are measured Northwest in a straight line with
Azimuth 340°13’51”00 until reaching Point (79).

 

From Point (79) 5,896.561 m are measured Southwest in a straight line with
Azimuth 241°00’45”57 until reaching Point (78).

 

From Point (78) 1,851.007 m are measured Northwest in a straight line with
Azimuth 340°39’14”00 until reaching Point (77).

 

From Point (77) 4,828.030 m are measured North in a straight line with Azimuth
360°00’00” until reaching Point (72).

 

From Point (72) 1,609.340 m are measured West in a straight line with Azimuth
270°00’00” until reaching Point (71).

 

From Point (71) 10,582.760 m are measured North in a straight line with Azimuth
360°00’00” until reaching Point (59) or Point of Departure (P.D.) thus closing
the Block’s perimeter.

 

Borders

 

To the North Block XXV and free areas, to the East with the Republic of Ecuador
and free areas, to the South Blocks XIII and XXIV, to the west with Blocks
XIII, III, IV and free areas.

 

PLOT DEFINITION

 

Plot 1 surrounded by corner points 1, 2, 7, 6 and 5

 

Plot 2 surrounded by corner points 2, 8 and 7

 

Plot 3 surrounded by corner points 3, 4, 11, 10 and 9

 

Plot 4 surrounded by corner points 4, 5, 6, 12 and 11

 

Plot 5 surrounded by corner points 6, 7, 8, 14 and 12

 

Plot 6 surrounded by corner points 9, 10, 22, 21 and 13

 

Plot 7 surrounded by corner points 10, 11, 23 and 22

 

Plot 8 surrounded by corner points 11, 12, 14, 24 and 23

 

Plot 9 surrounded by corner points 15, 16, 17, 29, 28, 18 and 19

 

Plot 10 surrounded by corner points 27, 28, 32 and 31

 

Plot 11 surrounded by corner points 28, 29, 34, 43, 42, 41, 33 and 32

 

Plot 12 surrounded by corner points 17, 20, 35, 34 and 29

 

Plot 13 surrounded by corner points 20, 25, 36 and 35

 

Plot 14 surrounded by corner points 21, 22, 37, 36, 25 and 26

 

Plot 15 surrounded by corner points 22, 23, 38 and 37

 

Plot 16 surrounded by corner points 23, 24, 39 and 38

 

--------------------------------------------------------------------------------

 

Plot 17 surrounded by corner points 24, 30, 40 and 39

 

Plot 18 surrounded by corner points 34, 35, 47, 46, 44 and 43

 

Plot 19 surrounded by corner points 35, 36, 48 and 47

 

Plot 20 surrounded by corner points 36, 37, 49 and 48

 

Plot 21 surrounded by corner points 37, 38, 50 and 49

 

Plot 22 surrounded by corner points 38, 39, 40, 45, 51 and 50

 

Plot 23 surrounded by corner points 53, 54, 62, 61, 57 and 58

 

Plot 24 surrounded by corner points 46, 47, 63, 62, 54 and 55

 

Plot 25 surrounded by corner points 47, 48, 64 and 63

 

Plot 26 surrounded by corner points 48, 49, 65 and 64

 

Plot 27 surrounded by corner points 49, 50, 51, 52, 66 and 65

 

Plot 28 surrounded by corner points 56, 57, 61, 68, 67, 59 and 60

 

Plot 29 surrounded by corner points 61, 62, 74, 73 and 68

 

Plot 30 surrounded by corner points 62, 63, 75 and 74

 

Plot 31 surrounded by corner points 63, 64, 69, 76 and 75

 

Plot 32 surrounded by corner points 64, 65, 66, 70 and 69

 

Plot 33 surrounded by corner points 67, 68, 73, 86, 85, 84, 83, 82, 81, 80, 79,
78, 77, 72 and 71

 

Plot 34 surrounded by corner points 73, 74, 89, 88, 87 and 86

 

Plot 35 surrounded by corner points 74, 75, 91, 90 and 89

 

Plot 36 surrounded by corner points 75, 76, 93, 92 and 91

 

Plot 37 surrounded by corner points 69, 70, 94, 93 and 76

 

Plot 38 surrounded by corner points 88, 89, 90, 97 and 96

 

Plot 39 surrounded by corner points 90, 91, 92, 98 and 97

 

Plot 40 surrounded by corner points 92, 93, 94, 95, 99 and 98

 

Plot 41 surrounded by corner points 96, 97, 101 and 100

 

Plot 42 surrounded by corner points 97, 98, 102 and 101

 

Plot 43 surrounded by corner points 98, 99, 103 and 102

 

--------------------------------------------------------------------------------

 

LIST OF BLOCK CORNER COORDINATES

 

 

 

GEOGRAPHIC COORDINATES

 

U.T.M. FLAT COORDINATE

Point

 

South Latitude

 

West Latitude

 

Meters North

 

Meters East

Belco F-a Station (PR)

 

04°35’31”419

 

81°17’23”863

 

9’492,416.313

 

467,835.968

59 (DP)

 

04°41’55”140

 

81°04’43”210

 

9’480,640.450

 

491,274.750

60

 

04°41’55”160

 

81°00’23”540

 

9’480,640.450

 

499,274.750

56

 

04°40’50”020

 

81°00’23”540

 

9’482,640.450

 

499,274.750

58

 

04°40’50”020

 

80°57’41”240

 

9’482,640.450

 

504,274.750

53

 

04°39’12”310

 

80°57’41”250

 

9’485,640.450

 

504,274.750

55

 

04°39’12”250

 

80°50’40”690

 

9’485,640.450

 

517,232.070

44

 

04°35’28”845

 

80°50’40”743

 

9’492,500.000

 

517,232.070

42

 

04°32’08”911

 

80°55’30”649

 

9’498,640.450

 

508,300.000

41

 

04°32’08”930

 

80°59’20”010

 

9’498,640.450

 

501,232.070

33

 

04°30’31”230

 

80°59’20”020

 

9’501,640.450

 

501,232.070

31

 

04°30’31”211

 

80°03’50”885

 

9’501,640.450

 

492,885.070

27

 

04°28’26”750

 

80°03’50”870

 

9’505,462.450

 

492,885.070

28

 

04°28’26”750

 

80°59’29”750

 

9’505,462.450

 

500,932.070

18

 

04°26’02”540

 

80°59’29”750

 

9’509,890.450

 

500,932.070

19

 

04°26’02”540

 

80°57’19”960

 

9’509,890.450

 

504,932.070

15

 

04°24’41”110

 

80°57’19”972

 

9’512,390.450

 

504,932.070

16

 

04°24’41”091

 

80°54’03”089

 

9’512,390.450

 

511,000.000

26

 

04°26’54”092

 

80°41’10”811

 

9’508,300.000

 

534,800.000

13

 

04°21’05”619

 

80°41’10”957

 

9’519,000.000

 

534,800.000

3

 

04°14’57”370

 

80°32’51”550

 

9’530,300.000

 

550,200.000

5

 

04°14’57”280

 

80°30’32”060

 

9’530,300.000

 

554,500.000

1 (Milestone Intermediate South)

 

04°12’19”840

 

80°26’48”620

 

9’535,129.460

 

561,391.720

30 (Chira Alamor Milestone)

 

04°28’51”470

 

80°23’09”250

 

9’504,675.080

 

568,130.150

45

 

04°35’34”817

 

80°30’40”985

 

9’492,300.000

 

554,200.000

52

 

04°38’01”394

 

80°31’19”831

 

9’487,800.000

 

553,000.000

95

 

04°53’39”690

 

80°41’47”430

 

9’459,000.000

 

533,650.000

103

 

05°03’58”460

 

80°41’47”150

 

9’440,000.000

 

533,650.000

100

 

05°03’58”702

 

80°57’23”046

 

9’440,000.000

 

504,832.760

87

 

04°52’09”960

 

80°57’23”090

 

9’461,762.490

 

504,832.760

86

 

04°52’09”960

 

80°58’19”290

 

9’461,649.390

 

503,101.820

85

 

04°52’23”400

 

80°58’56”880

 

9’461,350.050

 

501,943.980

84

 

04°52’36”400

 

80°59’32”140

 

