Exhibit 10

 

Execution Version

 

FARMOUT AGREEMENT

 

BY AND BETWEEN

 

SCS CORPORATION LTD.

 

AS FARMOR,

 

AND

 

SOUTH ATLANTIC PETROLEUM LIMITED

 

AS FARMEE

 

DATED MARCH 30, 2017

 

 

FARMOUT AGREEMENT FOR:

 

50% Participating Interest

 

PRODUCTION SHARING CONTRACT

 

REPUBLIC OF GUINEA

 

 

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TABLE OF CONTENTS

 

ARTICLE 1 - ASSIGNMENT OF INTEREST

 

1

 

 

 

 

 

 

Section 1.1

 

Assignment

 

1

 

 

 

 

 

 

 

Section 1.2

 

Execution and Delivery of Documents

 

1

 

 

 

 

 

 

 

Section 1.3

 

Submission to the Government

 

2

 

 

 

 

 

 

 

Section 1.4

 

Request for Governmental Approval

 

2

 

 

 

 

 

 

 

Section 1.5

 

Farmee Interest

 

2

 

 

 

 

 

 

 

Section 1.6

 

Ownership

 

3

 

 

 

 

 

 

 

Section 1.7

 

Additional Farmouts and/or Assignments

 

3

 

 

 

 

 

 

 

Section 1.8

 

Cost Recovery Pool

 

3

 

 

 

 

 

ARTICLE 2 - CONDITIONS PRECEDENT

 

3

 

 

 

 

 

 

Section 2.1

 

Conditions

 

3

 

 

 

 

 

 

 

Section 2.2

 

Waiver of Conditions

 

4

 

 

 

 

 

 

 

Section 2.3

 

Frustration of Conditions

 

4

 

 

 

 

 

ARTICLE 3 - FARM-IN OBLIGATIONS

 

4

 

 

 

 

 

 

Section 3.1

 

Payment Obligations

 

4

 

 

 

 

 

 

 

Section 3.2

 

Payments; Designated Account

 

6

 

 

 

 

 

 

 

Section 3.3

 

Security Instrument

 

6

 

 

 

 

 

ARTICLE 4 - TERMINATION

 

7

 

 

 

 

 

 

Section 4.1

 

Termination

 

7

 

 

 

 

 

 

 

Section 4.2

 

Return of Information

 

7

 

 

 

 

 

 

 

Section 4.3

 

Effect of Termination

 

8

 

 

 

 

 

ARTICLE 5 - OBLIGATION WELL

 

8

 

 

 

 

 

 

Section 5.1

 

Obligation Well Location

 

8

 

 

 

 

 

ARTICLE 6 - WARRANTIES

 

8

 

 

 

 

 

 

Section 6.1

 

Farmor’s Warranties

 

8

 

 

 

 

 

 

 

Section 6.2

 

Farmee’s Warranties

 

15

 

 

 

 

 

 

 

Section 6.3

 

Warranties Regarding Anti-Corruption

 

17

 

 

 

 

 

 

 

Section 6.4

 

Disclaimer

 

19

 

 

 

 

 

 

 

Section 6.5

 

Effectiveness of Warranties

 

19

 

 

 

 

 

 

 

Section 6.6

 

Knowledge

 

20

 

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ARTICLE 7 - CERTAIN COVENANTS OF THE PARTIES

 

20

 

 

 

 

 

 

Section 7.1

 

Covenants of Farmor

 

20

 

 

 

 

 

 

 

Section 7.2

 

Covenants of Farmee

 

23

 

 

 

 

 

 

 

Section 7.3

 

Mutual Covenants

 

23

 

 

 

 

 

 

 

Section 7.4

 

Mutual Covenants Regarding Anti-Corruption

 

24

 

 

 

 

 

ARTICLE 8 - EXPENSES, STAMP DUTIES AND TAXES

 

26

 

 

 

 

 

 

Section 8.1

 

Expenses

 

26

 

 

 

 

 

 

 

Section 8.2

 

Duties, Taxes and Fees

 

26

 

 

 

 

 

ARTICLE 9 - RELATIONSHIP OF THE PARTIES

 

26

 

 

 

 

 

 

Section 9.1

 

Independent Co-Owners

 

26

 

 

 

 

 

 

 

Section 9.2

 

Tax

 

26

 

 

 

 

 

 

 

Section 9.3

 

United States Internal Revenue Code

 

26

 

 

 

 

 

 

 

Section 9.4

 

Area of Mutual Interest

 

27

 

 

 

 

 

 

 

Section 9.5

 

Right of Competition

 

28

 

 

 

 

 

ARTICLE 10 - CONFIDENTIALITY

 

28

 

 

 

 

 

 

Section 10.1

 

Obligation of Confidentiality

 

28

 

 

 

 

 

 

 

Section 10.2

 

Publicity

 

29

 

 

 

 

 

 

 

Section 10.3

 

Conflict

 

29

 

 

 

 

 

ARTICLE 11 - INDEMNIFICATION

 

29

 

 

 

 

 

 

Section 11.1

 

Indemnification by Farmor

 

29

 

 

 

 

 

 

 

Section 11.2

 

Pre-Closing Date Indemnification

 

30

 

 

 

 

 

 

 

Section 11.3

 

Indemnification by Farmee

 

30

 

 

 

 

 

 

 

Section 11.4

 

Post-Closing Date Indemnification

 

30

 

 

 

 

 

 

 

Section 11.5

 

Indemnification Regarding Anti-Corruption

 

30

 

 

 

 

 

 

 

Section 11.6

 

General Provisions

 

30

 

 

 

 

 

 

 

Section 11.7

 

Indemnification Procedures

 

32

 

 

 

 

 

ARTICLE 12 - DISPUTE RESOLUTION

 

33

 

 

 

 

 

 

Section 12.1

 

Agreement to Arbitrate

 

33

 

 

 

 

 

 

 

Section 12.2

 

Number and Appointment of Arbitrators

 

33

 

 

 

 

 

 

 

Section 12.3

 

Venue; Procedural Issues

 

33

 

 

 

 

 

 

 

Section 12.4

 

Powers of the Arbitrators; Limitations On Remedies

 

34

 

 

 

 

 

 

 

Section 12.5

 

Arbitration Awards

 

34

 

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Section 12.6

 

Exclusive Method of Resolving Claims; Assistance of Courts

 

35

 

 

 

 

 

 

 

Section 12.7

 

Confidentiality

 

35

 

 

 

 

 

 

 

Section 12.8

 

Costs of Arbitration

 

35

 

 

 

 

 

 

 

Section 12.9

 

Interest

 

35

 

 

 

 

 

 

 

Section 12.10

 

Consolidation and Joinder

 

35

 

 

 

 

 

ARTICLE 13 - PAYMENT DEFAULT

 

36

 

 

 

 

 

 

 

Section 13.1

 

Default and Interest

 

36

 

 

 

 

 

 

 

Section 13.2

 

Termination

 

36

 

 

 

 

 

 

ARTICLE 14 - MISCELLANEOUS

 

36

 

 

 

 

 

 

 

Section 14.1

 

Conflict

 

36

 

 

 

 

 

 

 

Section 14.2

 

Assignment

 

36

 

 

 

 

 

 

 

Section 14.3

 

Parties in Interest

 

37

 

 

 

 

 

 

 

Section 14.4

 

Entire Agreement

 

37

 

 

 

 

 

 

 

Section 14.5

 

Amendment, Modification and Waiver

 

37

 

 

 

 

 

 

 

Section 14.6

 

Notices

 

37

 

 

 

 

 

 

 

Section 14.7

 

Counterparts

 

38

 

 

 

 

 

 

 

Section 14.8

 

Severability

 

38

 

 

 

 

 

 

 

Section 14.9

 

Survival of Claims

 

38

 

 

 

 

 

 

 

Section 14.10

 

Governing Law

 

38

 

 

 

 

 

 

 

Section 14.11

 

Language

 

39

 

 

 

 

 

 

 

Section 14.12

 

Independent Accountant

 

39

 

 

 

 

 

 

 

Section 14.13

 

Interpretation

 

39

 

APPENDICES

 

Appendix A                          Definitions

 

SCHEDULES

 

Schedule 3.2                         Farmor Designated Account

Schedule 6.1(b)                    Farmor Consents

Schedule 6.1(d)                    Contract

Schedule 6.1(e)                    Contract Obligations

Schedule 6.1(f)                     Other Obligations

Schedule 6.1(g)                    No Surrender, Relinquishment or Withdrawal

Schedule 6.1(i)                     Farmor Litigation

 

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Schedule 6.1(q)                    Insurance

Schedule 6.1(x)                    Compliance

Schedule 6.1(r)                     Bonds, Letters of Credit or Guarantees

Schedule 6.2(b)                    Farmee Consents

Schedule 6.2(c)                    Farmee Litigation

Schedule 7.1(c)                    Conduct of Joint Operations

 

EXHIBITS

Exhibit A                               Contract Area

Exhibit B                               Joint Operating Agreement

Exhibit C                               Assignment

Exhibit D                               Farmor Parent Guaranty

Exhibit E                               Farmee Parent Guaranty

Exhibit F                                Work Program and Budget

 

iv

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FARMOUT AGREEMENT

 

THIS FARMOUT AGREEMENT (this “Agreement”) is made and entered on March 30, 2017
(the “Execution Date”) by and between SCS Corporation Ltd., a company registered
in the Cayman Islands, with its address at 12012 Wickchester Lane, Suite 475,
Houston, TX 77079, USA, a wholly owned subsidiary of Hyperdynamics Corporation,
a Delaware corporation traded on the OTCQX (the “Farmor”), and South Atlantic
Petroleum Limited, a company registered under the laws of the Federal Republic
of Nigeria, with its registered address at 11th and 12th Floors, South Atlantic
Petroleum Towers, 1 Adeola Odeku Street, Victoria Island, Lagos, Nigeria (the
“Farmee”).  Farmor and Farmee are collectively referred to herein as the
“Parties” and individually referred to as a “Party.”

 

Capitalized terms used in this Agreement shall have the meanings ascribed to
them in Appendix A to this Agreement or as such terms are otherwise identified
and/or defined in this Agreement.

 

RECITALS

 

A.                                    Farmor is a party to that certain
Hydrocarbons Production Sharing Contract between the Republic of Guinea and SCS
Corporation dated September 22, 2006; as amended by that certain Amendment No. 1
to the Hydrocarbons Production Sharing Contract between the Republic of Guinea
and SCS Corporation dated March 25, 2010; and as further amended by that
memorandum of understanding between the Republic of Guinea and SCS Corporation
Ltd. dated August 19, 2016 and that certain Second Amendment to the Hydrocarbons
Production Sharing Contract between the Republic of Guinea and SCS Corporation
Ltd. dated September 14, 2016 and duly approved by a Decree No. 275/PRG/SGG of
the President of the Republic dated 21 September 2016 (“Second PSC Amendment”)
(as amended, the “Contract”) covering the area in the Republic of Guinea shown
on Exhibit A hereto (the “Contract Area”).

 

B.                                    Farmor owns a one hundred percent (100%)
Participating Interest, and is willing to assign and transfer to Farmee the
Farmee Interest upon the terms and conditions set forth in this Agreement.

 

C.                                    Farmee desires to obtain the Farmee
Interest from Farmor and to assume all obligations and liabilities related to
such Participating Interest, all upon the terms and conditions set forth in this
Agreement.

 

NOW THEREFORE, in consideration of the mutual premises and covenants contained
herein, the Parties hereby agree as follows:

 

ARTICLE 1 - ASSIGNMENT OF INTEREST

 

Section 1.1                                    Assignment.  Upon the terms and
subject to the conditions of this Agreement, Farmor, as legal and beneficial
owner of the Farmee Interest, shall assign and transfer to Farmee the Farmee
Interest and Farmee shall accept and acquire the Farmee Interest at the Closing
Date, free from and clear of any Encumbrance.

 

Section 1.2                                    Execution and Delivery of
Documents.  On the Execution Date, Farmor

 

1

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shall deliver to Farmee the Farmor Parent Guaranty from Hyperdynamics
Corporation guaranteeing Farmor’s full compliance with, and performance of,
Farmor’s duties, obligations and liabilities hereunder.

 

Section 1.3                                    Submission to the Government.  At
such time as Farmor requests Governmental Approval pursuant to Section 1.4.,
Farmor shall submit a copy of this Agreement (which shall include, as Exhibits,
unsigned copies of the Assignment and the JOA) to the Government.  If and to the
extent requested by Farmor, Farmee shall cooperate with Farmor in connection
with the submission.  In the event the Government requires any amendments to the
Assignment or the JOA and if such amendments are acceptable to the Parties
(acting reasonably), the Parties shall make the necessary amendments prior to
execution of the Assignment and the JOA on the Closing Date.

 

Section 1.4                                    Request for Governmental
Approval.  As soon as reasonably practicable following the satisfaction or
waiver, in accordance with Section 2.2 of the condition set out in
Section 2.1(e), Farmor shall request Governmental Approval from the Government. 
If and to the extent reasonably requested by Farmor, Farmee shall cooperate with
Farmor in connection with such submission.

 

Section 1.5                                    Farmee Interest.

 

(a)                                 Farmor shall keep Farmee informed of the
progress towards the satisfaction or non-satisfaction of the conditions
described in Section 2.1. Within five days following the date (the “Trigger
Date”) on which the conditions described in Section 2.1 have been satisfied (or
waived by the applicable Parties), Farmor shall deliver a notice (the “Closing
Notice”) to Farmee notifying Farmee that such conditions have been satisfied or
waived, unless this Agreement has been terminated pursuant to Section 4.1.

 

(b)                                 Unless Farmee terminates this Agreement
pursuant to Section 4.1, the Parties shall proceed to close the assignment and
transfer of the Farmee Interest as contemplated by this Agreement on a date
within five days following the delivery of the Closing Notice (the “Closing
Date”).

 

(c)                                  On the Closing Date, Farmor shall deliver
to Farmee a copy of any written notification of Governmental Approval provided
to Farmor by the Government.

 

(d)                                 On the Closing Date, Farmee shall pay Farmor
the Closing Payment in accordance with Section 3.1(b).

 

(e)                                  On the Closing Date, Farmor and Farmee
shall each execute and deliver to the other, the Assignment and the JOA which
shall be binding on the Parties and enter into effect on the Closing Date.

 

2

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Section 1.6                                    Ownership.  Immediately following
the Closing Date, upon completion of the actions to be taken by the Parties on
the Closing Date, the Participating Interests in the Contract and the JOA shall
be as follows:

 

Farmor:

 

50

%

 

 

 

 

Farmee:

 

50

%

 

Section 1.7                                    Additional Farmouts and/or
Assignments.  Notwithstanding anything to the contrary in this Agreement, during
the Interim Period, the Farmor may assign or transfer interests in the Contract
other than the Farmee Interest (whether pursuant to farm-out agreements or
otherwise) to third parties, provided that the Farmor has obtained the Farmee’s
written consent for such transfers (such consent not to be unreasonably
withheld, and which may be withheld only on the basis of the lack of necessary
technical or financial capacity of the assignee), and Farmee shall have no
pre-emptive right of any kind whatsoever to acquire such interests under this
Agreement.

 

Section 1.8                                    Cost Recovery Pool.  To the
extent allowed by the Government and the Contract without any liability of any
kind whatsoever to Farmor, Farmee shall be entitled to receive its Participating
Interest share of all cost recovery allocations to the Contractor under the
Contract, together with all income, receipts, credits, rebates and other
benefits in respect thereof, irrespective of whether the costs and expenditures
were incurred in or relate to the period before, on or after the Closing Date. 
Except as specifically set forth in Section 6.1(v), Farmor makes no
representation or warranty whatsoever as to (i) the amount in the of Petroleum
Costs (as such term is defined in the Contract) which are accountable for cost
recovery purposes under the Contract (the “Cost Recovery Pool”), (ii) the amount
of the Cost Recovery Pool that will actually be approved for cost recovery or
received by the Contractor as cost recovery allocations, or (iii) whether, or to
what extent, the Government will allow Farmee to receive its Participating
Interest share of cost recovery allocations to the Contractor.

 

ARTICLE 2 - CONDITIONS PRECEDENT

 

Section 2.1                                    Conditions.  The following are
conditions to the occurrence of the Trigger Date:

 

(a)                                 No statute, rule, regulation, temporary
restraining order, preliminary or permanent injunction or other order of the
Government preventing the transactions contemplated by this Agreement shall be
in effect.

 

(b)                                 There shall not be pending or threatened in
writing (by the Government or any other third party) any suit, action or
proceeding challenging or seeking to restrain or prohibit the transactions
contemplated by this Agreement.

 

(c)                                  Farmor shall have obtained Governmental
Approval.

 

3

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(d)                                 If (i) required by the Government; and
(ii) subject to the Farmor having provided security in respect of its own
Participating Interest share, Farmee shall have delivered the Farmee Performance
Bond to the Government.

 

(e)                                  Farmor shall have obtained and maintained
as of April 10, 2017 (local time in the Republic of Guinea),  to the
satisfaction of Farmee acting reasonably, sufficient cash or committed
financings to enable it to meet its obligations to pay for its Participating
Interest share of the Obligation Well Costs.

 

Section 2.2                                    Waiver of Conditions.

 

(a)                                 Farmor and Farmee may jointly in writing,
waive the conditions set out in Sections 2.1(a), (b), (c) and (d) in whole or in
part at any time.

 

(b)                                 Farmee may, by written notice to Farmor,
waive the conditions set out in Section 2.1(e) in whole or in part at any time.

 

Section 2.3                                    Frustration of Conditions.  No
Party may rely on the failure of any applicable condition set forth in this
Article 2 to be satisfied if such failure was caused solely by its own failure
to comply with Section 7.3(d).

 

ARTICLE 3 - FARM-IN OBLIGATIONS

 

Section 3.1                                    Payment Obligations.

 

(a)                                 Together with the Closing Notice delivered
pursuant to Section 1.5(a), Farmor shall deliver to Farmee a statement
(“Preliminary Closing Statement”) setting out Farmor’s reasonable and bona fide
estimate of the total Closing Payment to be paid by Farmee on the Closing Date.

 

(b)                                 On the Closing Date, Farmee shall pay Farmor
the Closing Payment set out in the Preliminary Closing Statement.

 

(c)                                  From and after the Closing Date and receipt
by Farmor of the Closing Payment, all costs and expenses of the Joint
Operations, including Obligation Well Costs and Emergency Costs, shall be paid
by Farmor and Farmee in proportion to their respective Participating Interests
and in accordance with the Joint Operating Agreement, and the terms of the Joint
Operating Agreement shall govern all matters related to all costs and expenses
of the Joint Operations, including Obligation Well Costs and Emergency Costs.

 

(d)                                 Within ten (10) days after the Closing Date
occurs, Farmor shall provide Farmee with a final adjustment statement (the
“Final Adjustment Statement”) setting out Farmor’s final calculation of the
Closing Payment, which shall reflect any amounts:

 

4

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(i)                                     not previously accounted for at the
Closing Date in the Preliminary Closing Statement; and/or

 

(ii)                                  any necessary correction or adjustment of
amounts accounted for in the Preliminary Closing Statement,

 

together with relevant supporting particulars.

 

(e)                                  During a period of forty-five (45) days
following Farmee’s receipt of the Final Adjustment Statement, Farmee may verify
all amounts in the Final Adjustment Statement and Farmor shall procure that
Farmee has reasonable access to its books, accounts and records and to its
relevant personnel for the purpose of verifying the figures contained in the
Final Adjustment Statement.

 

(f)                                   If Farmee disagrees with any item or
amount in the Final Adjustment Statement, Farmee shall within forty-five (45)
days of receipt, send Farmor a written objection which includes:

 

(i)                                     the reasons for the objection;

 

(ii)                                  any relevant documentation to substantiate
such objection; and

 

(iii)                               the adjustments which, in Farmee’s opinion,
ought to be made to the Final Adjustment Statement so that it is correct and
complies with the provisions of this Agreement.

 

(g)                                  Should Farmor and Farmee fail to reach an
agreement on the Final Adjustment Statement within thirty (30) days following
Farmee having notified an objection, the matter shall be referred to an
Independent Accountant in accordance with Section 14.12.

 

(h)                                 The Final Adjustment Statement (i) as
presented by Farmor if not contested in accordance with Section 3.1(f); or
(ii) as otherwise agreed by the Parties or determined by the Independent
Accountant shall constitute the Closing Statement.

 

(i)                                     Within five (5) days of the Closing
Statement being established in accordance with Section 3.1(h):

 

(i)                                     if the final settlement amount set out
in the Closing Statement (which amount shall not exceed Ten Million U.S. Dollars
(U.S. $10,000,000) without the approval of Farmee) (“Final Settlement Amount”)
exceeds the amount set out in the Preliminary Closing Statement, Farmee shall
pay Farmor the Final Settlement Amount in immediately available funds by wire
transfer to Farmor’s account; or

 

5

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(ii)                                  if the Final Settlement Amount is less
than the amount set out in the Preliminary Adjustment Statement, Farmor shall
pay Farmee the Final Settlement Amount in immediately available funds by wire
transfer to Farmee’s account.

 

Section 3.2                                    Payments; Designated Account.

 

(a)                                 Payments made pursuant to this Article 3
shall be made by wire transfer in immediately available funds in U.S. Dollars to
the appropriate account designated on Schedule 3.2.  Farmor or Farmee may change
its designated account by providing at least five (5) days advance notice to the
other.

 

(b)                                 Unless otherwise expressly provided in this
Agreement, any other amount to be paid or reimbursed in accordance with this
Agreement shall be paid or reimbursed within fifteen (15) days of receipt
thereof (or, in the case of Losses, within fifteen (15) days of receipt of
notification from the Party which has incurred such Losses) to the appropriate
account designated on Schedule 3.2.  Either Party may change its designated
account by providing at least five days advance notice to the other Party.

 

Section 3.3                                    Security Instrument.  Subject to
the following sentence, for any Security Instrument required by the Contract to
be provided to the Government, and which has not been provided to the Government
by Farmor as of the Closing Date, both Farmor and Farmee shall separately
provide a Security Instrument covering that portion of the secured amount that
is equal to their Participating Interest share.  In the event that the
Government requires a single Security Instrument covering one hundred percent
(100%) of the secured amount, then:

 

(a)                                 if Farmor is required to provide the
Security Instrument, Farmee shall bear and pay (and/or reimburse Farmor for),
and shall indemnify Farmor from and against any Losses arising out of or in
relation to, its Participating Interest share of the costs and expenses arising
out of providing and maintaining any Security Instrument required by the
Contract to be provided to the Government, and which has not been provided to
the Government by Farmor as of the Execution Date, including all costs and
expenses arising out of such Security Instrument and any liability that may
arise thereunder or in relation thereto; and

 

(b)                                 if Farmee is required to provide the
Security Instrument, Farmor shall bear and pay (and/or reimburse Farmee for),
and shall indemnify Farmee from and against any Losses arising out of or in
relation to, its Participating Interest share of the costs and expenses arising
out of providing and maintaining any Security Instrument required by the
Contract to be provided to the Government, and which has not been provided to
the Government by Farmor as of the Execution Date, including all costs and
expenses arising out of such Security Instrument and any liability that may
arise thereunder or in relation thereto.

 

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ARTICLE 4 - TERMINATION

 

Section 4.1                                    Termination.  This Agreement may
be terminated at any time prior to the Closing Date (as pertains to (b), (c),
(d) and (e) below) and at any time prior to or after the Closing Date (as
pertains to (a) and (f) below):

 

(a)                                 by mutual written consent of Farmee and
Farmor;

 

(b)                                 by either Farmee or Farmor, if the Closing
Date does not occur on or prior to May 31, 2017 or if either of the Parties
receives final, unappealable written notice from the Government that it will not
give the Governmental Approval;

 

(c)                                  by Farmor, if on or prior to the Trigger
Date (i) the representations and warranties of Farmee made in this Agreement are
not correct or would not be correct as of the Trigger Date as though made as of
such time or (ii) Farmee shall not have performed or complied with all
obligations and covenants required by this Agreement to be performed or complied
with by Farmee by the Trigger Date;

 

(d)                                 by Farmee, if on or prior to the Trigger
Date (i) the representations and warranties of Farmor made in this Agreement are
not correct or would not be correct as of the Trigger Date as though made as of
such time; or (ii) Farmor shall not have performed or complied with all
obligations and covenants required by this Agreement to be performed or complied
with by Farmor by the Trigger Date; or (iii) any Material Development occurs;

 

(e)                                  by Farmee, if Farmor does not deliver a
Closing Notice within five days following the Trigger Date; or

 

(f)                                   by Farmor, pursuant to Section 13.2,

 

provided, however, that the Party seeking termination pursuant to
Section 4.1(c) or Section 4.1(d), as applicable, is not in breach of any of its
representations, warranties, covenants or agreements contained in this
Agreement.  In the event of termination by Farmee or Farmor pursuant to
Section 4.1(b), Section 4.1(c), Section 4.1(d), Section 4.1(e), or
Section 4.1(f), as applicable, this Agreement shall be terminated upon written
notice by the terminating Party to the other Party, without further action by
either Party required in order to terminate this Agreement.

 

Section 4.2                                    Return of Information.  If this
Agreement is terminated as provided in Section 4.1, Farmee shall, within 10 days
following such termination:  (a) return to Farmor all information, documents and
other material received from Farmor, relating to the transactions contemplated
hereby, and all information, documents and other materials relating to Joint
Operations, whether obtained before or after the Execution Date, and Farmee
shall remain subject to the confidentiality provisions of Article 10 in relation
to such information, documents and materials; (b) deliver to Farmor any data
and/or the derivatives obtained therefrom as part of

 

7

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the Joint Operations; and (c) grant to Farmor a royalty-free, perpetual license
to use such data and/or derivatives.

 

Section 4.3                                    Effect of Termination.

 

(a)                                 If this Agreement is terminated as provided
in Section 4.1, this Agreement, and any rights conveyed to Farmee under the
Assignment, shall become void and of no further force or effect, except for the
provisions of Sections 4.2, 4.3, 8.1 and 9.4 and Articles 10, 12 and 14, which
shall survive such termination.  Such termination shall not affect the rights
and obligations of Farmor or Farmee which have accrued or become due prior to
the date of termination.

 

(b)                                 Upon the termination of this Agreement,
Farmee shall promptly reassign to Farmor any rights conveyed to Farmee under the
Assignment free and clear of any Encumbrances arising by, through, or under
Farmee, and Farmee shall execute such other documents and take such other
actions as may be necessary to reassign the Farmee Interest to Farmor, including
any related to obtaining approvals or consents of the Government.

 

ARTICLE 5 - OBLIGATION WELL

 

Section 5.1                                    Obligation Well Location.  Farmor
and Farmee have agreed on Latitude: 8 deg, 37 min, 30.552829 sec N, Longitude:
14 deg, 54 min, 6.95248 sec W, X Coordinate: 510790 m, Y Coordinate: 953412 m as
the bottom-hole location of the Obligation Well, after review of the location
proposed by Farmor.  The bottom-hole location of the Obligation Well shall not
be amended without the written consent of both Parties which consent shall not
be unreasonably withheld, conditioned or delayed.

 

ARTICLE 6 - WARRANTIES

 

Section 6.1                                    Farmor’s Warranties.  Farmor
warrants to Farmee as follows:

 

(a)                                 Organization, Authority.  Farmor is
registered, validly existing and in good standing under the laws of the Cayman
Islands.  Farmor has the corporate power and authority to own its property and
to carry on its business as presently conducted, and to enter into and to comply
with the terms of this Agreement.  The execution, delivery, and performance of
this Agreement (and all documents required to be executed and delivered by
Farmor hereunder), and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action on the
part of Farmor.  This Agreement has been duly executed and delivered by Farmor,
and all documents required to be executed and delivered by Farmor hereunder
shall be duly executed and delivered by Farmor. This Agreement and any other
documents to which Farmor is a party, or is to become a party, pursuant to or in
connection with this Agreement constitute legal, valid and binding

 

8

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obligations of Farmor enforceable in accordance with their respective terms.

 

(b)                                 No Conflicts.  The execution, delivery, and
performance of this Agreement (and all documents required to be executed and
delivered by Farmor hereunder) by Farmor, the consummation of the transactions
contemplated hereby and thereby and the compliance by Farmor with the terns
hereof and thereof will not (i) violate any provision of the certificate of
incorporation, memorandum and articles of association, bylaws or other governing
documents of Farmor, (ii) result in a material default (with due notice or lapse
of time or both) or the creation of any lien or encumbrance or give rise to any
right of termination, cancellation, or acceleration under any material agreement
to which Farmor is a party or by which it is bound, (iii) violate any judgment,
order, ruling, or decree applicable to Farmor or, to Farmor’s knowledge, the
Joint Operations, (iv) violate any Laws applicable to Farmor or to Farmor’s
knowledge the Joint Operations (subject to obtaining any necessary approvals for
the transfer of the Farmee Interest under applicable Laws of the Republic of
Guinea), or (v) to Farmor’s knowledge, except as disclosed on Schedule 6.1(b),
require any consent, approval, or waiver from any Person other than the
Government.

 

(c)                                  No Judgments, Lawsuits, Investigations.
Except as disclosed on Schedule 6.1(i), there are no (i) outstanding judgments,
orders, injunctions or decrees of any judicial, governmental or regulatory body
or arbitral tribunal against or affecting Farmor in relation to the Contract or
the Contract Area; (ii) lawsuits, actions or proceedings commenced, pending or,
to the knowledge of Farmor, threatened in writing against Farmor in relation to
the Contract or the Contract Area; or (iii) investigations by any Governmental
Entity which have been commenced or are pending or threatened in writing against
Farmor, in all cases which would prevent Farmor from performing its obligations
under this Agreement and any other documents to which it is a party, or is to
become a party, pursuant to or in connection with this Agreement.

 

(d)                                 Contract.

 

(i)                                     The Contract entered into force on 22
September 2006 and all rights and obligations thereunder commenced with effect
from such date.  There are no rights, obligations, duties or liabilities
affecting the Participating Interest, the Contract Area or the Farmee Interest
under or in respect of the UOC PSCs.

 

(ii)                                  The Contract, and all rights and interests
deriving from it, are in full force and effect, and neither Farmor nor any other
Person has been or is in breach or default thereunder (or with the giving of
notice or lapse of time or both, would be in breach or default).

 

9

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Except as otherwise set forth in the Contract, or Schedule 6.1(d), or applicable
Law, Farmor’s interest in the Contract and the Farmee Interest is held by Farmor
free and clear of any Encumbrance, and there is not in effect any agreement or
commitment to create the same; nor are there any other matters which would
restrict Farmor’s ability to freely dispose of the Farmee Interest. Farmor is
the sole legal and beneficial owner of the Farmee Interest and, following
satisfaction of the conditions set out in Article 2, Farmor will have the right
to transfer and assign full legal and beneficial ownership of the Farmee
Interest to Farmee. The Contract is the only document of which Farmor is aware
which governs the creation, existence and validity of the Farmee Interest and is
the only agreement to which Farmor is a party relating to the Farmee Interest.

 

(e)                                  Contract Obligations. Other than as
disclosed on Schedules 6.1(d) or (e), all obligations and liabilities imposed by
the Contract, including work obligations, have been duly fulfilled and
discharged and, save for the Obligation Well, there is no outstanding work
obligation to be fulfilled pursuant to the Contract in respect of the current,
or any earlier, exploration period.

 

(f)                                   Other Obligations. All parties to the
Settlement and Release Agreement have complied in full with the terms thereof
and such agreement is in full force and effect.  Save as expressly provided in
the Settlement and Release Agreement, (i) Farmor has no obligations to any of
the other parties thereto, and (ii) none of the parties thereto (other than
Farmor) have any rights, interests or entitlements in respect of the Contract,
the Participating Interest or the Contract Area. The Offshore Drilling Contract
is in full force and effect and each party is in compliance with their material
obligations in respect thereof, other than as disclosed on Schedule 6.1(f).  All
conditions precedent to the Commencement Date (as such term is defined therein)
have been satisfied and discharged, other than as disclosed on Schedule 6.1(f).

 

(g)                                  No Surrender, Relinquishment or Withdrawal.
No part of the Contract Area is in the process of being surrendered or
relinquished. Farmor has not given any notice of withdrawal in connection with
the Contract. Other than as disclosed on Schedule 6.1(g), there are no
obligations to relinquish or surrender the Contract Area (or any part thereof)
and all previous relinquishments or surrenders of the Contract Area (or any part
thereof) have been pursuant to the terms of the Contract and applicable Laws.

 

(h)                                 Force Majeure. There are no events of force
majeure being claimed under the Contract.

 

10

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(i)                                     Litigation.  Other than as disclosed on
Schedule 6.1(i), there are no actions, suits, arbitrations, mediations,
investigations or similar proceedings pending, or to Farmor’s knowledge,
threatened, with respect to the Joint Operations, the Contract, or the
environmental condition of the Contract Area, nor are there any presently
outstanding judgments, decrees, injunctions, orders or awards specifically
affecting the Joint Operations, the Contract, or the environmental condition of
the Contract Area, nor are there any investigation by any Governmental Entity
which have been commenced or are pending or threatened in writing against
Farmor, which would prevent Farmor from performing its obligation under this
Agreement or any other document to which it is a party, or is to become a party,
pursuant to this Agreement.

 

(j)                                    Judgments.  Except as disclosed on
Schedule 6.1(i), there has been no judgment or award given or issued by any
Governmental Entity which relates to Farmor or the Contract which would
materially affect the rights and obligations to be assigned by Farmor to Farmee.

 

(k)                                 Compliance with Laws.  Farmor has conducted
operations in substantial compliance with all applicable Laws, to the extent not
in conflict with the Laws of the United States of America or subject to penalty
under such Laws.

 

(l)                                     Consents, Approvals, Etc.  All licences,
permissions, consents, approvals and agreements required for the conduct of the
operations under the Contract by Farmor have been obtained and complied with and
are in full force and effect and Farmor is not aware of any circumstances
indicating that any licences, permissions, consents, approvals or agreements
obtained by for the conduct of operations under the Contract by Farmor are
likely to be revoked or not renewed in the ordinary course, or which may prevent
or delay materially the obtaining of any further licences, permissions,
consents, approvals or agreements which are necessary for any part of the
operations under the Contract by Farmor.  The Contract and each amendment
thereto has been duly executed, approved and entered into full force in
accordance with all applicable Laws and the terms of the Contract.

 

(m)                             Operations under the Contract. The Farmee
Interest has been owned and operated in accordance with good oilfield practice
and in compliance in all material respects with all applicable Laws including
any laws, international treaties, national, federal, provincial, state or local
statutes, the common law, and any codes of law applicable to the Farmee
Interest; and Farmor has received no written notice that its ownership and
operation of the Farmee Interest violates in any material respects any
applicable Laws.  Other than as disclosed on Schedule 6.1(i), Farmor has not
received or given any notice of termination of the Contract and, to Farmor’s
knowledge, no event or circumstance exists that, with notice of

 

11

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the lapse of time or both, would constitute a breach thereof or a default
thereunder or would result in a termination, modification, acceleration or
vesting of any rights or obligations or loss of benefits thereunder.

 

(n)                                 Work Programs and Budgets.

 

(i)                                     Farmor has disclosed to Farmee copies of
the current Work Programs and Budget in respect of the Contract Area and all
correspondence with the Government that relate thereto.

 

(ii)                                  Farmor has disclosed to Farmee copies of
minutes of all meetings of the Oil and Gas Operations Management Committee for
the past two (2) years.

 

(o)                                 Health and Safety. Farmor is not aware of
and has not been notified of the occurrence of any material health or safety
incident concerning the Contract and the operations related thereto.

 

 

(p)                                 Environmental Laws.

 

(i)                                     Farmor has not received any notices,
orders or directives under any Environmental Laws or laws relating to health and
safety which require any work, repairs, construction or capital expenditures in
connection with the Contract or the operations related thereto which have not
been fully complied with.

 

(ii)                                  To Farmor’s knowledge, no event or
incident has occurred in respect of the Participating Interests, the Contract
Area or the Farmee Interest which has given rise or would be expected to rise to
any Environmental Liabilities.

 

(iii)                               To Farmor’s knowledge, there has been no
infringement or alleged infringement (in writing received by Farmor) of any
Environmental Laws during any Petroleum Operations conducted in relation to the
Participating Interests or the Farmee Interest.

 

(iv)                              Farmor has not received, and is not aware of,
any notice of any lawsuit or formal administrative proceeding issued before or
by any Governmental Entity or any other public organisation the subject matter
of which is an infringement or breach of Environmental Law relating to the
Participating Interests or the Contract Area (or any part thereof).

 

(q)                                 Insurance. Except as disclosed on
Schedule 6.1(q), the insurance policies of Farmor are in full force and effect
and all premia have been paid to date. No claim has been made under the
insurance policies of Farmor which is still pending at the date of this
Agreement and, to the knowledge of Farmor, there are no circumstances likely to
give rise to any such claim

 

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(r)                                    Bonds, Letters of Credit or Guarantees.
Except as set forth on Schedule 6.1(r), Farmor has no bonds, letters of credit
or guarantees posted with the Government with respect to the Contract, and any
bond, letter of credit or guarantee or similar instrument required by the
Contract to be posted with the Government as of the Execution Date has been
posted.

 

(s)                                   Broker’s Fees. Farmor has not incurred any
liability, contingent or otherwise, for broker’s or finder’s fees or commissions
relating to this Agreement for which Farmee shall have responsibility.

 

(t)                                    Material Data, Documents and
Information.  To the knowledge of Farmor, Farmor is in possession or has access
to all data and information relating to the Farmee Interest to which it is
entitled under the terms of the Contract. Farmor has made available for review
by Farmee all data, contracts, agreements, documents and information which it
believes are material to the Contract, the Farmee Interest, or the transactions
contemplated by this Agreement; provided, however, that Farmor makes no
representation and warranty in relation to the accuracy or completeness of any
interpretation or translation into, or from, the English language. All
information and documents relating to the Farmee Interest disclosed or supplied
by Farmor or to Farmee during or with a view to the negotiations leading up to
this Agreement are, to Farmor’s knowledge, true and accurate in all material
respects, and, to Farmor’s knowledge, there is no fact not disclosed which would
render any such information or document inaccurate or misleading in any material
respect or which, if disclosed, might reasonably affect the willingness of a
third party acting reasonably to acquire the Farmee Interest on the terms of
this Agreement or otherwise on the terms specified in this Agreement.

 

(u)                                 True and Correct.  The copy of the Contract
provided to Farmee by Farmor is a true and correct copy of the original
Contract; provided, however, that Farmor makes no representation and warranty in
relation to the accuracy or completeness of any interpretation or translation
into, or from, the English language.

 

(v)                                 Cost Recovery Pool. Farmor has submitted, in
accordance with the relevant provisions of Contract and Laws, at least One
Hundred Sixty-Five Million U.S. Dollars (U.S. $165,000,000) of Petroleum Costs
(as such term is defined in the Contract) for cost recovery under the Contract,
and has not received any notices, or other indication, from the Government that
any of such costs are not cost-recoverable under the Contract.

 

(w)                               Bankruptcy.

 

(i)                                     As at the Closing Date, Farmor is not
subject to any actual or threatened insolvency proceedings, is able to pay its
debts as they

 

13

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are due, is not bankrupt and has not stopped paying its material debts as and
when they fall due.

 

(ii)                                  No order has been made and no resolution
has been passed for the winding up, dissolution or administration of Farmor or
for a receiver, administrator, trustee in bankruptcy liquidator or similar
office to be appointed in respect of it or any of its assets and no petition has
been presented and no meeting has been convened for the purposes of any of the
foregoing in relation to Farmor.

 

(iii)                               No event analogous to any of the events
specified in (i) and (ii) above has occurred in respect of Farmor in any
jurisdiction.

 

(x)                                 Compliance.

 

(i)                                     Farmor has conducted its business and
corporate affairs in accordance with its memorandum and articles of association,
by-laws or other equivalent documents and in all material respects in accordance
with all applicable Laws. Farmor is not in default of any statute, regulation,
order, decree or judgment of any court of any other Governmental Entity in any
applicable jurisdiction.

 

(ii)                                  Farmor has not received any notice or
other communication (official or otherwise) from any court, tribunal,
arbitrator, administrative authority, regulatory authority or Governmental
Entity:

 

(1)                                 with respect to an alleged actual or
potential violation and/or any failure to comply with any applicable Laws or any
applicable administrative or regulatory practice or guidance of any Governmental
Entity in any applicable jurisdiction; or

 

(2)                                 except as disclosed on Schedules 6.1(d) or
 6.1(x), requiring it to take or omit any action which has had or may have a
material adverse effect upon the Petroleum Operations or the Contract.

 

(iii)                               Farmor has:

 

(1)                                 procedures in place designed to prevent it
or any of its Affiliates (or any of their respective officers, representatives
or employees) from violating applicable Anti-Corruption Legislation; and

 

(2)                                 kept accurate records of its activities,
including financial records in a form and manner appropriate for a business of
its size and resources.

 

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(y)                                 Exports.  Farmor is not prohibited by the
Laws of the USA from, and has obtained any licenses required thereby for:
(i) exporting from the USA (or any other country) items to be utilized in Joint
Operations, (ii) receiving exports of items to be utilized in Joint Operations
and (iii) receiving exports of U.S. goods or technology to be utilized in Joint
Operations.

 

(z)                                  Sanctions.  Farmor is not subject to
economic, financial, trade or other sanctions or restrictions imposed by the
Laws or treaties or conventions of the USA or its Home Country Governmental
Authority or by treaties or conventions of the United Nations.

 

Section 6.2            Farmee’s Warranties.  Farmee warrants to Farmor as
follows:

 

(a)                                 Organization, Authority.  Farmee is
registered, validly existing and in good standing under the laws of the Federal
Republic of Nigeria.  Farmee has the corporate power and authority to own its
property and to carry on its business as presently conducted, and to enter into
and to comply with the terms of this Agreement.  The execution, delivery, and
performance of this Agreement (and all documents required to be executed and
delivered by Farmee hereunder), and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Farmee.  This Agreement has been duly executed
and delivered by Farmee, and all documents required to be executed and delivered
by Farmee hereunder shall be duly executed and delivered by Farmee. This
Agreement and any other document to which Farmee is a party, or is to become a
party, pursuant to or in connection with this Agreement constitute legal, valid
and binding obligations of Farmee enforceable in accordance with their
respective terms.

 

(b)                                 No Conflicts.  The execution, delivery, and
performance of this Agreement (and all documents required to be executed and
delivered by Farmee hereunder) by Farmee, the consummation of the transactions
contemplated hereby and thereby and the compliance by Farmee with the terms
hereof and thereof will not (i) violate any provision of the certificate of
incorporation, memorandum and articles of association, bylaws or other governing
documents of Farmee, (ii) result in a material default (with due notice or lapse
of time or both) or the creation of any lien or encumbrance or give rise to any
right of termination, cancellation, or acceleration under any material agreement
to which Farmee is a party or by which it is bound, (iii) to Farmee’s knowledge,
violate any judgment, order, ruling, or decree applicable to Farmee, (iv) to
Farmee’s knowledge, violate any Laws applicable to Farmee, or (v) to Farmee’s
knowledge, except as disclosed on Schedule 6.2(b) require any consent, approval,
or waiver from any Person other than the Government.

 

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(c)                                  Litigation.  Except as disclosed on
Schedule 6.2(c).  there are no actions, suits, arbitrations, mediations,
investigations or similar proceedings pending, or to Farmee’s knowledge,
threatened, before any Governmental Entity with respect to Farmee, nor are there
any presently outstanding judgments, decrees, injunctions, orders or awards
applicable to Farmee, in each case that could adversely affect the ability of
Farmee to consummate the transactions contemplated hereby or the obligations
attributable to the Farmee Interest under the Contract.

 

(d)                                 Availability of Funds.  Farmee has cash
available or has existing borrowing facilities or other sources of immediately
available funds which together are sufficient to enable it to consummate the
transactions contemplated herein and the obligations attributable to the Farmee
Interest under the Contract and this Agreement.

 

(e)                                  Technical Capability.  Farmee has the
technical capability, personnel, and resources to fulfill its obligations under
this Agreement and the obligations attributable to the Farmee Interest under the
Contract.

 

(f)                                   Investment.  Farmee is familiar with
investments of the nature of the Farmee Interest and the Joint Operations and is
capable of evaluating, and has evaluated, the merits and risks inherent in
acquiring the Farmee Interest.

 

(g)                                  Guinean Law.  Farmee has retained advisors
who are familiar with the Laws of the Republic of Guinea that are relevant to
oil and gas operations, and with the Contract and the Joint Operating Agreement.

 

(h)                                 No Knowledge of Farmor’s Breach.  Farmee has
no knowledge of any undisclosed breach of Farmor’s representations and
warranties hereunder.

 

(i)                                     Broker’s Fees.  Farmee has incurred no
liability, contingent or otherwise, for broker’s or finder’s fees or commissions
relating to this Agreement for which Farmor shall have responsibility.

 

(j)                                    Bankruptcy.

 

(i)                                     Farmee is not subject to any actual or
threatened insolvency proceedings, is able to pay its debts as they are due, is
not bankrupt and has not stopped paying its material debts as and when they fall
due.

 

(ii)                                  No order has been made and no resolution
has been passed for the winding up, dissolution or administration of Farmee or
for a receiver, administrator, trustee, liquidator or similar officer to be
appointed in respect of it or any of the assets and no petition has been
presented and no meeting has been convened for the purposes of any of the
foregoing in relation to Farmee.

 

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(iii)                               No event analogous to any of the events
specified in (i) and (ii) above has occurred in respect of Farmee in any
jurisdiction.

 

(k)                                 Exports.  Farmee is not prohibited by the
Laws of the USA from, and has obtained any licenses required thereby for:
(i) exporting from the USA (or any other country) items to be utilized in Joint
Operations, (ii) receiving exports of items to be utilized in Joint Operations
and (iii) receiving exports of U.S. goods or technology to be utilized in Joint
Operations.

 

(l)                                     Sanctions.  Farmee is not subject to
economic, financial, trade or other sanctions or restrictions imposed by the
Laws or treaties or conventions of the USA or its Home Country Governmental
Authority or by treaties or conventions of the United Nations.

 

Section 6.3            Warranties Regarding Anti-Corruption.

 

(a)                                 Without prejudice to Section 7.4, each
Party, in recognition of the OECD Principles warrants that it and its Affiliates
have not knowingly, either directly or indirectly, paid, made, offered, given,
promised, or authorized and will not knowingly pay, make, offer, give, promise
or authorize, in connection with this Agreement, the Contract or the operations
associated therewith, commission, money, payment, gift (other than promotional
and marketing gifts of nominal value), loan, fee, reward, travel, entertainment,
transfer anything of value or any other advantage, to or for the use or benefit
of any Official or Commercial Agent for the purposes of:

 

(i)                                     influencing any act, omission or
decision on the part of any such Official or Commercial Agent, in his or her
official capacity;

 

(ii)                                  securing any improper advantage from such
Official or Commercial Agent; or

 

(iii)                               inducing any such Official or Commercial
Agent to use his or her influence with another Official or Governmental
Authority (or with his employer or company) to affect or influence any official
act or to direct business to any Person, or to obtain or retain business related
to this Agreement and/or the Contract;

 

where such bribe, commission, money, payment, gift (other than promotional and
marketing gifts of nominal value), loan, fee, reward, travel, entertainment,
transfer of anything of value or any other advantage, would violate the
Anti-Corruption Legislation (each a “Corrupt Act”).

 

(b)                                 Each Party warrants that it and its
Affiliates:

 

(i)                                     have not accepted or agreed to receive;
and

 

(ii)                                  will not accept or agree to receive,

 

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with respect to any of the matters which are the subject of this Agreement, the
Contract or the operations associated therewith, any financial or other
advantage, whether directly or indirectly, from an Official or Commercial Agent,
as an inducement or reward for taking or omitting to take any action, in any
case where such payment, gift, promise or advantage would violate any
Anti-Corruption Legislation.

 

(c)                                  Each Party warrants that it and its
Affiliates have not either directly or indirectly paid, made, offered, given,
promised or authorized, and will not pay, make, offer, give, promise or
authorize, in connection with this Agreement, the Contract (including as regards
Farmee obtaining an interest in the Contract), or the operations associated
therewith, to or for the use or benefit of any other Person, any bribe,
commissions, money, payment, gift (other than promotional and marketing gifts of
nominal value), loan, fee, reward, travel, entertainment, anything of value or
any other advantage, if the Party or Affiliate knows, has a firm belief or is
aware that there is a high probability that the other Person would use the
bribe, commissions, money, payment, gift (other than promotional and marketing
gifts of nominal value), loan, fee, reward, travel, entertainment, or anything
of value or any other advantage for any of the purposes prohibited by
Section 6.3 or Section 7.4.

 

(d)                                 Each Party warrants that it and its
Affiliates have not either directly or indirectly taken or authorized, and will
not take or authorize, any act in connection with this Agreement, or the
Contract or the operations associated therewith that could give rise to either
civil or criminal liability for any Party under any Anti-Corruption Legislation
applicable to such Party.

 

(e)                                  Farmor warrants to Farmee that it, in the
exercise of its rights under the Contract (including without limitation
obtaining the award of such Contract and all activities relating to the Contract
Area):

 

(i)                                     has properly recorded all material
transactions;

 

(ii)                                  has in place and, since 1 May 2012, has
implemented internal controls which would be seen as adequate procedures in
respect of the Anti-Corruption Legislation (as amended from time to time);

 

(f)                                   Each Party agrees and confirms that it
will, in connection with all activities pursuant to this Agreement, the Contract
and the Contract Area:

 

(i)                                     properly record all material
transactions; and

 

(ii)                                  have in place and implement internal
controls in order to comply with any anti-corruption Laws and which would be
seen as adequate procedures in respect of s7(2) of the UK’s Bribery Act 2010 (as
amended from time to time).

 

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(g)                                  Each Party agrees and confirms that it
will:

 

(i)                                     provide any such information as the
other Party may reasonably require by notice in writing in order to monitor
compliance with obligations under this Section 6.3; and

 

(ii)                                  notify the other Party immediately in
writing if, at any time, it becomes aware that any of the warranties set out in
this clause is no longer correct.

 

(h)                                 Each of the Parties agrees to indemnify and
hold the other Party harmless for any claims, causes of action or liabilities
which arise out of the breach by a Party of any of its warranties under this
Section 6.3.

 

Section 6.4            Disclaimer.  Except as expressly set forth in this
Agreement, neither Party makes any representation or warranty, express or
implied.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS EXPRESSLY
REPRESENTED OTHERWISE IN THIS AGREEMENT, THE FARMOR EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (A) THE CONTENTS,
CHARACTER, OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF ANY
PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR
INTERPRETATION, RELATING TO THE CONTRACT OR THE JOINT OPERATIONS, (B) THE
QUANTITY, QUALITY, OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE CONTRACT
AREA, (C) ANY ESTIMATES OF THE VALUE OF THE CONTRACT, RESERVES CONTAINED IN THE
CONTRACT AREA OR FUTURE REVENUES GENERATED BY THE CONTRACT, (D) THE MAINTENANCE,
REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN, OR MARKETABILITY OF THE JOINT
ACCOUNT ASSETS, (E) THE ENVIRONMENTAL CONDITION OF THE CONTRACT AREA, THE JOINT
OPERATIONS AND THE JOINT ACCOUNT ASSETS, (F) ANY ENVIRONMENTAL, ABANDONMENT OR
DECOMMISSIONING OBLIGATIONS OR LIABILITIES IN RELATION TO THE CONTRACT OR
CONTRACT AREA (INCLUDING ANY ABANDONMENT OR DECOMMISSIONING OBLIGATIONS IN
RESPECT OF WELLS, PLATFORMS, RIGS OR PIPELINES), (G) THE ABILITY TO OBTAIN
GOVERNMENTAL APPROVAL, (H) THE LAWS OF THE REPUBLIC OF GUINEA, OR (I) ANY OTHER
MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
FARMEE OR ITS AFFILIATES, OR ITS OR THEIR REPRESENTATIVES IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR REPRESENTATION
RELATING THERETO.  THERE ARE NO IMPLIED REPRESENTATIONS OR WARRANTIES.  FARMEE
HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AND INVESTIGATIONS AS FARMEE
DEEMS APPROPRIATE.

 

Section 6.5            Effectiveness of Warranties.  Unless otherwise
specifically stated within a warranty, all warranties given under this Article 6
shall be made as of the Execution Date and deemed repeated and valid, true and
correct as of the Closing Date, and each Party agrees to

 

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inform the other Party of any material changes to the facts in its warranties
prior to the Closing Date.

 

Section 6.6            Knowledge.  Where a warranty is qualified by the
expression “to Farmor’s knowledge” or “to Farmee’s knowledge”, or any similar
expression, the Party giving the warranty acknowledges that it has warranted to
the other Party after due enquiry by the following individuals:  (a) with
respect to Farmor: Ray Leonard, President/CEO, Sergey Alekseev, Vice-President,
Commercial Development and Forrest Estep, Vice-President, Operations, only; and
(b) with respect to Farmee: Dale Rollins, Managing Director, only and that the
Party giving the warranty has used all reasonable endeavors to ensure that the
statement contained in that warranty is accurate.  Except as set forth in the
previous sentence, “knowledge” does not include knowledge or awareness of any
other individual, or constructive or imputed knowledge.

 

ARTICLE 7 - CERTAIN COVENANTS OF THE PARTIES

 

Section 7.1            Covenants of Farmor.

 

(a)                                 Access to Information.  Subject to
Section 8.1 and applicable Laws, upon reasonable notice to Farmor, Farmor shall
allow Farmee reasonable access, during normal business hours in the Interim
Period (unless this Agreement is otherwise terminated), to its properties,
books, contracts and records as well as to its management personnel, in each
case to the extent relating to the Joint Operations; provided, however, that
(i) such access shall be provided on a basis that minimizes the disruption to
the operations of Farmor, and (ii) Farmor shall have no obligation to disclose
or provide access to any information the disclosure of which Farmor has
concluded would be in violation of a confidentiality obligation binding on
Farmor.  Subject to Section 8.1 and the confidentiality provisions of the Joint
Operating Agreement, to the extent permitted by the Contract, from the Execution
Date until the Closing Date (unless this Agreement is otherwise terminated),
Farmor shall provide to Farmee copies of the information that is required to be
distributed by the operator to non-operators under the Joint Operating
Agreement.

 

(b)                                 Certain Events.  During the Interim Period
(unless this Agreement is otherwise terminated), Farmor shall promptly notify
Farmee of and furnish Farmee with any information with respect to the occurrence
of any event or condition known to Farmor that could reasonably be expected to
(i) cause any of the conditions set forth in Section 2.1 not to be satisfied, or
(ii) have a Material Adverse Effect.  If Farmor discovers the existence of a
breach by Farmee of the representations, warranties, obligations or covenants
contained in this Agreement (or the existence of any matter that would have been
such a breach had it been in existence as the date hereof), then Farmor shall
notify Farmee in writing of such information within five days after such
discovery or the day prior to the Closing Date, whichever is earlier.

 

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(c)                                  Conduct of Joint Operations.  During the
Interim Period, Farmor shall:

 

(i)                                     conduct Petroleum Operations in
accordance and substantial compliance with the Contract, the Joint Operating
Agreement, and all applicable Laws, in the normal course of business, and in
accordance with good international petroleum industry practice and in
substantially the same manner as the Petroleum Operations have been carried on
before the Execution Date;

 

(ii)                                  maintain and renew all governmental
licences, permits, authorisations, consents and permissions necessary to own and
operate the Participating Interests;

 

(iii)                               except as set forth on Schedule 7.1(c), not
(by act or omission) breach any of the provisions of:

 

(1)                                 the Contract;

 

(2)                                 the MSA;

 

(3)                                 the Offshore Drilling Contract; and/or

 

(4)                                 the Settlement and Release Agreement;

 

and Farmor shall notify Farmee in a timely manner of any facts or circumstances
of which it is aware which indicate that there has been such a material breach
by any other party or that such a material breach by Farmor has occurred;

 

(iv)                              comply in all material respects with
applicable Laws;

 

(v)                                 ensure that all insurance policies in place
as at the date of this Agreement in relation to the Contract remain in full
force and effect and that all premiums for such insurance policies are paid in
full;

 

(vi)                              not, without the prior written consent of
Farmee:

 

(1)                                 trade, relinquish, surrender, sell, lease or
assign the Farmee Interest or create or permit to subsist any Encumbrance over
the Farmee Interest;

 

(2)                                 terminate, amend, or permit any termination
or amendment of, the Contract (other than any amendment expressly referred to in
this Agreement);

 

(3)                                 withdraw from any portion of the Contract;

 

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(4)                                 do or omit to do anything that would
constitute a waiver of any of Contractor’s rights under the Contract;

 

(5)                                 approve any voluntary relinquishment or
surrender of any part of the area covered by the Contract;

 

(6)                                 other than as contained in the Work Program
and Budget, approve any work program, budget, expenditure or capital commitment
relating to the Farmee Interest involving expenditure in excess of Five Hundred
Thousand U.S. Dollars (U.S. $500,000);

 

(7)                                 enter into or become a party to or amend any
exploration or exploitation authorisations, licences, operating agreements,
unitisation agreements, transportation agreements, supply agreements,
cooperation agreements, area of mutual interest agreements or any agreement or
undertaking in relation to the Farmee Interest;

 

(8)                                 amend the bottom-hole location of the
Obligation Well; or

 

(9)                                 incur any Obligation Well Costs which would
result in the total Obligation Well Costs described in the Work Program and
Budget being in excess of Fifty Million Six Hundred Thousand U.S. Dollars (U.S.
$50,600,000);

 

(vii)                           consult with Farmee in advance in relation to
any material decision in connection with the Farmee Interest and, to the extent
lawful, take account of Farmee’s reasonable suggestions;

 

(viii)                        obtain the prior written approval of Farmee prior
to submitting any proposal in respect of any mandatory relinquishment of the
area covered by the Contract;

 

(ix)                              subject to any obligations of confidentiality,
make available or allow Farmee access to all information, data or other material
relating to the Farmee Interest of which the Farmor becomes aware or reasonably
requested by the Farmee from time to time;

 

(x)                                 cooperate with Farmee so as to ensure an
efficient handover of the Farmee Interest on the Closing Date; and

 

(xi)                              use its reasonable endeavours to enable Farmee
to attend, as an observer, any meetings of the relevant operating or other
committee established under the Contract.

 

(d)                                 No Restriction.  Nothing in this Section 7.1
is intended to:

 

22

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(i)                                     restrict Farmor’s ability to do such
things as it may consider necessary (acting reasonably):

 

(1)                                 to preserve all rights and interests under
the Contract; or

 

(2)                                 due to emergency operational requirements;
or

 

(ii)                                  impose any obligation that may be
inconsistent with the obligations under the Contract or applicable Laws,

 

provided that Farmor shall notify Farmee of any action required to be taken in
accordance with Section 7.1(d) or, where not feasible to do so, promptly
thereafter.

 

Section 7.2            Covenants of Farmee.

 

(a)                                 Approvals.  If and to the extent requested
by Farmor, Farmee shall cooperate with Farmor in connection with Farmor’s
obligations under Section 1.3 and Section 1.4 and in connection with
Section 4.3(b), and shall participate in discussions with the Government
relating thereto.  If and to the extent requested by Farmor, Farmee shall
provide such evidence of its financial, administrative and technical capability
as may reasonably be necessary in connection with Farmor’s obligations under
Section 1.3 and Section 1.4.

 

(b)                                 Certain Events.  From the Execution Date
until the Closing Date (unless this Agreement is otherwise terminated), Farmee
shall promptly notify Farmor of and furnish Farmor with any information with
respect to the occurrence of any event or condition known to Farmee that could
reasonably be expected to cause any of the conditions set forth in Section 2.1
not to be satisfied.  If Farmee discovers the existence of a breach by Farmor of
the representations, warranties, obligations or covenants contained in this
Agreement (or the existence of any matter that would have been such a breach had
it been in existence on the date hereof), then Farmee shall notify Farmor in
writing of such information within five days after such discovery or the day
prior to the Closing Date, whichever is earlier.

 

(c)                                  Government Contact.  Farmee shall not
contact the Government in relation to this Agreement or the Contract without
Farmor’s prior consent.

 

Section 7.3            Mutual Covenants.

 

(a)                                 Obligation Well Commencement Date.  Farmor
and Farmee shall each use commercially reasonable efforts (i) to cause
operations in anticipation of drilling of the Obligation Well to commence on a
date that would allow the drilling rig to commence actual drilling operations on
or before May 31, 2017, and (ii) thereafter to cause the Obligation Well to be
drilled

 

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to the Objective Depth with diligence and reasonable dispatch, and without
unnecessary delay.

 

(b)                                 Conduct.  On and from Closing Date, Farmor
and Farmee shall each be subject to and comply with the terms and provisions of
the Joint Operating Agreement and the Contract.

 

(c)                                  Warranties.  The Parties shall not take any
action nor fail to take any action prior to the Closing Date that would result
in a breach of any of its warranties under this Agreement.

 

(d)                                 Commercially Reasonable Efforts;  Further
Assurances.  Upon the terms and subject to the conditions hereof, each of the
Parties shall use its commercially reasonable efforts to take, or cause to be
taken, all appropriate action, and to do or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions and actions contemplated by this Agreement.  Without
limiting the foregoing, but subject to the other terms of this Agreement, the
Parties agree that, from time to time, whether before, at or after the Closing
Date, each of them will execute and deliver, or cause to be executed and
delivered, such instruments of assignment, assumption, transfer, conveyance,
endorsement, direction or authorization as may be necessary to consummate and
make effective the transactions and actions contemplated by this Agreement.

 

(e)                                  Sanctions; Export Administration.  Neither
Farmor nor Farmee shall take any action in relation to this Agreement, the
Contract, the Joint Operating Agreement or Joint Operations that would cause it
(or would be likely to cause it) to violate (i) any economic, financial, trade
or other sanctions or restrictions imposed by the Laws or treaties or
conventions of the USA or its Home Country Governmental Authority or by treaties
or conventions of the United Nations or (ii) any export administration Laws of
the USA.

 

Section 7.4            Mutual Covenants Regarding Anti-Corruption.

 

(a)                                 Conduct of the Parties.  No Party to this
Agreement shall knowingly permit or allow, by act or omission, the paying,
making, offering, promising, authorizing or causing to pay, make, offer, give,
promise or authorize, either directly or indirectly, by it or any of its
Affiliates, of any bribe, commission, money, payment, gift (other than
promotional and marketing gifts of nominal value), loan, fee, reward, travel,
entertainment, transfer of anything of value or any other advantage to or for
the use or benefit of any Official of a nature and cost which is not permitted
under the Anti-Corruption Legislation, in connection with this Agreement, the
JOA, the Contract or the operations associated therewith.

 

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(b)                                 Internal Controls.  In connection with this
Agreement, the JOA and the Contract and the operations associated therewith,
each Party shall (1) maintain adequate internal controls, including having in
place a Code of Business Conduct and Ethics; (2) properly record and report all
transactions and keep such books, accounts and records for a period of at least
seven years following the period to which they relate; and (3) procure that its
officers, directors, employees, agents and subcontractors comply with the Code
of Business Conduct and Ethics (as amended from time to time) and provide
adequate training to their officers, directors, employees, agents and
subcontractors in respect of the Code of Business Conduct and Ethics; and
(4) comply with the Anti-Corruption Legislation.  Each Party shall be entitled
to rely on the other Party’s system of internal controls and record keeping, and
on the adequacy and full disclosure of the facts, transactions, and financial
and other data regarding the Contract and/or the JOA and any other activity
undertaken under this Agreement, the Contract and/or the JOA.  No Party is in
any way authorized to take any action on behalf of another Party that would
result in an inadequate or inaccurate recording and reporting of assets,
liabilities or any other transaction, or which would cause such Party to be in
violation of its obligations under the Anti-Corruption Legislation or any other
Laws applicable in connection with this Agreement, the Contract, the JOA or the
operations associated therewith.

 

(c)                                  Audit Rights.  During the term of this
Agreement and for a period of five (5) years thereafter, each Party shall in a
timely manner:

 

(i)                                     respond in reasonable detail as to
itself and its Affiliates after reasonable inquiry and investigation to any
notice or request from the other Party reasonably connected with the
representations, warranties and covenants set forth in Section 6.3 and
Section 7.4;

 

(ii)                                  furnish relevant documentary support for
such responses upon request from such other Party; and

 

(iii)                               in general, cooperate in good faith with
such other Party in determining whether a breach of the representations and
warranties has occurred.

 

(d)                                 Whistle-Blowing.  Each Party shall implement
and maintain a process or policy in respect of whistle-blowing, the sharing of
any allegations and investigating and acting on any reported violations as
regards this Agreement, the Contract, the JOA and/or the operations associated
therewith.  This policy may be included as part of the Code of Business Conduct
and Ethics referenced above.

 

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ARTICLE 8 - EXPENSES, STAMP DUTIES AND TAXES

 

Section 8.1            Expenses.  Whether or not the transactions contemplated
hereby are consummated, and except as otherwise specifically provided in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the Party incurring such
costs or expenses.

 

Section 8.2            Duties, Taxes and Fees.  All Taxes, duties, levies, and
fees, if any, (other than Taxes which may be based upon the income, profits,
revenues, gross receipts or capital gains of Farmor), payable to the Government
in respect of the farm-in for and transfer of the Farmee Interest shall be paid
by Farmee.  Each Party shall use commercially reasonable efforts to avail itself
of any available exemptions from any such Taxes, duties, levies, or fees, and to
cooperate with the other Party in providing any information and documentation
that may be necessary to obtain such exemptions.  If the Government imposes
joint and several liability on the Parties for any fees, levy, charge or Tax,
the Parties agree to cross indemnify each other to the extent that such fees,
levy, charge or Tax is owed by one Party individually.

 

ARTICLE 9 - RELATIONSHIP OF THE PARTIES

 

Section 9.1            Independent Co-Owners.  It is not the intention of the
Parties to create, nor shall this Agreement be construed as creating, a joint
venture, a trust, a mining or other partnership or association, or otherwise
render the Parties liable as partners.  The liability of the Parties shall be
several and not joint or collective.  This Agreement does not authorize either
Party to act as agent or principal of the other Party for any purpose, except as
expressly set forth in this Agreement.  Neither Party shall have a fiduciary
duty to the other Party.

 

Section 9.2            Tax.  Each Party shall be responsible for reporting and
discharging its own Taxes measured by the profit or income of the Party and the
satisfaction of such Party’s share of all contract obligations under this
Agreement and under the Contract.  Each Party shall indemnify, defend and hold
each other Party harmless from any and all charges, claims, costs, damages,
expenses, expenditures, fines, judgments, liabilities, losses and penalties
(including reasonable attorneys’ fees and related expenses) (collectively,
“Losses”) arising from such Party’s failure to report and discharge such Taxes
or satisfy such obligations.  The Parties intend that all income and all Tax
benefits (including deductions, depreciation, credits and capitalization) with
respect to the expenditures made by the Parties hereunder will be allocated by
the Government Tax authorities to the Parties based on the share of each Tax
item actually received or borne by each Party.  If such allocation is not
accomplished due to the application of the Laws or other Government action, the
Parties shall attempt to adopt mutually agreeable arrangements that will allow
the Parties to achieve the financial results intended.

 

Section 9.3            United States Internal Revenue Code.  If, for United
States federal income tax purposes, this Agreement and the operations under this
Agreement are regarded as a partnership, each Party elects to be excluded from
the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle
“A” of the United States Internal Revenue Code of 1986, as amended (the “Code”),
to the extent permitted and authorized by Section 761(a) of the Code and the
regulations promulgated under the Code.  Farmor is authorized and directed to
execute and file for each Party such evidence of this election as may be
required by the Internal Revenue

 

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Service, including all of the returns, statements, and data required by United
States Treasury Regulations Sections 1.761-2 and 1.6031(a)-1(b)(5) and shall
provide a copy thereof to each U.S. Party.  Should there be any requirement that
any Party give further evidence of this election, each Party shall execute such
documents and furnish such other evidence as may be required by the Internal
Revenue Service or as may be necessary to evidence this election.  No Party
shall give any notice or take any other action inconsistent with the foregoing
election.  If any income tax laws of any state or other political subdivision of
the United States or any future income tax laws of the United States or any such
political subdivision contain provisions similar to those in Subchapter “K”,
Chapter 1, Subtitle “A” of the Code, under which an election similar to that
provided by Section 761(a) of the Code is permitted, each Party shall make such
election as may be permitted or required by such laws.  In making the foregoing
election or elections, Farmor states that the income derived by it from
operations under this Agreement can be adequately determined without the
computation of partnership taxable income.  Unless approved by Farmee, no
activity shall be conducted under this Agreement that would cause Farmee to be
deemed to be engaged in a trade or business within the United States under
United States income tax laws and regulations.

 

Section 9.4            Area of Mutual Interest.

 

(a)                                 If, during the AMI Term, either Party (or
any Affiliate) (the “Acquiring Party”) acquires an Interest in the AMI Area or
acquires the right to acquire any Interest in the AMI Area (either being an
“Acquired Interest”), it shall promptly notify the other Party (the “Offeree”)
in writing of the acquisition of (a) an Acquired Interest or (b) the right to
acquire an Acquired Interest.  The notice shall contain reasonable full
particulars of (i) the consideration the Acquiring Party has paid or given, or
has agreed to pay or give, for the acquisition of the Acquired Interest and
(ii) all reasonable out-of-pocket costs and expenses incurred, or to be
incurred, by the Acquiring Party that are directly related to the acquisition of
the Acquired Interest (collectively, the “Consideration”).  The Offeree shall
have a period of 30 days after receipt of the notice to irrevocably commit, by
written notice received by the Acquiring Party, to acquire its AMI Share of the
Acquired Interest by paying and bearing its AMI Share of the Consideration. 
Failure of the Offeree to so commit in writing in such 30-day period shall be
deemed a binding election by the Offeree not to acquire its AMI Share of the
Acquired Interest.  If the Offeree elects in writing to acquire its AMI Share in
the Acquired Interest, then within 30 days of the Offeree’s commitment to
acquire its AMI Share of the Acquired Interest, it shall pay to the Acquiring
Party its AMI Share of the Consideration to the extent already paid or given by
the Acquiring Party or enter into an agreement with the Acquiring Party to pay
or bear its share of the Consideration to the extent not already paid or given
by the Acquiring Party.

 

(b)                                 When an Acquired Interest includes more than
one separate Interest within the AMI area, the Offeree may not make separate
elections as to the separate Interests.  When an Acquired Interest is part of a
package deal or

 

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larger transaction which includes separate interests outside of the AMI Area,
the Offeree may make separate elections as to the separate Interests within the
AMI Area.  The Acquiring Party shall, in good faith, make an accurate and
realistic allocation of the Consideration attributable to each of the separate
interests acquired, or to be acquired, including the separate Interests within
the AMI Area.

 

Section 9.5            Right of Competition.  Without prejudice to any
obligation contained in the Contract or the Joint Operating Agreement, except as
set forth in Section 9.4, nothing in this Agreement shall preclude either Party,
or its Affiliates, from engaging in any business or purchasing any property of
any sort whatsoever, whether or not in competition with operations under this
Agreement, or compel either Party or its Affiliates to consult with the other
Party or to invite or allow the other Party to participate in such business or
property.