9’460,950.850

 

500,858.100

83

 

04°53’09”130

 

81°00’35”980

 

9’459,945.940

 

498,891.600

82

 

04°52’24”290

 

81°00’38”750

 

9’461,322.630

 

498,806.270

81

 

04°51’41”300

 

81°00’15”630

 

9’462,642.750

 

499,518.340

80

 

04°51’17”140

 

81°00’09”160

 

9’463,384.680

 

499,717.610

79

 

04°49’40”860

 

81°00’43”660

 

9’466,340.740

 

498,655.160

78

 

04°51’13”920

 

81°03’31”120

 

9’463,483.170

 

493,497.280

77

 

04°50’17”030

 

81°03’51”020

 

9’465,229.660

 

492,884.090

72

 

04°47’39”800

 

81°03’51”010

 

9’470,057.690

 

492,884.090

71

 

04°47’39”800

 

81°04’43”250

 

9’470,057.690

 

491,274.750

 

--------------------------------------------------------------------------------

 

LIST OF PLOT CORNER COORDINATES

 

POINT

 

U.T.M. FLAT COORDINATES

1

 

9’535,129.460 m N

 

561,391.720 m E

2

 

9’534,096.570 m N

 

565,605.160 m E

3

 

9’530,300.000 m N

 

550,200.000 m E

4

 

9’530,300.000 m N

 

551,274.750 m E

5

 

9’530,300.000 m N

 

554,500.000 m E

6

 

9’530,300.000 m N

 

561,672.902 m E

7

 

9’530,300.000 m N

 

565,605.160 m E

8

 

9’530,300.000 m N

 

571,872.292 m E

9

 

9’523,750.952 m N

 

541,274.750 m E

10

 

9’520,000.000 m N

 

541,274.750 m E

11

 

9’520,000.000 m N

 

551,274.750 m E

12

 

9’520,000.000 m N

 

561,672.902 m E

13

 

9’519,000.000 m N

 

534,800.000 m E

14

 

9’517,610.910 m N

 

561,672.902 m E

15

 

9’512,390.450 m N

 

504,932.070 m E

16

 

9’512,390.450 m N

 

511,000.000 m E

17

 

9’512,126.458 m N

 

512,536.016 m E

18

 

9’509,890.450 m N

 

500,932.070 m E

19

 

9’509,890.450 m N

 

504,932.070 m E

20

 

9’510,624.552 m N

 

521,274.750 m E

21

 

9’510,000.000 m N

 

534,800.000 m E

22

 

9’510,000.000 m N

 

541,274.750 m E

23

 

9’510,000.000 m N

 

551,274.750 m E

24

 

9’510,000.000 m N

 

561,460.467 m E

25

 

9’508,905.876 m N

 

531,274.750 m E

26

 

9’508,300.000 m N

 

534,800.000 m E

27

 

9’505,462.450 m N

 

492,885.070 m E

28

 

9’505,462.450 m N

 

500,932.070 m E

29

 

9’505,462.450 m N

 

512,536.016 m E

30

 

9’504,675.080 m N

 

568,130.150 m E

31

 

9’501,640.450 m N

 

492,885.070 m E

32

 

9’501,640.450 m N

 

500,932.070 m E

33

 

9’501,640.450 m N

 

501,232.070 m E

34

 

9’500,000.000 m N

 

512,536.016 m E

35

 

9’500,000.000 m N

 

521,274.750 m E

36

 

9’500,000.000 m N

 

531,274.750 m E

37

 

9’500,000.000 m N

 

541,274.750 m E

38

 

9’500,000.000 m N

 

551,274.750 m E

39

 

9’500,000.000 m N

 

561,460.467 m E

40

 

9’500,000.000 m N

 

562,867.592 m E

41

 

9’498,640.450 m N

 

501,232.070 m E

42

 

9’498,640.450 m N

 

508,300.000 m E

43

 

9’495,728.354 m N

 

512,536.016 m E

44

 

9’492,500.000 m N

 

517,232.070 m E

45

 

9’492,300.000 m N

 

554,200.000 m E

46

 

9’490,000.000 m N

 

517,232.070 m E

47

 

9’490,000.000 m N

 

521,274.750 m E

48

 

9’490,000.000 m N

 

531,274.750 m E

49

 

9’490,000.000 m N

 

541,274.750 m E

50

 

9’490,000.000 m N

 

551,274.750 m E

51

 

9’490,000.000 m N

 

553,586.666 m E

52

 

9’487,800.000 m N

 

553,000.000 m E

53

 

9’485,640.450 m N

 

504,274.750 m E

 

--------------------------------------------------------------------------------

 

54

 

9’485,640.450 m N

 

511,274.750 m E

55

 

9’485,640.450 m N

 

517,232.070 m E

56

 

9’482,640.450 m N

 

499,274.750 m E

57

 

9’482,640.450 m N

 

503,101.820 m E

58

 

9’482,640.450 m N

 

504,274.750 m E

59

 

9’480,640.450 m N

 

491,274.750 m E

60

 

9’480,640.450 m N

 

499,274.750 m E

61

 

9’480,000.000 m N

 

503,101.820 m E

62

 

9’480,000.000 m N

 

511,274.750 m E

63

 

9’480,000.000 m N

 

521,274.750 m E

64

 

9’480,000.000 m N

 

531,274.750 m E

65

 

9’480,000.000 m N

 

541,274.750 m E

66

 

9’480,000.000 m N

 

547,759.375 m E

67

 

9’472,596.678 m N

 

491,274.750 m E

68

 

9’472,596.678 m N

 

503,101.820 m E

69

 

9’472,071.665 m N

 

531,274.750 m E

70

 

9’472,596.678 m N

 

542,432.525 m E

71

 

9’470,057.690 m N

 

491,274.750 m E

72

 

9’470,057.690 m N

 

492,884.090 m E

73

 

9’470,000.000 m N

 

503,101.820 m E

74

 

9’470,000.000 m N

 

511,274.750 m E

75

 

9’470,000.000 m N

 

521,274.750 m E

76

 

9’470,000.000 m N

 

531,274.750 m E

77

 

9’465,229.660 m N

 

492,884.090 m E

78

 

9’463,483.170 m N

 

493,497.280 m E

79

 

9’466,340.740 m N

 

498,655.160 m E

80

 

9’463,384.680 m N

 

499,717.610 m E

81

 

9’462,642.750 m N

 

499,518.340 m E

82

 

9’461,322.630 m N

 

498,806.270 m E

83

 

9’459,945.940 m N

 

498,891.600 m E

84

 

9’460,950.850 m N

 

500,858.100 m E

85

 

9’461,350.050 m N

 

501,943.980 m E

86

 

9’461,649.390 m N

 

503,101.820 m E

87

 

9’461,762.490 m N

 

504,832.760 m E

88

 

9’460,000.000 m N

 

504,832.760 m E

89

 

9’460,000.000 m N

 

511,274.750 m E

90

 

9’460,000.000 m N

 

514,832.760 m E

91

 

9’460,000.000 m N

 

521,274.750 m E

92

 

9’460,000.000 m N

 

524,832.760 m E

93

 

9’460,000.000 m N

 

531,274.750 m E

94

 

9’460,000.000 m N

 

534,321.875 m E

95

 

9’459,000.000 m N

 

533,650.000 m E

96

 

9’450,000.000 m N

 

504,832.760 m E

97

 

9’450,000.000 m N

 

514,832.760 m E

98

 

9’450,000.000 m N

 

524,832.760 m E

99

 

9’450,000.000 m N

 

533,650.000 m E

100

 

9’440,000.000 m N

 

504,832.760 m E

101

 

9’440,000.000 m N

 

514,832.760 m E

102

 

9’440,000.000 m N

 

524,832.760 m E

103

 

9’440,000.000 m N

 

533,650.000 m E

 

--------------------------------------------------------------------------------

 

SURFACE AREAS (Areas by Plots)

 

PLOT

 

AREA

1

 

3,849.901 ha

2

 

4,088.664 ha

3

 

7,377.406 ha

4

 

10,710.097 ha

5

 

6,353.606 ha

6

 

7,365.337 ha

7

 

10,000.000 ha

8

 

10,074.517 ha

9

 

7,018.939 ha

10

 

3,075.563 ha

11

 

8,442.996 ha

12

 

9,940.752 ha

13

 

9,765.215 ha

14

 

9,507.501 ha

15

 

10,000.000 ha

16

 

10,185.718 ha

17

 

3,477.534 ha

18

 

6,806.694 ha

19

 

10,000.000 ha

20

 

10,000.000 ha

21

 

10,000.000 ha

22

 

6,191.740 ha

23

 

4,258.021 ha

24

 

7,402.877 ha

25

 

10,000.000 ha

26

 

10,000.000 ha

27

 

9,745.939 ha

28

 

10,278.839 ha

29

 

8,172.930 ha

30

 

10,000.000 ha

31

 

10,000.000 ha

32

 

10,957.909 ha

33

 

9,875.565 ha

34

 

7,877.642 ha

35

 

10,000.000 ha

36

 

10,000.000 ha

37

 

8,573.841 ha

38

 

10,000.000 ha

39

 

10,000.000 ha

40

 

8,850.834 ha

41

 

10,000.000 ha

42

 

10,000.000 ha

43

 

8,817.240 ha

Total

 

369,043.817 ha

 

15 regular plots10,000.000 ha each

 

150,000.000 ha

28 irregular Plots, various surface areas

 

219,043.817 ha

TOTAL 43 PLOTS

 

369,043.817 ha

 

--------------------------------------------------------------------------------

 

The coordinates, distances, areas and azimuths described in this annex are based
in the Spheroid International Universal Transversal Mercator (U.T.M.) Projection
System, Zone 17 (Central Meridian 81º00’00”).

 

The Geodesic Datum is provisional for South America, La Canoa, 1956, located in
Venezuela (PSAD 56).

 

In case of discrepancy between the U.T.M. and geographic coordinates or between
Distances, Areas and Azimuths, the U.T.M. coordinates will prevail.

 

--------------------------------------------------------------------------------

 

ANNEX “B”

 

MAP OF THE AGREEMENT AREA BLOCK XXII

 

THIS IS THE MAP OF BLOCK XXII SHOWING THE AREA UNDER THIS LICENSE AGREEMENT FOR
THE EXPLORATION AND DEVELOPMENT OF HYDROCARBONS ENTERED INTO BY AND BETWEEN
PERUPETRO S.A. AND BPZ EXPLORACION & PRODUCCION S.R.L WHICH, DULY SIGNED BY THE
PARTIES, IS ATTACHED TO THE PUBLIC DEED HEREWITH.

 

ANNEX C-1

 

WARRANT BOND FOR THE FIRST PERIOD OF THE MINIMUM WORK PROGRAM

 

WARRANT BOND Nº

Lima,

Gentlemen,

PERUPETRO S.A.

 

Gentlemen:

 

Hereby, we (name of financial system entity) constitute ourselves as joint and
several guarantors of BPZ EXPLORACION & PRODUCCION S.R.L.(hereafter the
Contractor) before PERUPETRO S.A. (hereafter PERUPETRO) for the amount of
$600,000.00 to guarantee the performance of the Contractor’s obligations under
the minimum work program for the first period of the exploration stage, as
described in Clause Four  of the License Agreement for the Exploration and
Development of Hydrocarbons in Block XXII, signed with PERUPETRO (hereafter the
Agreement).

 

The obligation assumed by (name of financial system entity) under this warrant
bond is limited to pay PERUPETRO the amount of six hundred thousand dollars (US$
600,000.00) as per a request of payment.

 

1. This guarantee is joint and several, without benefit of excussion,
irrevocable, unconditional and to be executed automatically and paid on demand
within its tenure, at  presentation of a notarized letter addressed by PERUPETRO
to  (financial system entity) requesting the payment of six hundred thousand and
00/100 dollars (US$ 600,000.00) and declaring the Contractor has failed to
comply fully or partially with the obligation mentioned above, and enclosing
with that letter, as only support and justification, a certified copy of the
notarized letter addressed by PERUPETRO to the Contractor demanding its
compliance with the abovementioned obligation and notifying it of PERUPETRO’s
intention to execute the warrant bond; said notarized letter sent by PERUPETRO
to the Contractor will have been delivered to the latter at least twenty (20)
calendar days before the date when PERUPETRO files the corresponding payment
claim to (financial system entity).

 

2. This warrant bond will expire at the latest on XXX unless before that
date(financial system entity) receives a letter from PERUPETRO releasing
(financial system entity) and

 

--------------------------------------------------------------------------------

 

the Contractor from all their responsibilities attached to this warrant bond, in
which case this warrant bond will be cancelled on the day when said PERUPETRO
letter is received.

 

3. All delays on our side to honor this warrant bond on your behalf will accrue
interest equivalent to the foreign currency active rate (Tasa Activa en Moneda
Extranjera – TAMEX, or its successor, paid by financial system institutions and
published by the Superintendence of Banking and Insurance applicable during the
period of delay. The interest will be calculated starting on the date when the
notarized letter sent by PERUPETRO to (financial system entity) was received.
After the expiration or cancellation date, no complaint will be admitted
concerning this warrant bond and (financial system entity) and the Contractor
will be released from all responsibility or obligation concerning this warrant
bond.

 

 

Sincerely,

 

 

(Financial system entity)

 

ANNEX C-2

 

WARRANT BOND FOR THE SECOND PERIOD OF THE MINIMUM WORK PROGRAM

 

WARRANT BOND Nº

Lima,

Messrs.

PERUPETRO S.A.

 

Gentlemen,

 

Hereby, we (entity of financial system) constitute ourselves as joint and
several guarantors of BPZ EXPLORACION & PRODUCCION S.R.L.(hereafter the
Contractor) before PERUPETRO S.A. (hereafter PERUPETRO) for the amount of
$650,000.00 to guarantee the performance of the Contractor’s obligations under
the minimum work program for the third period of the exploration phase, as
described in Clause Four  of the License Agreement for the Exploration and
Development of Hydrocarbons in Block XXII, signed with PERUPETRO (hereafter the
Agreement).

 

The obligation assumed by (name of financial system entity) under this warrant
bond is limited to pay PERUPETRO the amount of six hundred fifty thousand
dollars (US$ 650,000.00) when required.

 

1. This guarantee is joint and several, without benefit of excussion,
irrevocable, unconditional and to be executed automatically and paid on demand
within its tenure, at presentation of a notarized letter addressed by PERUPETRO
to (financial system entity) requesting the payment of six hundred fifty
thousand and 00/100 dollars (US$ 650,000.00)

 

--------------------------------------------------------------------------------

 

declaring the Contractor has failed to comply in full or partially with the
obligation mentioned above, and inclosing with that letter, as only support and
justification, a certified copy of the notarized letter addressed by PERUPETRO
to the Contractor demanding its compliance with the abovementioned obligation
and notifying it of its intention to execute the warrant bond; said notarized
letter sent by PERUPETRO to the Contractor will have been delivered to the
latter at least twenty (20) calendar days before the date when PERUPETRO files
the corresponding payment claim to (financial system entity).

 

2. This warrant bond will expire at the latest on XXX unless before that date
(financial system entity) receives a letter from PERUPETRO releasing (financial
system entity) and the Contractor from all their responsibilities attached to
this warrant bond, in which case this warrant bond will be cancelled on the day
when said PERUPETRO letter is received.

 

3. All delays on our side to honor this warrant bond on your behalf will accrue
interest equivalent to the foreign currency active rate (Tasa Activa en Moneda
Extranjera – TAMEX), or its successor, paid by financial system institutions and
published by the Superintendence of Banking and Insurance applicable during the
period of delay. The interest will be calculated starting on the date when the
notarized letter sent by PERUPETRO to (financial system entity) was received.
After the expiration or cancellation date, no complaint will be admitted
concerning this warrant bond and (financial system entity) and the Contractor
will be released from all responsibility or obligation concerning this warrant
bond.

 

 

Sincerely,

 

 

(Financial system entity)

 

ANNEX C-3

 

WARRANT BOND FOR THE THIRD PERIOD OF THE MINIMUM WORK PROGRAM

 

WARRANT BOND Nº

Lima,

Messrs.

PERUPETRO S.A.