 

ARTICLE 10 - CONFIDENTIALITY

 

Section 10.1          Obligation of Confidentiality.  Except as otherwise
provided in the Contract, each Party agrees that all information disclosed under
or pursuant to this Agreement, except information in the public domain or
lawfully in possession of a Party prior to the Execution Date (which such
information not to include information previously disclosed under the
Confidentiality Agreement), shall be considered confidential and shall not be
disclosed to any other person or entity without the prior written consent of the
Party which owns such confidential information.  This obligation of
confidentiality shall remain in force during the term of the Contract and the
Joint Operating Agreement and for a period of two (2) years thereafter. 
Notwithstanding the foregoing, confidential information may be disclosed without
consent and without violating the obligations contained in this Article 10 in
the following circumstances:

 

(a)                                 to an Affiliate provided the Affiliate is
bound to the provisions of this Article 10 and the Party disclosing is
responsible for the violation of an Affiliate;

 

(b)                                 to a Governmental Entity when required by
the Contract;

 

(c)                                  to the extent such information is required
to be furnished by or in compliance with applicable Laws, or pursuant to any
legal proceedings or because of any order of any court binding upon a Party;

 

(d)                                 to attorneys engaged, or proposed to be
engaged, by any Party where disclosure of such information is essential to such
attorney’s work for such Party, and such attorneys are bound by an obligation of
confidentiality;

 

(e)                                  to contractors and consultants engaged, or
proposed to be engaged, by any Party where disclosure of such information is
essential to such contractor’s or consultant’s work for such Party;

 

(f)                                   to a bona fide prospective transferee of a
Party’s Participating Interest, or portion thereof) or a Party’s rights and
obligations under this Agreement, to the extent appropriate in order to allow
the assessment of such

 

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Participating Interest or rights and obligations (including an entity with whom
a Party and/or its Affiliates are conducting bona fide negotiations directed
toward a merger, consolidation or the sale of a majority of its or an
Affiliate’s shares);

 

(g)                                  to a bank or other financial institution to
the extent appropriate to a Party arranging for funding;

 

(h)                                 to the extent such information must be
disclosed pursuant to any rules or requirements of any government or stock
exchange having jurisdiction over such Party, or its Affiliates; provided,
however, that such Party shall comply with the requirements of Section 10.2;

 

(i)                                     to its respective employees, subject to
each Party taking sufficient precautions to ensure such information is kept
confidential;

 

(j)                                    to the extent any information which,
through no fault of a Party, becomes a part of the public domain; and

 

(k)                                 to the Government and any other Governmental
Entities solely to the extent required to satisfy the conditions pursuant to
Section 2.1.

 

Disclosure pursuant to Sections 10.1 (e), (f), (g) and (i) shall not be made
unless prior to such disclosure the disclosing Party has obtained a written
undertaking from the recipient party to keep the information strictly
confidential for at least as long as the period set out above and to use the
information for the sole purpose described in Sections 10.1 (e), (f), (g) and
(i).

 

Section 10.2          Publicity.  Each Party agrees that no public release or
announcement concerning the transactions contemplated hereby shall be issued by
either Party or its Affiliates without the prior consent of the other Party
(which consent shall not be unreasonably withheld, delayed or conditioned),
except as such release or announcement may be required by Law or the rules or
regulations of any securities exchange, in which case the Party required to make
the release or announcement shall, to the extent practicable, allow the other
Party reasonable time to comment on such release or announcement in advance of
such issuance.

 

Section 10.3          Conflict.  To the extent there is any conflict between the
provisions of this Article 10 and the confidentiality provisions of the Joint
Operating Agreement, prior to the Closing Date the provisions of this Article 10
shall prevail, and after the Closing Date the confidentiality provisions of the
Joint Operating Agreement shall prevail.

 

ARTICLE 11 - INDEMNIFICATION

 

Section 11.1          Indemnification by Farmor.  Subject to the other
provisions of this Agreement, Farmor shall fully and effectively indemnify,
defend and hold Farmee harmless from and against all Actions and all Losses
incurred by Farmee which result from any breach by Farmor of any of its
representations, warranties, covenants and other agreements set forth in this
Agreement or in any other agreement or instrument furnished by Farmor pursuant
to this Agreement. EXCEPT TO THE EXTENT SUCH LOSSES ARE CAUSED IN WHOLE OR IN

 

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PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT), STRICT LIABILITY, OR
OTHER LEGAL FAULT OF THE INDEMNIFIED PERSON.

 

Section 11.2          Pre-Closing Date Indemnification. Save as provided in
Section 1.8 and Section 3.1:

 

(a)                                 Farmor shall, subject to the Closing Date
occurring, be liable for, and shall fully and effectively indemnify, defend and
hold Farmee harmless in respect of, all Actions and Losses in respect of the
Farmee Interest which accrue in or relate to the period prior to the Closing
Date; and

 

(b)                                 Farmee shall be entitled to all income,
receipts, credits, rebates and other benefits in respect of the Farmee Interest
(together the “Benefits”) which accrue in or relate to any period from and after
the Closing Date and Farmor shall account to and reimburse Farmee any amounts
arising in respect thereof.

 

Section 11.3          Indemnification by Farmee.  Subject to the other
provisions of this Agreement, Farmee shall fully and effectively indemnify,
defend and hold Farmor harmless from and against all Actions and all Losses
incurred by Farmor which result from any breach by Farmee of any of its
representations, warranties, covenants and other agreements set forth in this
Agreement or in any other agreement or instrument furnished by Farmee pursuant
to this Agreement, EXCEPT TO THE EXTENT SUCH LOSSES ARE CAUSED IN WHOLE OR IN
PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT), STRICT LIABILITY, OR
OTHER LEGAL FAULT OF THE INDEMNIFIED PERSON.

 

Section 11.4          Post-Closing Date Indemnification. Save as provided in
Section 1.8 and Section 3.1:

 

(a)                                 Farmee shall, subject to the Closing Date
occurring, be liable for, and shall fully and effectively indemnify, defend and
hold Farmor harmless in respect of, all Actions and Losses in respect of the
Farmee Interest which accrue in or relate to the period from and after the
Closing Date; and

 

(b)                                 Farmor shall be entitled to all Benefits
which accrue in or relate to any period prior to the Closing Date and Farmee
shall account to and reimburse Farmor any amounts arising in respect thereof.

 

Section 11.5          Indemnification Regarding Anti-Corruption. 
Notwithstanding Section 12.4(d), each Party shall defend, indemnify and hold the
other Parties harmless from and against any and all Losses arising from or
related to, any breach by such first Party of representations, warranties or
covenants under Section 6.3 or Section 7.4.

 

Section 11.6          General Provisions.

 

(a)                                 Except as set forth in the following two
sentences, the warranties of Farmor in Section 6.1 and of Farmee in Section 6.2
shall survive the transfer of the Farmee Interest to Farmee and shall terminate
on the first

 

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anniversary of Closing Date, after which they shall be of no further force and
effect.  The warranties of Farmor in Sections 6.1(a), (b), (e), (g), (m), (o),
(p), (v), (y) and (z) and of Farmee in Sections 6.2(a), (b), (k) and (l) shall
survive the transfer of the Farmee Interest to Farmee and shall terminate on the
second anniversary of the Closing Date, after which they shall be of no further
force and effect.  The warranties of Farmor in Section 6.1(d) and
Section 6.1(f) shall survive the transfer of the Farmee Interest to Farmee and
shall terminate on the date of adoption of the Development Plan (as such term is
defined in the Contract), after which they shall be of no further force and
effect.  The warranties set out in Section 6.3 shall survive the Closing Date
without limitation.  There shall be no termination of any bona fide claim for
breach of any such warranty that is asserted by notice to the Indemnifying Party
prior to the applicable termination date.

 

(b)                                 An Indemnifying Party shall not be
responsible for a breach by such Indemnifying Party to the extent that such
breach has been fully, accurately and fairly disclosed to the Indemnified Party
at or prior to the Execution Date.

 

(c)                                  The amount of Losses for which an
Indemnified Party is entitled to indemnity pursuant to this Article 11 shall be
reduced by the amount of insurance proceeds realized and received by the
Indemnified Party or its Affiliates with respect to such Losses.

 

(d)                                 The indemnity to which each Party is
entitled pursuant to this Article 11 shall be for the benefit of and extend to
such Party’s Affiliates and its and their respective directors, officers,
employees and agents.  Any claim for indemnity under this Article 11 by any such
Affiliate, director, officer, employee or agent must be brought and administered
by the applicable Party.  No indemnified Person other than Farmor and Farmee
shall have any rights against either Farmor or Farmee under this Article 11
except as may be exercised on its behalf by Farmee or Farmor, as applicable,
pursuant to this Article 11.  Each of Farmor and Farmee may elect to exercise or
not to exercise indemnification rights under this Article 11 on behalf of the
other indemnified Persons affiliated with it in its sole discretion and shall
have no liability to any such other indemnified Person for any action or
inaction under this Article 11.

 

(e)                                  Farmor and Farmee shall cooperate with each
other to resolve any Losses with respect to which one Party is obligated to
indemnify the other Party (or the indemnified Persons affiliated with it)
pursuant to this Article 11 including by making commercially reasonable efforts
to mitigate or resolve any such Losses and providing the Indemnifying Party with
reasonable access to the Indemnified Party’s records (other than those the
disclosure of which would jeopardize a legal privilege or breach a
confidentiality obligation binding on the Indemnifying Party) and

 

31

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personnel in connection with an indemnity claim pursuant to this Article 11. 
All such records and information provided to the Indemnifying Party shall be
kept confidential in accordance with the confidentiality provisions of
Article 10 and the Joint Operating Agreement, as applicable, except to the
extent necessary for defending against a Third Party Claim or resolving any
dispute regarding the obligations of either Party pursuant to this Article 11. 
In the event that Farmor or Farmee shall fail to make such commercially
reasonable efforts to mitigate any Losses, then notwithstanding anything else to
the contrary in this Agreement, the Indemnifying Party shall not be required to
indemnify the Indemnified Party (or the indemnified Persons affiliated with it)
for the portion of any Loss that could reasonably be expected to have been
avoided or mitigated if the Indemnified Party had made such efforts.

 

(f)                                   Except as set forth in Article 4 and
Sections 12.4(c) and Article 13, the Parties agree that the indemnification
provisions in this Article 11 shall be the exclusive remedy of the Parties with
respect to breaches of warranties and failures to perform covenants or
agreements hereunder.

 

Section 11.7                             Indemnification Procedures.  All claims
for indemnification pursuant to this Article 11 shall be asserted and resolved
pursuant to this Section 11.7.  Any Person claiming indemnification hereunder is
hereinafter referred to as the “Indemnified Party” and any Person against whom
such claims are asserted hereunder is hereinafter referred to as the
“Indemnifying Party.” In the event that any Third Party Claims are asserted
against or sought to be collected from an Indemnified Party, such Indemnified
Party shall with reasonable promptness provide to the Indemnifying Party a
written notice of claim specifying in reasonable detail the specific nature,
specific basis and amount of the Third Party Claims for which indemnification is
sought.  The Indemnifying Party shall have 30 days from the personal delivery or
receipt of such written notice (the “Notice Period”) to notify the Indemnified
Party (a) whether or not it disputes the liability of the Indemnifying Party to
the Indemnified Party hereunder with respect to such Third Party Claims and
(b) whether or not it desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against such Third Party Claims. 
However, an Indemnified Party is hereby authorized prior to and during the
Notice Period to file any motion, answer or other pleading that it shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party (and of which it shall have given notice and opportunity to comment to the
Indemnifying Party) and not prejudicial to the Indemnifying Party.  In the event
that the Indemnifying Party notifies the Indemnified Party within the Notice
Period that it desires to defend the Indemnified Party against such Third Party
Claims, the Indemnifying Party shall have the right to defend all appropriate
proceedings, and with counsel of its own choosing, which proceedings shall be
promptly settled or prosecuted by them to a final conclusion.  The Indemnifying
Party shall keep the Indemnified Party indemnified from and against any
increased liability arising out of the Indemnifying Party’s defense of the Third
Party Claim.  Without the prior written consent of the Indemnified Party, the
Indemnifying Party shall not settle, compromise or consent to the entry of
judgment with respect to a Third Party Claim unless such settlement, compromise
or consent includes an unconditional release of the Indemnified Party from all
liability arising out of such Third Party Claim and does not include an
admission of fault or culpability by the Indemnified Party.  If the Indemnified
Party desires to participate in, but not

 

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control, any such defense or settlement it may do so at its sole cost and
expense.  If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any Third
Party Claims that the Indemnifying Party elects to contest or, if appropriate
and related to the Third Party Claim in question, in making any counterclaim
against the Person asserting the Third Party Claim, or any cross-complaint
against any Person.  No Third Party Claim may be settled or otherwise
compromised without the prior written consent of the Indemnifying Party.  In the
event a claim for indemnification pursuant to this Article 11 does not involve a
Third Party Claim, the Indemnified Party shall deliver written notice of such
claim with reasonable promptness to the Indemnifying Party.  The failure by an
Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability it may have to the Indemnified Party
pursuant to this Article 11, except to the extent that the Indemnifying Party
demonstrates that it has been prejudiced by such failure.

 

ARTICLE 12 - DISPUTE RESOLUTION

 

Section 12.1                             Agreement to Arbitrate.  Any and all
claims, counterclaims, demands, causes of action, disputes, controversies, and
other matters in question arising out of or relating to this Agreement, other
than any matter referred to an Independent Accountant in accordance with
Section 3.1(h), or the alleged breach hereof, or in any way relating to the
subject matter of this Agreement or the relationship between the Parties created
by this Agreement , together with any Related Agreement Dispute commenced in the
same Request for Arbitration (a “Dispute”) shall be finally resolved by binding
arbitration submitted to the London Court of International Arbitration (“LCIA”)
under the Arbitration Rules of the LCIA (the “Rules”) then in force, to the
extent such Rules are not inconsistent with the provisions of this Agreement,
regardless of whether some or all of such Disputes allegedly (a) are
extra-contractual in nature, (b) sound in contract, tort, or otherwise, (c) are
provided by statute, common law or otherwise, or (d) seek damages or any other
relief, whether at law, in equity or otherwise.  Notwithstanding anything to the
contrary herein, a Party may apply to any competent judicial authority for
interim or conservatory relief, and the application for such measures, or the
application for the enforcement of such measures ordered by the arbitrators,
shall not be deemed an infringement or waiver of the Agreement to arbitrate and
shall not affect the powers of the arbitrators. This arbitration agreement shall
be governed by English law.

 

Section 12.2                             Number and Appointment of Arbitrators. 
Except as provided herein, the appointment of the arbitrators shall be made in
accordance with the relevant provisions of the Rules.  The arbitral tribunal
shall be composed of three arbitrators (the “Tribunal”).  Each Party shall
appoint one arbitrator within 30 days of the filing of the request for
arbitration, and the two arbitrators so appointed shall together appoint the
presiding arbitrator by mutual agreement within 20 days of their appointment. 
If a Party fails to appoint its party-appointed arbitrator or if the two
party-approved arbitrators fail to appoint the presiding arbitrator within the
applicable time period, the LCIA Court shall appoint the remainder of the three
arbitrators not yet appointed.

 

Section 12.3                             Venue;  Procedural Issues.  The seat of
the arbitration and the location of any hearings shall be London, England.  The
arbitration shall be conducted and the award rendered in the English language. 
The Parties agree that discovery and evidence in the arbitration shall be
governed by the IBA Rules on the Taking of Evidence in International

 

33

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Commercial Arbitration.  Subject to any relevant legal privilege against
disclosure, the Tribunal shall have the power to make all orders necessary for
the disclosure contemplated above, which orders the Parties consent in advance
to obey.

 

Section 12.4                             Powers of the Arbitrators; Limitations
On Remedies.

 

(a)                                 The Tribunal shall not have the authority to
modify or amend any term or provision of this Agreement.  The presiding
arbitrator shall be authorized to issue procedural orders or interim measures,
including interim injunctions, upon application of any Party; provided, however,
that such rulings shall be presented to the full Tribunal for confirmation at
the earliest reasonable time.

 

(b)                                 The Tribunal shall have the power to award
all remedies available under applicable Law, including permanent or interim
injunctive relief, except as limited in Section 11.6(f) and this Article 12. 
However, the Tribunal shall not decide the Dispute ex aqueo et bono or as
amiable compositeur or by reliance on any other doctrine or principle that would
permit the Tribunal to avoid the application of this Agreement and/or the
governing law.

 

(c)                                  The Parties acknowledge and agree that an
award of money damages may be inadequate for any breach of this Agreement by any
Party and any such breach would cause the non-breaching Party irreparable harm. 
Accordingly, the Parties agree that, in the event of any breach or threatened
breach of this Agreement by one of the Parties, the Parties will also be
entitled, without the requirement of posting a bond or other security, to
equitable relief, including injunctive relief and specific performance, provided
that such Party is not in material default hereunder.  Such remedies will not be
the exclusive remedies for any breach of this Agreement but will be in addition
to all other remedies available at law or equity to each of the Parties.

 

(d)                                 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THIS AGREEMENT, NO PARTY SHALL HAVE ANY LIABILITY UNDER THIS AGREEMENT FOR (AND
EACH PARTY HEREBY RELEASES THE OTHER PARTY FROM) EXEMPLARY, PUNITIVE,
SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES, EXCEPT (i) SUCH
DAMAGES THAT ARE PAYABLE TO A THIRD PARTY WITH RESPECT TO A THIRD PARTY CLAIM
FOR WHICH A PARTY IS SEEKING INDEMNIFICATION HEREUNDER AND (ii) DAMAGES FOR
WHICH AN INDEMNITY IS PROVIDED IN SECTION 11.5.

 

Section 12.5                             Arbitration Awards.  The award shall be
final and binding on the Parties and may be confirmed in, and judgment upon the
award entered by, any court having jurisdiction over the Parties.  The
Tribunal’s award shall be entitled to all of the protections and benefits of a
final judgment as to any Dispute, including compulsory counterclaims, that were
or could have

 

34

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been presented to the Tribunal, and shall be final and binding on the Parties
and non-appealable to the maximum extent permitted by Law.

 

Section 12.6                             Exclusive Method of Resolving Claims;
Assistance of Courts.  It is the intent of the Parties that the arbitration
shall be conducted expeditiously, without initial recourse to the courts and
without interlocutory appeals of the Tribunal’s decisions to the courts. 
However, if a Party refuses to honor its obligations under this agreement to
arbitrate, the other Party may obtain appropriate relief compelling arbitration
in any court having jurisdiction over the refusing Party, and the order
compelling arbitration shall require that the arbitration proceedings take place
in London, England and in the manner specified herein.  Prior to the appointment
of the presiding arbitrator, a Party may apply to any court having relevant
jurisdiction for an order preserving the status quo ante and/or evidence in
anticipation of arbitration, including orders preventing the disclosure of
confidential information or other protectable information (for avoidance of
doubt, such an application is not intended to constitute waiver of the right to
arbitrate Disputes nor does it refer any Dispute to court for decision).  Any
and all of the Tribunal’s orders and decisions, including procedural orders and
interim measures, may be enforced by any court having relevant jurisdiction. 
Each Party agrees that arbitration pursuant to this Article 12 shall be the
exclusive method for resolving all Disputes and that it will not commence an
action or proceeding, except as provided in this Article 12 or the Rules.

 

Section 12.7                             Confidentiality.  Except to the extent
necessary for proceedings relating to enforcement of the arbitration agreement,
the award or other, related rights of the Parties, the fact of the arbitration,
the arbitration proceeding itself, all evidence, memorials or other documents
exchanged or used in the arbitration and the arbitrators’ award shall be
maintained in confidence by the Parties to the fullest extent permitted by
applicable Law.  However, a violation of this covenant shall not affect the
enforceability of this agreement to arbitrate or of the Tribunal’s award.

 

Section 12.8                             Costs of Arbitration.  The Tribunal may
award to the prevailing Party (or Parties) its attorneys’ fees, costs and
expenses of the arbitration (including the arbitrators’ fees and expenses) in
full or in an appropriate amount.

 

Section 12.9                             Interest.  The award shall include
interest, which shall run from the date of any breach or violation of this
Agreement.  Interest shall continue to run from the date of award until the
award is paid in full.  Interest shall be calculated at the Agreed Interest
Rate.

 

Section 12.10                      Consolidation and Joinder.  If more than one
arbitration is commenced under this Agreement and any separate agreements
related to this Agreement (“Related Agreements”), and any Party to this
Agreement contends that two or more arbitrations are substantially related
and/or involve the same parties and that the issues should be heard in one
proceeding, the Tribunal appointed in the first-filed of such proceedings shall
have the power to determine whether, in the interests of justice and efficiency,
the whole or part of the matters at issue should be consolidated before that
Tribunal upon such terms or conditions as the Tribunal thinks fit.  The Parties
expressly accept that any Dispute under this Agreement may accordingly be
disposed of in the same arbitration proceedings as any Related Agreement
Dispute, even in the presence of parties other than the Parties to this
Agreement.  The Tribunal appointed in respect of any Dispute may, upon the
request of a Party, or a party to any of the Related

 

35

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Agreements, having regard to the stage of the proceedings and other relevant
circumstances, join any Party or any party to any of the Related Agreements to
arbitration proceedings in relation to that Dispute.  Any party so joined to
arbitration proceedings may request that one or more further Parties or parties
to any of the Related Agreements be joined to such arbitration proceedings. 
Each of the Parties hereby consents to be joined to arbitration proceedings
under and on terms of any of the Related Agreements at the request of a party to
that arbitration following the initiation of the joinder of parties or
consolidation of disputes or arbitral proceedings.  The Parties hereby agree
that any arbitration proceedings to which any one or more of them may be joined
pursuant to this provision shall continue under the same arbitration rules as
those under which it was commenced and with the same arbitrators.  Any joined
Party shall be bound by any Award rendered by the Arbitral Tribunal even if such
Party chooses not to participate in the arbitral proceedings.

 

ARTICLE 13 - PAYMENT DEFAULT

 

Section 13.1                             Default and Interest.  If a Party fails
to pay amounts due by the applicable due dates, such Party shall be in default
and such amounts shall accrue interest at the Agreed Interest Rate calculated
from the due date until the date payment is made.

 

Section 13.2                             Termination.  Without limiting any
other remedies available to Farmor, if Farmee fails to pay the Closing Payment
by the applicable due date, and such failure remains uncured 5 business days
after written notice from Farmor, and Farmor does not seek or receive payment
under the Farmee Parent Guaranty provided pursuant to Section 14.2(a), Farmor
may terminate this Agreement by written notice to Farmee, time and full
performance being of the essence.

 

ARTICLE 14 - MISCELLANEOUS

 

Section 14.1                             Conflict.

 

(a)                                 In the event of a conflict between the terms
of the main body of this Agreement and its Exhibits, the terms of the main body
of the Agreement shall prevail.

 

(b)                                 In the event of a conflict between the terms
of this Agreement and the Contract, the terms of this Agreement shall prevail as
amongst the Parties unless such would be in violation of applicable Laws or
terms of the Contract.

 

Section 14.2                             Assignment.

 

(a)                                 Farmee may freely transfer its rights,
obligations and liabilities under this Agreement to any of its Affiliates on the
condition that concurrently with such transfer, Farmee, Farmor and the Affiliate
execute, and deliver to each other, the Farmee Parent Guaranty.  If and to the
extent requested by Farmee, Farmor shall cooperate with Farmor and execute the
Farmee Parent Guaranty. Any attempt to transfer to an Affiliate without
execution

 

36

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and delivery of the Farmee Parent Guaranty by Farmee and the relevant Affiliate
shall be void.

 

(b)                                 Except as set out in Section 14.2(a), this
Agreement and the rights and obligations hereunder may not be Transferred by a
Party without the prior written consent of the other Party, which consent may be
withheld for any reason.  Any attempted Transfer in violation of this
Section 14.2 shall be void.

 

Section 14.3                             Parties in Interest.  This Agreement
shall be binding upon and, except as provided below, inure solely to the benefit
of each Party and its successors and permitted assigns, and nothing in this
Agreement, express or implied, is intended to confer upon any other Person
(except as expressly provided otherwise in Section 11.6(d) any rights or
remedies of any nature whatsoever under or by reason of this Agreement.

 

Section 14.4                             Entire Agreement.  This Agreement,
together with the Transaction Documents, contains the entire agreement and
understanding between the Parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to such subject matter.

 

Section 14.5                             Amendment, Modification and Waiver. 
This Agreement may not be amended or modified except by an instrument in writing
signed by the Party against which enforcement of such amendment or modification
is sought.  The failure of a Party to exercise any right or remedy shall not be
deemed or constitute a waiver of such right or remedy in the future. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (regardless of whether similar), nor shall
any such waiver constitute a continuing waiver unless otherwise expressly
provided.

 

Section 14.6                             Notices.  Any notice, request,
instruction, correspondence or other document required or permitted to be given
hereunder shall be in writing and delivered in person or by courier service
requiring acknowledgment of receipt of delivery or mailed by registered or
certified mail, postage prepaid and return receipt requested, or by facsimile,
as follows; provided, that copies to be delivered below shall not be required
for effective notice and shall not constitute notice:

 

If to Farmee:

 

 

 

South Atlantic Petroleum Limited

 

11th and 12th Floors

 

South Atlantic Petroleum Towers

 

1 Adeola Odeku Street

 

Victoria Island

 

Lagos

 

Nigeria

 

Attention: Mr. Dale Rollins

 

Facsimile: + 234 810 483 4380

 

 

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If to Farmor:

 

 

 

c/o Hyperdynamics Corporation

 

12012 Wickchester Lane, Suite 475

 

Houston, TX 77079, USA

 

Attention: Mr. Ray Leonard

 

Facsimile: + 1 713-353-9421

 

 

Notice given by personal delivery, courier service or mail shall be effective
upon actual receipt.  Notice given by facsimile shall be confirmed by
appropriate answer back and shall be effective upon actual receipt if received
during the recipient’s normal business hours, or at the beginning of the
recipient’s next day after receipt if not received during the recipient’s normal
business hours.  All notices by facsimile shall be confirmed promptly after
transmission in writing by certified mail or personal delivery.  A Party may
change any address to which notice is to be given to it by giving notice as
provided above of such change of address.

 

Section 14.7                             Counterparts.  This Agreement may be
executed in one or more counterparts (written, electronic or facsimile
signature), all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
Party and delivered to the other Party, it being understood that both Parties
need not sign the same counterpart.

 

Section 14.8                             Severability.  If any term or other
provision of this Agreement is invalid, illegal, or incapable of being enforced
by any rule of applicable Law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated by
this Agreement are not affected in any manner materially adverse to any Party. 
Upon such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the Parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the Parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated by this Agreement are consummated as originally contemplated to the
fullest extent possible.

 

Section 14.9                             Survival of Claims.  For the avoidance
of doubt, the rights and remedies of either Party under or in connection with
this Agreement in respect of any provision of this Agreement (including in
respect of any representation and warranty) which accrue on or prior to the
Closing Date shall not be affected by the Closing Date having occurred, the
occurrence of which shall be without prejudice to and shall not be a waiver of
rights or liabilities in relation to any provision of this Agreement.

 

Section 14.10                      Governing Law.  This Agreement, including the
resolution of disputes between the Parties under Article 12 (or otherwise),
shall be governed by, construed, interpreted and enforced in accordance with
English law, without regard to principles of conflicts of law that could require
the application of other law.

 

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Section 14.11                      Language.  This Agreement has been negotiated
and executed in the English language, and the English language version of this
Agreement will serve as the official version of this Agreement.  Translations of
this Agreement in languages other than English shall not be used to govern,
construe, interpret or enforce this Agreement.

 

Section 14.12                      Independent Accountant. For any matter
referred to an Independent Accountant in accordance with Section 3.1(g), the
Parties agree that such matter shall be resolved by an independent,
internationally recognised firm of chartered accountants (the “Independent
Accountant”) to be appointed by Farmor and Farmee. If Farmor and Farmee are not
able to agree on the appointment of the Independent Accountant within a period
of twenty (20) days, the Independent Accountant shall be nominated by the
Institute of Chartered Accountants in England and Wales. The Independent
Accountant shall be granted such access to books, records, accounts and
documents in the possession of the Parties as he may reasonably request. The
Independent Accountant shall give Farmor and Farmee reasonable opportunity to
make written representations to the Independent Accountant and shall require
that any such written representations are made available to the other Party at
the same time as to the Independent Accountant. The Independent Accountant shall
render its decision within thirty (30) days of its appointment. The Independent
Accountant must select either the position of Farmor or the position of Farmee. 
The costs of the Independent Accountant shall be apportioned equally between
Farmor and Farmee, provided that Farmor and Farmee shall each be responsible for
their own costs in respect of a matter referred to an Independent Accountant.
The Independent Accountant shall act as an expert and not as an arbitrator and
his determination shall be final and binding on the Parties in the absence of
manifest error or fraud.

 

Section 14.13                      Interpretation.

 

(a)                                 The table of contents and all headings in
this Agreement are included for convenience only and shall not affect this
Agreement’s construction or validity;

 

(b)                                 Unless otherwise specified, references to
Exhibits, Schedules, Articles or Sections are to Exhibits, Schedules, Articles
or Sections of this Agreement, as amended from time to time;

 

(c)                                  References to “day”, “month” or “year”
shall unless otherwise stated mean a Gregorian calendar “day”, “month” or “year”
respectively;

 

(d)                                 In the computation of periods of time from a
specified date to a later specified date the word “from” shall mean “from and
including” and the words “until” and “to” shall respectively mean “until and
including” and “to and including”;

 

(e)                                  In the computation of periods of time
specified for giving any notice, such periods shall be exclusive of the day on
which the notice was deemed to have been given in accordance with this Agreement
and inclusive of the day on which the event or action specified in such notice
is due to occur or be taken;

 

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(f)                                   Any provision or stipulation that an
action may or shall be taken within a specified number of days shall mean that
such action may or shall be taken within the number of days so specified
starting at 00:00 hours on the day on which the light or obligation to take such
action arose;

 

(g)                                  Where the sense requires, words denoting
the singular only shall also include the plural and vice versa and references to
any gender shall include other genders;

 

(h)                                 The Appendices, Exhibits and the Schedules
to this Agreement form an integral part of this Agreement.  Any Section of this
Agreement which contains a reference to any such Appendix, Exhibit or Schedule
shall be read as if such Appendix, Exhibit or Schedule or (as the case may be)
the Sections of such Appendix, Exhibit or Schedule therein referred to were set
out at length in the Section of this Agreement in which the reference is
contained;

 

(i)                                     Where an expression is defined, another
part of speech or form of that expression shall have a corresponding meaning;

 

(j)                                    References to “include” and “including”
shall be construed without limitation;

 

(k)                                 References to any Law (including the OECD
Principles) include a reference to that Law as amended or replaced;

 

(l)                                     Each provision of this Agreement shall
be construed as though all Parties participated equally in the drafting of the
same.  Consequently, in the event of any ambiguity in any of the terms or
conditions of this Agreement, such ambiguity shall not be construed for or
against any Party on the basis that such Party did or did not author the same;
and

 

(m)                             Except as expressly provided herein, a Person
who is not a Party to this Agreement has no rights under the Contracts (Rights
of Third Parties) Act 1999 to enforce any term of this Agreement.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
as of the date first written above.

 

FARMOR:

 

FARMEE:

 

 

 

SCS CORPORATION LTD.

 

SOUTH ATLANTIC PETROLEUM LIMITED

 

 

 

By:

/s/ Ray Leonard

 

By:

/s/ Dale Rollins

 

 

 

 

 

Name:

Ray Leonard

 

Name:

Dale Rollins

 

 

 

 

 

Title:

Director

 

Title:

Managing Director

 

41

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APPENDIX A

 

“Acquired Interest” has the meaning set forth in Section 9.4.

 

“Acquiring Party” has the meaning set forth in Section 9.4.

 

“Actions” means claims, actions, proceedings, damages, demands, judgments, sums
payable, liabilities and losses (in each case, whether or not successful,
compromised, settled, withdrawn or which shall become unenforceable by the lapse
of time or otherwise).

 

“Affiliate” means, with respect to any Person, any other Person controlling,
controlled by or under common control with such first Person.  For purposes of
this definition and this Agreement, the term “control” (and correlative terms)
means (i) the ownership of 50% or more of the equity interest in a Person, or
(ii) the power, whether by contract, equity ownership or otherwise, to direct or
cause the direction of the policies or management of a Person.

 

“Agreed Interest Rate” means the lesser of: (i) the one-year U.S.$ LIBOR rate as
published by the Financial Times on the first business day of the month plus 3
per cent, compounded monthly, and (ii) the maximum rate allowed by applicable
Law.

 

“Agreement” has the meaning set forth in the preamble to this Agreement.

 

“AMI Area” means the Contract Area covered by the Contract as of the Closing
Date.

 

“AMI Share” means the Party’s Participating Interest share.

 

“AMI Term” means a period of three years commencing on the Execution Date.

 

“Anti-Corruption Legislation” means (1) the applicable laws of the Republic of
Guinea; (2) the anti-corruption laws of any Home Country Governmental Authority
applying to a Party or any Affiliate of a Party, (3) the U.S. Foreign Corrupt
Practices Act; (4) the OECD Principles; (5); the U.K.  Bribery Act 2010 and
(6) any other implementing legislation with respect to (1), (2), (3), (4) and
(5) above.

 

“Arrêté” means a decree issued by the Director General of the National Petroleum
Office of the Republic of Guinea.

 

“Assignment” means the assignment agreement (‘acte de cession’) attached hereto
as Exhibit C.

 

“Benefits” has the meaning set forth in Section 11.2(b).

 

“Closing Date” has the meaning set forth in Section 1.5.

 

“Closing Notice” has the meaning set forth in Section 1.5.

 

“Closing Payment” means an amount equal to fifty percent (50%) of the costs and
expenses of long-lead items and costs and expenses of the drilling program for
the Obligation Well, including

 

1

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

 

Obligation Well Costs and Emergency Costs, in respect of the period commencing
on September 15, 2016 and ending on the Closing Date, which amount shall not
exceed Ten Million U.S. Dollars (U.S. $10,000,000) without the approval of
Farmee.

 

“Code” has the meaning set forth in Section 9.3.

 

“Commercial Agent” means any representative, employee, director, agent or
consultant of any Person who is acting in such capacity.

 

“Confidentiality Agreement” means the Confidentiality Agreement dated
September 28, 2016, by and between Hyperdynamics Corporation and Farmee.

 

“Consideration” has the meaning set forth in Section 9.4.

 

“Contract” has the meaning set forth in the recitals to this Agreement.

 

“Contract Area” has the meaning set forth in the recitals to this Agreement.

 

“Dispute” has the meaning set forth in Section 12.1.

 

“Emergency Costs” means any costs incurred due to a blow-out, fire, sabotage or
similar type of emergency.

 

“Encumbrance” means any claim, option, charge (fixed or floating), mortgage,
lien, pledge, equity, encumbrance, burden, right to acquire, right of
pre-emption, right of first refusal, title retention or any other third party
right, or other security interest or any agreement or arrangement having a
similar effect or any agreement to create any of the foregoing.

 

“Environment” means all or any of the following, alone or in combination: the
air, water (including seawater inside or outside any territorial limits,
freshwater and water under or within land), soil and land (including the seabed
and land under water) and any ecological systems and living organisms supported
by those media including man.

 

“Environmental Laws” means all Laws, international treaties, national, federal,
provincial, state or local statutes, the common law, and any codes of law
(having legal effect), in any applicable jurisdiction concerning:

 

a)                                     harm or damage to or protection of the
Environment and/or the provision of remedies in respect of or compensation for
harm or damage to the Environment;

 

b)                                     emissions, discharges, releases or
escapes into or the presence in the Environment of hazardous substances or the
production, processing, management, treatment, storage, transport, handling or
disposal of hazardous substances or the disposal or abandonment of any fixed or
floating offshore installation; or

 

c)                                      worker or public health and safety,

 

2

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

 

and any bylaws, regulations or subordinate legislation, judgements, decisions,
notices, orders, circulars, technical instructions, licences or permits and
codes of practice from time to time issued or made thereunder.

 

“Environmental Liabilities” means, in so far as these relate to the Farmee
Interest, all costs, charges, expenses, liabilities and obligations, relating to
violations of Environmental Laws, arising under Environmental Laws, or arising
under contractual obligations related to the matters addressed in clauses (a),
(b) and (c) of the definition of Environmental Laws.

 

“Execution Date” has the meaning set forth in the preamble to this Agreement.

 

“Farmee” has the meaning set forth in the preamble to this Agreement.

 

“Farmee Interest” means a fifty percent (50%) Participating Interest.

 

“Farmee Parent Guaranty” means the parent guaranty in the form attached hereto
as Exhibit E.

 

“Farmee Performance Bond” means one or more of a bond, letter of credit,
guarantee or other form of security in favor of the Government from an
institution acceptable to the Government, in a form and for an amount acceptable
to the Government, as may be required by the Government in order to obtain
Governmental Approval.

 

“Farmor” has the meaning set forth in the preamble to this Agreement.

 

“Farmor Parent Guaranty” means the parent guaranty in the form attached hereto
as Exhibit D.

 

“Final Adjustment Statement” has the meaning set forth in Section 3.1(d).

 

“Final Settlement Amount” has the meaning set forth in Section 3.1(i).

 

“Government” means the government of the Republic of Guinea and any ministry,
state-owned or operated oil company, agency or organization, department, office
and/or bureau of the Republic of Guinea with jurisdiction over the Contract, the
Joint Operating Agreement, or the Farmee Interest.

 

“Governmental Approval” means all required approvals and consents of the
Government necessary for:

 

(a)                                 the transfer of the Farmee Interest from
Farmor to Farmee, which will be in the form of the issuance of an Arrêté
approving the assignment of the Farmee Interest to Farmee, or such other form as
the Government may direct provided that the terms and conditions of such
approvals and consents are satisfactory to Farmor and Farmee, acting reasonably,
and do not impose any unusual or onerous provisions on the Parties; and

 

(b)                                 the third amendment to the Contract to
reflect such transfer, on terms and conditions satisfactory to Farmee (including
the waiver of previous non-

 

3

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

 

compliance by Farmor disclosed in Schedule 6.1(d)), acting reasonably having
taken into account the advice of its legal advisers in the Republic of Guinea in
relation thereto.

 

“Governmental Entity” means any government, including the Government, and all
departments, political subdivisions, instrumentalities, agencies, corporations
or commissions under the direct or indirect control thereof or owned thereby and
shall include any court, arbitral tribunal, legislature, council or other state
government or national, regional, municipal or local authorities.

 

“Home Country Governmental Authority” means any Governmental Entity where a
Party or any of its direct or indirect parent companies is organized or has its
principal place of business.

 

“Indemnified Party” has the meaning set forth in Section 11.7.

 

“Indemnifying Party” has the meaning set forth in Section 11.7.

 

“Independent Accountant” has the meaning set forth in Section 14.12.

 

“Interest” means any kind of right, title or interest in oil and/or gas in the
AMI Area, including without limitation, leasehold interest, fee interest, fee
interest, mineral interest, royalty interest, overriding royalty interest,
non-participating royalty interest, working interest, earned interest or carried
working interest, whether producing or non-producing, acquired by any means
whatsoever, including, without limitation, production sharing contract, permit,
license, concession, lease, purchase, assignment or farm-in.

 

“Interim Period” means the period commencing on the Execution Date and ending on
the Closing Date.

 

“Joint Account Assets” means materials, movable property and fixed assets,
permits, consents, approvals, clearances, surface rights, rights-of-way,
easements, leases and all other rights and privileges purchased or otherwise
acquired, possessed or used for Joint Operations.

 

“Joint Operating Agreement” or “JOA” means the Joint Operating Agreement
attached hereto as Exhibit B, with Farmor serving as Operator.

 

“Joint Operations” means all operations and activities conducted in accordance
with this Agreement, the Contract and/or the Joint Operating Agreement, and
which for purposes of this Agreement shall include the drilling of the
Obligation Well, all of which shall be conducted by Farmor as Operator.

 

“Laws” means all laws, statutes, rules, regulations, ordinances, orders,
decrees, requirements, judgments and codes of Governmental Entities.

 

“LCIA” has the meaning set forth in Section 12.1.

 

“Loss” or “Losses” has the meaning set forth in Section 9.2.

 

4

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

 

“Material Adverse Effect” means any event, circumstance, effect, occurrence or
state of affairs or any combination of them (whether existing or occurring on or
before the date of this Agreement or arising or occurring afterwards) which is
reasonably expected to have an adverse impact on (i) the business, assets,
financial condition or results of operations under the Contract or the Joint
Operations, taken as a whole or (ii) the ability of either Farmor or Farmee to
consummate the transactions contemplated hereby.  The term “Material Adverse
Effect” shall not include (A) any effect resulting from entering into this
Agreement or the announcement of the transactions contemplated by this
Agreement, (B) any effect resulting from changes in general market, economic,
financial or political conditions or any outbreak of hostilities or war, (C) any
effect that affects the hydrocarbon exploration, production, development,
processing, gathering and/or transportation industry generally (including
changes in commodity prices or general market prices in the hydrocarbon
exploration, production, development, processing, gathering and/or
transportation industry generally), or (D) any effect resulting from a change in
Laws or regulatory policies.  For the avoidance of doubt, the termination of the
Contract or any approval or consent granted in respect thereof shall be
considered a Material Adverse Effect.

 

“Material Development” mean (i) the termination of the Contract,
(ii) expropriation of the Contract by the Government, or (iii) the outbreak of
hostilities or war in the Republic of Guinea.

 

“MSA” means the master service agreement entered into between Farmor and
Schlumberger Oilfield Eastern Limited on December 27, 2016.

 

“Notice Period” has the meaning set forth in Section 11.7.

 

“Objective Depth” means the point at which the Obligation Well has been drilled
to a depth of 2,500 meters total vertical depth below the mud line, as required
by the Contract.

 

“Obligation Well” means the extension well to be drilled in the Contract Area at
the location detailed in Section 5.1 pursuant to the terms of the Contract,
which well shall be drilled (i) in accordance with the terms of the Contract,
this Agreement and the Joint Operating Agreement, (ii) with a bottom-hole
location determined in accordance with Section 5.1, and (iii) to the Objective
Depth.  The term “Obligation Well” shall include any substitute well therefor.

 

“Obligation Well Costs” means the costs, expenses and other charges of drilling
(which shall include operations in anticipation of drilling, including but not
limited to mobilization fees) the Obligation Well to Objective Depth, logging,
coring and otherwise testing the Obligation Well, subsequently abandoning
(either as a dry hole or temporarily for future work or production) the
Obligation Well in accordance with all applicable Laws, and demobilization fees,
as shown on the Work Program and Budget.  The costs associated with any
sidetracking will not be included unless done to straighten the hole, drill
around junk in the hole, or overcome similar mechanical difficulties.

 

“OECD Principles” means the following principles, which are based on the
principles set forth in Article 1.1 and 1.2 of the OECD Convention on Combating
Bribery of Foreign Public Officials in International Business Transactions,
signed in Paris on 17 December 1997, and entered into force on 15 February 1999,
and the Convention’s commentaries, namely, that:

 

5

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

 

(a)                                 It is unlawful for any person intentionally
to offer, promise or give any undue pecuniary or other advantage, whether
directly or through intermediaries, to a foreign public official, for that
official or for a third party, in order that the official act or refrain from
acting in relation to the performance of official duties, in order to obtain or
retain business or other improper advantage in the conduct of international
business; and

 

(b)                                 Complicity in, including incitement, aiding
and abetting, or authorization of an act of bribery of a foreign public official
shall be unlawful.  Furthermore, attempt and conspiracy to bribe a foreign
public official of a country that is not a Party’s Home Country Governmental
Authority shall be unlawful to the same extent as attempt and conspiracy to
bribe a public official of a country that is a Party’s Home Country Governmental
Authority.

 

“Offeree” has the meaning set forth in Section 9.4.

 

“Official” means (i) any official, officer, employee or Person acting in an
official capacity on behalf of a Governmental Authority or Public International
Organization; or (ii) any political party or political party official; or
(iii) any candidate for political office.

 

“Offshore Drilling Contract” means the offshore drilling contract entered into
between Farmor and Pacific Drilling Operations Limited on 28 November 2016.

 

“Operator” means at any time the Person designated and acting as such pursuant
to the Joint Operating Agreement.

 

“Participating Interest” means the undivided percentage interest of the Persons
comprising Contractor (as that term is defined in the Contract) in the rights
and obligations of the Contract and, as applicable once effective, the Joint
Operating Agreement, subject to any carried interests of the Government, and all
corresponding rights and obligations associated therewith.

 

“Party” or “Parties” has the meaning set forth in the recitals to this
Agreement.

 

“Person” means any natural or juridical person including any individual, firm,
corporation, partnership, limited liability company, trust, association, joint
venture, Government Entity or other entity.

 

“Petroleum Operations” means all exploration, development, extraction,
production, transportation, marketing, abandonment and site restoration
operations authorised or contemplated under the Contract.

 

“Preliminary Closing Statement” has the meaning set forth in Section 3.1(a).

 

“Public International Organization” means any public international organization
(including those covered by the Anti-Corruption Legislation), including
international financial institutions such as the World Bank Group, the
International Bank for Reconstruction & Development, the European Bank for
Reconstruction and Development, and the Asian Development Bank.

 

6

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

 

“Related Agreements” has the meaning set forth in Section 12.10.

 

“Rules” has the meaning set forth in Section 12.1.

 

“Second PSC Amendment” has the meaning set forth in the recitals to this
Agreement.

 

“Security Instrument” has the meaning given to such term in the Contract.

 

“Settlement and Release Agreement” the settlement and release agreement entered
into between Farmor and the Government on 14 September 2016.

 

“Tax” means all taxes, including regional taxes, municipal taxes, customs,
special hydrocarbon taxes, national insurance and social security contributions
(or their equivalent), rates, VAT, transfer taxes, stamp duties, other duties
and any similar tax, together with any interest, addition or penalty.

 

“Third Party Claim” means a third-party claim asserted against an Indemnified
Party by a Person other than (i) an Affiliate of such Indemnified Party or
(ii) any director, officer, employee or agent of any such Indemnified Party or
its Affiliates.

 

“Transaction Documents” means this Agreement and, once executed by all the
parties thereto, the Assignment, the JOA, the Farmor Parent Guaranty and the
Farmee Parent Guaranty.

 

“Transfer” means a sale, assignment, transfer, conveyance, gift, exchange or
other disposition (including an assignment of contractual rights or a delegation
of contractual obligations), and whether voluntary, involuntary or by operation
of Law.

 

“Tribunal” has the meaning set forth in Section 12.2.

 

“Trigger Date” has the meaning set forth Section 1.5.

 

“UOC PSCs” means the production sharing contract entered into by US Oil
Corporation and the Government dated 14 November 1995 and the production sharing
contract entered into by US Oil Corporation and the Government dated 29
October 2002 and any related contracts and commitments entered into by US Oil
Corporation and the Government relating directly or indirectly to the
Participating Interest or all or part of the Contract Area.

 

“U.S.$” and “U.S. Dollar” means the United States dollar, the legal currency of
the USA.

 

“USA” means United States of America.

 

“Work Program and Budget” means the work program and budget attached hereto as
Exhibit F.

 

7

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

 

Schedule 3.2

Designated Accounts

 

Payments made pursuant to Section 3.2 (or any other Section) of the Agreement
shall be made to the following accounts of Farmor and Farmee, as applicable:

 

Farmor:

 

Account Number

 

0030341029

ABA Bank Routing Number

 

1130 11258

Swift Code

 

ZFNBUS55

Institution

 

Amegy Bank, a division of ZB, N.A. (Zions Bnkcorp)

Bank location phone number for courier

 

713-235-8810; 800-287-0301

Physical Bank location address for COURIER

 

4400 Post Oak Parkway

Street 2

 

6th Floor

City in Texas, Zip

 

Houston  77027

 

Farmee:

 

To be provided by Farmee in Accordance with this Agreement.

 

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

 

Schedule 6.1(b)

Farmor Consents

 

Hyperdynamics Board of Directors’ consent to the assignment of a 50%
participating interest in the Contract held by SCS Corporation.

 

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

 

Schedule 6.1(d)

Contract

 

1.              The matters referenced in that certain Letter from the Director
of ONAP, Mr. D. Koulibaly, dated January 24, 2017, which has been separately
disclosed to Farmee. Without limiting the foregoing reference, said letter
states that SCS did not comply with the terms of  Section 4.7 of the Second PSC
Amendment, particularly with respect to SCS’s obligation to provide a security
instrument in the amount of USD $5,000,000 on or before February 20, 2017.

 

2.              The matters referenced in that certain Letter from the Director
of ONAP, Mr. D. Koulibaly, dated March 1, 2017, which has been separately
disclosed to Farmee.   Without limiting the foregoing reference, said letter
states that SCS did not comply with the terms of Section 4.7 of the Second PSC
Amendment, as mentioned in item #1 above.  The letter served as a notice of
non-compliance with the terms of the Contract by the “Contractor” thereunder,
and asked for the situation to be remedied within 10 days.

 

3.              The matters referenced in that certain Tri-Party Protocol, dated
March 10, 2017, to which both parties are signatories.

 

4.              SCS’s non-compliance with Clause 4.7(a) of the Second PSC
Amendment.  More specifically, SCS has moved only part of the Equipment and
Materials (as defined in the Second PSC Amendment) to the territory of the
Republic of Guinea.

 

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

 

Schedule 6.1(e)

Contract Obligations

 

The matters set forth in Schedule 6.1(d) are hereby incorporated by reference on
this Schedule.

 

4

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

 

Schedule 6.1(f)

Other Obligations

 

The matters set forth in Schedule 6.1(d) are hereby incorporated by reference on
this Schedule.

 

In addition, the following matters are listed on this Schedule:

 

1.              Potential violation of Section 3 and Section 11 of the Drilling
Contract with Pacific Drilling:

 

The contract provides for the “Commencement Date” thereunder to be begin not
later than April 15, 2017.  However, due to the lack of funds (which is
associated with certain conditions for the Commencement Date to occur), SCS will
very likely miss the deadline of April 15, 2017.

 

2.              Potential violation of Section 9 of the Drilling Contract with
Pacific Drilling:

 

Section 9 of the contract and Exhibit D to it provide for certain payment
deadlines. However, due to the lack of funds SCS, will very likely miss the
deadline of April 15, 2017 set forth therein.

 

3.              SCS has not secured any insurance that may be required by the
Drilling Contract with  Pacific Drilling.

 

4.              SCS has not secured the insurance that is required by the MSA
with Schlumberger.

 

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

 

Schedule 6.1(g)

No Surrender, Relinquishment or Withdrawal

 

The matters set forth in Schedule 6.1(d) are hereby incorporated by reference on
this Schedule.

 

6

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

 

Schedule 6.1(i)

Farmor Litigation

 

The matters set forth in Schedule 6.1(d) are hereby incorporated by reference on
this Schedule.

 

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

 

Schedule 6.1(q)

Insurance

 

The matters set forth in items 3 and 4 of Schedule 6.1(f) are hereby
incorporated by reference on this Schedule.

 

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

 

Schedule 6.1(r)

Bonds, Letters of Credit or Guarantees

 

1.              HDYN Parent Gurantee, effective as of September 22, 2016, issued
pursuant to Section 4.6 of the Second PSC Amendment.

 

2.              Farmor has not provided the following Security Instruments as
stipulated in Section 4.7 of the Second PSC Amendment:

 

a.              in the amount of USD 5 (five) million to be provided on or
before January 21, 2017; and

 

b.              in the amount of up to USD 46 (forty six) million, to be
provided on or before April 12, 2017;

 

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

 

Schedule 6.1(x)

Compliance

 

The matters set forth in Schedule 6.1(d) are hereby incorporated by reference on
this Schedule.

 

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

 

Schedule 6.2(b)

Farmee Consents

 

None.

 

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

 

Schedule 6.2(c)

Farmee Litigation

 

None.

 

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

 

Schedule 7.1(c)

Conduct of Joint Operations

 

The matters set forth in Schedules 6.1(b),(d),(e),(f),(g),(i),(q), (r) and
(x) are hereby incorporated by reference on this Schedule.

 

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

 

Exhibit A

Contract Area

 

The Contract Area means the Contract Area identified in the Second PSC
Amendment, as set forth below:

 

[g102873ks15i001.jpg]

 

[g102873ks15i002.jpg]

 

[g102873ks15i003.jpg]

 

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

 

JOINT OPERATING AGREEMENT

 

Offshore Republic of Guinea

 

PARTIES:

 

SCS Corporation Ltd.

 

South Atlantic Petroleum Limited

 

EFFECTIVE DATE:

 

[ · ], 2017

 

1

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

 

CONTENTS

 

PAGE

 

 

 

 

1

Defined terms and interpretation

 

1

 

 

 

 

2

Effective Date and term

 

1

 

 

 

 

3

Scope

 

2

 

 

 

 

4

Operator

 

4

 

 

 

 

5

Operating Committee

 

16

 

 

 

 

6

Work Programs and Budgets

 

22

 

 

 

 

7

Operations by less than all parties

 

30

 

 

 

 

8

Default

 

40

 

 

 

 

9

Disposition of production

 

47

 

 

 

 

10

Abandonment

 

51

 

 

 

 

11

Surrender, extensions and renewals

 

52

 

 

 

 

12

Transfers, Changes in Control, Tag-Along Rights, and AMI

 

53

 

 

 

 

13

Withdrawal from Agreement

 

62

 

 

 

 

14

Relationship of Parties and tax

 

65

 

 

 

 

15

Venture Information, confidentiality, intellectual property

 

66

 

 

 

 

16

Force Majeure

 

69

 

 

 

 

17

Notices

 

69

 

 

 

 

18

Applicable law, dispute resolution and waiver of sovereign immunity

 

70

 

 

 

 

19

General provisions

 

75

 

 

 

 

Schedule 1— Dictionary and Interpretation Rules

 

80

 

 

 

Execution page

 

89

 

 

 

Exhibit A — Accounting Procedure

 

1

 

 

 

Exhibit B — Contract Area

 

21

 

 

 

Exhibit C —Initial Work Program and Budget

 

22

 

i

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

 

Parties

 

1                               SCS Corporation Ltd., a company registered in
the Cayman Islands, with its address at 12012 Wickchester Lane, Suite 475,
Houston, TX 77079, USA, a wholly owned subsidiary of Hyperdynamics Corporation,
a Delaware corporation traded on the OTCQX (SCS); and

 

2                              South Atlantic Petroleum Limited, a company
registered under the laws of the Federal Republic of Nigeria, with its
registered address at 11th and 12th Floors, South Atlantic Petroleum Towers, 1
Adeola Odeku Street, Victoria Island, Lagos, Nigeria (SAPETRO)

 

Background

 

A                             SCS owns certain rights pertaining to (1) that
certain Hydrocarbons Production Sharing Contract between the Republic of Guinea
and SCS dated  September 22, 2006; as amended by that certain (a) Amendment
No. 1 to the Hydrocarbons Production Sharing Contract between the Republic of
Guinea and SCS dated March 25, 2010, (b) that certain Second Amendment to the
Hydrocarbons Production Sharing Contract between the Republic of Guinea and SCS
dated September 15, 2016 (the Second Amendment) and (c) [ · ](1) (as amended,
the PSC) and (2) the Contract Area.

 

B                             SCS and SAPETRO, collectively, own one hundred
percent (100%) of the Participating Interest(s); and desire to hereby define
their respective rights, interests, duties and obligations in relation to the
operations under the PSC and all permits, concessions and licenses granted
pursuant thereto.

 

In consideration of the premises set out above, the mutual covenants and
agreements and obligations set out below to be performed, the Parties agree as
follows:

 

1                               Defined terms and interpretation

 

1.1                     Definitions in the Dictionary

 

A term or expression starting with a capital letter which is defined in the
Dictionary in Schedule 1-1 (Dictionary) has the meaning given to it in the
Dictionary.  Any capitalized term used in this Agreement and not specifically
defined in this Agreement shall have the same meaning as in the PSC.

 

1.2                     Interpretation

 

The interpretation clause in Schedule 1-2 (Interpretation Rules) sets out
rules of interpretation for this Agreement.

 

2                               Effective Date and term

 

2.1                     Effective Date

 

This Agreement shall have effect from the date of this Agreement (as set forth
on the cover

 

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

(1)                       NTD: The description of the third PSC amendment, if
any, will be added in part (c).

 

1

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

 

page hereto; and, hereafter, the Effective Date) and shall continue in effect
until the following occur in accordance with the terms of this Agreement:

 

(a)                       the PSC terminates;

 

(b)                       all materials, equipment and personal property used in
connection with Joint Operations or Exclusive Operations have been disposed of
or removed; and

 

(c)                        final settlement (including settlement of any
financial audit carried out pursuant to the Accounting Procedure) has been made.

 

2.2                     Term

 

(a)                       Notwithstanding the termination of this Agreement
pursuant to clause 2.1:

 

(i)                           clause 10 shall remain in effect until all
abandonment obligations under the PSC and Laws / Regulations have been
satisfied;

 

(ii)                        clause 4.5, clause 4.6 (as to continuing obligations
of Operator, if any, and unresolved Disputes), clause 8, clause 18 and the
indemnity obligation under clause 19.1(b) shall remain in effect until all
obligations have been extinguished and all Disputes have been resolved;

 

(iii)                     this clause 2.2, , clause 17, clauses 19.3 through
19.6, clause 19.7, clause 19.8, clause 19.9, clause 19.11, clause 19.12, and
clause 1 and Schedule 1 (to the extent that defined terms and/or interpretation
rules apply to the other surviving provisions hereof) shall remain in effect so
long as any of the provisions in clauses (i), (ii), (iv) and (v) of this
clause 2.2 remain in effect;

 

(iv)                    clause 12.5 shall remain in effect for any remaining
portion of the AMI Term; and

 

(v)                       clause 15.2 shall remain in effect as provided in
clause 15.2(a).

 

(b)                       Termination of this Agreement shall be without
prejudice to any rights and obligations arising out of or in connection with
this Agreement which have vested, matured or accrued prior to such termination.

 

3                               Scope

 

3.1                     Scope

 

(a)                       The purpose of this Agreement is to establish the
respective rights and obligations of the Parties with regard to operations under
the PSC, including the joint exploration, appraisal, development, production and
disposition of Hydrocarbons from the Contract Area.

 

(b)                       For greater certainty, the Parties confirm that,
except to the extent expressly included in the PSC, the following activities are
outside of the scope of this Agreement and are not addressed herein:

 

(i)                           construction, operation, ownership, maintenance,
repair and removal of facilities downstream from the Delivery Point of the
Parties’ Entitlements;

 

2

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(ii)                        transportation of the Parties’ Entitlements
downstream from the Delivery Point;

 

(iii)                     marketing and sales of Hydrocarbons, except as
expressly provided in  this Agreement;

 

(iv)                    except as set forth in clause 12.5, acquisition of
rights to explore for, appraise, develop or produce Hydrocarbons outside of the
Contract Area (other than as a consequence of unitization with an adjoining
contract area under the terms of the PSC or Laws / Regulations); and

 

(v)                       exploration, appraisal, development or production of
minerals other than Hydrocarbons, whether inside or outside of the Contract
Area.

 

3.2                     Participating Interest

 

(a)                       The Participating Interests of the Parties as of the
Effective Date are:

 

SCS

50%

SAPETRO

50%

 

For the avoidance of doubt, the Participating Interests of the Parties are
calculated based upon the sum of each of the Party’s undivided interest in the
PSC, totalling, as of the Effective Date, a one hundred percent (100%) undivided
interest in the PSC.

 

(b)                       If a Party transfers all or part of its Participating
Interest pursuant to the provisions of this Agreement and the PSC, the
Participating Interests of the Parties shall be revised accordingly.

 

3.3                     Ownership, obligations and liabilities

 

(a)                       Unless otherwise provided in this Agreement, all the
rights and interests in and under the PSC, all Joint Property, and any
Hydrocarbons produced from the Contract Area, shall, subject to the terms of the
PSC, be owned by the Parties in proportion to their respective Participating
Interests.

 

(b)                       Unless otherwise provided in this Agreement, the
obligations of the Parties under the PSC and all liabilities and expenses
incurred by Operator in connection with Joint Operations shall be charged to the
Joint Account and all credits to the Joint Account shall be shared by the
Parties, in proportion to their respective Participating Interests.

 

(c)                        Each Party shall pay when due, in accordance with the
Accounting Procedure, its Participating Interest share of Joint Account
expenses, including cash advances and interest, accrued pursuant to this
Agreement. A Party’s payment of any charge under this Agreement shall be without
prejudice to its right to later contest the charge.

 

(d)                      Each Party shall obtain and maintain Security in favor
of the Government as required under the terms of the PSC.  The amount of each
Party’s Security shall be that Party’s Participating Interest share of the total
amount required under the PSC.  If the Government requires that the Parties
provide a single Security instrument covering one hundred percent (100%) of the
secured amount under the PSC, the

 

3

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costs and expenses of, and any losses arising out of providing and maintaining,
said Security instrument (including all costs and expenses arising out of such
Security instrument and any liability that may arise thereunder or in relation
thereto) will be charged to the Joint Account and shared by the Parties based on
their respective Participating Interests; and the Party providing the Security
instrument on behalf of the Parties will be reimbursed out of the Joint Account
as soon as reasonably practicable for the other Parties’ respective
Participating Interest shares of such costs, expenses and/or losses.

 

3.4                     Government Participation

 

(a)                       If Government Oil & Gas Company elects to participate
in the rights and obligations of Parties under Article 15 of the PSC, the
Parties shall contribute, in proportion to their respective Participating
Interests, to the interest to be acquired by Government Oil & Gas Company.

 

(b)                       The Parties shall sign such documents as may be
necessary to effect such transfer of interests and the joinder of Government
Oil & Gas Company as a Party to this Agreement.  All payments received for the
transfer of such interests shall be credited to the Parties in proportion to
their contribution.

 

4                               Operator

 

4.1                     Designation of Operator

 

SCS is designated as Operator, accepts the rights, duties, and obligations of
Operator, and agrees to act as such in accordance with this Agreement from the
Effective Date.

 

4.2                     Rights and duties of Operator

 

(a)                       Subject to the terms and conditions of this Agreement,
Operator shall have all of the rights, functions and duties of Operator under
the PSC and shall have exclusive charge of and shall conduct all Joint
Operations.  Operator may employ independent contractors and agents (which
independent contractors and agents may include an Affiliate of Operator, a
Non-Operator, or an Affiliate of a Non-Operator) in such Joint Operations.

 

(b)                       In the conduct of Joint Operations Operator shall:

 

(i)                           perform Joint Operations in accordance with the
provisions of the PSC, the Laws / Regulations, this Agreement, and the decisions
of the Operating Committee not in conflict with this Agreement;

 

(ii)                        conduct all Joint Operations in a diligent, safe and
efficient manner in accordance with such good and prudent petroleum industry
practices and field conservation principles as are generally followed by the
international petroleum industry under similar circumstances;

 

(iii)                     exercise due care with respect to the receipt, payment
and accounting of funds in accordance with good and prudent practices as are
generally followed by the international petroleum industry under similar
circumstances;

 

(iv)                    subject to clause 4.6 and the Accounting Procedure,
neither gain a profit nor

 

4

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suffer a loss as a result of being the Operator in its conduct of Joint
Operations, provided that Operator may rely upon Operating Committee approval of
specific accounting practices not in conflict with the Accounting Procedure;

 

(v)                       perform the duties for the Operating Committee set out
in clause 5, and prepare and submit to the Operating Committee proposed Work
Programs and Budgets and (if required) AFEs, as provided in clause 6;

 

(vi)                    acquire all permits, consents, approvals, and surface or
other rights that may be required for or in connection with the conduct of Joint
Operations;

 

(vii)                 upon receipt of reasonable advance notice, permit the
representatives of any of the Parties to have at all reasonable times during
normal business hours and at their own risk and expense reasonable access to the
Joint Operations with the right to observe all Joint Operations and to inspect
all Joint Property, to conduct HSE audits, and to conduct financial audits, and
to observe taking of inventory, as provided in the Accounting Procedure, such
access limited, in each case, to/in a manner that minimizes interference with
the day-to-day operations and activities of Operator;

 

(viii)              undertake to maintain the PSC in full force and effect
consistent with such good and prudent petroleum industry practices as are
generally followed by the international petroleum industry under similar
circumstances.  Operator shall timely pay and discharge all liabilities and
expenses incurred in connection with Joint Operations and use its reasonable
endeavors to keep and maintain the Joint Property free from all Encumbrances
arising out of Joint Operations;

 

(ix)                    pay in cash, and/or make available in kind to the
Government on behalf of the Parties in accordance with the PSC and/or for the
Joint Account, within the periods and in the manner prescribed by the PSC and
the Laws / Regulations, all periodic payments, royalties, any domestic supply
obligations, taxes, fees and other payments pertaining to Joint Operations but
excluding any taxes measured by the incomes of the Parties;

 

(x)                       carry out the obligations of Operator pursuant to the
PSC, including preparing and furnishing such reports, records and information as
may be required pursuant to the PSC;

 

(xi)                    have, in accordance with any decisions of the Operating
Committee, the exclusive right and obligation to represent the Parties in all
dealings with the Government with respect to matters arising under the PSC and
Joint Operations.  Operator shall notify the other Parties as soon as possible
of the time, place and agenda of such meetings.  Subject to the PSC and any
necessary Government approvals, Non-Operators shall have the right to attend any
meetings with the Government with respect to such matters, but only in the
capacity of observers.  Nothing contained in this Agreement shall restrict any
Party from holding discussions with the Government with respect to any issue
peculiar to its particular business interests arising under the PSC or this
Agreement, but in such event such Party shall promptly advise the Parties, if
possible, before and in any event promptly after such discussions, provided that
such Party shall not be required to divulge to the Parties any matters discussed
to the extent the same involve proprietary information or matters not affecting
the other Parties;

 

5

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(xii)                 in accordance with clause 9.3 and any decisions of the
Operating Committee, assess (to the extent lawful) alternatives for the
disposition of Natural Gas from a Discovery;

 

(xiii)              in case of an emergency (including a significant fire,
explosion, Natural Gas release, Crude Oil release, or sabotage; incident
involving loss of life, serious injury to an employee, contractor, or third
party, or serious property damage; strikes and riots; or evacuations of Operator
personnel):

 

(A)                     take all necessary and proper measures for the
protection of life, health, the environment and property; and

 

(B)                     as soon as reasonably practicable, report to
Non-Operators the details of such event and any measures Operator has taken or
plans to take in response thereto;

 

(xiv)             establish and implement pursuant to clause 4.13 an HSE plan to
govern Joint Operations which is designed to ensure compliance with applicable
HSE Laws / Regulations, the PSC and this Agreement;

 

(xv)                prior to appointing or engaging any independent contractor,
conduct appropriate and proportionate due diligence concerning relevant
criteria, including such contractor’s ability to perform the proposed work
properly, on time, within budgeted cost, and in compliance with applicable legal
and contractual requirements;

 

(xvi)             include, to the extent practical, in its contracts with
independent contractors and to the extent lawful, provisions which:

 

(A)                     establish that such contractors can only enforce their
contracts against Operator;

 

(B)                     permit Operator, on behalf of itself and Non-Operators,
to enforce contractual warranties and indemnities against, and recover losses
and damages suffered by them (insofar as recovered under their contracts) from,
such contractors;

 

(C)                     require such contractors to comply with applicable Laws
/ Regulations, including registration to do business, immigration,
import/export, local preference, national content, tax withholding and payment
and HSE;

 

(D)                     require such contractors to establish and implement
reasonable anti-bribery and anti-corruption programs; and

 

(E)                      require such contractors to obtain insurance required
by clause 4.7(h).

 

4.3                     Operator personnel

 

(a)                       Operator shall engage and/or retain only such
employees, Secondees, contractors, consultants and agents as are reasonably
necessary to conduct Joint Operations.

 

(b)                      Subject to the PSC and this Agreement, Operator shall
determine the number of such employees, Secondees, contractors, consultants and
agents, the selection of

 

6

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such persons, their hours of work, and (except for Secondees) their
compensation.

 

(c)                        No Secondment may be implemented except in the manner
set out in clause 4.3(d).

 

(d)                       Any Party may propose Secondment for a designated
purpose related to Joint Operations.  Any proposal for Secondment must include
the:

 

(i)                           designated purpose and scope of Secondment,
including duties, responsibilities, and deliverables;

 

(ii)                        duration of the Secondment;

 

(iii)                     number of Secondees;

 

(iv)                    work location and position within Operator’s
organization of each Secondee; and

 

(v)                       estimated costs of the Secondment.

 

(e)                        If a proposed Secondment meets the requirements of
clause 4.3(d), Operator shall as soon as reasonably practicable approve (such
approval not to be unreasonably withheld) or reject any Secondment proposed by a
Non-Operator. Without prejudice to Operator’s right to conduct Joint Operations
under this Agreement and the PSC, Operator shall consider such Secondment
proposal in light of the potential benefits of such Secondment to the conduct of
Joint Operations.

 

(f)                         Any proposal for one or more Secondment positions
approved by Operator is subject to: (i) the Operating Committee’s authorization
of an appropriate budget for such Secondment positions; and (ii) Non-Operators
continuing to make available to Operator Secondees qualified to fulfill the
designated purpose and scope of such Secondment.

 

(g)                        Operator shall have the right to terminate the
Secondment for cause under the Secondment agreement provided for under clause
4.3(i).

 

(h)                       Each Secondee shall report to and be directed and
supervised by Operator (as further set forth in the Secondment agreement
provided for under clause 4.3(i)), but, for the avoidance of doubt, shall remain
at all times the employee of the Party (or its Affiliate) nominating such
Secondee.

 

(i)                           Operator and the Non-Operator that employs, or
whose Affiliate employs, the Secondee shall enter into a separate agreement
relating to such Secondment consistent with this clause 4.3.

 

(j)                          Operator shall charge to the Joint Account the
costs related to Secondment and Secondees that are within the approved Work
Program and Budget.

 

(k)                       If a Secondee acting as a Senior Supervisory Personnel
of Operator or its Affiliates engages in Gross Negligence / Willful Misconduct
that proximately causes the Parties to incur damage, loss, cost, or liability
for claims, demands or causes of action referred to in clauses 4.6(a) and
4.6(b), then all such damages, losses, costs, and liabilities shall be allocated
to the Joint Account despite clause 4.6.

 

7

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4.4                     Information supplied by Operator

 

(a)                       Operator shall provide Non-Operators in a timely
manner with the following data and reports (to the extent to be charged to the
Joint Account) as they are currently produced or compiled from Joint Operations:

 

(i)                           copies of all logs and surveys, including in
digitally recorded format if such exists;

 

(ii)                        daily drilling reports;

 

(iii)                     copies of all Tests and core data and analysis
reports;

 

(iv)                    final well recap report;

 

(v)                       copies of plugging reports;

 

(vi)                    copies of final geological and geophysical maps, seismic
sections and shot point location maps;

 

(vii)                 engineering studies, development schedules and quarterly
and annual progress reports on Development Plan projects which progress reports
shall at least set out the then current development schedule, the status of each
such Development Plan project from inception to date, its cumulative costs to
date and the cumulative commitments undertaken;

 

(viii)              weekly production summary and production activity reports,
and monthly reports on well, reservoir, field and infrastructure performance;

 

(ix)                    reservoir studies, annual reserve estimates, and annual
forecasts of production capability, infrastructure capacity, and scheduled
outages, provided that Operator makes no representations about the accuracy of
its identification of reserves and that each Non-Operator retains full
responsibility for making its own assessment of reserves for internal and
reporting purposes;

 

(x)                       before filing with the Government, copies of all
material reports relating to Joint Operations or the PSC required, or
anticipated, to be furnished by Operator to the Government, and copies of such
reports as filed;

 

(xi)                    to the extent not already provided pursuant to clause
(viii) or (ix) above, field and well performance reports, including reservoir
studies and reserve estimates;

 

(xii)                 to the extent not already provided pursuant to clause
(x) above, as requested by a Non-Operator, (i) copies of all material reports
relating to Joint Operations or the Contract Area furnished by Operator to the
Government; and (ii) other material studies and reports relating to Joint
Operations;

 

(xiii)              gas balancing reports under agreements provided for in
clause 9.3;

 

(xiv)             to the extent not already provided pursuant to the clauses
above, data, reports, forecasts and schedules under agreements provided for in
clause 9;

 

(xv)                such additional information as a Non-Operator may reasonably
request, provided that (A) the requesting Party or Parties pay the costs of
preparation of such information and that the preparation of such information
will not unduly burden Operator’s administrative and technical personnel; and
(B) only Non-Operators

 

8

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who pay such costs will receive such additional information; and

 

(xvi)            other reports as directed by the Operating Committee.