 

Gentlemen,

 

Hereby, we (entity of financial system) constitute ourselves as joint and
several guarantors of BPZ EXPLORACION & PRODUCCION S.R.L.(hereafter the
Contractor) before PERUPETRO S.A. (hereafter PERUPETRO) for the amount of
$650,000.00 to guarantee the performance of the Contractor’s obligations under
the minimum work program for the first period of the exploration phase, as
described in Clause Four  of the License Agreement

 

--------------------------------------------------------------------------------

 

for the Exploration and Development of Hydrocarbons in Block XXII, signed with
PERUPETRO (hereafter the Agreement).

 

The obligation assumed by (name of financial system entity) under this warrant
bond is limited to pay PERUPETRO the amount of six hundred fifty thousand
dollars (US$ 650,000.00) when required.

 

1. This guarantee is joint and several, without benefit of excussion,
irrevocable, unconditional and to be executed automatically and paid in demand
within its tenure, by submission of a notarized letter addressed by PERUPETRO to
(financial system entity) requesting the payment of six hundred fifty thousand
and 00/100 dollars (US$ 650,000.00) declaring the Contractor has failed to
comply in full or partially with the obligation mentioned above, and enclosing
with that letter, as only support and justification, a certified copy of the
notarized letter addressed by PERUPETRO to the Contractor demanding its
compliance with the abovementioned obligation and notifying it of its intention
to execute the warrant bond; said notarized letter sent by PERUPETRO to the
Contractor will have been delivered to the latter at least twenty (20) calendar
days before the date when PERUPETRO files the corresponding payment claim to
(financial system entity).

 

2. This warrant bond will expire at the latest on XXX unless before that date
(financial system entity) receives a letter from PERUPETRO releasing (financial
system entity) and the Contractor from all their responsibilities attached to
this warrant bond, in which case this warrant bond will be cancelled on the day
of reception when said PERUPETRO letter is received.

 

3. All delays on our side to honor this warrant bond on your behalf will accrue
interest equivalent to the foreign currency active rate (Tasa Activa en Moneda
Extranjera – TAMEX), or its successor, paid by financial system institutions and
published by the Superintendence of Banking and Insurance applicable during the
period of delay or its successor. The interest will be calculated starting on
the date when the notarized letter sent by PERUPETRO to (financial system
entity) was received. After the expiration or cancellation date, no complaint
will be admitted concerning this warrant bond and (financial system entity) and
the contractor will be released from all responsibility or obligation concerning
this warrant bond.

 

 

Sincerely,

 

 

(Financial system entity)

 

--------------------------------------------------------------------------------

 

ANNEX C-4

 

WARRANT BOND FOR THE FOURTH PERIOD OF THE MINIMUM WORK PROGRAM

 

WARRANT BOND Nº

Lima,

Messrs.

PERUPETRO S.A.

 

Gentlemen,

 

Hereby, we (entity of financial system) constitute ourselves as joint and
several guarantors of BPZ EXPLORACION & PRODUCCION S.R.L.(hereafter the
Contractor) before PERUPETRO S.A. (hereafter PERUPETRO) for the amount of
$650,000.00 to guarantee the performance of the Contractor’s obligations under
the minimum work program for the first period of the exploration phase, as
described in Clause Four  of the License Agreement for the Exploration and
Development of Hydrocarbons in Block XXII, signed with PERUPETRO (hereafter the
Agreement).

 

The obligation assumed by (Name of Financial system entity) under this warrant
bond is limited to pay PERUPETRO the amount of six hundred fifty thousand
dollars (US$ 650,000.00) when required.

 

1. This guarantee is joint and several, without benefit of excussion,
irrevocable, unconditional and to be executed automatically and paid in demand
within its tenure, by submission of a notarized letter addressed by PERUPETRO to
(financial system entity) requesting the payment of six hundred fifty thousand
and 00/100 dollars (US$ 650,000.00) declaring the Contractor has failed to
comply in full or partially with the obligation mentioned above, and enclosing
with that letter, as only support and justification, a certified copy of the
notarized letter addressed by PERUPETRO to the Contractor demanding its
compliance with the abovementioned obligation and notifying it of its intention
to execute the warrant bond; said notarized letter sent by PERUPETRO to the
Contractor will have been delivered to the latter at least twenty (20) calendar
days before the date when PERUPETRO files the corresponding payment claim to
(financial system entity).

 

2. This warrant bond will expire at the latest on XXX unless before that date
(financial system entity) receives a letter from PERUPETRO releasing (financial
system entity) and the Contractor from all their responsibilities attached to
this warrant bond, in which case this warrant bond will be cancelled on the day
when said PERUPETRO letter is received.

 

3. All delays on our side to honor this warrant bond on your behalf will accrue
interest equivalent to the foreign currency active rate (Tasa Activa en Moneda
Extranjera – TAMEX), or its successor, paid by financial system institutions and
published by the Superintendence of Banking and Insurance applicable during the
period of delay. The interest will be calculated starting on the date when the
notarized letter sent by PERUPETRO to (financial system entity) was received.
After the expiration or cancellation date, no complaint will be admitted
concerning this warrant bond and (financial system entity) and the Contractor
will be released from all responsibility or obligation concerning this warrant
bond.

 

 

Sincerely,

 

 

(Financial system entity)

 

--------------------------------------------------------------------------------

 

ANNEX C-5

 

WARRANT BOND FOR THE FIFTH PERIOD OF THE MINIMUM WORK PROGRAM

 

WARRANT BOND Nº

Lima,

Messrs.

PERUPETRO S.A.

 

Gentlemen,

 

Hereby, we (entity of financial system) constitute ourselves as joint and
several guarantors of BPZ EXPLORACION & PRODUCCION S.R.L.(hereafter the
Contractor) before PERUPETRO S.A. (hereafter PERUPETRO) for the amount of
$650,000.00 to guarantee the performance of the Contractor’s obligations under
the minimum work program for the first period of the exploration phase, as
described in Clause Four  of the License Agreement for the Exploration and
Development of Hydrocarbons in Block XXII, signed with PERUPETRO (hereafter the
Agreement).

 

1. The obligation assumed by (Name of Financial system entity) under this
warrant bond is limited to pay PERUPETRO the amount  of six hundred fifty
thousand dollars (US$ 650,000.00) when required.

 

This guarantee is joint and several, without benefit of excussion, irrevocable,
unconditional and to be executed automatically and paid in demand within its
life, by submission of a notarized letter addressed by PERUPETRO to (financial
system entity) requesting the payment of six hundred fifty thousand and 00/100
dollars (US$ 650,000.00) declaring the Contractor has failed to comply in full
or partially with the obligation mentioned above, and enclosing with that
letter, as only support and justification, a certified copy of the notarized
letter addressed by PERUPETRO to the Contractor demanding its compliance with
the abovementioned obligation and notifying it of its intention to cash the
warrant bond; said notarized letter sent by PERUPETRO to the Contractor will
have been delivered to the latter at least twenty (20) calendar days before the
date when PERUPETRO files the corresponding payment claim to (financial system
entity).

 

2. This warrant bond will expire at the latest on XXX unless before that date
(financial system entity) receives a letter from PERUPETRO releasing (financial
system entity) and the Contractor from all their responsibilities attached to
this warrant bond, in which case this warrant bond will be cancelled on the day
when said PERUPETRO letter is received.

 

3. All delays on our side to honor this warrant bond on your behalf will accrue
interest equivalent to the foreign currency active rate (Tasa Activa en Moneda
Extranjera – TAMEX),

 

--------------------------------------------------------------------------------

 

or its successor, paid by financial system institutions and published by the
Superintendence of Banking and Insurance applicable during the period of delay.
The interest will be calculated starting on the date when the notarized letter
sent by PERUPETRO to (financial system entity) was received. After the
expiration or cancellation date, no complaint will be admitted concerning this
warrant bond and (financial system entity) and the Contractor will be released
from all responsibility or obligation concerning this warrant bond.

 

 

Sincerely,

 

 

(financial system entity)

 

ANNEX D

 

CORPORATE GUARANTEE

 

Messrs.

PERUPETRO S.A.