 

(b)                       Operator shall give Non-Operators access at all
reasonable times during normal business hours to all data and reports (other
than data and reports provided to Non-Operators in accordance with
clause 4.4(a)) acquired in the conduct of Joint Operations, which a Non-Operator
may reasonably request.  Any Non-Operator may make copies of such other data at
its sole expense.

 

4.5                     Settlement of claims and lawsuits

 

(a)                       Operator shall promptly notify the Parties of any and
all material claims or suits that relate in any way to Joint Operations. 
Operator shall represent the Parties and defend or oppose the claim or suit. 
Operator may in its sole discretion compromise or settle any such claim or suit
or any related series of claims or suits for an amount not to exceed the
equivalent of one million U.S. dollars (US$1,000,000) exclusive of legal fees. 
Operator shall obtain the approval and direction of the Operating Committee on
amounts in excess of the above-stated amount.  Without prejudice to the
foregoing, each Non-Operator shall have the right to be represented by its own
counsel at its own expense in the settlement, compromise or defense of such
claims or suits.

 

(b)                       Any Non-Operator shall promptly notify the other
Parties of any claim made against such Non-Operator by a third party that arises
out of or may affect the Joint Operations, and such Non-Operator shall defend or
settle the same in accordance with any directions given by the Operating
Committee.  Those costs, expenses and damages incurred pursuant to such defense
or settlement which are attributable to Joint Operations shall be charged to the
Joint Account.

 

(c)                        Notwithstanding clause 4.5(a) and clause 4.5(b), each
Party shall have the right to participate in any such suit, prosecution, defense
or settlement conducted in accordance with clause 4.5(a) and clause 4.5(b), at
its sole cost and expense; provided always that no Party may settle its
Participating Interest share of any claim without first satisfying the Operating
Committee that it can do so without prejudicing the interests of the Joint
Operations.

 

4.6                     Limitation on liability of Operator

 

(a)                       Neither Operator nor any other Indemnitee (as defined
below) shall bear (except as a Party to the extent of its Participating Interest
share) any damage, loss, cost, expense or liability for claims, demands or cause
of action resulting from performing (or failing to perform) the duties and
functions of Operator, and the Indemnitees are hereby released from liability to
Non-Operators for any and all damages, losses, costs, expenses and liabilities
arising out of, incident to or resulting from such performance or failure to
perform, even though caused in whole or in part by a pre-existing defect, or the
negligence (whether sole, joint or concurrent), gross negligence, willful
misconduct (but excluding any such claim, demand or cause of action to the
extent caused by the Gross Negligence / Willful Misconduct of any Senior
Supervisory Personnel of Operator or its Affiliates. for which the Operator
shall bear all such damages, losses, costs, expenses and liabilities), strict
liability or other legal fault of the Operator or an Indemnitee.

 

(b)                       Except as set out in clause 4.6(d), the Parties shall
(in proportion to their

 

9

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Participating Interests) defend and indemnify Operator, its Affiliates and their
respective directors, officers and employees (collectively, the Indemnitees),
from any and all damages, losses, costs, expenses (including reasonable legal
costs, expenses and attorneys’ fees) and liabilities incident to claims, demands
or causes of action brought by or on behalf of any person or entity, which
claims, demands or causes of action arise out of, are incident to or result from
Joint Operations, even though caused in whole or in part by a pre-existing
defect, or the negligence (whether sole, joint or concurrent), gross negligence,
willful misconduct (but excluding any such claim, demand or cause of action to
the extent caused by the Gross Negligence / Willful Misconduct of any Senior
Supervisory Personnel of Operator or its Affiliates, for which the Operator
shall bear all such damages, losses, costs, expenses and liabilities), strict
liability or other legal fault of the Operator or an Indemnitee.

 

(c)                        Notwithstanding the foregoing, under no circumstances
shall Operator (except as a Party to the extent of its Participating Interest)
or any other Indemnitees bear any Consequential Loss or Environmental Loss.

 

(d)                       Nothing in this clause 4.6 shall be deemed to relieve
Operator from its Participating Interest share of any damage, loss, cost,
expense or liability arising out of, incident to, or resulting from Joint
Operations.

 

4.7                     Insurance obtained by Operator

 

(a)                       Operator shall procure and maintain for the Joint
Account all insurance in the types and amounts required by the PSC or the Laws /
Regulations.

 

(b)                       Operator shall procure and maintain any further
insurance, at reasonable rates, as the Operating Committee may from time to time
require.  In the event that such further insurance is, in Operator’s reasonable
opinion, unavailable or available only at an unreasonable cost, Operator shall
promptly notify the Non-Operators in order to allow the Operating Committee to
reconsider such further insurance.

 

(c)                        Each Party will be provided the opportunity to
propose to underwrite any or all of the insurance to be obtained by Operator
pursuant to clauses 4.7(a) and 4.7(b), through such Party’s Affiliate insurance
company or, if direct insurance is not so permitted, through reinsurance
policies to such Party’s Affiliate insurance company. Any Party exercising its
rights under this Article shall furnish to Operator details of the proposed
insurance. If Operator in its sole discretion is satisfied with the security and
creditworthiness of such insurance or reinsurance arrangements, and that the
premiums for such insurance or reinsurance will not be significantly higher than
market rate and will be recoverable under the PSC, then Operator shall procure
such insurance or reinsurance from such Party.

 

(d)                       Subject to the PSC and the Laws / Regulations, any
Party may elect not to participate in the insurance to be procured under
clauses 4.7(a) and 4.7(b), provided such Party:

 

(i)                           gives prompt written notice to that effect to
Operator;

 

(ii)                        fully cooperates with and does nothing which may
interfere with Operator’s negotiations for such insurance for the other Parties;

 

(iii)                     obtains insurance prior to or concurrent with the
commencement of relevant operations and maintains such insurance (in respect of
which a current

 

10

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certificate of adequate coverage, provided at least once a year, shall be
sufficient evidence) or other evidence of financial responsibility which fully
covers its Participating Interest share of the risks that would be covered by
the insurance to be procured under clause 4.7(a) and/or clause 4.7(b), as
applicable, and which the Operating Committee determines to be acceptable.  No
such determination of acceptability shall in any way absolve a non-participating
Party from its obligation to meet each cash call (except, in accordance with
clause 4.7(e), as regards the costs of the insurance policy in which such Party
has elected not to participate) including any cash call with respect to damages
and losses and/or the costs of remedying the same in accordance with the terms
of this Agreement, the PSC and the Laws / Regulations.  If such Party obtains
other insurance, such insurance shall:

 

(A)                     contain a waiver of subrogation in favor of all the
other Parties, the Operator and their insurers but only with respect to their
interests under this Agreement;

 

(B)                     provide that thirty (30) Days’ written notice be given
to Operator prior to any material change in, or cancellation of, such insurance
policy;

 

(C)                     be primary to, and receive no contribution from, any
other insurance maintained by or on behalf of, or benefiting Operator or the
other Parties; and

 

(D)                     contain adequate territorial extensions and coverage in
the location of the Joint Operations; and

 

(iv)                    is solely responsible for all deductibles, coinsurance
payments, self-insured exposures, uninsured or underinsured exposures relating
to its interests under this Agreement.

 

(e)                        The cost of insurance in which all the Parties are
participating shall be for the Joint Account and the cost of insurance in which
fewer than all the Parties are participating shall be charged to the Parties
participating in proportion to their respective Participating Interests. 
Subject to the preceding sentence, the cost of insurance with respect to an
Exclusive Operation shall be charged to the Consenting Parties.

 

(f)                         In the event Operator elects, to the extent
permitted by the PSC and Laws / Regulations, to self-insure all or part of the
coverage to be procured under clauses 4.7(a) and/or 4.7(b), Operator shall so
notify the Operating Committee and provide a qualified self-insurance letter
stating what coverages Operator is self-insuring.  Any risk to be covered by
insurance to be procured in accordance with clauses 4.7(a) and 4.7(b), that is
not identified in the self-insurance letter shall be covered by insurance and
supported by a current certificate of adequate coverage.  If requested by the
Operating Committee from time to time, Operator shall provide evidence of
financial responsibility, acceptable to the Operating Committee, which fully
covers the risks that would be covered by the insurance to be procured under
clauses 4.7(a) and 4.7(b).

 

(g)                        Operator shall, with respect to all insurance
obtained under this clause 4.7:

 

(i)                           use reasonable endeavors to procure or cause to be
procured such insurance prior to or concurrent with, the commencement of
relevant operations and

 

11

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maintain or cause to be maintained such insurance during the term of the
relevant operations or any longer term required under the PSC or the Laws /
Regulations;

 

(ii)                        promptly inform the participating Parties when such
insurance is obtained and supply them with certificates of insurance or copies
of the relevant policies when the same are issued;

 

(iii)                     arrange for the participating Parties, according to
their respective Participating Interests, to be named as co-insureds on the
relevant policies with waivers of subrogation in favor of all the Parties but
only with respect to their interests under this Agreement;

 

(iv)                    use reasonable endeavors to ensure that each policy
shall survive the default or bankruptcy of the insured for claims arising out of
an event before such default or bankruptcy and that all rights of the insured
shall revert to the Parties not in default or bankruptcy; and

 

(v)                       duly file all claims and take all necessary and proper
steps to collect any proceeds and credit any proceeds to the participating
Parties in proportion to their respective Participating Interests.

 

(h)                       Operator shall use its reasonable endeavors to require
all contractors performing work with respect to Joint Operations to:

 

(i)                           obtain and maintain any and all insurance in the
types and amounts required by the PSC, the Laws / Regulations or any decision of
the Operating Committee;

 

(ii)                        name the Parties as additional insureds on the
contractor’s insurance policies and obtain from their insurers waivers of all
rights of recourse against Operator, Non-Operators and their insurers; and

 

(iii)                     provide Operator with certificates evidencing such
insurance prior to the commencement of their services.

 

4.8                     Commingling of funds

 

Operator may not commingle with Operator’s own funds the monies which Operator
receives from or for the Joint Account pursuant to this Agreement.  However,
Operator reserves the right to make future proposals to the Operating Committee
with respect to the commingling of funds to achieve financial efficiency. 
Operator shall open one or more separate bank accounts for the Joint Operations,
including currency accounts and interest bearing accounts, as necessary. 
Operator will have no obligation to utilize interest bearing accounts, provided
that in the event it does utilize interest bearing accounts, Operator shall
account to each Non-Operator for its allocable share of interest derived
therefrom in accordance with the Accounting Procedure.  Any account maintained
for Joint Operations pursuant to this clause 4.8 may also hold funds paid by the
Government or its designee in respect of, if applicable, its share of the costs
and expenses of operations conducted pursuant to the PSC.

 

4.9                     Resignation of Operator

 

Subject to clause 4.11, Operator may resign as Operator at any time by so
notifying the other Parties at least one hundred and twenty (120) Days prior to
the effective date of such

 

12

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resignation.

 

4.10              Removal of Operator

 

(a)                       Subject to clause 4.11, Operator shall be removed upon
receipt of notice from any Non-Operator if:

 

(i)                           (A) Operator becomes bankrupt, (B) is subject to
threatened or actual insolvency proceedings or (C) makes an assignment for the
benefit of creditors;

 

(ii)                        an order is made by a court or an effective
resolution is passed for the reorganization under any bankruptcy law,
dissolution, liquidation, or winding up of Operator;

 

(iii)                     a receiver is appointed for a substantial part of
Operator’s assets; or

 

(iv)                    Operator dissolves, liquidates, is wound up, or
otherwise terminates its existence.

 

(b)                       Subject to clause 4.11, Operator may be removed by the
decision of the Non-Operators if Operator has committed a material breach of
this Agreement and has either failed to commence to cure that breach within
thirty (30) Days of receipt of a notice from Non-Operators detailing the alleged
breach or failed to diligently pursue the cure to completion.  Any decision of
Non-Operators to give notice of breach to Operator or to remove Operator under
this clause 4.10(b) shall be made by an affirmative vote of at least sixty-six
and two-thirds percent (66 2/3%) of the Participating Interests held by the
Non-Operators.  However, if Operator disputes such alleged commission of or
failure to cure a material breach and dispute resolution proceedings are
initiated pursuant to clause 18.2 in relation to such breach, then Operator
shall remain appointed and no successor Operator may be appointed pending the
conclusion or abandonment of such proceedings, subject to the terms of
clause 8.3 with respect to Operator’s breach of its payment obligations.

 

(c)                        If Operator together with any Affiliates of Operator
is or becomes the holder of a Participating Interest of less than twenty percent
(20%), then Operator shall be required to promptly notify the other Parties. 
The Operating Committee shall then vote within thirty (30) Days of such
notification on whether or not a successor Operator should be named pursuant to
clause 4.11.

 

(d)                       If there is a Change in Control of Operator (other
than a transfer of Control to an Affiliate of Operator), Operator shall promptly
notify the other Parties.  The Parties shall vote within fourteen (14) Days of
such notification on whether or not Operator should be removed and a successor
Operator should be named pursuant to clause 4.11. An affirmative vote of
Non-Operators holding a combined Participating Interest of at least fifty one
percent (51%) of the Participating Interest held by all of the Non-Operators
shall be required to remove Operator pursuant to this clause.

 

(e)                        Subject to clause 4.11, Operator may be removed at
any time without cause by the affirmative vote of two (2) or more of the total
number of Non-Operators (excluding Affiliates of the Operator), holding at least
eighty five percent (85%) of the combined Participating Interest of such
Non-Operators, provided that the Non-Operators hold a combined Participating
Interest of at least fifty one percent (51%) of the Participating Interest held
by all of the Parties.

 

(f)                         Subject to clause 4.11, Operator may be removed by
the decision of the Non-Operators,

 

13

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as set out below, if:

 

(i)                           Operator has admitted allegations made by a
government authority concerning operations and/or activities under this
Agreement that Operator or its Affiliates or their directors, officers,
employees or personnel have violated Anti-Bribery Laws and Obligations
applicable to Operator;

 

(ii)                        It has been finally adjudicated that Operator or its
Affiliates or their directors, officers, employees or personnel  have violated
Anti-Bribery Laws and Obligations applicable to Operator concerning operations
and/or activities under this Agreement; or

 

(iii)                     Operator has been finally determined in arbitration to
have materially breached its warranty and/or covenant set out in clause 19.1,
based on Operator’s settlement of claims (without admission of allegations) made
by a government authority concerning operations and/or activities under this
Agreement that Operator or its Affiliates or their directors, officers,
employees or personnel have violated Anti-Bribery Laws and Obligations
applicable to Operator; and

 

the Non-Operators determine such admission, adjudication or breach was a
material breach of this Agreement. Any decision of Non-Operators to give notice
of breach to Operator or to remove Operator under this clause 4.10(f) shall be
made by an affirmative vote of at least sixty-six and two-thirds percent (66
2/3%) of the Participating Interests held by the Non-Operators (excluding any
Affiliates of the Non-Operators). However, if Operator disputes such alleged
commission of or failure to cure a material breach and Dispute resolution
proceedings are initiated under clause 18.2 concerning such breach, then
Operator shall remain appointed and no successor Operator may be appointed
pending the conclusion or abandonment of such proceedings, subject to the terms
of clause 8.3 with respect to Operator’s breach of its payment obligations.

 

4.11              Appointment of successor

 

When a change of Operator occurs pursuant to clause 4.9 or clause 4.10:

 

(a)                       The Operating Committee shall meet as soon as possible
to appoint a successor Operator pursuant to the voting procedure of
clause 5.10.  No Party may be appointed successor Operator against its will.

 

(b)                       If Operator is removed, other than in the case of
clause 4.10(c), neither Operator nor any Affiliate of Operator shall have the
right to be considered as a candidate for the successor Operator.

 

(c)                        The resigning or removed Operator shall, subject to
its duty to use reasonable efforts to mitigate the costs related to its
resignation or removal, be compensated out of the Joint Account for its
reasonable costs and expenses directly related to its resignation or removal,
except in the case of clause 4.10(b).

 

(d)                       The resigning or removed Operator and the successor
Operator shall arrange for the taking of an inventory of all Joint Property and
Hydrocarbons, and an audit of the books and records of the removed Operator. 
Such inventory and audit shall be completed, if possible, no later than the
effective date of the change of Operator and shall be subject to the approval of
the Operating Committee.  The liabilities and expenses of such

 

14

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inventory and audit shall be charged to the Joint Account.

 

(e)                        The resignation or removal of Operator and its
replacement by the successor Operator shall not become effective prior to
receipt of any necessary Government approvals.

 

(f)                         Upon the effective date of the resignation or
removal, the successor Operator shall succeed to all duties, rights and
authority prescribed for Operator.  The former Operator shall transfer to the
successor Operator custody of all Joint Property, books of account, records and
other documents maintained by Operator pertaining to the Contract Area and to
Joint Operations and shall endeavor to transfer rights, warranties, indemnities
and duties under contracts and licences entered into for Joint Operations.  Upon
delivery of the above-described property and data, the former Operator shall be
released and discharged from all obligations and liabilities as Operator
accruing after such date.

 

4.12              Assignment of the Operatorship

 

The Party designated as “Operator” hereunder may only assign (or otherwise
transfer) its rights and/or obligations as Operator as part of a Transfer that
includes all or part of its Participating Interest, subject to clause 12.2(b).

 

4.13              Health, safety and environment (HSE)

 

(a)                       With the goal of achieving safe and reliable
operations in compliance with applicable HSE Laws / Regulations (including
avoiding significant and unintended impact on the safety or health of people, on
property, or on the environment), Operator shall in the conduct of Joint
Operations:

 

(i)                           establish and implement an HSE plan in a manner
consistent with standards and procedures generally followed in the international
petroleum industry under similar circumstances;

 

(ii)                        design and operate Joint Property consistent with
the HSE plan; and

 

(iii)                     conform with locally applicable HSE Laws / Regulations
and other HSE-related statutory requirements that may apply.

 

(b)                       In the conduct of Joint Operations, Operator shall
establish and implement a program for regular HSE assessments.  The purpose of
such assessments is to periodically review HSE systems and procedures, including
actual practice and performance, to verify that the HSE plan is being
implemented in accordance with the policies and standards of the HSE plan. 
Operator shall, at a minimum, conduct such an assessment before entering into
significant new Joint Operations and before undertaking any major changes to
existing Joint Operations.  Upon reasonable notice given to Operator,
Non-Operators shall have the right to participate in such HSE assessments, in a
manner that minimizes interference with the assessments and the day-to-day
operations of Operator.

 

(c)                        Operator shall require its contractors, consultants
and agents undertaking activities for the Joint Account to manage HSE risks in a
manner consistent with the requirements of this clause 4.13.

 

(d)                       Operator shall establish and enforce rules consistent
with those generally followed in the international petroleum industry under
similar circumstances that, at a

 

15

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minimum, prohibit within the Contract Area the following:

 

(i)                           possession, use, distribution or sale of firearms,
explosives, or other weapons without the prior written approval of senior
management of Operator;

 

(ii)                        possession, use, distribution or sale of alcoholic
beverages without the prior written approval of senior management of Operator;
and

 

(iii)                     possession, use, distribution or sale of illicit or
non-prescribed controlled substances and the misuse of prescribed drugs.

 

(e)                        Without prejudice to a Party’s rights under clause
4.2(b)(vii), with reasonable advance notice and not more than once per Calendar
Year, Operator shall permit each Non-Operator to have at all reasonable times
during normal business hours (and at its own risk and expense) the right to
conduct its own HSE audit, which HSE audit shall be conducted in a way to
minimize interference with the day-to-day operations of Operator.  When there
are two or more Non-Operators desiring to conduct an HSE audit, such
Non-Operators shall conduct a joint HSE Audit.

 

5                               Operating Committee

 

5.1                     Establishment of Operating Committee

 

To provide for the overall supervision and direction of Joint Operations and to
coordinate the Parties’ activities with respect to the Management Committee,
there is established an Operating Committee composed of representatives of each
Party holding a Participating Interest.  Each Party shall appoint one
(1) representative and one (1) alternate representative to serve on the
Operating Committee.  Each Party shall as soon as possible after the Effective
Date give notice in writing to the other Parties of the name and address of its
representative and alternate representative to serve on the Operating
Committee.  Each Party shall have the right to change its representative and
alternate at any time by giving notice of such change to the other Parties.

 

5.2                     Representation on PSC Management Committee

 

(a)                       The Parties agree that of the three (3) Management
Committee representatives to be appointed by the Parties pursuant to
Article 9.2.1 of the Second Amendment (i) if there are less than three parties
to this Agreement, two (2) representatives shall be selected by Operator and the
remaining representative shall be selected by the Non-Operator and (ii) in all
other cases, one (1) representative shall be selected by Operator and the other
two (2) representatives shall be selected by the Non-Operators.

 

(b)                       The representatives appointed pursuant to this clause
5.2 shall, after attending Management Committee meetings, promptly report back
to the Operating Committee.

 

5.3                     Powers and duties of Operating Committee

 

The Operating Committee shall have power and duty to authorize and supervise
Joint Operations that are necessary or desirable to fulfill the PSC and properly
explore and exploit the Contract Area in accordance with this Agreement and Laws
/ Regulations and generally accepted practices of the international petroleum
industry under similar circumstances; provided that Operating Committee may not
compel any Party to exercise,

 

16

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make, or take, or prevent any Party from exercising, making, or taking, any
right, decision, or action concerning any matter or proposal under this
Agreement, which right, decision or action is reserved or delegated to a Party
or the Parties.  The Operating Committee shall meet at least three (3) times per
year at regularly spaced intervals, if a regular meeting is not so scheduled,
within thirty (30) Days prior to each Management Committee meeting or as
otherwise agreed by the Parties.

 

5.4                     Authority to vote

 

The representative of a Party, or in his absence his alternate representative,
shall be authorized to represent and bind such Party with respect to any matter
which is within the powers of the Operating Committee and is properly brought
before the Operating Committee.  Each such representative shall have a vote
equal to the Participating Interest of the Party such person represents.  Each
alternate representative shall be entitled to attend all Operating Committee
meetings but shall have no vote at such meetings except in the absence of the
representative for whom he is the alternate.  In addition to the representative
and alternate representative, each Party may also bring to any Operating
Committee meetings such technical and other advisors as it may deem appropriate.

 

5.5                     Subcommittees

 

The Operating Committee shall establish a technical subcommittee and may
establish such other subcommittees as the Operating Committee may deem
appropriate.  The functions of such subcommittees shall be in an advisory
capacity only unless otherwise determined unanimously by the Parties.  Each
Party shall have the right to appoint a representative to each subcommittee. 
The technical subcommittee shall meet at least twice a year at regularly spaced
intervals, or as otherwise agreed by the Parties.

 

5.6                     Notice of meeting

 

(a)                       Operator may call a meeting of the Operating Committee
by giving notice to the Parties at least ten (10) Days in advance of such
meeting.

 

(b)                       Any Non-Operator may request a meeting of the
Operating Committee by giving notice to all the other Parties.  Upon receiving
such request, Operator shall call such meeting for a date not less than ten
(10) Days nor more than twenty (20) Days after receipt of the request.

 

(c)                        The notice periods above may only be waived with the
unanimous consent of all the Parties.

 

5.7                     Contents of meeting notice

 

(a)                       Each notice of a meeting of the Operating Committee as
provided by Operator shall contain:

 

(i)                           the date, time and location of the meeting;

 

(ii)                        an agenda of the matters and proposals to be
considered and/or voted upon; and

 

(iii)                     copies of all proposals to be considered at the
meeting (including all appropriate supporting information not previously
distributed to the Parties).

 

(b)                       A Party, by notice to the other Parties given not less
than three (3) Business Days

 

17

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

 

prior to a meeting, may add additional matters to the agenda for a meeting.

 

(c)                        On the request of a Party, and with the unanimous
consent of all Parties, the Operating Committee may consider at a meeting a
proposal not contained in such meeting agenda.

 

5.8                     Location of meetings

 

All meetings of the Operating Committee shall be held in Houston, Texas or
elsewhere as the Operating Committee may decide.  Meetings may be held by
teleconference or using some other form of technology, in which case any
representative of a Party being linked to the meeting by any technology will be
deemed to be present at the place of the meeting.

 

5.9                     Operator’s duties for meetings

 

(a)                       With respect to meetings of the Operating Committee
and any subcommittee, Operator’s duties shall include:

 

(i)                           timely preparation and distribution of the agenda;

 

(ii)                        organization and conduct of the meeting; and

 

(iii)                     preparation of a written record or minutes of each
meeting, in such detail as to provide an adequate record of the discussion of
each item of business considered at the meeting.

 

(b)                       Operator shall have the right to appoint the chairman
of the Operating Committee and all subcommittees.

 

5.10              Voting procedure

 

Except as otherwise expressly provided in this Agreement, decisions, approvals,
and other actions of the Operating Committee on all proposals (other than
proposals on matters reserved to the Parties) coming before it shall be decided
as follows:

 

(a)                       All decisions, approvals, and other actions for which
column (A) below is checked shall require the affirmative vote of two or more of
Voting Groups that hold sixty five percent (65%) or more of the Participating
Interests.

 

(b)                       All decisions, approvals, and other actions for which
column (B) below is checked shall require the affirmative vote of two or more
Voting Groups that hold eighty five percent (85%) or more of the Participating
Interest.

 

(c)                        All decisions, approvals, and other actions for which
column (C) below is checked shall require the affirmative vote unanimous votes
of the Parties.

 

(d)                       A Voting Group is comprised of all Parties that are
Affiliates of one another. If a Party has no Affiliate that is also a Party,
such Party will be the only member of its Voting Group.

 

#

 

Proposal

 

(A)

 

(B)

 

(C)

(1)

 

Minimum Work Programs.

 

X

 

 

 

 

 

18

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(2)

 

HSE Plan.

 

X

 

 

 

 

(3)

 

Appraisal Plan(s).

 

X

 

 

 

 

(4)

 

Development Plan(s).

 

X

 

 

 

 

(5)

 

Decommissioning Plan(s).

 

 

 

 

 

X

(6)

 

Determination that a Discovery is a Commercial Discovery, and if applicable
declaration of commerciality under the PSC.

 

X

 

 

 

 

(7)

 

Exploration and Appraisal Work Programs and Budgets.

 

X

 

 

 

 

(8)

 

Development Work Programs and Budgets.

 

X

 

 

 

 

(9)

 

Production Work Programs and Budgets and Production Forecasts.

 

X

 

 

 

 

(10)

 

Decommissioning Work Program and Budget.

 

 

 

 

 

X

(11)

 

Acquisition of G & G Data.

 

X

 

 

 

 

(12)

 

Drilling, Deepening, Testing, Sidetracking, Plugging Back, Recompleting, or
Reworking Exploration Wells.

 

X

 

 

 

 

(13)

 

Drilling, Deepening, Testing, Sidetracking, Plugging Back, Recompleting, or
Reworking Appraisal Wells.

 

X

 

 

 

 

(14)

 

Drilling, Deepening, Testing, Sidetracking, Plugging Back, Recompleting, or
Reworking Development Wells.

 

X

 

 

 

 

(15)

 

Completion of a well.

 

 

 

 

 

X

(16)

 

Plugging and abandoning a well.

 

X

 

 

 

 

(17)

 

Construction and/or installation of processing, treatment, compression,
gathering, storage, handling, transportation, and other facilities within the
scope of this Agreement.

 

X

 

 

 

 

(18)

 

Contract awards (if approval is required).

 

X

 

 

 

 

(19)

 

AFE (if applicable) and Supplemental AFEs

 

X

 

 

 

 

(20)

 

Relinquishment of all or part of the Contract Area and determination of size and
shape consistent with the PSC.

 

 

 

 

 

X

(21)

 

Voluntary surrender of all or part of the Contract Area or any Exploitation Area
and determination of size and shape consistent with the PSC.

 

 

 

 

 

X

(22)

 

Unitization under the PSC and/or Law with an adjoining contract area.

 

 

 

 

 

X

(23)

 

Establishment of an interest bearing account for Joint Account monies.

 

X

 

 

 

 

(24)

 

Acquisition and development of Venture Information under terms other than as
specified in clause 15.

 

X

 

 

 

 

 

19

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(25)

 

Entering into or extending or renewing the term of any Exploration or
Exploitation Period or any phase of the PSC.

 

 

 

 

 

X

(26)

 

Amendment to the PSC of this Agreement

 

 

 

 

 

X

(27)

 

All other proposals within the Operating Committee’s authority.

 

X

 

 

 

 

 

5.11              Record of votes

 

The chairman of the Operating Committee shall appoint a secretary who shall make
a record of each proposal voted on and the results of such voting at each
Operating Committee meeting.  Each representative shall sign and be provided a
copy of such record at the end of such meeting, and it shall be considered the
final record of the decisions of the Operating Committee.

 

5.12              Minutes

 

The secretary shall provide each Party with a copy of the minutes of the
Operating Committee meeting within fifteen (15) Business Days after the end of
the meeting.  Each Party shall have fifteen (15) Days after receipt of such
minutes to give notice to the secretary of its objections and corrections to the
minutes.  A failure to give notice specifying objections and corrections to such
minutes within said fifteen (15) Day period shall be deemed to be approval of
such minutes.  In any event, the votes recorded under clause 5.11 shall take
precedence over the minutes described above.

 

5.13              Voting by notice

 

(a)                       In lieu of a meeting, any Party may submit any
proposal to the Operating Committee for a vote by notice.  The proposing Party
or Parties shall notify Operator who shall give each Party’s representative
notice describing the proposal so submitted and whether Operator considers such
operational matter to require urgent determination.  Operator shall include with
such notice adequate documentation in connection with such proposal to enable
the Parties to make a decision.  Each Party shall communicate its vote by notice
to Operator and the other Parties within one of the following appropriate time
periods after receipt of Operator’s notice:

 

(i)                           twenty-four (24) hours in the case of operations
which involve the use of a drilling rig (or similar specialized vessels,
offshore equipment, infrastructure and/or services) that is standing by in the
Contract Area and such other operational matters reasonably considered by
Operator to require by their nature urgent determination (such operations and
matters being referred to as Urgent Operational Matters); and

 

(ii)                        seven (7) Days in the case of all other proposals.

 

(b)                       Except in the case of clause 5.13(a)(i), any Party
may, by notice delivered to all Parties within five (5) Days of receipt of
Operator’s notice, request that the proposal be decided at a meeting rather than
by notice.  In such an event, that proposal shall be decided at a meeting duly
called for that purpose.

 

(c)                        Except as provided in clause 7.2, clause 10 or
elsewhere in this Agreement, any Party failing to communicate its vote in a
timely manner shall be deemed to have voted

 

20

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against such proposal.

 

(d)                       If a meeting is not requested, then at the expiration
of the appropriate time period, Operator shall give each Party a confirmation
notice stating the tabulation and results of the vote.

 

5.14              Effect of vote

 

All decisions taken by the Operating Committee pursuant to this clause 5 shall
be conclusive and binding on all the Parties, except in the following cases.

 

(a)                       If pursuant to this clause 5, a Joint Operation has
been properly proposed to the Operating Committee and the Operating Committee
has not approved such proposal in a timely manner, then any Party that voted in
favor of such proposal shall have the right for the appropriate period specified
below to propose, in accordance with clause 7, an Exclusive Operation involving
operations essentially the same as those proposed for such Joint Operation.

 

(i)                           For proposals related to Urgent Operational
Matters, such right shall be exercisable for twenty-four (24) hours after the
time specified in clause 5.13(a)(i) has expired or after receipt of Operator’s
notice given to the Parties pursuant to clause 5.14(d), as applicable.

 

(ii)                        For proposals to develop a Discovery, such right
shall be exercisable for ten (10) Days after the date the Operating Committee
was required to consider such proposal pursuant to the terms hereof.

 

(iii)                     For all other proposals, such right shall be
exercisable for five (5) Days after the date the Operating Committee was
required to consider such proposal pursuant to pursuant to the terms hereof.

 

(b)                       If a Party voted against any proposal which was
approved by the Operating Committee and which could be conducted as an Exclusive
Operation pursuant to clause 7, then such Party shall have the right not to
participate in the operation contemplated by such approval.  Any such Party
wishing to exercise its right of non-consent must give notice of non-consent to
all other Parties within five (5) Days (or twenty-four (24) hours for Urgent
Operational Matters) following Operating Committee approval of such proposal. 
If a Party exercises its right of non-consent, the Parties who were not entitled
to give or did not give notice of non-consent shall be Consenting Parties as to
the operation contemplated by the Operating Committee approval, and shall
conduct such operation as an Exclusive Operation under clause 7, provided,
however, that any such Party who was not entitled to give or did not give notice
of non-consent may, by notice provided to the other Parties within five (5) Days
(or twenty four (24) hours for Urgent Operational Matters) following the notice
of non-consent given by any non-consenting Party, require that the Operating
Committee vote again on the proposal in question.  Only the Parties which were
not entitled to or have not exercised their right of non-consent with respect to
the contemplated operation shall participate in such second vote of the
Operating Committee, with voting rights proportional to their respective
Participating Interest.  If the Operating Committee approves again the
contemplated operation, any Party which voted against the contemplated operation
in such second vote may elect to be a Non-Consenting Party with respect to such
operation, by notice of non-consent provided to all other Parties within five
(5) Days (or twenty four (24) hours for Urgent Operational Matters) following
the

 

21

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Operating Committee’s second approval of such contemplated operation.

 

(c)                        If the Consenting Parties to an Exclusive Operation
under clause 5.14(a) or clause 5.14(b) concur, then the Operating Committee may,
at any time, pursuant to this clause 5, reconsider and approve, decide or take
action on any proposal that the Operating Committee declined to approve earlier,
or modify or revoke an earlier approval, decision or action.

 

(d)                       Once a Joint Operation for the drilling, Deepening,
Testing, Sidetracking, Plugging Back, Completing, Recompleting, Reworking, or
plugging of a well has been approved and commenced, such operation shall not be
discontinued without the consent of the Operating Committee; provided, however,
that such operation may be discontinued if:

 

(i)                           an impenetrable substance or other condition in
the hole is encountered which in the reasonable judgment of Operator causes the
continuation of such operation to be impractical; or

 

(ii)                        other circumstances occur which in the reasonable
judgment of Operator cause the continuation of such operation to be unwarranted
and the Operating Committee, within the period required under
clause 5.13(a)(i) after receipt of Operator’s notice, approves discontinuing
such operation.

 

On the occurrence of either of the above, Operator shall promptly notify the
Parties that such operation is being discontinued pursuant to the foregoing, and
any Party shall have the right to propose in accordance with clause 7 an
Exclusive Operation to continue such operation.

 

(e)                        Any vote made under the PSC shall be made in
accordance with, and give full effect, to the decisions made by the Operating
Committee under this clause 5 or the decision of a Party to conduct an Exclusive
Operation under this clause 5 or clause 7.

 

(f)                         A Party to this Agreement may not exercise their
rights under, or cast their vote in respect of the Management Committee in a
manner inconsistent with a decision of the Operating Committee.

 

6                               Work Programs and Budgets

 

6.1                     Contents of Work Programs and Budgets

 

Following the Exploration Period, each annual Work Program and Budget shall with
respect to the applicable Calendar Year contain, inter alia:

 

(a)                       An itemized list of the operations and activities to
be conducted, described in sufficient detail to afford ready identification of
the nature, scope, location, timing, and duration of each such operation and
activity, including:

 

(i)                           designating whether such line item is intended to
satisfy the Minimum Work Obligations of the PSC, the commitments of a previously
approved appraisal Work Program and Budget, and/or the commitments of a
previously approved Development Plan; and

 

(ii)                        specifying whether such line item is firm or
contingent and the conditions

 

22

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

 

under which the Operating Committee may decide to make a contingent line item
firm;

 

(iii)                     An estimate of the costs corresponding to each such
line item enumerated in sufficient detail to be readily tracked and charged
under the Accounting Procedure and consistent with the PSC;

 

(iv)                    An estimate of funds to be expended by Calendar Quarter;

 

(v)                       Information with respect to Operator’s estimated
manpower requirements and costs and Operator’s allocation procedures under the
Accounting Procedure;

 

(vi)                    Reasonable and necessary supporting information; and

 

(vii)                 Any additional information and detail as the Operating
Committee may deem suitable.

 

6.2                     Initial Work Program and Budget

 

The Parties agree to implement the Work Program and Budget for the period from
the Effective Date until the end of the current period under the PSC attached as
Exhibit C to this Agreement (the Initial Work Program and Budget).  Any
subsequent Work Program and Budget  prepared during the Exploration Period shall
be in a format substantially similar to the Initial Work Program and Budget; and
prepared, approved and revised, as applicable, in accordance with, and pursuant
to, the other applicable provisions of this Agreement.

 

6.3                     Subsequent Work Programs and Budgets

 

(a)                       On or before the Day that is ninety (90) Days prior to
the Day that Operator or the Parties are required to submit a Work Program and
Budget to the Management Committee or the Government, as applicable, pursuant to
the terms of the PSC, Operator shall deliver to the Parties a proposed Work
Program and Budget detailing the Joint Operations to be performed for the
applicable period.  Within thirty (30) Days of such delivery, the Operating
Committee shall meet to consider and to endeavor to agree on such Work Program
and Budget.

 

(b)                       Once the Parties have agreed on a Work Program and
Budget, Operator shall deliver the agreed Work Program and Budget to the
Management Committee or the Government, as applicable, for approval in
accordance with the terms of the PSC. The Parties agree to vote in favor of any
Work Program and Budget delivered to the Management Committee when the
Management Committee considers the agreed Work Program and Budget.

 

(c)                        If the Management Committee or the Government, as
applicable, fails to approve any Work Program and Budget delivered to the
Management Committee or the Government, as applicable, in accordance with clause
6.3(b), the Parties shall endeavor to agree on a revised Work Program and Budget
in accordance with clause 6.3(a). If the Parties agree on a revised Work Program
and Budget the Operator shall deliver that revised Work Program and Budget to
the Management Committee or the Government, as applicable, for approval.  The
Parties agree to vote in favor of any revised Work Program and Budget delivered
to the Management Committee or the Government, as applicable, when the
Management

 

23

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Committee or the Government, as applicable, considers any agreed revised Work
Program and Budget.

 

6.4                     Discovery

 

(a)                       If a Discovery is made, Operator shall deliver any
notice of Discovery required under the PSC and shall as soon as possible submit
to the Parties a report containing available details concerning the Discovery
and Operator’s recommendation as to whether the Discovery merits appraisal.

 

(b)                       If the Operating Committee determines that the
Discovery merits appraisal, Operator within one hundred (100) Days, or earlier
if necessary to meet any applicable deadline under the PSC. shall deliver to the
Parties a proposed Work Program and Budget for the appraisal of the Discovery. 
Within thirty (30) Days of such delivery, or earlier if necessary to meet any
applicable deadline under the PSC, the Operating Committee shall meet to
consider, modify and then either approve or reject the appraisal Work Program
and Budget.

 

(c)                        If the appraisal Work Program and Budget is approved
by the Operating Committee, Operator shall take such steps as may be required
under the PSC to secure approval of the appraisal Work Program and Budget by the
Government.  In the event the Government requires changes in the appraisal Work
Program and Budget, the matter shall be resubmitted to the Operating Committee
for further consideration.

 

6.5                     Minimum Work Obligations

 

(a)                       Each Work Program and Budget agreed pursuant to this
clause 6 shall include at least that part of the Minimum Work Obligations
required to be carried out during the applicable period in question under the
terms of the PSC.  If within the time periods prescribed in this clause 6  the
Operating Committee is unable to agree on such a Work Program and Budget, then
the proposal capable of satisfying the Minimum Work Obligations for the
applicable period in question that receives the largest Participating Interest
vote (even if less than the applicable percentage under clause 5.10) shall be
deemed adopted as part of the annual Work Program and Budget.

 

(b)                       If competing proposals receive equal votes, then
Operator shall choose between those competing proposals.

 

(c)                        Any portion of a Work Program and Budget adopted
pursuant to clause 6.5(a) instead of clause 5.10 shall contain only such
operations for the Joint Account as are necessary to maintain the PSC in full
force and effect, including such operations as are necessary to fulfill the
Minimum Work Obligations required for the relevant period.

 

6.6                     Revision to Work Programs and Budgets

 

(a)                       Any approved Work Program and Budget may be revised by
the Operating Committee from time to time.  To the extent such revisions are
approved by the Operating Committee, the Work Program and Budget shall be
amended accordingly.  Operator shall prepare and submit a corresponding work
program and budget amendment to the Management Committee or the Government, as
applicable, if required by the PSC.

 

(b)                       Subject to clause 6.13, approval of any such Work
Program and Budget which

 

24

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includes:

 

(i)                           an Exploration Well, whether by drilling,
Deepening or Sidetracking, shall include approval for only expenditures
necessary for drilling, Deepening or Sidetracking of such Exploration Well. 
When an Exploration Well has reached its authorized depth, all logs, cores and
other approved Tests have been conducted and the results furnished to the
Parties, Operator shall submit to the applicable Parties in accordance with
clause 5.13(a)(i) an election to participate in an attempt to Complete such
Exploration Well.  Operator shall include in such submission Operator’s
recommendation on such Completion attempt and an AFE for such Completion costs.

 

(ii)                        an Appraisal Well, whether by drilling, Deepening or
Sidetracking, shall include approval for only expenditures necessary for
drilling, Deepening or Sidetracking of such Appraisal Well. When an Appraisal
Well has reached its authorized depth, all logs, cores and other approved Tests
have been conducted and the results furnished to the Parties, Operator shall
submit to the applicable Parties in accordance with clause 5.13(a)(i) an
election to participate in an attempt to Complete such Appraisal Well.  Operator
shall include in such submission Operator’s recommendation on such Completion
attempt and an AFE for such Completion costs.

 

(c)                        Any Party desiring to propose a Completion attempt,
or an alternative Completion attempt, must do so within the time period provided
in clause 5.13(a)(i) by notifying all other Parties.  Any such proposal shall
include an AFE for such Completion costs.

 

(d)                       Notwithstanding anything to the contrary herein, no
Party with a Participating Interest that is less than or equal to ten percent
(10%) may make an election not to participate in a Completion attempt in any
Exploration Well or Appraisal Well if any other Party elects to participate in
such Completion attempt, nor may a Party with a Participating Interest that is
less than or equal to ten percent (10%) make an election to participate in a
Completion attempt in any Exploration Well or Appraisal Well if no other Party
elects to do so.

 

6.7                     Development

 

(a)                       If the Operating Committee determines that a Discovery
may be a Commercial Discovery, Operator shall, as soon as practicable, deliver
to the Parties a Development Plan together with the first annual Work Program
and Budget (or a multi-year Work Program and Budget pursuant to clause 6.10) and
provisional Work Programs and Budgets for the remainder of the development of
the Discovery, which shall contain, inter alia:

 

(i)                           details of the proposed work to be undertaken,
personnel required and expenditures to be incurred, including the timing of
same, on a Calendar Year basis;

 

(ii)                        an estimated date for the commencement of
production;

 

(iii)                     a delineation of the proposed Exploitation Area

 

(iv)                    a production forecast of estimated production for each
type of Hydrocarbon to be produced by Calendar Year for the estimated productive
life of the Commercial Discovery;

 

25

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(v)                       a description of all material facilities to be
constructed as Joint Property;

 

(vi)                    an estimated Decommissioning Work Program  and Budget;
and

 

(vii)                 any other information requested by the Operating
Committee.

 

(b)                       After receipt of the Development Plan and prior to any
applicable deadline under the PSC, the Operating Committee shall meet to
consider, modify and then either approve or reject the Development Plan and the
first annual Work Program and Budget for the development of a Discovery, as
submitted by Operator.  If the Operating Committee determines that the Discovery
is a Commercial Discovery and approves the corresponding Development Plan,
Operator shall, as soon as possible, deliver any notice of Commercial Discovery
required under the PSC and take such other steps as may be required under the
PSC to secure approval of the Development Plan by the Management Committee or
the Government, as applicable.  In the event the Management Committee or the
Government requires changes in the Development Plan and/or such Work Program and
Budget, the matter shall be resubmitted to the Operating Committee for further
consideration.

 

(c)                        If the Development Plan is approved, such work shall
be incorporated into and form part of annual Work Programs and Budgets, and
Operator shall, on or before the first (1st) Day of October of each Calendar
Year submit a Work Program and Budget for the Exploitation Area, for the
following Calendar Year.  Subject to clause 6.10, within thirty (30) Days after
such submittal, the Operating Committee shall endeavor to agree to such Work
Program and Budget, including any necessary or appropriate revisions to the Work
Program and Budget for the approved Development Plan.

 

6.8                     Production

 

On or before the Day that is ninety (90) Days prior to the Day that Operator or
the Parties are required to submit to the Management Committee or the Government
a proposed production Work Program and Budget detailing the Joint Operations to
be performed in the Exploitation Area and the projected production schedule for
the next applicable period, Operator shall deliver to the Parties a proposed
draft of such Work Program and Budget.  Within thirty (30) Days of such
delivery, the Operating Committee shall agree upon a production Work Program and
Budget, failing which the provisions of clause 6.5 shall be applied mutatis
mutandis.

 

6.9                     Itemization of expenditures

 

(a)                       During the preparation of the proposed Work Programs
and Budgets and Development Plans contemplated in this clause 6, Operator shall
consult with the Operating Committee or the appropriate subcommittees regarding
the contents of such Work Programs and Budgets and Development Plans.

 

(b)                       Each Work Program and Budget (following the
Exploration Period) and Development Plan submitted by Operator shall contain an
itemized estimate of the costs of Joint Operations and all other expenditures to
be made for the Joint Account during the Calendar Year in question and shall,
inter alia:

 

(i)                           identify each work category in sufficient detail
to afford the ready identification of the nature, scope and duration of the
activity in question;

 

26

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(ii)                        include such reasonable information regarding
Operator’s allocation procedures and estimated manpower costs as the Operating
Committee may determine;

 

(iii)                     comply with the requirements of the PSC;

 

(c)                        The Work Program and Budget shall designate the
portion or portions of the Contract Area in which Joint Operations itemized in
such Work Program and Budget are to be conducted and shall specify the kind and
extent of such operations in such detail as the Operating Committee may deem
suitable.

 

6.10              Multi-Year Work Program and Budget

 

(a)                       Any work that cannot be efficiently completed within a
single Calendar Year may be proposed in a multi-year Work Program and Budget. 
Upon approval by the Operating Committee, such multi-year Work Program and
Budget shall, subject only to revisions approved by the Operating Committee
thereafter:

 

(i)                           remain in effect as between the Parties (and the
associated cost estimate shall be a binding pro-rata obligation of each Party)
through the completion of the work; and

 

(ii)                        be reflected in each annual Work Program and Budget.

 

(b)                       If the PSC requires that Work Programs and Budgets be
submitted to the Management Committee or the Government for approval, such
multi-year Work Program and Budget shall be submitted to the Management
Committee or the Government either in a single request for a multi-year approval
or as part of the annual approval process, according to the terms of the PSC.

 

6.11              Contract awards

 

Subject to the PSC, and except for services provided by Affiliates of Operator
described in Section 2.8 of the Accounting Procedure, Operator shall award each
contract for Joint Operations on the following basis (the amounts stated are in
U.S. dollars):

 

Procedure A

 

Procedure B

 

Procedure C

0 to $1,000,000

 

$1,000,001 to $4,999,999

 

>$5,000,000

 

Procedure A

 

(a)                       Operator shall award the contract to the best
qualified contractor as determined by quality and ability to perform the
contract, competitive cost and commitment to health, safety, environment and
community issues without the obligation to tender and without informing or
seeking the approval of the Operating Committee except that before entering into
contract with Affiliates of Operator exceeding two hundred thousand U.S. Dollars
(US$200,000), Operator shall obtain the approval of the Operating Committee.

 

Procedure B

 

(b)                       Operator shall:

 

27

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(i)         seek bids from qualified contractors as determined by ability to
perform the contract and competitive cost without seeking the approval of the
Operating Committee;

 

(ii)        provide the Parties with a list of the entities whom Operator
proposes to invite to tender for the said contract;

 

(iii)       complete the tendering process within a reasonable period of time
and award the contract based on the tender results;

 

(iv)       inform the Parties of the entities to whom the contract has been
awarded provided that before awarding contracts to Affiliates of Operator or of
any Non-Operator that exceed two hundred thousand U.S. Dollars (US$200,000),
Operator shall obtain the approval of the Operating Committee;

 

(v)        upon the request of a Party, provide such Party with a copy of the
final version of the contract.

 

Procedure C

 

(c)        Operator shall:

 

(i)         provide the Parties with a list of the entities whom Operator
proposes to invite to tender for the said contract;

 

(ii)        add to such list any entity whom a Party reasonably requests to be
added within fourteen (14) Days of receipt of such list;

 

(iii)       prepare and dispatch the tender documents to the entities on the
list as aforesaid and to Non-Operators;

 

(iv)       after the expiration of the period allowed for tendering, consider
and analyze the details of all bids received;

 

(v)        prepare and circulate to the Parties a competitive bid analysis,
stating Operator’s recommendation as to the entity to whom the contract should
be awarded, the reasons therefor, and the technical, commercial and contractual
terms to be agreed upon;

 

(vi)       obtain the approval of the Operating Committee to the recommended
bid; and

 

(vii)      upon the request of a Party, provide such Party with a copy of the
final version of the contract.

 

6.12     Authorization for expenditure (AFE) procedure

 

(a)        Prior to incurring any commitment or expenditure for the Joint
Account, which is estimated to be in excess of, in the case of any commitment or
expenditure that is not undertaken in connection with a Development Plan, one
million U.S. dollars (US$1,000,000), and in the case of any commitment or
expenditure that is undertaken in connection with a Development Plan, three
million U.S. dollars (US$3,000,000), in either case, in a Work Program and
Budget, Operator shall send to each Non-Operator an AFE as described in
clause 6.12(c).  Notwithstanding anything to the contrary herein, Operator shall
not be obliged

 

28

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(prior to, upon or after incurring (or entering into) any commitment or
expenditure that would otherwise be subject to the AFE procedure in this clause
6.12) to furnish an AFE to the Parties with respect to (i) any Minimum Work
Obligations, (ii) any expenditures during the Exploration Period included in an
approved Work Program and Budget or (iii) any workovers of wells or any general
and administrative costs included in an approved Work Program and Budget.

 

(b)        Before entering into any commitments or making any expenditures
subject to the AFE procedure in this clause 6.12, Operator shall submit the
corresponding AFE for approval by the Operating Committee.  If the Operating
Committee approves an AFE for a commitment or expenditure within the applicable
time period under clause 5.13, Operator shall be authorized to enter into such
commitment or incur such expenditure and conduct the corresponding Joint
Operation under this Agreement.  If the Operating Committee fails to approve an
AFE for a commitment or expenditure within the applicable time period, the
corresponding Joint Operation shall be deemed rejected.  Operator shall promptly
notify the Parties that the Joint Operation has been rejected, and, subject to
clause 7, any Party may afterwards propose to conduct such operation or activity
as an Exclusive Operation under clause 7.  When a Joint Operation is rejected
under this clause 6.12(b) or a commitment or expenditure is approved for
differing amounts than those provided for in the applicable line items of the
approved Work Program and Budget, the Work Program and Budget shall, subject to
obtaining any Government consent required under the PSC, be deemed to be revised
accordingly; provided that no revised Work Program and Budget may provide for
appraisal operations that exceed the scope of, or conflict with, any previously
approved Appraisal Plan, and/or provide for development operations that exceed
the scope of, or conflict with, any previously approved Development Plan, unless
such previously approved plans, programs and budgets are amended at or before
the adoption of the revised Work Program and Budget.

 

(c)        Each AFE proposed by Operator shall:

 

(i)         identify the operation by specific reference to the applicable line
items in the Work Program and Budget;

 

(ii)        describe the work in reasonable detail;

 

(iii)       contain Operator’s best estimate of the total funds required to
carry out such work;

 

(iv)       outline the proposed work schedule;

 

(v)        provide a timetable of expenditures, if known; and

 

(vi)       be accompanied by other reasonable supporting information.

 

6.13     Over-commitments and over-expenditures of Work Programs and Budgets

 

(a)        For commitments and expenditures on any line item of an approved Work
Program and Budget, Operator shall be entitled to incur without further approval
of the Operating Committee an over-commitment or over-expenditure for such line
item up to ten percent (10%) of the authorized amount for such line item;
provided that the cumulative total of all over-commitments and
over-expenditures, (a) in the case of the Initial Work Program and Budget, shall
not exceed ten percent (10%) of the

 

29

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Initial Work Program and Budget and, (ii) in all other cases, shall not exceed
for any Calendar Year five percent (5%) of the total annual Work Program and
Budget in question.

 

(b)        At such time as Operator reasonably anticipates the limits of
clause 6.13(a) will be exceeded, Operator shall furnish to the Operating
Committee Operator’s reasonably detailed estimate of the total commitments and
expenditures required to carry out the Joint Operations corresponding to such
line item, together with any supporting documentation.  The Work Program and
Budget shall be revised accordingly and the over-commitment or over-expenditures
permitted in clause 6.13(a) shall be based on the revised Work Program and
Budget.  Operator shall promptly give notice of the amounts of over-commitments
and over-expenditures when actually incurred.

 

(c)        The restrictions contained in this clause 6 shall be without
prejudice to Operator’s rights to make expenditures for Urgent Operational
Matters, measures set out in clause 4.2(b)(xiii), and measures set out in
clause 13.5 without the Operating Committee’s approval.

 

7          Operations by less than all parties

 

7.1       Limitation on applicability

 

(a)        No operations may be conducted in furtherance of the PSC except as
Joint Operations under clause 5 or as Exclusive Operations under this clause 7. 
No Exclusive Operation shall be conducted (other than the tie-in of Exclusive
Operation facilities with existing production facilities pursuant to
clause 7.10) which conflicts with a previously approved Joint Operation or with
a previously approved Exclusive Operation.

 

(b)        Operations which are required to fulfill the Minimum Work Obligations
must be proposed and conducted as Joint Operations under clause 5, and may not
be proposed or conducted as Exclusive Operations under this clause 7.

 

(c)        Except for Exclusive Operations relating to Deepening, Testing,
Completing, Sidetracking, Plugging Back, Recompletions or Reworking of a well
originally drilled to fulfill the Minimum Work Obligations for the then current
phase or period of the PSC, no Exclusive Operations may be proposed or conducted
until the Minimum Work Obligations for the then current phase or period of the
PSC are fulfilled.

 

(d)        No Party may propose or conduct an Exclusive Operation under this
clause 7 unless and until such Party has properly exercised its right to propose
an Exclusive Operation pursuant to clause 5.14, or is entitled to conduct an
Exclusive Operation pursuant to clause 10.

 

(e)        The following operations may be proposed and conducted as Exclusive
Operations, subject to the terms of this clause 7:

 

(i)         drilling and/or Testing of Exploration Wells and Appraisal Wells;

 

(ii)        Completion of Exploration Wells and Appraisal Wells not then
Completed as productive of Hydrocarbons;

 

30

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(iii)       Deepening, Sidetracking, Plugging Back and/or Recompletion of
Exploration Wells and Appraisal Wells;

 

(iv)       development of a Commercial Discovery, other than the drilling of a
development well into a developed Discovery; and

 

(v)        acquisition of G & G Data.

 

No other type of operation may be proposed or conducted as an Exclusive
Operation.

 

7.2       Procedure to propose Exclusive Operations

 

(a)        Subject to clause 7.1, if any Party proposes to conduct an Exclusive
Operation, such Party shall give notice of the proposed operation to all
Parties, other than Non-Consenting Parties who have relinquished their rights to
participate in such operation pursuant to clause 7.4(b) or clause 7.4(f) and
have no option to reinstate such rights under clause 7.4(c).  Such notice shall
specify that such operation is proposed as an Exclusive Operation and include
the work to be performed, the location, the objectives, and estimated cost of
such operation.

 

(b)        Any Party entitled to receive such notice shall have the right to
participate in the proposed operation as follows:

 

(i)         for proposals to Deepen, Test, Complete, Sidetrack, Plug Back,
Recomplete or Rework related to Urgent Operational Matters, any such Party
wishing to exercise such right must so notify the proposing Party and Operator
within twenty-four (24) hours after receipt of the notice proposing the
Exclusive Operation.

 

(ii)        for proposals to develop a Discovery, any Party wishing to exercise
such right must so notify Operator and the Party proposing to develop within
ninety (90) Days after receipt of the notice proposing the Exclusive Operation.

 

(iii)       for all other proposals, any such Party wishing to exercise such
right must so notify the proposing Party and Operator within thirty (30) Days
after receipt of the notice proposing the Exclusive Operation.

 

(c)        Failure of a Party to whom a proposal notice is delivered to properly
reply within the period specified above shall constitute an election by that
Party not to participate in the proposed operation.

 

(d)        If all Parties properly exercise their rights to participate, then
the proposed operation shall be conducted as a Joint Operation.  Operator shall
commence such Joint Operation as promptly as practicable and conduct it with due
diligence.

 

(e)        If less than all Parties entitled to receive such proposal notice
properly exercise their rights to participate, then:

 

(i)         Immediately after the expiration of the applicable notice period set
out in clause 7.2(b), Operator shall notify all Parties of the names of the
Consenting Parties and the recommendation of the proposing Party as to whether
the Consenting Parties should proceed with the Exclusive Operation.

 

31

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(ii)        Concurrently, Operator shall request the Consenting Parties to
specify the Participating Interest each Consenting Party is willing to bear in
the Exclusive Operation.

 

(f)        Within twenty-four (24) hours after receipt of such notice each
Consenting Party shall respond to Operator stating that it is willing to bear a
Participating Interest in such Exclusive Operation equal to:

 

(i)         only its Participating Interest as stated in clause 3.2(a);

 

(ii)        a fraction, the numerator of which is such Consenting Party’s
Participating Interest as stated in clause 3.2(a) and the denominator of which
is the aggregate of the Participating Interests of the Consenting Parties as
stated in clause 3.2(a); or

 

(iii)       the Participating Interest as contemplated by clause 7.2(f)(ii) plus
all or any part of the difference between one hundred percent (100%) and the
total of the Participating Interests subscribed by the other Consenting
Parties.  Any portion of such difference claimed by more than one party shall be
distributed to each claimant on a pro-rata basis.

 

(g)        Any Consenting Party failing to advise Operator within the response
period set out above shall be deemed to have elected to bear the Participating
Interest set out in clause 7.2(f)(ii) as to the Exclusive Operation.

 

(h)        If, within the response period set out above, the Consenting Parties
subscribed less than one hundred percent (100%) of the Participating Interest in
the Exclusive Operation, the Party proposing such Exclusive Operation shall be
deemed to have withdrawn its proposal for the Exclusive Operation, unless within
twenty-four (24) hours of the expiry of the response period set out in clause
7.2(f), the proposing Party notifies the other Consenting Parties that the
proposing Party shall bear the unsubscribed Participating Interest.

 

(i)         If one hundred percent (100%) subscription to the proposed Exclusive
Operation is obtained, Operator shall promptly notify the Consenting Parties of
their Participating Interest in the Exclusive Operation.

 

(j)         As soon as any Exclusive Operation is fully subscribed pursuant to
clause 7.2(i), Operator, subject to clause 7.12(f), shall commence such
Exclusive Operation as promptly as practicable and conduct it with due diligence
in accordance with this Agreement.

 

(k)        If such Exclusive Operation has not been commenced within one hundred
eighty (180) Days (excluding any extension specifically granted by all Parties
or allowed by the force majeure provisions of clause 16) after the date of the
notice given by Operator under clause 7.2(i), the right to conduct such
Exclusive Operation shall terminate.  If any Party still desires to conduct such
Exclusive Operation, notice proposing such operation must be resubmitted to the
Parties in accordance with clause 5, as if no proposal to conduct an Exclusive
Operation had been previously made.

 

7.3       Responsibility for Exclusive Operations

 

(a)        The Consenting Parties shall bear in accordance with the
Participating Interests

 

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agreed under clause 7.2 the entire cost and liability of conducting an Exclusive
Operation and shall indemnify the Non-Consenting Parties from any and all
losses, costs and liabilities incurred incident to such Exclusive Operation
(including Consequential Loss and Environmental Loss) and shall keep the
Contract Area free and clear of all Encumbrances of every kind created by or
arising from such Exclusive Operation.

 

(b)        Notwithstanding clause 7.3(a), each Party shall continue to bear its
Participating Interest share of the cost and liability incident to the
operations in which it participated, including plugging and abandoning and
restoring the surface location, but only to the extent those costs were not
increased by the Exclusive Operation.

 

7.4       Consequences of Exclusive Operations

 

(a)        With regards to any Exclusive Operation, for so long as a
Non-Consenting Party has the option under clause 7.4(c) to reinstate the rights
it relinquished under clause 7.4(b), such Non-Consenting Party shall be entitled
to have access concurrently with the Consenting Parties to all data and other
information relating to such Exclusive Operation, other than data obtained in an
Exclusive Operation for the purposes of acquiring G&G Data. If a Non-Consenting
Party desires to receive and acquire the right to use such G&G Data, then such
Non-Consenting Party shall have the right to do so by paying to the Consenting
Parties its Participating Interest share as set out in clause 3.2(a) of the
costs incurred in obtaining such G&G Data plus an additional amount equal to one
hundred percent (100%) of such Non-Consenting Party’s Participating Interest
share of the costs incurred in obtaining such G&G Data.

 

(b)        Subject to clause 7.4(c), clause 7.6(e) and clause 7.8, each
Non-Consenting Party shall be deemed to have relinquished to the Consenting
Parties, and the Consenting Parties shall be deemed to own, in proportion to
their respective Participating Interests in any Exclusive Operation:

 

(i)         all of each such Non-Consenting Party’s right to participate in
further operations in the well or Deepened or Sidetracked portion of a well in
which the Exclusive Operation was conducted and on any Discovery made or
appraised in the course of such Exclusive Operation; and

 

(ii)        all of each such Non-Consenting Party’s rights pursuant to the PSC
to take and dispose of Hydrocarbons produced and saved:

 

(A)       from the well or Deepened or Sidetracked portion of a well in which
such Exclusive Operation was conducted; and

 

(B)       from any wells drilled to appraise or develop a Discovery made or
appraised in the course of such Exclusive Operation.

 

(c)        A Non-Consenting Party shall have only the following options to
reinstate the rights it relinquished pursuant to clause 7.4(b):

 

(i)         If the Consenting Parties decide to appraise a Discovery made in the
course of an Exclusive Operation, the Consenting Parties shall submit to each
Non-Consenting Party the approved appraisal program.  For forty-five (45) Days
(or twenty-four (24) hours for Urgent Operational Matters) from receipt of such
appraisal program, each Non-Consenting Party shall have the option to

 

33

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reinstate the rights it relinquished pursuant to clause 7.4(b) and to
participate in such appraisal program.  The Non-Consenting Party may exercise
such option by notifying Operator within the period specified above that such
Non-Consenting Party agrees to bear its Participating Interest share of the
expense and liability of such appraisal program, and to pay such amounts as set
out in clauses 7.5(a) and 7.5(b).

 

(ii)        If the Consenting Parties decide to develop a Discovery made or
appraised in the course of an Exclusive Operation, the Consenting Parties shall
submit to the Non-Consenting Parties a Development Plan substantially in the
form intended to be submitted to the Management Committee or the Government
under the PSC.  For ninety (90) Days from receipt of such Development Plan or
such lesser period of time prescribed by the PSC, each Non-Consenting Party
shall have the option to reinstate the rights it relinquished pursuant to
clause 7.4(b) and to participate in such Development Plan.  The Non-Consenting
Party may exercise such option by notifying Operator within the period specified
above that such Non-Consenting Party agrees to bear its Participating Interest
share of the liability and expense of such Development Plan and such future
operating and producing costs, and to pay the amounts as set out in
clauses 7.5(a) and 7.5(b).

 

(iii)       If the Consenting Parties decide to Deepen, Complete, Sidetrack,
Plug Back or Recomplete an Exclusive Well and such further operation was not
included in the original proposal for such Exclusive Well, the Consenting
Parties shall submit to the Non-Consenting Parties the approved AFE for such
further operation.  For thirty (30) Days (or twenty-four (24) hours for Urgent
Operational Matters) from receipt of such AFE, each Non-Consenting Party shall
have the option to reinstate the rights it relinquished pursuant to
clause 7.4(b) and to participate in such operation.  The Non-Consenting Party
may exercise such option by notifying Operator within the period specified above
that such Non-Consenting Party agrees to bear its Participating Interest share
of the liability and expense of such further operation, and to pay the amounts
as set out in clauses 7.5(a) and 7.5(b).

 

A Non-Consenting Party shall not be entitled to reinstate its rights in any
other type of operation.

 

(d)        If a Non-Consenting Party does not properly and in a timely manner
exercise its option under clause 7.4(c), including paying all amounts due in
accordance with clauses 7.5(a) and 7.5(b), such Non-Consenting Party shall have
forfeited the options as set out in clause 7.4(c) and the right to participate
in the proposed program, unless such program, plan or operation is materially
modified or expanded (in which case a new notice and option shall be given to
such Non-Consenting Party under clause 7.4(c)).

 

(e)        A Non-Consenting Party exercising its option under
clause 7.4(c) shall notify the other Parties that it agrees to bear its share of
the liability and expense of such further operation and to reimburse the amounts
set out in clauses 7.5(a) and 7.5(b) that such Non-Consenting Party had not
previously paid.  Such Non-Consenting Party shall in no way be deemed to be
entitled to any amounts paid pursuant to clauses 7.5(a) and 7.5(b) incident to
such Exclusive Operations.  The Participating Interest of such Non-Consenting
Party in such Exclusive Operation shall be its Participating Interest set out in
clause 3.2(a).  The Consenting Parties shall contribute to the Participating
Interest of the Non-Consenting Party in proportion to the excess Participating
Interest that each received under clause 7.2(e).  If all

 

34

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Parties participate in the proposed operation, then such operation shall be
conducted as a Joint Operation pursuant to clause 5.

 

(f)        If after the expiry of the period in which a Non-Consenting Party may
exercise its option to participate in a Development Plan the Consenting Parties
desire to proceed, Operator shall give notice to the Management Committee or the
Government, as applicable, under the appropriate provision of the PSC requesting
a meeting to advise the Management Committee or the Government, as applicable,
that the Consenting Parties consider the Discovery to be a Commercial Discovery.

 

Following such meeting such Operator for such development shall apply for an
Exploitation Area (if applicable in the PSC).  Unless the Development Plan is
materially modified or expanded prior to the commencement of operations under
such plan (in which case a new notice and option shall be given to the
Non-Consenting Parties under clause 7.4(c)), each Non-Consenting Party to such
Development Plan shall:

 

(i)         if the PSC so allows, elect not to apply for an Exploitation Area
covering such development and forfeit all interest in such Exploitation Area, or

 

(ii)        if the PSC does not so allow, be deemed to have:

 

(A)       elected not to apply for an Exploitation Area covering such
development;

 

(B)       forfeited all economic interest in such Exploitation Area; and

 

(C)       assumed a fiduciary duty to exercise its legal interest in such
Exploitation Area for the benefit of the Consenting Parties.

 

In either case such Non-Consenting Party shall be deemed to have withdrawn from
this Agreement to the extent it relates to such Exploitation Area, even if the
Development Plan is modified or expanded subsequent to the commencement of
operations under such Development Plan and shall be further deemed to have
forfeited any right to participate in the construction and ownership of
facilities outside such Exploitation Area designed solely for the use of such
Exploitation Area.

 

7.5       Premium to participate in Exclusive Operations

 

(a)        Each such Non-Consenting Party shall within sixty (60) Days of the
exercise of its option under clause 7.4(c), pay in immediately available funds
to the Consenting Parties in proportion to their respective Participating
Interests in such Exclusive Operations a lump sum amount payable in the currency
designated by such Consenting Parties.  Such lump sum amount shall be equal to
such Non-Consenting Party’s Participating Interest share of all liabilities and
expenses that were incurred in every Exclusive Operation relating to the
Discovery (or Exclusive Well, as the case may be) in which the Non-Consenting
Party desires to reinstate the rights it relinquished pursuant to clause 7.4(b),
and that were not previously paid by such Non-Consenting Party.

 

(b)        In addition to the payment required under clause 7.5(a), immediately
following the exercise of its option under clause 7.4(c) each such
Non-Consenting Party shall be liable to reimburse the Consenting Parties who
took the risk of such Exclusive

 

35

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Operations (in proportion to their respective Participating Interests) an amount
equal to the total of the following amounts:

 

(i)         five hundred percent (500%) of such Non-Consenting Party’s
Participating Interest share of all liabilities and expenses that were incurred
in any Exclusive Operation relating to the drilling, Deepening, Testing,
Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the
Exploration Well which made the Discovery in which the Non-Consenting Party
desires to reinstate the rights it relinquished pursuant to clause 7.4(b), and
that were not previously paid by such Non-Consenting Party; plus

 

(ii)       five hundred percent (500%) of the Non-Consenting Party’s
Participating Interest share of all liabilities and expenses that were incurred
in any Exclusive Operation relating to the drilling, Deepening, Testing,
Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the
Appraisal Well(s) which delineated the Discovery in which the Non-Consenting
Party desires to reinstate the rights it relinquished pursuant to clause 7.4(b),
and that were not previously paid by such Non-Consenting Party.

 

(c)        Each such Non-Consenting Party who is liable for the amounts set out
in clause 7.5(b) shall within sixty (60) Days of the exercise of its option
under clause 7.4(c), pay in immediately available funds the full amount due from
it under clause 7.5(b) to such Consenting Parties, in the currency designated by
such Consenting Parties.

 

7.6       Order of preference of operations

 

(a)        Except as otherwise specifically provided in this Agreement, if any
Party desires to propose the conduct of an operation that will conflict with an
existing proposal for an Exclusive Operation, such Party shall have the right
exercisable for ten (10) Days (or twenty-four (24) hours for Urgent Operational
Matters) from receipt of the proposal for the Exclusive Operation, to deliver
such Party’s alternative proposal to all Parties entitled to participate in the
proposed operation.  Such alternative proposal shall contain the information
required under clause 7.2(a).

 

(b)        Each Party receiving such proposals shall elect by delivery of notice
to Operator and to the proposing Parties within the appropriate response period
set out in clause 7.2(b) to participate in one of the competing proposals.  Any
Party not notifying Operator and the proposing Parties within the response
period shall be deemed to have voted against the proposals.

 

(c)        The proposal receiving the largest aggregate Participating Interest
vote shall have priority over all other competing proposals.  In the case of a
tie vote, Operator shall choose among the proposals receiving the largest
aggregate Participating Interest vote.  Operator shall deliver notice of such
result to all Parties entitled to participate in the operation within five
(5) Days (or twenty-four (24) hours for Urgent Operational Matters).