Av. Luis Aldana 320

Lima 41

PERU

 

By these presents, BPZ ENERGY INC., pursuant to Section 3.11 of the License
Agreement for the Exploration and Development of Hydrocarbons in Block XXII to
be signed by PERUPETRO S.A. (“PERUPETRO”) and BPZ EXPLORACION & PRODUCCION
S.R.L., provides a joint and several guarantee before PERUPETRO on behalf of BPZ
EXPLORACION & PRODUCCION S.R.L. that the latter will honor all its obligations
pursuant to the minimum work program described in heading 4.6 of the Agreement,
as well as the execution by BPZ EXPLORACION Y PRODUCCION S.R.L. of each of the
annual development programs, as adjusted or amended, that may be submitted by
BPZ EXPLORACIÓN Y PRODUCCIÓN S.R.L. with PERUPETRO pursuant to heading 5.3 under
the Agreement.

 

This guarantee will survive while BPZ EXPLORACION Y PRODUCCION S.R.L.’s
obligations under the Agreement while BPZ EXPLORACION Y PRODUCCION S.R.L. may be
required. For purposes of this guarantee, BPZ ENERGY INC. submits to the laws of
the Republic of Peru, expressly waives any diplomatic claim and submits to the
arbitration procedure for the solution of controversies set forth in clause 21
of the Agreement.

 

Yours,

Corporate Guarantor

Legally Authorized Representative.

 

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ANNEX E

 

ACCOUNTING PROCEDURE

 

1.                                      GENERAL PROVISIONS

 

OBJECTIVE

 

The objective of this annex is to establish the accounting regulations and
procedures that will allow determining the revenues, investments, expenses and
operating costs of the Contractor for purposes of calculating Factor Rt-1
mentioned in Clause 8 under the Agreement.

 

DEFINITIONS

 

The words used in this annex have been defined in Clause One to the Agreement
and will have the meaning given to them in that clause. The accounting terms
included in this annex will have the meaning given to them in the accounting
regulations and practices accepted in Peru and in the international petroleum
industry.

 

ACCOUNTING PRINCIPLES

 

a) The Contractor will carry its books pursuant to the legal regulations in
force, the accounting principles and practices established and accepted in Peru
and in the international petroleum industry, and pursuant to provisions in this
accounting procedure.

b) The Manual of Accounting Procedures mentioned in heading 18.1 of the
Agreement will take into account the provisions detailed in this annex.

 

2.              ACCOUNTING REGISTRIES, INSPECTION AND ADJUSTMENTS

 

ACCOUNT SYSTEM

For purposes of determining factor Rt-1, the Contractor will carry a special
accounting system to register, in dollars, the revenues earned and the expenses
made, as related to the Agreement’s operations. This system will comprise two
main accounts: the factor Rt-1 revenues account and the factor Rt-1 expenses
account.

 

EXCHANGE RATE

The accounts carried out in domestic currency at the selling exchange rate in
force on the day when the disbursement was made or the revenue was earned. The
transactions made in dollars and the evaluation of output will be recorded
pursuant to provisions under 3.3 of this annex.

 

SUPPORTING DOCUMENTATION

The contractor will keep in its file the original supporting documents for the
charges made against the account for factor Rt-1

 

--------------------------------------------------------------------------------

 

FACTOR Rt-1 ACCOUNT STATEMENT

 

During the exploration stage, the Contractor will send, within thirty days after
the end of each period, a detailed monthly statement of the revenues and
expenses accounts for factor Rt-1, corresponding to that period.
if the contractor chose to use the method described under heading 8.3.2 to
calculate the royalty, it will submit to PERUPETRO, within thirty (30) days
after the date of statement of commercial discovery, a detailed monthly
statement of the factor Rt-1 revenues and expenses accounts for the period
running between the last statement submitted until the previous year’s month of
July or December, as appropriate.
Subsequently, the Contractor will send PERUPETRO, within fifteen (15) days after
the end of the month of January and July of every calendar year, a detailed
monthly statement of the factor Rt-1 revenues and expenses accounts for the
prior half-year.

a) Factor Rt-1 Revenue Account Statement.
The Monthly Revenue Account Statement includes evaluation of the controlled
production for the reporting semester. Additionally, it will include a detailed
and classified record of all transactions for which the Contractor has earned
revenues, including the date when the revenue was actually earned as well as a
summary description of the transaction, number of the accounting voucher, amount
in dollars or in domestic currency and in dollars, if the revenue was earned in
domestic currency, and the corresponding exchange rate.

b) Factor Rt-1 Expenses Account Statement
The monthly expenses account statement will detail and classify all the
transactions for which the Contractor has made disbursements, including the
dates when such disbursement was actually made, as well as a summary description
of the transaction, number of the accounting voucher, amount in dollars or in
domestic currency and in dollars if the disbursement was made in domestic
currency, and the corresponding exchange rate.

 

ACCOUNTING INSPECTION AND ADJUSTMENTS

a) The accounting ledgers and the original supporting documents for the
transactions described in each account statement will be made available, during
business hours, to the authorized PERUPETRO representatives for their
inspection, when they so require.
The inspection of the accounting books and the supporting documentation will be
performed pursuant to generally accepted auditing principles, including sampling
principles, as required.

b) The factor Rt-1  on account statements will be considered as accepted if
PERUPETRO does not file a non objection in writing within twenty-four (24)

 

--------------------------------------------------------------------------------

 

months starting on the date when they were filed with PERUPETRO.
The Contractor will provide a documented response to PERUPETRO’s remarks within
three (3) months after receiving PERUPETRO’s remarks. PERUPETRO’s remarks will
be deemed as accepted if the Contractor fails to meet the abovementioned
deadline.

 

c) All discrepancies derived from an accounting inspection must be resolved by
the parties within a maximum period of three (3) months starting on the date
when PERUPETRO received the Contractor’s response. At the expiration of such
deadline, the discrepancy will be submitted to the Oversight Committee to
proceed as set forth in heading 7.3 of the agreement. If the discrepancy
persists, the parties may agree to have it reviewed by an independent auditing
firm acceptable to PERUPETRO, or to proceed pursuant to provisions under heading
21.3 of the agreement. The arbitration decision or the independent auditor’s
position will be considered as final.     

d) If as a result of the accounting inspection it were established that in a
given period a different factor Rt-1 should have been used, the corresponding
adjustments will be introduced. All adjustments will accrue interest pursuant to
provisions under heading 8.5 of the agreement.

 

3.     FACTOR Rt-1 REVENUES AND EXPENSES ACCOUNT

 

REVENUES

 

Revenues will be recognized and recorded in the factor Rt-1 revenues account, as
follows:

 

a)     The valuation of the hydrocarbons controlled production pursuant to
clause 8 of the agreement.

 

b)    The sale of assets purchased by the contractor for agreement operations,
the cost of which was registered in the factor Rt-1 expenses account.

 

c)     Services rendered to third parties in which the participating personnel’s
salaries and benefits are recorded in factor Rt-1 expenses account and/or for
which goods are used and the cost of which was recorded in the factor Rt-1
expenses account.

 

d)    The rental of goods owned by the contractor, the purchasing cost of which
was recorded in the factor Rt-1 expenses account, or the sub-letting of goods
the rent of which is charged to the factor Rt-1 expenses account.

 

e)     Indemnities from insurance hired in connection with the agreement’s
activities and/or claims for goods, including insurance indemnities for business
interruption. The revenues earned from hedging contracts are not included.

 

f)     Other revenues representing credits against charges made in the factor
Rt-1

 

--------------------------------------------------------------------------------

 

expenses account.

 

EXPENSES

 

Starting on the date of signing, all investments, expenses and operating costs
will be recognized which are properly supported by the corresponding payment
voucher. However, such recognition will be subject to the following
restrictions:     

a)     Workers.

 

Wages and benefits granted to the contractor’s workers who are deployed at the
operations on a permanent or temporary basis. For this purpose, the contractor
shall make available to PERUPETRO S.A., at the latter’s request, the company’s
payroll and hiring policy.

 

Generally, all salaries and benefits of the operations and administrative
personnel hired by the contractor will be recorded during the execution of the
operations and classified by type of work performed.