 

(d)        Each Party shall then have five (5) Days (or twenty-four (24) hours
for Urgent Operational Matters) from receipt of such notice to elect by delivery
of notice to Operator and the proposing Parties whether such Party will
participate in such Exclusive Operation, or will relinquish its interest
pursuant to clause 7.4(b).  Failure by a Party to deliver such notice within
such period shall be deemed an election not to participate in the prevailing
proposal.

 

36

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(e)                        Notwithstanding the provisions of clause 7.4(b), if
for reasons other than the encountering of granite, basalt or other practically
impenetrable substance or any other condition in the hole rendering further
operations impracticable, a well drilled as an Exclusive Operation fails to
reach the deepest objective Zone described in the notice proposing such well,
Operator shall give notice of such failure to each Non-Consenting Party who
submitted or voted for an alternative proposal under this clause 7.6 to drill
such well to a shallower Zone than the deepest objective Zone proposed in the
notice under which such well was drilled.  Each such Non-Consenting Party shall
have the option exercisable for forty-eight (48) hours from receipt of such
notice to participate for its Participating Interest share in the initial
proposed Completion of such well.  Each such Non-Consenting Party may exercise
such option by notifying Operator that it wishes to participate in such
Completion and by paying its Participating Interest share of the cost of
drilling such well to its deepest depth drilled in the Zone in which it is
Completed.  All liabilities and expenses for drilling and Testing the Exclusive
Well below that depth shall be for the sole account of the Consenting Parties. 
If any such Non-Consenting Party does not properly elect to participate in the
first Completion proposed for such well, the relinquishment provisions of
clause 7.4(b) shall continue to apply to such Non-Consenting Party’s interest.

 

7.7                     Stand-by costs

 

(a)                       When an operation has been performed, all tests have
been conducted and the results of such tests furnished to the Parties, stand by
costs incurred pending response to any Party’s notice proposing an Exclusive
Operation for Deepening, Testing, Sidetracking, Completing, Plugging Back,
Recompleting, Reworking or other further operation in such well (including the
period required under clause 7.6 to resolve competing proposals) shall be
charged and borne as part of the operation just completed.  Stand-by costs
incurred subsequent to all Parties responding, or expiration of the response
time permitted, whichever first occurs, shall be charged to and borne by the
Parties proposing the Exclusive Operation in proportion to their Participating
Interests, regardless of whether such Exclusive Operation is actually conducted.

 

(b)                      If a further operation related to Urgent Operational
Matters is proposed while the drilling rig to be utilized is on location, any
Party may request and receive up to five (5) additional Days after expiration of
the applicable response period specified in clause 7.2(b)(i) within which to
respond by notifying Operator that such Party agrees to bear all stand-by costs
and other costs incurred during such extended response period.  Operator may
require such Party to pay the estimated stand-by costs in advance as a condition
to extending the response period.  If more than one Party requests such
additional time to respond to the notice, stand-by costs shall be allocated
between such Parties on a Day-to-Day basis in proportion to their Participating
Interests.

 

7.8                     Special considerations regarding Deepening and
Sidetracking

 

(a)                       An Exclusive Well shall not be Deepened or Sidetracked
without first affording the Non-Consenting Parties in accordance with this
clause 7.8 the opportunity to participate in such operation.

 

(b)                      In the event any Consenting Party desires to Deepen or
Sidetrack an Exclusive Well, such Party shall initiate the procedure
contemplated by clause 7.2.  If a Deepening or Sidetracking operation is
approved pursuant to such provisions, and if any Non-Consenting Party to the
Exclusive Well elects to participate in such Deepening or Sidetracking
operation, such Non-Consenting Party shall not owe amounts pursuant to

 

37

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clause 7.5(b), and such Non-Consenting Party’s payment pursuant to
clause 7.5(a) shall be such Non-Consenting Party’s Participating Interest share
of the liabilities and expenses incurred in connection with drilling the
Exclusive Well from the surface to the depth previously drilled which such
Non-Consenting Party would have paid had such Non-Consenting Party agreed to
participate in such Exclusive Well; provided, however, all liabilities and
expenses for Testing and Completing or attempting Completion of the well
incurred by Consenting Parties prior to the commencement of actual operations to
Deepen or Sidetrack beyond the depth previously drilled shall be for the sole
account of the Consenting Parties.

 

7.9                     Use of property

 

The Parties participating in any Deepening, Testing, Completing, Sidetracking,
Plugging Back, Recompleting or Reworking of any well drilled under this
Agreement shall be permitted to use (free of cost) all casing, tubing and other
equipment in the well that is not needed for operations by the owners of the
wellbore, but the ownership of all such equipment shall remain unchanged.  On
abandonment of a well in which operations with differing participation have been
conducted, the Parties abandoning the well shall account for all equipment in
the well to the Parties owning such equipment by tendering to them their
respective Participating Interest shares of the value of such equipment less the
cost of salvage.

 

7.10              Lost production during tie-in of Exclusive Operation
facilities

 

If, during the tie-in of Exclusive Operation facilities with the existing
production facilities of another operation, the production of Hydrocarbons from
such other pre-existing operations is temporarily lessened as a result, then the
Consenting Parties shall compensate the parties to such existing operation for
such loss of production in the following manner.  Operator shall determine the
amount by which each Day’s production during the tie-in of Exclusive Operation
facilities falls below the previous month’s average daily production from the
existing production facilities of such operation.  The so-determined amount of
lost production shall be recovered by all Parties who experienced such loss in
proportion to their respective Participating Interest.  Upon completion of the
tie-in, such lost production shall be recovered in full by Operator deducting up
to one hundred percent (100%) of the production from the Exclusive Operation,
prior to the Consenting Parties being entitled to receive any such production.

 

7.11              Production Bonuses

 

(a)                       Any bonus payable by the Parties under the PSC
(Production Bonus) shall be charged to the Joint Account if there is no
Hydrocarbon production from an Exclusive Operation at the time such Production
Bonus is incurred.  If there is Hydrocarbon production from one or more
Exclusive Operations, then any Production Bonus which becomes payable under the
PSC shall be borne by each Exploitation Area in the proportion that its total
production of Hydrocarbons bears to the total production of Hydrocarbons from
the Contract Area during the period commencing with the date the applicable
Exploitation Area is established pursuant to the PSC and ending on the date on
which the event giving rise to the Production Bonus occurs.

 

(b)                       The Parties in an Exploitation Area shall bear the
Production Bonus allocated to that Exploitation Area in accordance with their
Participating Interests in that Exploitation Area as of the date on which
liability for the Production Bonus was incurred.  Only types, grades and
qualities of Hydrocarbons used for the determination of the Production Bonus
under the PSC shall be utilized in the

 

38

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calculations in this clause 7.11.

 

7.12              Conduct of Exclusive Operations

 

(a)                       Each Exclusive Operation shall be carried out by the
Consenting Parties acting as the Operating Committee, subject to the provisions
of this Agreement applied mutatis mutandis to such Exclusive Operation and
subject to the terms and conditions of the PSC.

 

(b)                       The computation of liabilities and expenses incurred
in Exclusive Operations, including the liabilities and expenses of Operator for
conducting such operations, shall be made in accordance with the principles set
out in the Accounting Procedure.

 

(c)                        Operator shall maintain separate books, financial
records and accounts for Exclusive Operations which shall be subject to the same
rights of audit and examination as the Joint Account and related records, all as
provided in the Accounting Procedure.  Said rights of audit and examination
shall extend to each of the Consenting Parties and each of the Non-Consenting
Parties so long as the latter are, or may be, entitled to elect to participate
in such Exclusive Operations.

 

(d)                       Operator, if it is conducting an Exclusive Operation
for the Consenting Parties, regardless of whether it is participating in that
Exclusive Operation, shall be entitled to request cash advances and shall not be
required to use its own funds to pay any cost and expense and shall not be
obliged to commence or continue Exclusive Operations until cash advances
requested have been made, and the Accounting Procedure shall apply to Operator
in respect of any Exclusive Operations conducted by it.

 

(e)                        Should the submission of a Development Plan be
approved in accordance with clause 6.7, or should any Party propose (but not yet
have the right to commence) a development in accordance with this clause 7 where
neither the Development Plan nor the development proposal call for the conduct
of additional appraisal drilling, and should any Party wish to drill an
additional Appraisal Well prior to development, then the Party proposing the
Appraisal Well as an Exclusive Operation shall be entitled to proceed first, but
without the right (subject to the following sentence) to future reimbursement
pursuant to clause 7.5.  If such an Appraisal Well is produced, any Consenting
Party shall own and have the right to take in kind and separately dispose of all
of the Non-Consenting Party’s Entitlement from such Appraisal Well until the
value received in sales to purchasers in arm-length transactions equals one
hundred percent (100%) of such Non-Consenting Party’s Participating Interest
shares of all liabilities and expenses that were incurred in any Exclusive
Operations relating to the Appraisal Well.  Following the completion of drilling
such Appraisal Well as an Exclusive Operation, the Parties may proceed with the
Development Plan approved pursuant to clause 5.10, or (if applicable) the
Parties may complete the procedures to propose an Exclusive Operation to develop
a Discovery.  If, as the result of drilling such Appraisal Well as an Exclusive
Operation, the Party or Parties proposing to develop the Discovery decide(s) not
to do so, then each Non-Consenting Party who voted in favor of such Development
Plan prior to the drilling of such Appraisal Well shall pay to the Consenting
Party the amount such Non-Consenting Party would have paid had such Appraisal
Well been drilled as a Joint Operation.

 

(f)                         If Operator is a Non-Consenting Party to an
Exclusive Operation to develop a Discovery, then Operator may resign as Operator
for the Exploitation Area for such Discovery.  If Operator so resigns, the
Consenting Parties shall select a Consenting Party to serve as Operator for such
Exclusive Operation only.

 

39

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Any such resignation of Operator and appointment of a Consenting Party to serve
as Operator for such Exclusive Operation shall be subject to the Parties having
first obtained any necessary Government approvals.

 

8                               Default

 

8.1                     Default and notice

 

(a)                       Any Party that fails to:

 

(i)                           pay when due its share of Joint Account expenses
(including cash advances and interest); or

 

(ii)                        provide when due and maintain any Security required
of such Party under the PSC or this Agreement;

 

shall be in default under this Agreement (a Defaulting Party).  Operator, or any
non-defaulting Party in case Operator is the Defaulting Party, shall promptly
give notice of such default (the Default Notice) to the Defaulting Party and
each of the non-defaulting Parties.

 

(b)                       For the purposes of this clause 8, Default Period
means the period beginning five (5) Business Days from the date that the Default
Notice is issued in accordance with this clause 8.1 and ending when all the
Defaulting Party’s defaults pursuant to this clause 8.1 have been remedied in
full.

 

8.2                     Operating Committee meetings and data

 

(a)                       Notwithstanding any other provision of this Agreement,
the Defaulting Party shall have no right, during the Default Period, to:

 

(i)                           call or attend Operating Committee or subcommittee
meetings or Management Committee meetings (and during such Default Period, the
non-defaulting Parties will have the right to appoint substitute Management
Committee member(s) on behalf of the Defaulting Party, if any);

 

(ii)                        vote on any matter coming before the Operating
Committee or any subcommittee;

 

(iii)                     access any data or information relating to any
operations under this Agreement;

 

(iv)                    consent to or reject data trades between the Parties and
third parties, nor access any data received in such data trades;

 

(v)                       Transfer all or part of its Participating Interest,
except to non-defaulting Parties in accordance with this clause 8;

 

(vi)                    consent to or reject any Transfer or otherwise exercise
any other rights in respect of Transfers under this clause 8 or under clause 12;

 

(vii)                 receive its Entitlement in accordance with clause 8.4;

 

(viii)              withdraw from this Agreement and the PSC under clause 13; or

 

40

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(ix)                    take assignment of any portion of another Party’s
Participating Interest in the event such other Party is either in default or
withdrawing from this Agreement and the PSC.

 

(b)                       Notwithstanding any other provisions in this
Agreement, during the Default Period:

 

(i)                           unless agreed otherwise by the non-defaulting
Parties, the voting interest of each non-defaulting Party shall be equal to the
ratio such non-defaulting Party’s Participating Interest bears to the total
Participating Interests of the non-defaulting Parties;

 

(ii)                        any matters requiring a unanimous vote or approval
of the Parties shall not require the vote or approval of the Defaulting Party;

 

(iii)                     the Defaulting Party shall be deemed to have elected
not to participate in any operations that are voted upon during the Default
Period, to the extent such an election would be permitted by clause 5.14 and
clause 7; and

 

(iv)                    the Defaulting Party shall be deemed to have approved,
and shall join with the non-defaulting Parties in taking, any other actions
voted on during the Default Period.

 

8.3                     Allocation of defaulted accounts

 

(a)                       The Party providing the Default Notice pursuant to
clause 8.1 shall include in the Default Notice to each non-defaulting Party a
statement of:

 

(i)                           the sum of money that the non-defaulting Party
shall pay as its portion of the Amount in Default; and

 

(ii)                        if the Defaulting Party has failed to provide or
maintain any Security required of such Party in order to maintain the PSC in
full force and effect, the type and amount of the Security the non-defaulting
Parties shall post or the funds they shall pay in order to allow Operator, or
(if Operator is in default) the notifying Party, to post and maintain such
Security.

 

(iii)                     Unless otherwise agreed, the obligations for which the
Defaulting Party is in default shall be satisfied by the non-defaulting Parties
in proportion to the ratio that each non-defaulting Party’s Participating
Interest bears to the Participating Interests of all non-defaulting Parties.

 

(iv)                    For the purposes of this clause 8:

 

Amount in Default means the Defaulting Party’s share of Joint Account expenses
which the Defaulting Party has failed to pay when due pursuant to the terms of
this Agreement (but excluding any interest owed on such amount); and

 

Total Amount in Default means the following amounts:

 

(i)                           the Amount in Default; plus

 

(ii)                        third-party costs of obtaining and maintaining any
Security incurred by the non-defaulting Parties or the funds paid by such
Parties in order to

 

41

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allow Operator to obtain or maintain Security, in accordance with clause 8.3;
plus

 

(iii)                     any interest at the Agreed Interest Rate accrued on
the amount under (i) from the date this amount is due by the Defaulting Party
until paid in full by the Defaulting Party and on the amount under (ii) from the
date this amount is incurred by the non-defaulting Parties until paid in full by
the Defaulting Party.

 

(b)                       If the Defaulting Party remedies its default in full
before the Default Period commences, the notifying Party shall promptly notify
each non-defaulting Party by facsimile or telephone and by email, and the
non-defaulting Parties shall be relieved of their obligations under
clause 8.3(a).  Otherwise, each non-defaulting Party shall satisfy its
obligations under clause 8.3(a)(i) before the Default Period commences and its
obligations under clause 8.3(a)(ii) within ten (10) Days following the Default
Notice.  If any non-defaulting Party fails to timely satisfy such obligations,
such Party shall thereupon be a Defaulting Party subject to the provisions of
this clause 8.  The non-defaulting Parties shall be entitled to receive their
respective shares of the Total Amount in Default payable by such Defaulting
Party pursuant to this clause 8.

 

(c)                        If Operator is a Defaulting Party, then all payments
otherwise payable to Operator for Joint Account costs pursuant to this Agreement
shall be made to the notifying Party instead until the default is cured or a
successor Operator appointed.  The notifying Party shall maintain such funds in
a segregated account separate from its own funds and shall apply such funds to
third party claims due and payable from the Joint Account of which it has
notice, to the extent Operator would be authorized to make such payments under
the terms of this Agreement.  The notifying Party shall be entitled to bill or
cash call the other Parties in accordance with the Accounting Procedure for
proper third party charges that become due and payable during such period to the
extent sufficient funds are not available.  When Operator has cured its default
or a successor Operator is appointed, the notifying Party shall turn over all
remaining funds in the account to Operator and shall provide Operator and the
other Parties with a detailed accounting of the funds received and expended
during this period.  The notifying Party shall not be liable for damages,
losses, costs, expenses or liabilities arising as a result of its actions under
this clause 8.3(c), except to the extent Operator would be liable under
clause 4.6.

 

8.4                     Remedies

 

(a)                       During the Default Period, the Defaulting Party shall
not have a right to its Entitlement, which shall vest in and be the property of
the non-defaulting Parties.  Operator (or the notifying Party if Operator is a
Defaulting Party) shall be authorized to sell such Entitlement in an
arm’s-length sale on terms that are commercially reasonable under the
circumstances and, after deducting all costs, charges and expenses incurred in
connection with such sale, pay the net proceeds to the non-defaulting Parties in
proportion to the amounts they are owed by the Defaulting Party as a part of the
Total Amount in Default (in payment of first the interest and then the
principal) and apply such net proceeds toward the establishment of the Reserve
Fund, if applicable, until all such Total Amount in Default is recovered and
such Reserve Fund is established.  Any surplus remaining shall be paid to the
Defaulting Party, and any deficiency shall remain a debt due from the Defaulting
Party to the non-defaulting Parties.  When making sales under this
clause 8.4(a), the non-defaulting Parties shall have no obligation to share any
existing market or obtain a price equal to the price at

 

42

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which their own production is sold.

 

(b)                       If Operator disposes of any Joint Property or if any
other credit or adjustment is made to the Joint Account during the Default
Period, Operator (or the notifying Party if Operator is a Defaulting Party)
shall be entitled to apply the Defaulting Party’s Participating Interest share
of the proceeds of such disposal, credit or adjustment against the Total Amount
in Default (against first the interest and then the principal) and toward the
establishment of the Reserve Fund, if applicable.  Any surplus remaining shall
be paid to the Defaulting Party, and any deficiency shall remain a debt due from
the Defaulting Patty to the non-defaulting Parties.

 

(c)                        The non-defaulting Parties shall be entitled to apply
the net proceeds received under clauses 8.4(a) and 8.4(b) toward the creation of
a reserve fund (the Reserve Fund) in an amount equal to the Defaulting Party’s
Participating Interest share of:

 

(i)                           the estimated cost to abandon any wells and other
property in which the Defaulting Party participated;

 

(ii)                        the estimated cost of severance benefits for local
employees upon cessation of operations; and

 

(iii)                     any other identifiable costs that the non-defaulting
Parties anticipate will be incurred in connection with the cessation of
operations.  Upon the conclusion of the Default Period, all amounts held in the
Reserve Fund shall be returned to the Party previously in Default.

 

(d)                       If a Defaulting Party fails to fully remedy all its
defaults by the thirtieth (30th) Day following the date of the Default Notice,
without prejudice to any other rights available to each non-defaulting Party to
recover its portion of the Total Amount in Default, each non-defaulting Party
shall have the right at any time thereafter during the Default Period to propose
a vote of the non-defaulting Parties be taken within fifteen (15) Days of such
proposal to determine whether the non-defaulting Parties shall collectively
proceed under one of the following two options:

 

(i)                           require the Defaulting Party to withdraw
completely from this Agreement and the PSC under clause 8.4(f); or

 

(ii)                        require the Defaulting Party to sell all of its
Participating Interest to the non-defaulting Parties desiring to acquire all or
a portion of such Participating Interest in accordance with the process
described in clause 8.4(g) (the Buy-Out Option).

 

(e)                        An affirmative vote of the non-defaulting Parties
holding at least sixty five percent (65%) of the Participating Interests held by
non-defaulting Parties shall be required to elect to proceed under one of the
two options in clause 8.4(d) which shall be binding on all non-defaulting
Parties regardless of their vote.  If neither option receives the requisite
affirmative vote, the non-defaulting Parties will then vote within fifteen (15)
Days whether to elect to require the Defaulting Party to withdraw completely
from this Agreement and the PSC under clause 8.4(d), in which case such election
will require an affirmative vote of the non-defaulting Parties holding at least
sixty five percent (65%) of the Participating Interests held by non-defaulting
Parties.  An election pursuant to the preceding sentence not to require the
Defaulting Party to withdraw completely from this Agreement and the PSC under
clause 8.4(d) will be deemed an election by the Non-Defaulting Parties not to
proceed with either of the two options identified in clause 8.4(d)

 

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for at least one hundred eighty (180) Days after such election, provided that
any Non-Defaulting Party may elect to re-propose such options after such one
hundred eighty (180) Day period.

 

(f)                         If the non-defaulting Parties elect to require that
the Defaulting Party completely withdraw from this Agreement and the PSC
pursuant to clause 8.4(d)(i), the Operator shall promptly give the Defaulting
Party notice of the exercise of such option, and the Defaulting Party shall be
deemed to have transferred, pursuant to clause 13.6, effective on the date of
the notice, its Participating Interest to the non-defaulting Parties. 
Notwithstanding the terms of clause 13, in the absence of an agreement among the
non-defaulting Parties to the contrary, any transfer to the non-defaulting
Parties following a withdrawal pursuant to clause 8.4(d) shall be in proportion
to the Participating Interests of the non-defaulting Parties.

 

(g)                        If the non-defaulting Parties elect to exercise the
Buy-Out Option, such non-defaulting Parties shall provide the Defaulting Party
prompt written notice of such election (the Buy-Out Option Notice).  The Buy-Out
Option shall be effected as follows:

 

(i)                           Each Party grants to each of the other Parties the
right and option (in accordance with the process set out in this clause 8.4(g))
to acquire all of its Participating Interest for a value as determined by this
clause 8.4(g).  The Defaulting Party shall be obligated to transfer, pursuant to
clause 13.6, effective on the date of the Buy-Out Option Notice, its
Participating Interest to each non-defaulting Party participating in the Buy-Out
Option (an Acquiring Party) in exchange for the payment of the Buy-Out Option
Price to the Defaulting Party in accordance with clause 8.4(g)(vii).

 

(ii)                        If the non-defaulting Parties exercise the Buy-Out
Option, all non-defaulting Parties shall meet and within thirty (30) Days
mutually agree upon a proposed Buy-Out Option Price.  If such non-defaulting
Parties agree on the proposed Buy-Out Option Price, the non-defaulting Parties
shall offer such proposed Buy-Out Option Price to the Defaulting Party.  The
Defaulting Party shall have fifteen (15) Days to accept or reject the proposed
Buy-Out Option Price by written notice to the non-defaulting Parties.  Failure
to so accept or reject the proposed Buy-Out Option Price within such period will
be deemed an acceptance of such proposed Buy-Out Option Price.

 

(iii)                     If the non-defaulting Parties cannot unanimously agree
on the proposed Buy-Out Option Price to be offered to the Defaulting Party or
the Defaulting Party rejects the Buy Out Option Price offered pursuant to clause
8.4(g)(ii), the valuation of the Defaulting Party’s Participating Interest shall
be fully and finally determined by an expert under clause 18.3.  The value
determined by the expert shall be deemed the Buy-Out Option Price and binding on
the Parties without any right to refer the matter to arbitration under
clause 18.2 (except as expressly provided in clause 18.3).  The cost of such
expert shall be deducted from the fair market value of the Defaulting Party’s
Participating Interest paid to the Defaulting Party, or in the case there is no
Acquiring Party, shared proportionately among the non-defaulting Parties
according to each non-defaulting Party’s Participating Interest to the total
Participating Interests of all non-defaulting Parties.

 

(iv)                    Each non-defaulting Party may elect to reject the
Buy-Out Option Price determined by the expert pursuant to clause 8.4(g)(iii) by
providing the other

 

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non-defaulting Parties written notice within fifteen (15) Days of the expert
determination of the Buy-Out Option Price.  Thereafter each remaining
non-defaulting Party may elect to reject the Buy-Out Option Price determined by
the expert within ten (10) Days of the most recent notice by written notice to
the other remaining non-defaulting Parties.  By rejecting the Buy-Out Option
Price determined by the expert, a non-defaulting Party is deemed to withdraw the
exercise of its Buy-Out Option.  If all non-defaulting Parties reject the
Buy-Out Price, the non-defaulting Parties shall then vote within fifteen (15)
Days whether to require the Defaulting Party to withdraw completely from this
Agreement and the PSC under clause 8.4(d), in which case such determination will
require an affirmative vote of the non-defaulting Parties holding at least sixty
five percent (65%) of the Participating Interests held by non-defaulting
Parties.  An election pursuant to the preceding sentence not to require the
Defaulting Party to withdraw completely from this Agreement and the PSC under
clause 8.4(d) will be deemed an election by the Non-Defaulting Parties not to
proceed with either of the two options identified in clause 8.4(d) for at least
one hundred eighty (180) Days after such election, provided that any
Non-Defaulting Party may elect to re-propose such options after such one hundred
eighty (180) Day period.

 

(v)                       Upon the determination of the Buy-Out Option Price,
whether by the applicable Parties pursuant to clause 8.4(g)(ii) or by the expert
pursuant to clause 8.4(g)(iii) (and in the case of a determination by the expert
pursuant to clause 8.4(g)(iii), an election by at least one non-defaulting Party
to proceed with the exercise of the Buy-Out Option), the Defaulting Party and
the non-defaulting Parties participating in the Buy-Out Option shall execute and
deliver such agreements and assignments and seek all necessary approvals and
consents of the Government as may be necessary to transfer the Participating
Interest of the Defaulting Party to the non-defaulting Parties participating in
the Buy-Out Option.

 

(vi)                    The expert shall determine the Buy-Out Option Price as
the difference between the fair market value of the Defaulting Party’s
Participating Interest less (i) the Total Amount in Default; (ii) all costs,
including the costs of the expert, to obtain such valuation; (iii) all costs and
expenses, including attorneys’ fees, incurred by the non-defaulting Parties in
relation to the expert determination; (iv) all costs, including the costs of the
expert, to obtain the Buy-Out Option Price; (v) all costs and expenses,
including attorneys’ fees, incurred by the non-defaulting Parties in relation to
the expert determination under clause 8.4(g)(iii); and (vi) seventy-five percent
(75%) of the fair market value of the Defaulting Party’s Participating Interest
(such difference, the Appraised Value).

 

(vii)                 The Buy-Out Option Price shall be paid to the Defaulting
Party in four (4) installments, each equal to twenty-five percent (25%) of the
Appraised Value as follows:

 

(A)                     the first installment shall be due and payable to the
Defaulting Party within fifteen (15) Days after the date on which the Defaulting
Party’s Participating Interest is effectively transferred to the Acquiring
Parties (the Transfer Date);

 

(B)                     the second installment shall be due and payable to the
Defaulting Party within one hundred eighty (180) Days after the Transfer Date;

 

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(C)                     the third installment shall be due and payable to the
Defaulting Party within three hundred sixty five (365) Days after the Transfer
Date; and

 

(D)                     the fourth installment shall be due and payable to the
Defaulting Party within five hundred forty five (545) Days after the Transfer
Date.

 

(h)                       For purposes of clause 8.4, the Defaulting Party
shall, without delay following any request from the non-defaulting Parties, do
any act required to be done by the Laws / Regulations and any other applicable
Laws / Regulations in order to render the transfer of its Participating Interest
legally valid, including obtaining all Government consents and approvals, and
shall execute any document and take such other actions as may be necessary in
order to effect a prompt and valid transfer.  The Defaulting Party shall be
obligated to promptly remove any Encumbrances which may exist on its assigned
Participating Interests.  In the event all Government approvals are not timely
obtained, the Defaulting Party shall hold the assigned Participating Interest in
trust for the non-defaulting Parties who are entitled to receive it.  Each Party
constitutes and appoints each other Party as its true and lawful attorney to
execute such instruments and make such filings and applications as may be
necessary to make such transfer legally effective and to obtain any necessary
consents of the Government.  Actions under this power of attorney may be taken
by any Party individually without the joinder of the others.  This power of
attorney is irrevocable for the term of this Agreement and is coupled with an
interest.  If requested, each Party shall execute a form prescribed by the
Operating Committee setting forth this power of attorney in more detail.

 

(i)                           The non-defaulting Parties shall be entitled to
recover from the Defaulting Party all reasonable attorneys’ fees and all other
reasonable costs sustained in the collection of amounts owing by the Defaulting
Party.

 

(j)                          The rights and remedies granted to the
non-defaulting Parties in this clause 8 shall be cumulative, not exclusive, and
shall be in addition to any other rights and remedies that may be available to
the non-defaulting Parties, whether at law, in equity or otherwise.  Each right
and remedy available to the non- defaulting Parties may be exercised from time
to time and so often and in such order as may be considered expedient by the
non-defaulting Parties in their sole discretion.

 

8.5                     Survival

 

The obligations of the Defaulting Party and the rights of the non-defaulting
Parties shall survive the surrender of the PSC, abandonment of Joint Operations
and termination of this Agreement.

 

8.6                     No right of set off

 

Each Party acknowledges and accepts that a fundamental principle of this
Agreement is that each Party pays its Participating Interest share of all
amounts due under this Agreement as and when required.  Accordingly, any Party
which becomes a Defaulting Party undertakes that, in respect of either any
exercise by the non-defaulting Parties of any rights under or the application of
any of the provisions of this clause 8, such Party hereby waives any right to
raise by way of set off or invoke as a defense, whether in law or equity, any
failure by any other Party to pay amounts due and owing under this Agreement or
any alleged claim that such Party may have against Operator or any Non-Operator,
whether such claim arises under this Agreement or otherwise.  Each Party further
agrees that the nature and the amount of the remedies granted to the
non-defaulting Parties hereunder are reasonable and

 

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appropriate in the circumstances.

 

8.7                     Without Prejudice

 

The rights, remedies or powers conferred on the Operator and each non-defaulting
Party by this clause 8 are without prejudice to the rights, remedies or powers
conferred on the Operator, each non-defaulting Party, any lien granted under
this Agreement or otherwise at law or in equity, with the intent that a
non-defaulting Party or the Operator may exercise its rights, remedies or powers
under this Agreement, this clause 8 or otherwise at law or in equity,
concurrently, individually or cumulatively.

 

8.8                     Acknowledgement of Commercial Necessity

 

Each Party acknowledges and agrees that the provisions of this clause 8 are a
genuine pre-estimate of damages, do not constitute a penalty and are necessary
to ensure the maintenance of the PSC in good standing. The Parties acknowledge
that it is essential for the commercial viability of the Joint Operations that
the Parties comply promptly with their financial obligations under this
Agreement as any default which continues for a substantial period places a
severe burden on the non-defaulting Parties, given the nature of and high risks
associated with petroleum exploration, appraisal, development and production.
The Parties have arrived at the provisions of this clause 8 after careful
consideration of their respective rights when in default. In the event of
default, the assumption of the liabilities and obligations of the Defaulting
Party pursuant to the provisions of this clause 8 by the non-defaulting Parties
is good and valuable consideration for the forfeiture of the Defaulting Party’s
Participating Interest and the Defaulting Party hereby irrevocably acknowledges
receipt of such consideration as being good and valuable consideration.

 

9                               Disposition of production

 

9.1                     Right and obligation to take in kind

 

Subject to applicable Laws / Regulations, the PSC, and except as otherwise
provided in this clause 9 or in clause 8, each Party shall have the right and
obligation to own, take in kind and separately dispose of its Entitlement.

 

9.2                     Disposition of Crude Oil

 

If Crude Oil is to be produced from an Exploitation Area, the Parties shall in
good faith, and not less than three (3) months prior to the anticipated first
delivery of Crude Oil, as promptly notified by Operator, negotiate and conclude
the terms of a lifting agreement to cover the offtake of Crude Oil produced
under the PSC.  The lifting procedure shall be based on the AIPN Model
Form Lifting Procedure and shall contain all such terms as may be negotiated and
agreed by the Parties, consistent with the Development Plan and subject to the
terms of the PSC.  The Government and/or its designee may, if necessary and
practicable, also be party to the lifting agreement; if the Government and/or
its designee is a party to the lifting agreement, then the Parties shall
endeavor to obtain its agreement to the principles set forth in this
clause 9.2.  If a lifting agreement has not been entered into by the date of
first delivery of Crude Oil, the Parties shall nonetheless be obligated to take
and separately dispose of such Crude Oil as provided in clause 9.1 and in
addition shall be bound by the terms set forth in the AIPN Model Form Lifting
Procedure until a lifting agreement is executed by the Parties.

 

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9.3                     Disposition of Natural Gas

 

(a)                       Natural Gas to be produced from an Exploitation Area
shall be taken and disposed of in accordance with the rules and procedures set
forth in this clause 9.3.  The Parties recognize that, in the event of
individual disposition of Natural Gas, imbalances may arise with the result
being that a Party will temporarily have disposed of more than its Participating
Interest share of production of Natural Gas.  Accordingly, if Natural Gas is to
be produced from an Exploitation Area, the Parties shall, in good faith and no
later than the date on which the Development Plan for Natural Gas production is
approved by the Operating Committee, negotiate and conclude the terms of a
balancing agreement to cover the disposition of Natural Gas produced under the
PSC, regardless of whether all of the Parties have entered into a sales
arrangement or sales contract for their respective Entitlement of Natural Gas. 
The Natural Gas balancing agreement shall, subject to the terms of the PSC, make
provision for:

 

(i)                           the right of a Party not in default to take
delivery of Natural Gas (and to thereby use all relevant facilities) in excess
of its Participating Interest share of production, subject to the right of an
under-taking Party to take later delivery of make-up Natural Gas; provided that,
such make-up Natural Gas shall in no month exceed ninety percent (90%) of total
Natural Gas production produced monthly from the Exploitation Area, and further
provided the such under-taking Party shall lose its right to such make-up
Natural Gas if it has not taken delivery of the make-up Natural Gas within sixty
(60) months after the excess Natural Gas was originally taken; and further
provided that in the event any Party takes delivery of Natural Gas in excess of
its Participating Interest share of production, such overproduction shall in no
month exceed one hundred and thirty percent (130%) of such Party’s Participating
Interest share of production;

 

(ii)                        balancing of overproduction and underproduction on a
gross calorific value basis, determined by comparison of the Natural Gas taken
by a Party with that Party’s Participating Interest share of production for the
period of time;

 

(iii)                     Natural Gas taken by a Party being regarded as Natural
Gas taken and owned exclusively for its own account with title thereto being in
such Party, regardless of whether such Natural Gas is

 

(A)                     attributable to such Party’s Participating Interest
share of production;

 

(B)                     taken as overproduction; or

 

(C)                     taken as make-up for past underproduction;

 

(iv)                    unless otherwise agreed, no agency relationship or other
relationship of trust and confidence being created between the Parties in regard
to disposition of Natural Gas;

 

(v)                       unless otherwise agreed, the Delivery Point being the
point where fiscal calculations are made consistent with the PSC;

 

(vi)                    each Party’s provision to Operator of such information
respecting such Party’s arrangements for the disposition of its Entitlement of
Natural Gas production as Operator may reasonably require in order to conduct
Joint Operations in accordance with clause 4.2; and

 

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(vii)                 each Party’s regular periodic nominations to Operator of
the amount of such Party’s Entitlement of total available Natural Gas production
which it wishes to accept during a defined future period, along with Operator’s
regular periodic advice to the Parties of estimates of total Natural Gas
production (as reasonably in advance as practicable in order to assist the
Parties to plan Natural Gas disposition arrangements); provided, however, that
the Parties recognize that Operator’s estimates may vary from the actual Natural
Gas volumes produced and that the Parties may rely upon any such information at
their own risk.

 

If such balancing agreement has not been entered into by the date of first
delivery of Natural Gas, the Parties shall nonetheless be bound by the
principles set forth in this clause 9.3(a) until a Natural Gas balancing
agreement has been entered into between the Parties in accordance with this
Agreement.