 

If the contractor undertakes activities other than those comprised in the
agreement, the cost of temporary or part time personnel deployed at the
operations will be charged against the expense account pursuant to provisions
under paragraph H of this section 3.2.

 

b)    Affiliate’s Services

 

Services from affiliates will be charged at competitive rates with third
parties’.

 

c)     Materials and Equipment

 

Materials and equipment bought by the contractor will be recorded in the factor
Rt-1 expenses account pursuant to the provisions below:

 

·      Materials and equipment (Condition A):

 

Condition A new materials and equipment are those that may be used without any
refurbishing and will be registered at the price appearing in the commercial
invoice plus generally accepted accounting costs, including additional
importation costs, if applicable.

 

·      Used materials and equipment (Condition B):

 

Condition B used materials and equipment are those which, although not new, may
be used without any refurbishing and will be posted at 75% of the price quoted
for new materials and equipment on the date of purchase, or at the purchasing
price appearing in the corresponding commercial invoice, whichever is lower.

 

·      Materials and Equipment (Condition C):

 

Condition C materials and equipment are those which may be used for their
original function after  proper refurbishing and will be recorded at 50% and 50%
of the price quoted for a similar new material

 

--------------------------------------------------------------------------------

 

and equipment, or the purchasing price appearing on the commercial invoice,
whichever is lower.

 

d)    Freight and Transportation Costs:

 

Travel expenses for the contractor’s personnel and their relatives, as well as
transportation cost for personal items and household appliances will be
recognized pursuant to the company’s internal policy.

 

When transporting equipment, materials and supplies for the operations, the
contractor will avoid paying “false freight”. If so, recognition of such
disbursements will be subject to PERUPETRO’s explicit approval in writing.

 

e)     Insurance:               

Premiums and net insurance costs placed totally or partially with the
contractor’s affiliates will be recognized only to the extent they are charged
competitively compared with insurance companies not related to the contractor.

 

The payments made for hedging contracts shall not be included.

 

f)     Taxes:      

Only taxes paid relating to activities performed in connection with the
agreement will be recognized.

 

g)    Research Expenses:              

Research expenses for developing new equipment, materials, procedures and
techniques to be used in the search, development and production of hydrocarbons,
as well as other improvements, will be recognized after receiving written
approval from PERUPETRO.

 

h)    Proportional Allocation of General Expenses: 

If the contractor performs other activities in addition to those foreseen in the
agreement or has signed with PERUPETRO more than one agreement, the cost for the
technical and administrative personnel, administrative office maintenance
expenses, warehouse operation expenses and cost, as well as other indirect
expenses and cost will be charged against the factor Rt-1 expense account on a
proportional basis pursuant to a policy previously proposed by the contractor
and accepted by PERUPETRO.

 

TIME OF REGISTRATION

 

a)     Earnings from the valuation of the controlled hydrocarbons production for
a given calendar month will be posted as revenues for the calendar month when
the hydrocarbons were controlled.

 

b)     Revenues described in paragraphs b), c), d), e) and f) under section 3.1
of this annex will be charged against the revenues account at the time when they
were actually earned.

 

--------------------------------------------------------------------------------

 

c)     Expenses will be recorded on the date when the corresponding payment was
made.

 

4.     NON RECOGNIZED REVENUES AND EXPENSES

 

NON RECOGNIZED REVENUES

 

For purposes of calculating factor Rt-1, the following revenues will not be
recognized:

 

a)     Financial revenues, generally.

 

b)    Revenues earned for services rendered or sales of goods owned by the
contractor made before the date of signing of the agreement.

 

c)     Revenues earned for activities not related with the agreement’s
operations

 

NON RECOGNIZED EXPENSES

 

For purposes of calculating factor Rt-1, the disbursements made for the
following items will not be recognized as expenses:

 

a)       Investments, expenses and costs, incurred by the contractor before the
date of signing of the agreement.

 

b)       Interest expenses for the loans, including interest on supplier
credits.

 

c)       Financial expenses, generally.

 

d)       Cost incurred for inventory taken in case of contractor assignment of
rights under the agreement.

 

e)       Asset depreciation and amortization.

 

f)        Amounts paid for breach of agreement obligations, as well as fines,
penalties and indemnities mandates by authorities, including those resulting
from lawsuits.

 

g)       Fines, charges and adjustments derived from failure to timely pay taxes
in force in the country.

 

h)       Income tax applicable to the contractor and taxes on profits available
to overseas owners, as applicable.

 

i)        Value added tax (IGV) and municipal promotion tax, excepting when
declared as expenses pursuant to the Income Tax Law.

 

j)        Donations, in general, excepting those previously approved by
PERUPETRO.

 

k)       Advertising expenses, excepting those previously approved by PERUPETRO.

 

l)        Hydrocarbon transportation and marketing costs and expenses beyond the
production control point.

 

m)      Investments on facilities for the transportation and storage of
hydrocarbons produced within the agreement area beyond the production control
point.

 

n)       Other expenses and investments not related to the operations under the
agreement.

 

--------------------------------------------------------------------------------

 

5.     REVISIONS OF ACCOUNTING PROCEDURE

 

The provisions under this accounting procedure may be modified by agreement of
the parties with a proper indication of the date when they will become
effective.

 

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ANNEX F

 

EXPLORATION WORK UNITS (UTE, IN SPANISH)

 

TABLE OF EQUIVALENCE

 

Activity

 

UTE

Seismic 2D – Km

 

0.50

Seismic 3D – Km2

 

1.30

Reprocessing 2D - Km

 

0.02

Gravimetrics – Km

 

0.02

Magnetometrics – Km

 

0.02

Studies per period

 

20.00

Wells: Depth – m

 

 

0 – 1,000

 

0.045 x m

1,001 – 2,000

 

0.050 x m

2,001 – 3,000

 

0.055 x m

3,001 – 4,000

 

0.065 x m

4,001 and beyond

 

0.075 x m

 

Note.- For purposes of valuation of the warrant bonds described under heading
3.10, the following equivalence shall apply: 1 UTE = US$ 5,000.

 

--------------------------------------------------------------------------------

 

Please, Mr. Notary, add below the corresponding clauses required by law and send
the appropriate notification to the Hydrocarbons Public Registry for
registration of the following.

 

Lima on the 21st day of November of 2007

 

BY AND FOR PERUPETRO MR. CARLOS EDGAR VIVES SUÁREZ

 

BY AND FOR BPZ EXPLORACIÓN & PRODUCCIÓN S.R.L. MR. LUIS RAFAEL ZOEGER NÚÑEZ

 

BY AND FOR BPZ ENERGY MR. LUIS RAFAEL ZOEGER NÚÑEZ

 

BY AND FOR BANCO CENTRAL DE RESERVA DEL PERU, MESSERS. RENZO GUILLERMO ROSSINI
MIÑAN AND CARLOS AUGUSTO BALLON AVALOS

 

THIS DRAFT AGREEMENT WAS AUTHORIZED BY MR. ERNESTO CORDOVA V., ESQUIRE,
REGISTERED IN THE LIMA BAR ASSOCIATION UNDER MEMBER NUMBER 21982.

 

INSERT NUMBER ONE

 

SUPREME DECREE

 

INSERT NUMBER TWO

 

PERUPETRO AGREEMENT

 

TRANSCRIPTION

 

Know all men by these presents that at its session No. 18-2007 of
September 27th, 2007, the Board of Directors adopted the following agreement.

 

APPROVAL OF DRAFT AGREEMENT FOR LICENSING THE EXPLORATION AND DEVELOPMENT OF
HYDROCARBONS IN BLOCK XXII.

 

BOARD OF DIRECTORS AGREEMENT Noº 117-2007

 

San Borja, September 27th 2007

 

Having read Memorandum No. CONT-GFCN-1853-2007 dated September 24th, 2007,
requesting the approval of the draft agreement to license the Exploration and
Development of Hydrocarbons in Block XXII and

 

Whereas,

 

The working committees of PERUPETRO S.A. and BPZ EXPLORACIÓN & PRODUCCIÓN S.R.L.
have reached an agreement about the text of the draft agreement for Exploration
and Development of Hydrocarbons in Block XXII.

 

In technical and legal report No. GFCN-1832-2007, the PERUPETRO S.A. working
commission determines that, pursuant to its analyses of the legal, contract,
economic and geological considerations, as well as the estimated minimum work
program for the area, the draft agreement for licensing the Exploration and
Development of Hydrocarbons in Block XXII meets the provisions of the single
conformed text of law No. 26221, Organic Hydrocarbons Law, enacted by Supreme
Decree NO. 042-2005-EM, as regulated, and that this draft agreement should be
filed with the general management department to proceed to the corresponding
paper work, as required by law;

 

--------------------------------------------------------------------------------

 

Whereas, Article 11 of the Single Conformed Text of Law No. 26221, Organic
Hydrocarbons Law, approved by Supreme Decree No. 042-2005-EM, establishes that
agreements will be approved by Supreme Decree signed by the Minister of Economy
and Finance and Energy and Mines within sixty (60) days after starting the
procedures for obtaining their approval before the Ministry of Energy and Mines,
filed by the contracting entity; pursuant to article 44 of PERUPETRO S.A.
corporate by laws, the Board of Directors unanimously hereby

 

AGREES:

 

1.     To approve the Draft Agreement for Licensing the Exploration and
Development of Hydrocarbons in Block XXII to be signed between PERUPETRO S.A.
and BPZ EXPLORACION & PRODUCCION S.R.L., as well as the Draft Supreme Decree to
enact the abovementioned agreement, both of which documents are attached to this
agreement and are an integral part of same.

 

2.     To send the Minister of Energy and Mines the draft Supreme Decree and
Licensing Agreement described in paragraph 1 above for their corresponding
approval by Supreme Decree, pursuant to article 11 of the single conformed text
of Law No. 26221, Organic Hydrocarbons Law, enacted by Supreme Decree
No. 042-2005-EM.

 

3.     Authorize PERUPETRO S.A.’s general manager to sign the agreement
mentioned in paragraph 1 above once the corresponding Supreme Decree has been
enacted.

 

4.     To exempt the minutes of this Agreement from reading and approval.

 

This Agreement is sent to you for your information and other related purposes.

 

In San Borja, on the 27th day of September, 2007

 

SIGNED: DANIEL SABA DE ANDREA, CHAIRMAN OF THE BOARD, PERUPETRO S.A.

 

SIGNED: ISABEL TAFUR MARIN, SECRETARY GENERAL

 

INSERT NUMBER THREE: TRANSCRIPT

 

SUNARP

REGISTRATION AREA Nº IX LIMA AREA

LIMA REGISTRATION AREA

DOCKET Nº 00259837

CORPORATIONS REGISTRY

PERUPETRO S.A.

COMPANY REGISTRY

ITEM: APPOINTMENT OF PROXIES

C00039

 

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·  By Ministry Decision N° 435-2006-MEM/DM dated 09/08/2006 published on
09/10/2006 in the El Peruano Official Gazette, it was decided.- 1. To accept the
resignation of Dr. JOSE ABRAMOVITZ DELMAR from its position as member of the
Board. 2. To appoint, as from this date, Mr. ALBERTO QUIMPER HERRERA as member
of the Board on behalf of the

 

--------------------------------------------------------------------------------

 

Ministry of Energy and Mines. 3. To confirm Engineer GUSTAVO ADOLFO NAVARRO
VALDIVIA as member of the Board on behalf of the Ministry of Energy and Mines.

 

·  By Ministry Decision N° 536-2006-EF/10 dated 09/20/2009 published on
09/28/2006 in the El Peruano official Gazette, it was decided.- 1. To accept the
resignation of MR.  WILFREDO SALINAS RUIZ – CORNEJO to its position as member of
the board. 2. To appoint, as from this date, MR. JOSE ABRAMOVITZ DELMAR, as
member of the Board on behalf of the Ministry of Economy and Finance. 3. To
ratify Engineer LUIS ENRIQUE ORTIGAS CUNEO as member of the Board, on behalf of
the Ministry of Ministry of Economy and Finance.

 

·  At Board Meeting of 02/09/2007, the following was agreed: 1. To appoint
Mr. CARLOS EDGAR VIVES SUAREZ (D.N.I. N° 08725702) as General Manager as from on
the 02/13/2007. 2. To appoint JOSE EDUARDO CHÁVEZ CÁCERES (D.N.I  N° 09343700)
as Special Project, Planning, Environmental and Community Relations Manager,
starting on the 02/13/2007. 3. To appoint Mr. JOSE ANTONIO COZ CALDERON (D.N.I.
N° 07912299) as Contract Manager as from 02/13/2007. 4. To appoint PEDRO SAMUEL
ARCE CHIRINOS (D.N.I. N° 08722832) as Administration Manager as from the day
following this agreement. 5. To appoint MILTON UBALDO RODRIGUEZ CORNEJO (D.N.I.
N° 09150438) as Information Technology and Budget Division Head as from the day
following this agreement. 6. To appoint Engineer PEDRO MANUEL ARCE CHIRINOS to
Head the Human Resources and Personnel Development Division. Board of Directors’
Minutes Book Nº7, notarized on 01/03/2007 before the Notary by and for Lima
Dr. Ricardo Fernandini Barreda, ESQ. under entry N° 54684 on folios 281 to 327.
As appearing on the certified copy dated 03/01/2007 issued by the same notary
public in the city of LIMA. This title was submitted on 03/01/2007 at 03:48:51
PM under docket

 

N° 2007-00118351 in Logbook (0485).

 

Fee: S/. 224 recorded under vouchers Number 00014319-07 and 00020129-07.- In
Lima on March, 29, 2007.

 

SIGNATURES: TOMAS HUMBERTO CERDAN LIMAY

 

PUBLIC REGISTRAR ORLC

 

INSERT NUMBER FOUR: TRANSCRIPT

 

CENTRAL RESERVE BANK OF PERU

GENERAL MANAGER’S OFFICE

LETTER NUMBER No. 129-2007-BCRP

Lima, October 25th, 2007

Mr.

Ronald Egúsquiza S.

General Manager

PERUPETRO S.A.

 

I am pleased to address you concerning your letter Nº GGRL-CONT-1 922-2007 about
the

 

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clause dealing with the financial rights for the Draft Agreement for Licensing
the Exploration and Development of Hydrocarbons in Block XXII entered into with
BPZ EXPLORACIÓN Y PRODUCCIÓN S.R.L. The CENTRAL RESERVE BANK OF PERU has
approved the text of clause 11 of the Draft Agreement sent to us with your
letter, after noticing this text is similar to the model approved by our board
on November 18th, 1993 for licensing contracts to be signed with companies.

 

In addition, for signing the Clause on Financial Rights included in that
agreement, the undersigned, in my position as General Manager, and Mr. Carlos
Ballón Avalos, International Operations Manager, and in case of impediment by
either of us, Mr. Manuel Monteagudo Valdez, Legal Manager, have been designated
to sign said agreement.

 

Yours sincerely,

Renzo Rossini Miñan, General Manager

PERUPETRO S.A. stamp

 

INSERT NUMBER FIVE: TRANSCRIPT

 

CENTRAL RESERVE BANK OF PERU BOARD OF DIRECTOR MEETING DATED JANUARY 27, 1994,
DESCRIBING THE POWERS AWARDED TO THE GENERAL MANAGER (063-A) MINUTES Nº 3534.
RELEVANT SECTION:

 

CENTRAL RESERVE BANK OF PERU.

 

GENERAL SECRETARIAT.

 

HUMBERTO PEIRANO PORTOCARRERO, SECRETARY GENERAL OF THE CENTRAL RESERVE BANK OF
PERU, AS PER THE POWERS INVESTED UPON HIM BY ARTICLE 31 OF THIS ORGANIZATIONS
ORGANIC LAW, HEREBY CERTIFIES THAT IN MINUTES NUMBER 3534 OF THE BOARD OF
DIRECTORS MEETING HELD ON JANUARY 27, 1994, ATTENDED BY BOARD MEMBERS MARIO
TOVAR VELARDE (CHAIRMAN), HENRY BARCLAY REY DE CASTRO, ALBERTO BENAVIDES DE LA
QUINTANA, SANDRO FUENTES ACURIO, ALFREDO JALILIE AWAPARA AND RAUL OTERO BOSSANO
AN AGREEMENT WAS REACHED AS FOLLOWS:

 

POWERS OF THE GENERAL MANAGER (063-A)

 

THE BOARD OF DIRECTORS AGREED:

 

1-  TO GRANT THE GENERAL MANAGER THE FOLLOWING POWERS:

 

a.   TO APPROVE THE FINANCIAL CLAUSES OF PETROLEUM AGREEMENTS ONCE THE BOARD HAS
AUTHORIZED THE CORRESPONDING MODELS

 

IN LIMA, ON SEPTEMBER 16, 1994. SIGNED BY HUMBERTO PEIRANO PORTOCARRERO,
SECRETARY GENERAL OF THE CENTRAL RESERVE BANK OF PERU.

 

INSERT NUMBER SIX: TRANSCRIPT

 

MINUTES OF THE SESSION HELD BY THE BOARD OF DIRECTORS OF THE CENTRAL RESERVE
BANK OF PERU ON MAY 21, 1998, CERTIFYING THE APPOINTMENT OF MR. CARLOS BALLON
AVALOS AS INTERNATIONAL OPERATIONS MANAGER OF THE CENTRAL RESERVE BANK OF PERU,
MINUTES NUMBER 3737. RELEVANT SECTION.

 

CENTRAL RESERVE BANK OF PERU.

 

--------------------------------------------------------------------------------

 

GENERAL SECRETARIAT.

 

HUMBERTO PEIRANO PORTOCARRERO, SECRETARY GENERAL OF THE CENTRAL RESERVE BANK OF
PERU, AS PER THE POWERS INVESTED UPON HIM BY ARTICLE 31 OF THIS ORGANIZATION’S
ORGANIC LAW, HEREBY CERTIFIES THAT IN MINUTES NUMBER 3737 OF THE BOARD OF
DIRECTORS MEETING PERFORMED ON MAY 21, 1998, ATTENDED BY BOARD MEMBERS SEÑORES
GERMAN SUAREZ CHAVEZ (CHAIRMAN), MARIO TOVAR VELARDE, ALBERTO BENAVIDES DE LA
QUINTANA, JORGE BACA CAMPODONICO, GUILLERMO CASTAÑEDA MUNGI AND GIANFRANCO
CASTAGNOLA ZUÑIGA AN AGREEMENT WAS REACHED AS FOLLOWS:

 

APPOINTMENT OF SENIOR OFFICIALS (ORAL)

 

THE BOARD OF DIRECTORS AGREED:

 

1.  TO APPOINT MR. JUAN ANTONIO RAMIREZ ANDUEZA AS MANAGER FOR CREDITS AND
FINANCIAL REGULATIONS IN REPLACEMENT OF MISS MARIA ISABEL VALERA LOZA WHO WILL
FILL THE POSITION AS ADVISORS TO THE GENERAL MANAGER.

 

2.  TO PROMOTE MR. CARLOS BALLON AVALOS TO THE RANK OF MANAGER AND APPOINT HIM
AS INTERNATIONAL OPERATIONS MANAGER.

 

LIMA, JUNE 3, 1998

 

SIGNED: HUMBERTO PEIRANO PORTOCARRERO – SECRETARY GENERAL OF THE CENTRAL RESERVE
BANK OF PERU

 

INSERT NUMBER SEVEN

 

CENTRAL RESERVE BANK OF PERU

 

GENERAL SECRETARIAT

 

DEHERA BRUCE MITRANI, Secretary General of the Central Reserve Bank of Peru,
acting under the powers invested upon her by Article 31 of the Organizations
Organic Law, hereby certifies that in Minutes Nº 4126 corresponding to the Board
of Directors meeting held on 15th December 2005, attended by Board Members Oscar
Dancourt Masías (Acting Vice-Chairman of the Board), Kurt Burneo Farfán, Gonzalo
García Núñez, Eduardo Iriarte Jiménez, Daniel Schdlowsky Rosenberg and Mr. Luis
Carranza, on leave and not attending, the Central Reserve Bank of Peru’s Manual
of Organizations and Functions was reconfirmed, and the name of the Legal Bureau
was changed to Juridical Management Department, and in Minutes Nº 4128,
corresponding to the Board of Directors meeting held on 22nd December 2005,
attended by Board Members Oscar Dancourt Masías (Acting Vice-Chairman of the
Board), Kurt Burneo Farfán, Eduardo Iriarte Jiménez and Daniel Schdlowsky
Rosenberg, with Luis Carranza Ugarte and Gonzalo García Núñez, on leave,
Mr. Manuel Monteagudo Valdez was confirmed, starting on January 1st 2006 as
Juridical Manager.

 

In addition, I hereby certify that Mr. Manuel Monteagudo Valdez previously
filled the position of head of the Legal Office until December 31 2005 and that
pursuant to the previous agreement, as from January 1, 2005, he will be acting
as Juridical Manager.

 

In Lima, on August 9, 2006

 

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Signed DEHERA BRUCE MITRANI

 

INSERT NUMBER EIGHT

 

CENTRAL RESERVE BANK OF PERU

 

GENERAL SECRETARIAT

 

DEHERA BRUCE MITRANI, Secretary General of the Central Reserve Bank of Peru,
acting under the powers invested upon her by Article 31 of the Organizations
Organic Law, hereby certifies that in Minutes Nº 4059 corresponding to the Board
of Directors meeting held on 14th October 2004, attended by Board Members Javier
Silva Ruete (Chairman), Kurt Burneo Farfán, Luís Carranza Ugarte, Oscar Dancourt
Masías and Daniel Schdlowsky Rosenberg an agreement was reached as follows:

 

·  APPOINTMENT OF GENERAL MANAGER (ORAL)

 

·  The Board of Directors agreed to appoint Mr. Renzo Rossini Miñan as General
Manager

 

In Lima on December 22nd, 2004

 

Illegible Signature

 

C O N C L U S I O N:

 

HAVING THE GRANTORS READ THE ENTIRE DOCUMENT, THEY CONFIRMED AND DECLARED THAT
THEY READ THE MINUTES AGAINST THE TEXT WHICH ATTACH HERETO, AND SIGNED IT AS
PROOF OF THEIR ACCEPTANCE. THIS DOCUMENT IS TRANSCRIBED IN FOLIOS SERIES B Nº
XXX AND ENDS IN FOLIOS SERIES B Nº

 

PARTICIPANTS: MANUEL MONTEAGUDO VALDEZ, PERUVUIAN, MARRIED, LAWYER, IDENTIFIED
WITH NATIONAL IDENTITY DOCUMENT Nº 10275927, VOTER, JURIDICAL MANAGER APPOINTED
BY BOARD OF DIRECTORS AGREEMENT Nº 4128 WHO REPRESENTS THE CENTRAL RESERVE BANK
OF PERU AUTHORIZED BY GENERAL MANAGEMENT DEPARTMENT LETTER Nº 129-2007-BCRP
DATED OCTOBER 25 2007, ATTACHED HERETO AND WHO SIGNS THE MINUTES AND THE PUBLIC
DEED, BY VIRTUE OF WHICH THE PRESSENCE OF MR. CARLOS AUGUSTO BALLON AVALOS IN
THIS ACT SHALL NOT BE RECORDED IN THESE PRESENTS, THE MINUTES AND FINAL SIGNING
OF THE DRAFT AGREEMENT ENCLOSED HEREWITH, IN WITNESS WHEREOF

 

 

 

By and for PERUPETRO

CARLOS EDGAR VIVES SUÁREZ
SIGNED ON:

 

 

 

By and for BPZ EXPLORACIÓN & PRODUCCIÓN S.R.L.

LUIS RAFAEL ZOEGER NÚÑEZ

 

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SIGNED ON:

 

 

 

By and for BPZ ENERGY INC.

 

LUIS RAFAEL ZOEGER NÚÑEZ

 

SIGNED ON:

 

By and for BANCO CENTRAL DE RESERVA DEL PERU

 

 

 

 

 

 

 

 

 

RENZO GUILLERMO ROSSINI MIÑAN

 

ARLOS AUGUSTO BALLON AVALOS

SIGNED ON:

 

SIGNED ON:

 

 

 

 

 

 

END OF SIGNATURES:

 

 

 

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