 

(b)                       Unless prohibited by the Laws / Regulations, the
Parties may, by unanimous execution of a multiparty Natural Gas disposition
agreement, agree to dispose of Natural Gas produced under the PSC on a
multiparty basis to a common purchaser or purchasers.  The multiparty Natural
Gas disposition agreement shall, subject to the PSC, make provision for:

 

(i)                           the terms of sale or disposition of Natural Gas on
a multiparty basis;

 

(ii)                        the Parties’ rights and obligations with respect to
the disposition of Natural Gas on a multiparty basis, including the extent to
which Operator is designated as the Parties’ authorized representative for the
purpose of conducting marketing studies, designing and constructing necessary
facilities, investigating financing opportunities, and negotiating sales
agreements;

 

(iii)                     the managerial structure for making decisions
governing the multiparty disposal venture;

 

(iv)                    the scope and duration of the multiparty disposal
venture;

 

(v)                       the extent, if any, to which the costs of the
multiparty disposal venture are chargeable to the Joint Account;

 

(vi)                    the obligation of the Parties to participate in all
Natural Gas infrastructure necessary for such multiparty Natural Gas disposal,
and the multiparty disposition venture governing only such Natural Gas
infrastructure as is necessary to deliver Natural Gas to the point where fiscal
calculations, are made for the purposes of the PSC;

 

(vii)                 the extent to which a Party shall have, or shall be
permitted to hold itself out as having, the authority to create any obligation
on behalf of the multiparty disposal venture;

 

(viii)              confirmation that the relationship among the Parties shall
be contractual only and shall not be construed as creating a partnership or
other recognized association; and

 

(ix)                    confirmation that formation of the multiparty disposal
venture shall not create any rights in any persons not a party thereto.

 

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9.4                     Principles of Natural Gas Agreement(s) with the
Government

 

(a)                       The Government and/or its designee may, if necessary
and practicable, also be party to the balancing agreement under
clause 9.3(a) and/or the multiparty disposition venture under clause 9.3(b).  If
the Government and/or its designee is party to the balancing agreement, then the
Parties shall endeavor to obtain its agreement to the principles set forth in
clause 9.3(a).  Furthermore, if the Government and/or its designee is party to
the multiparty disposition venture, then the Parties shall endeavor to obtain
its agreement to the principles set forth in clause 9.3(b).

 

(b)                       In addition, the Parties shall endeavor to include in
any agreement with the Government and/or its designee in relation to the
disposition of Natural Gas, the following principles:

 

(i)                           assured access to a fair share of the available
Natural Gas market, including suitable assurances for Government controlled
sales;

 

(ii)                        the right to market Natural Gas, including purchase
of the Government’s and/or its designee’s share, to the highest value outlets
(domestic or export) and the right to export the Parties’ Entitlements of
Natural Gas;

 

(iii)                     a minimum contractual term which provides a reasonable
period to develop a Natural Gas market and enables Natural Gas reserves to be
produced for their full economic life; and

 

(iv)                    assured access to infrastructure for the purposes of
processing and/or transporting Natural Gas at a competitive tariff.

 

9.5                     Production Forecasts

 

(a)                       No later than the first Day of the Calendar Month
preceding the Calendar Month in which production operations are scheduled to
begin, and afterwards on the first Day of each Calendar Quarter, the Operator
shall provide the Parties with a Production Forecast.  A “Production Forecast”
shall consist of the estimated average daily rate of production of Hydrocarbons
of each type and grade for each Calendar Month during each of the next
succeeding two Calendar Years and, if there are multiple Delivery Points, the
estimated quantities to be delivered to each Delivery Point.

 

(b)                       If at any time the Operator becomes aware that a
change has taken place or will take place that in Operator’s judgment has caused
or will cause a variance of ten percent (10%) or more from any figure appearing
in the latest Production Forecast, the Operator shall promptly notify each Party
of the following:

 

(i)                           the reason for such variance, its estimated
magnitude, the date and time the change is expected to begin, and the estimated
duration thereof; and

 

(ii)                        the Operator’s revised Production Forecast for the
period covered by the current Production Forecast based on such variance, along
with all other requirements for a Production Forecast pursuant to clause 9.5(a).

 

(iii)                     The production forecasts delivered under clauses 4.4
and 6.7, and the Production Forecasts under this clause, are only estimates. 
Actual production may vary based upon reservoir performance, variations in well
deliverability and the composition of the produced substances, actions of the
Government and other third parties, maintenance and repair obligations and

 

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Force Majeure, among other factors.

 

10                        Abandonment

 

10.1              Abandonment of wells drilled as Joint Operations

 

(a)                       A decision to plug and abandon any well which has been
drilled as a Joint Operation shall require the approval of the Operating
Committee.

 

(b)                       Should any Party fail to reply within the period
prescribed in clauses 5.13(a)(i) or 5.13(a)(ii), whichever is applicable, after
delivery of notice of Operator’s proposal to plug and abandon such well, such
Party shall be deemed to have consented to the proposed abandonment.

 

(c)                        If the Operating Committee approves a decision to
plug and abandon an Exploration Well or Appraisal Well, subject to the Laws /
Regulations, any Party voting against such decision may propose (within the time
periods allowed by clause 5.14(a)) to conduct an alternate Exclusive Operation
in the wellbore.  If no Exclusive Operation is timely proposed, or if an
Exclusive Operation is timely proposed but is not commenced within the
applicable time periods under clause 7.2, such well shall be plugged and
abandoned.

 

(d)                       Any well plugged and abandoned under this Agreement
shall be plugged and abandoned in accordance with the Laws / Regulations and at
the cost, risk and expense of the Parties who participated in the cost of
drilling such well.

 

(e)                        Notwithstanding anything to the contrary in this
clause 10.1:

 

(i)                           If the Operating Committee approves a decision to
plug and abandon a well from which Hydrocarbons have been produced and sold,
subject to the Laws / Regulations, any Party voting against the decision may
propose (within five (5) Days after the time specified in clause 5.6,
clauses 5.13(a)(i) or 5.13(a)(ii), whichever is applicable, has expired) to take
over the entire well as an Exclusive Operation.  Any Party originally
participating in the well shall be entitled to participate in the operation of
the well as an Exclusive Operation by response notice within ten (10) Days after
receipt of the notice proposing the Exclusive Operation.  In such event, the
Consenting Parties shall be entitled to continue producing only from the Zone
open to production at the time they assumed responsibility for the well and
shall not be entitled to drill a substitute well in the event that the well
taken over becomes impaired or fails.

 

(ii)                        Each Non-Consenting Party shall be deemed to have
relinquished free of cost to the Consenting Parties in proportion to their
Participating Interests all of its interest in the wellbore of a produced well
and related equipment in accordance with clause 7.4(b).  The Consenting Parties
shall thereafter bear all cost and liability of plugging and abandoning such
well in accordance with the Laws / Regulations, to the extent the Parties are or
become obligated to contribute to such costs and liabilities, and shall
indemnify the Non-Consenting Parties against all such costs and liabilities.

 

(iii)                     Subject to clause 7.12(f), Operator shall continue to
operate a produced well for the account of the Consenting Parties at the rates
and charges contemplated by this Agreement, plus any additional cost and charges
which may arise as the result of the separate allocation of interest in such
well.

 

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10.2              Abandonment of Exclusive Operations

 

This clause 10 shall apply mutatis mutandis to the abandonment of an Exclusive
Well or any well in which an Exclusive Operation has been conducted (in which
event all Parties having the right to conduct further operations in such well
shall be notified and have the opportunity to conduct Exclusive Operations in
the well in accordance with the provisions of this clause 10).

 

10.3              Provision for and Conduct of Decommissioning and Abandonment
Security

 

The Parties shall comply with any obligations under the PSC or Laws /
Regulations regarding Decommissioning of any facilities, equipment and/or wells
for which a Joint Operation was taken.  Without limiting the foregoing, if under
the PSC or the Laws / Regulations, the Parties are or become obliged to pay or
contribute to the cost of ceasing operations, then during preparation of a
Development Plan, the Parties shall negotiate a security agreement, which shall
be completed and executed by all Parties participating in such Development Plan
prior to the application for an Exploitation Area.  The security agreement shall
incorporate the following principles:

 

(a)                       a Security shall be provided by each such Party for
each Calendar Year commencing with the Calendar Year in which the Discounted Net
Value equals or is less than one hundred and fifty percent (150%) of the
Discounted Net Cost; and

 

(b)                       the amount of the Security required to be provided by
each such Party in any Calendar Year (including any security previously provided
which will still be current throughout such Calendar Year) shall be equal to the
amount by which one hundred and twenty-five percent (125%) of the Discounted Net
Cost exceeds the Discounted Net Value.

 

For the purposes of this clause 10:

 

Discounted Net Cost means that portion of each Party’s anticipated before tax
cost of ceasing operations in accordance with the Laws / Regulations which
remains after deduction of salvage value.  Such portion should be calculated at
the anticipated time of ceasing operations and discounted at the Discount Rate
to December 31 of the Calendar Year in question.

 

Discounted Net Value means the value of each Party’s estimated Entitlement which
remains after payment of estimated liabilities and expenses required to win,
save and transport such production to the delivery point and after deduction of
estimated applicable taxes, royalties, imposts and levies on such production. 
Such Entitlement shall be calculated using estimated market prices and including
taxes on income, discounted at the Discount Rate to December 31 of the Calendar
Year in question.  No account shall be taken of tax allowances expected to be
available in respect of the costs of ceasing operations.

 

Discount Rate means the rate per annum equal to the one (1) month term, London
Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits applicable to the
date falling thirty (30) Business Days prior to the start of a Calendar Year as
published in London by the Financial Times or if not published then by The Wall
Street Journal.

 

This clause 10.3 shall apply mutatis mutandis to the Decommissioning of any
facilities, equipment and/or wells for which an Exclusive Operation was taken.

 

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11                        Surrender, extensions and renewals

 

11.1              Surrender

 

(a)                       If the PSC requires the Parties to surrender any
portion of the Contract Area, Operator shall advise the Operating Committee of
such requirement at least ninety (90) Days in advance of the earlier of the date
for filing irrevocable notice of such surrender or the date of such surrender. 
Prior to the end of such period, the Operating Committee shall determine
pursuant to clause 5 the size and shape of the surrendered area, consistent with
the requirements of the PSC.  If a sufficient vote of the Operating Committee
cannot be attained, then the proposal supported by a simple majority of the
Participating Interests shall be adopted.  If no proposal attains the support of
a simple majority of the Participating Interests, then the proposal receiving
the largest aggregate Participating Interest vote shall be adopted.  In the
event of a tie, Operator shall choose among the proposals receiving the largest
aggregate Participating Interest vote.  The Parties shall execute any and all
documents and take such other actions as may be necessary to effect the
surrender.  Each Party renounces all claims and causes of action against
Operator and any other Parties on account of any area surrendered in accordance
with the foregoing but against its recommendation if Hydrocarbons are
subsequently discovered under the surrendered area.

 

(b)                       A surrender of all or any part of the Contract Area
which is not required by the PSC shall require the unanimous consent of the
Parties.

 

11.2              Extension or renewal

 

(a)                       A proposal by any Party to enter into or extend the
term of any Exploration or Exploitation Period or any phase of the PSC, or a
proposal to extend the term of or renew and/or replace the PSC, shall be brought
before the Operating Committee pursuant to clause 5.

 

(b)                       Any Party shall have the right to enter into or extend
the term of any Exploration or Exploitation Period or any phase of the PSC or to
extend the term of or renew and/or replace the PSC, regardless of the level of
support in the Operating Committee.  If any Party takes such action, any Party
not wishing to extend shall have a right to withdraw, subject to the
requirements of clause 13.

 

12                        Transfers, Changes in Control, Tag-Along Rights, and
AMI

 

12.1              Obligations

 

(a)                       Subject to the requirements of the PSC:

 

(i)                           any Transfer (except Transfers pursuant to
clauses 7, 8 or 13) shall be effective only if it satisfies the terms and
conditions of clause 12.2 and clause 12.5, as applicable; and

 

(ii)                        a Change in Control of any Party, or any successors
or assignees of a Party must satisfy the terms and conditions of clause 12.3 and
clause 12.5, as applicable.

 

(b)                       Should a Transfer subject to this clause or a Change
in Control occur without satisfaction (in all material respects) by the
transferor or the Party subject to the Change in Control, as applicable, of the
requirements hereof, then each other Party shall be entitled to enforce specific
performance of the terms of this clause, in

 

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addition to any other remedies (including damages) to which it may be entitled. 
Each Party agrees that monetary damages alone would not be an adequate remedy
for the breach of any Party’s obligations under this clause.

 

(c)                        For purposes of this Agreement:

 

Cash Transfer means any Transfer where the sole consideration (other than the
assumption of obligations relating to the transferred Participating Interest)
takes the form of cash, cash equivalents, promissory notes or retained interests
(such as production payments) in the Participating Interest being transferred.

 

Cash Value means the market value (expressed in U.S. dollars) of the
Participating Interest subject to the proposed Transfer or Change in Control,
based upon the amount in cash a willing buyer would pay a willing seller in an
arm’s length transaction.

 

Change in Control means:

 

(i)                           other than as a result of trading of a Party’s (or
its ultimate parent company’s) securities on a securities exchange, any direct
or indirect change in Control of a Party (whether through merger, sale of shares
or other equity interests or otherwise) through a single transaction or series
of related transactions, from one or more transferors to one or more
transferees, in which the market value of the Party’s Participating Interest
represents more than thirty three and one-third (33 1/3%) of the aggregate
market value of the assets of such Party and its Affiliates that are subject to
the change in Control; but

 

(ii)                        excludes any such change in Control of a Party’s
ultimate parent company where such change in Control occurs by way of issuance
of shares or other securities, a takeover, merger or scheme of arrangement
(other than a scheme of arrangement with creditors for the purposes of
implementing a solvent reconstruction of the ultimate parent company of the
Party); or any analogous transaction under the Laws / Regulations of the
jurisdiction in which the ultimate parent company of the Party is incorporated
which results in the change in Control of such ultimate parent company of the
Party.

 

(iii)                     For the purposes of this definition, market value
shall be determined based upon the amount in cash a willing buyer would pay a
willing seller in an arm’s length transaction.

 

Encumbrance means a mortgage, lien, pledge, charge or other encumbrance. 
Encumber and other derivatives shall be construed accordingly.

 

Transfer means any sale, assignment or other disposition by a Party of any
rights or obligations derived from the PSC or this Agreement (including its
Participating Interest), (A) other than its Entitlement and its rights to any
credits, refunds or payments under this Agreement, (B) other than any assignment
under clause 13.6, and (C) excluding any direct or indirect Change in Control of
a Party.

 

12.2              Transfer

 

(a)                       Except in the case of a Party transferring all of its
Participating Interest, no Transfer shall be made by any Party which results in
the transferor or the transferee

 

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holding a Participating Interest of less than ten percent (10%) or any interest
other than a Participating Interest in the PSC and this Agreement.  For the
avoidance of doubt, no Transfer shall be made by a Party unless it includes the
transferor’s Participating Interest in all of the instruments comprising the
PSC.

 

(b)                       Subject to the terms of clauses 4.9 and 4.10, the
Party serving as Operator shall remain Operator following Transfer of a portion
of its Participating Interest.  In the event of a Transfer of all of its
Participating Interest, such transfer shall not become effective unless the
transferee or other Party will assume operatorship in accordance with the
requirements of this Agreement and the PSC, in which case the Party serving as
Operator shall be deemed to have resigned as Operator, effective on the date the
Transfer becomes effective under this clause 12, in which event a successor
Operator shall be appointed in accordance with clause 4.11.

 

(c)                        Both the transferee, and, notwithstanding the
Transfer, the transferring Party, shall be liable to the other Parties for the
transferring Party’s Participating Interest share of any obligations (financial
or otherwise) which have vested, matured or accrued under the provisions of the
PSC or this Agreement prior to such Transfer.  Such obligations, shall include
any proposed expenditure approved by the Operating Committee prior to the
transferring Party notifying the other Parties of its proposed Transfer and
shall also include costs of plugging and abandoning wells or portions of wells
and decommissioning facilities in which the transferring Party participated (or
with respect to which it was required to bear a share of the costs pursuant to
this sentence) to the extent such costs are payable by the Parties under the
PSC.

 

(d)                       A transferee shall have no rights in the PSC or this
Agreement (except any notice and cure rights or similar rights that may be
provided to a Lien Holder by separate instrument signed by all Parties) unless
and until:

 

(i)                           it expressly undertakes in an instrument
reasonably satisfactory to the other Parties to perform the obligations of the
transferor under the PSC and this Agreement in respect of the Participating
Interest being transferred;

 

(ii)                        it obtains any necessary Government approval for the
Transfer and furnishes any guarantees required by the Government or the PSC on
or before the applicable deadlines; and

 

(iii)                     except in the case of a Transfer to an Affiliate
(subject to the following sentence), each Party has consented in writing to such
Transfer, which consent shall be denied only if the transferee fails to
establish to the reasonable satisfaction of each Party its financial capability
to perform its payment obligations under the PSC and this Agreement.  No consent
shall be required under this clause 12.2(d)(iii) for a Transfer to an Affiliate
if the transferring Party agrees in an instrument reasonably satisfactory to the
other Parties to remain liable for its Affiliate’s performance of its
obligations, except that no such instrument, or written consent of the other
Parties, will be required hereunder for a Party’s Transfer of all of its
Participating Interest to a wholly-owned Affiliate that is completed within the
first ninety (90) Day period following the Effective Date.

 

(e)                        Nothing contained in this clause 12 shall prevent a
Party from Encumbering all or any undivided share of its Participating Interest
to a third party (a Lien Holder) for the purpose of security relating to
finance, and/or collaterally assigning its rights in this Agreement solely for
the purpose of raising financing to fund its share of costs

 

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in connection with this Agreement, provided that:

 

(i)                           such Party shall remain liable for all obligations
relating to such interest;

 

(ii)                        the Encumbrance shall be subject to any necessary
approval of the Government;

 

(iii)                     such Party shall ensure that any Encumbrance shall be
expressed to be without prejudice to the provisions of this Agreement; and

 

(iv)                    each Party agrees to cooperate with any other Party, as
may be reasonably requested by such other Party for obtaining financing as it
relates to this Agreement and the transactions contemplated hereunder, although
such cooperation will not require paying any expenses (except to the extent that
the requesting Party agrees to reimburse such expenses) or providing any
financial guarantees.

 

(f)                         Preemptive Rights.  Any Transfer of all or a portion
of a Party’s Participating Interest, other than a Transfer to an Affiliate, or
the granting of an Encumbrance as provided in clause 12.2(e), shall be subject
to the following procedure.

 

(i)                           Once the final terms and conditions of a Transfer
have been fully negotiated, the transferor shall disclose all such final terms
and conditions as are relevant to the acquisition of the Participating Interest
(and, if applicable, the determination of the Cash Value of the Participating
Interest) in a notice to the other Parties (a Transfer Notice), which Transfer
Notice shall be accompanied by a copy of all instruments or relevant portions of
instruments establishing such terms and conditions.  Subject to clause
12.2(f)(iii), each other Party shall have the right to acquire the Participating
Interest subject to the proposed Transfer from the transferor on the terms and
conditions described in clause 12.2(f)(iii) if, within thirty (30) Days of the
Transfer Notice, such Party delivers to all other Parties a counter-notification
that it accepts such terms and conditions without reservations or conditions
(subject to clauses 12.2(f)(iii) and 12.2(f)(iv), where applicable).  If no
Party delivers such counter-notification, the Transfer to the proposed
transferee may be made, subject to the other provisions of this clause 12, under
terms and conditions no more favorable to the transferee than those set forth in
the Transfer Notice, provided that the Transfer shall be concluded within two
hundred forty (240) Days from the date of the Transfer Notice plus such
additional period as may be required to secure Government approvals.  No Party
shall have a right under this clause 12.2(f) to acquire any asset other than a
Participating Interest, nor may any Party be required to acquire any asset other
than a Participating Interest, regardless of whether other properties are
included in the Transfer.

 

(ii)                        If more than one Party counter-notifies that it
intends to acquire the Participating Interest subject to the proposed Transfer,
then each such Party shall acquire a proportion of the Participating Interest to
be transferred equal to the ratio of its own Participating Interest to the total
Participating Interests of all the counter-notifying Parties, unless the
counter-notifying Parties otherwise agree.

 

(iii)                     In the event of a Cash Transfer that does not involve
other properties as part of a wider transaction, each other Party shall have a
right to acquire the

 

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Participating Interest subject to the proposed Transfer on the same final terms
and conditions as were negotiated with the proposed transferee.  In the event of
a Transfer that is not a Cash Transfer or involves other properties included in
a wider transaction (Package Sale), the transferor shall include in its
notification to the other Parties a statement of the Cash Value of the
Participating Interest subject to the proposed Transfer, and each other Party
shall have a right to acquire such Participating Interest on the same final
terms and conditions as were negotiated with the proposed transferee except that
it shall pay the Cash Value in immediately available funds at the closing of the
Transfer in lieu of the consideration payable in the third party offer, and the
terms and conditions of the applicable instruments shall be modified as
necessary to reflect the acquisition of a Participating Interest for cash.  In
the case of a Package Sale, no Party may acquire the Participating Interest
subject to the proposed package sale unless and until the completion of the
wider transaction (as modified by the exclusion of properties subject to
preemptive rights or excluded for other reasons) with the Package Sale
transferee.  If for any reason the Package Sale terminates without completion,
the other Parties’ rights to acquire the Participating Interest subject to the
proposed Package Sale shall also terminate.  Notwithstanding the foregoing (or
anything to the contrary herein), in the event of a Package Sale in which the
Cash Value of the Participating Interest to be Transferred therein is less than
ten percent (10%) of the total value of the Package Sale, the preemptive rights
granted hereunder will not apply and the other Parties will have no right to
acquire such Participating Interest pursuant to this clause 12.2(f).

 

(iv)                    For purposes of clause 12.2(f)(iii), the Cash Value
proposed by the transferor in its notice shall be conclusively deemed correct
unless any Party (for purposes of this clause 12.2, each a Disagreeing Party)
gives notice to the transferor with a copy to the other Parties within ten
(10) Days of receipt of the transferor’s notice stating that it does not agree
with the transferor’s statement of the Cash Value, stating the Cash Value it
believes is correct, and providing any supporting information that it believes
is helpful.  In such event, the transferor and the Disagreeing Parties shall
have fifteen (15) Days in which to attempt to negotiate an agreement on the
applicable Cash Value.  If no agreement has been reached by the end of such
fifteen (15) Day period, either the transferor or any Disagreeing Party shall be
entitled to refer the matter to an independent expert as provided in clause 18.3
for determination of the Cash Value.

 

(v)                       If the determination of the Cash Value is referred to
an independent expert and the value submitted by the transferor is no more than
five percent (5%) above the Cash Value determined by the independent expert, the
transferor’s value shall be used for the Cash Value and the Disagreeing Parties
shall pay all costs of the expert.  If the value submitted by the transferor is
more than five percent (5%) above the Cash Value determined by the independent
expert, the independent expert’s value shall be used for the Cash Value and the
transferor shall pay all costs of the expert.  Subject to the independent
expert’s value being final and binding in accordance with clause 18.3, the Cash
Value determined by the procedure shall be final and binding on all Parties.

 

(vi)                    Once the Cash Value is determined under clause
12.2(f)(v), Operator shall provide notice of such Cash Value to all Parties and
if the Cash Value that

 

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was submitted to the independent expert by the transferor is more than five
percent (5%) above the Cash Value determined by the independent expert, the
transferor may elect to terminate its proposed Transfer by notice to all other
Parties within five (5) Days after notice to the Parties of the final Cash
Value.  Similarly, if the Cash Value that was determined by the independent
expert is more than five percent (5%) above the Cash Value submitted to the
independent expert by a Disagreeing Party (or, in the case of a Party that is
not a Disagreeing Party, is more than five percent (5%) above the Cash Value
originally proposed by the transferor), such Party may elect to revoke its
notice of intention to purchase the transferor’s Participating Interest pursuant
to clause 12.2(f)(i).  If the transferor does not properly terminate the
proposed Transfer and one or more Parties which provided notices of their
intention to purchase the transferor’s Participating Interest pursuant to clause
12.2(f)(i) have not properly revoked their notices of such intention, then the
transferor shall be obligated to sell and such Parties shall be obligated to buy
the Participating Interest at the Cash Value as determined in accordance with
clause 12.2(f)(v).  If all Parties which provided notice of their intention to
purchase the transferor’s Participating Interest pursuant to clause
12.2(f)(i) properly revoke their notices of such intention, the transferor shall
be free to sell the interest to the third party at the determined Cash Value or
a higher value and under conditions not more favorable to the transferee than
those set forth in the notice of Transfer sent by the transferor to the other
Parties, provided that the Transfer shall be concluded within two hundred forty
(240) Days from the date of the determination plus such additional period as may
be required to secure Government approvals.

 

12.3              Change in Control

 

(a)                       A Party subject to a Change in Control shall obtain
any necessary Government approval with respect to the Change in Control and
furnish any replacement Security required by the Government or the PSC on or
before the applicable deadlines.

 

(b)                       A Party subject to a Change in Control shall provide
evidence reasonably satisfactory to the other Parties that following the Change
in Control such Party shall continue to have the financial capability to satisfy
its payment obligations under the PSC and this Agreement.  Should the Party that
is subject to the Change in Control fail to provide such evidence, any other
Party, by notice to such Party, may require such Party to provide Security
reasonably satisfactory to the other Parties with respect to its Participating
Interest share of any obligations or liabilities which the Parties may
reasonably be expected to incur under the PSC and this Agreement during the
then-current Exploration or Exploitation Period or phase of the PSC.

 

(c)                        Preemptive Rights.  Any Change in Control of a Party,
other than one which results in ongoing Control by an Affiliate, shall be
subject to the following procedure.  For purposes of this clause 12.3, the term
“acquired Party” shall refer to the Party that is subject to a Change in Control
and the term “acquiror” shall refer to the Party or third party proposing to
acquire Control in a Change in Control.

 

(i)                           Once the final terms and conditions of a Change in
Control have been fully negotiated, the acquired Party shall disclose all such
final terms and conditions as are relevant to the acquisition of such Party’s
Participating

 

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Interest and the determination of the Cash Value of that Participating Interest
in a notice to the other Parties (a C-I-C Notice), which C-I-C Notice shall be
accompanied by a copy of all instruments or relevant portions of instruments
establishing such terms and conditions.  Each other Party shall have the right
to acquire the acquired Party’s Participating Interest on the terms and
conditions described in clause 12.3(c)(ii) if, within thirty (30) Days of the
acquired C-I-C Notice, such Party delivers to all other Parties a
counter-notification that it accepts such terms and conditions without
reservations or conditions (subject to clauses 12.3(c)(ii) and 12.3(c)(iv),
where applicable).  If no Party delivers such counter-notification, the Change
in Control may proceed without further notice, subject to the other provisions
of this clause 12, under terms and conditions no more favorable to the acquiror
than those set forth in the C-I-C Notice, provided that the Change in Control
shall be concluded within two hundred forty (240) Days from the date of the
C-I-C Notice plus such additional period as may be required to secure Government
approvals.  No Party shall have a right under this clause 12.3(c) to acquire any
asset other than a Participating Interest, nor may any Party be required to
acquire any asset other than a Participating Interest, regardless of whether
other properties are subject to the Change in Control.

 

(ii)                        If more than one Party counter-notifies that it
intends to acquire the Participating Interest subject to the proposed Change in
Control, then each such Party shall acquire a proportion of that Participating
Interest equal to the ratio of its own Participating Interest to the total
Participating Interests of all the counter-notifying Parties, unless the
counter-notifying Parties otherwise agree.

 

(iii)                     The acquired Party shall include in its notification
to the other Parties a statement of the Cash Value of the Participating Interest
subject to the proposed Change in Control, and each other Party shall have a
right to acquire such Participating Interest for the Cash Value, on the final
terms and conditions negotiated with the proposed acquiror that are relevant to
the acquisition of a Participating Interest for cash.  No Party may acquire the
acquired Party’s Participating Interest pursuant to this clause
12.3(c)(iii) unless and until completion of the Change in Control.  If for any
reason the Change in Control agreement terminates without completion, the other
Parties’ rights to acquire the Participating Interest subject to the proposed
Change in Control shall also terminate.

 

(iv)                    For purposes of clause 12.3(c)(iii), the Cash Value
proposed by the acquired Party in its notice shall be conclusively deemed
correct unless any Party (for purposes of this clause 12.3, each a Disagreeing
Party) gives notice to the acquired Party with a copy to the other Parties
within ten (10) Days of receipt of the acquired Party’s notice stating that it
does not agree with the acquired Party’s statement of the Cash Value, stating
the Cash Value it believes is correct, and providing any supporting information
that it believes is helpful.  In such event, the acquired Party and the
Disagreeing Parties shall have fifteen (15) Days in which to attempt to
negotiate an agreement on the applicable Cash Value.  If no agreement has been
reached by the end of such fifteen (15) Day period, either the acquired Party or
any Disagreeing Party shall be entitled to refer the matter to an independent
expert as provided in clause 18.3 for determination of the Cash Value.

 

(v)                       If the determination of Cash Value is referred to an
independent expert, and

 

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the value submitted by the acquired Party is no more than five percent (5%)
above the Cash Value determined by the independent expert, the acquired Party’s
value shall be used for the Cash Value and the Disagreeing Parties shall pay all
costs of the expert.  If the value submitted by the acquired Party is more than
five percent (5%) above the Cash Value determined by the independent expert, the
independent expert’s value shall be used for the Cash Value and the acquired
Party shall pay all costs of the expert.  Subject to the independent expert’s
value being final and binding in accordance with clause 18.3, the Cash Value
determined by the procedure shall be final and binding on all Parties.

 

(vi)                    Once the Cash Value is determined under clause
12.3(c)(v), Operator shall provide notice of such Cash Value to all Parties and
if the Cash Value that was submitted by the acquired Party to the independent
expert is more than five percent (5%) above the Cash Value determined by the
independent expert, the acquired Party and its Affiliates may elect to terminate
the proposed Change in Control by notice to all other Parties within five
(5) Days after notice to the Parties of the final Cash Value.  Similarly, if the
Cash Value that was determined by the independent expert is more than five
percent (5%) above the Cash Value submitted to the independent expert by a
Disagreeing Party (or, in the case of a Party that is not a Disagreeing Party,
is more than five percent (5%) above the Cash Value originally proposed by the
acquiror), such Party may elect to revoke its notice of intention to purchase
the acquired Party’s Participating Interest pursuant to clause 12.3(c)(i).  If
the acquired Party and its Affiliates do not properly terminate the proposed
Change in Control and one or more Parties which provided notices of their
intention to purchase the acquired Party’s Participating Interest pursuant to
clause 12.3(c)(i) have not properly revoked their notices of such intention,
then the acquired Party shall be obligated to sell and such Parties shall be
obligated to buy the Participating Interest at the Cash Value as determined in
accordance with clause 12.3(c)(v).  If all Parties which provided notice of
their intention to purchase the acquired Party’s Participating Interest pursuant
to clause 12.3(c)(i) properly revoke their notices of such intention, the Change
in Control may proceed without further notice, under terms and conditions no
more favorable to the acquiror than those in effect at the time of the
determination, provided that the Change in Control shall be concluded within one
hundred eighty (180) Days from the date of the determination plus such
additional period as may be required to secure Government approvals.

 

12.4              Tag-Along Rights.

 

(a)                       If a Party has received a Transfer Notice or C-I-C
Notice, as applicable, (for purposes of this clause 12.4, a Tag-Along Notice)
pursuant to this clause 12, and, in connection therewith, has elected not to
acquire (all or part of) the transferring Party’s Participating Interest (such
transferring Party, the Tag-Along Transferor) that is subject to the Transfer or
Change in Control, as applicable, (such Participating Interest, the Tag-Along
Eligible Interest; and such Transfer or Change in Control, as applicable, the
Tag-Along Transfer), such non-acquiring Party (a Tag-Along Party) shall have the
right (the Tag-Along Right), at its sole election, to include its Tag-Along
Interest in the Tag-Along Transfer.  Each Tag-Along Party shall have the right
to participate in the Tag-Along Transfer on the terms and conditions described
in the Tag-Along Notice, if, within thirty (30) Days of the Tag-Along Notice,
such Tag-Along Party delivers to all other Parties a

 

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counter-notification that it accepts such terms and conditions without
reservations or conditions.  If no Tag-Along Party delivers such
counter-notification, the Tag-Along Transfer may proceed without further notice,
subject to the other provisions of this clause 12, under terms and conditions no
more favorable to the acquiror than those set forth in the Tag-Along Notice,
provided that the Tag-Along Transfer shall be concluded within two hundred forty
(240) Days from the date of the Tag-Along Notice plus such additional period as
may be required to secure Government approvals.

 

(b)                       The Tag-Along Interest for each Party that is
participating in the Tag-Along Transfer pursuant to clause 12.4(a) (i.e., the
Tag-Along Transferor, on one hand, and the Tag-Along Parties electing to
participate therein, on the other hand) (the Tag-Along Participating Parties)
will be determined as follows:

 

Tag-Along Interest = Tag-Along Eligible Interest * (X divided by Y)

 

Where:

 

X: The relevant Tag-Along Party’s Participating Interest.

 

Y : The total Participating Interests of the Tag-Along Participating Parties.

 

For the avoidance of doubt, a Tag-Along Interest for the Tag-Along Transferor
will also be determined pursuant to this clause, with the sum of all Tag-Along
Interests being equal to the Tag-Along Eligible Interest.

 

(c)                        Upon an election by a Tag-Along Party to exercise the
Tag-Along Right and participate in a Tag-Along Transfer, the Tag-Along
Transferor will include the relevant Tag-Along Interests in the Tag-Along
Transfer on the same terms and conditions received by the Tag-Along Transferor
for its Tag-Along Interest; and said Tag-Along Party will execute and deliver,
at the closing of the Tag-Along Transfer (the Tag-Along Closing), such
instruments, agreements, conveyances, and documents as may reasonably may be
requested to evidence or effect the transfer of the Tag-Along Interest to the
purchaser thereof.  Following the Tag-Along Closing, the Tag-Along Transferor
will remit to each such Tag-Along Party its proportionate share of the
consideration (cash, carry or otherwise) received therefrom.

 

(d)                       There shall be no liability whatsoever on the part of
the Tag-Along Transferor to the Tag-Along Parties if the Tag-Along Transfer is
not consummated for any reason whatsoever, including failure to perform on the
part of the Tag-Along Transferor.  Further, the Tag-Along Transferor shall have
no liability whatsoever to the Tag-Along Parties in relation to, or arising out
of, or in connection with the Tag-Along Transfer agreements, including the
negotiation, preparation, execution, implementation, or consummation thereof, or
the transactions contemplated therein.

 

(e)                        If the Tag-Along Sale is not a Cash Transfer, or
involves other properties included in a Package Sale or a Change in Control, the
provisions of clauses 12.2(f) and 12.3(c) regarding the determination of the
Cash Value shall apply mutatis mutandis to this clause 12.4.

 

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12.5              Area of Mutual Interest

 

(a)                       If, during the AMI Term, a Party (or any of its
Affiliates) (the AMI Acquiring Party) acquires an Interest in the AMI Area or
acquires the right to acquire any Interest in the AMI Area (either being an
Acquired Interest), it shall promptly notify the other Parties (each, an
Offeree) in writing of the acquisition of (A) an Acquired Interest or (B) the
right to acquire an Acquired Interest.  The notice shall contain reasonable full
particulars of (i) the consideration the AMI Acquiring Party has paid or given,
or has agreed to pay or give, for the acquisition of the Acquired Interest and
(ii) all reasonable out-of-pocket costs and expenses incurred, or to be
incurred, by the AMI Acquiring Party that are directly related to the
acquisition of the Acquired Interest (collectively, the AMI Consideration). 
Each Offeree shall have a period of thirty (30) Days after receipt of the notice
to irrevocably commit, by written notice received by the AMI Acquiring Party, to
acquire its AMI Share of the Acquired Interest by paying and bearing its AMI
Share of the Consideration.  Failure of an Offeree to so commit in writing in
such thirty (30) Day period shall be deemed a binding election by the Offeree
not to acquire its AMI Share of the Acquired Interest.  If an Offeree elects in
writing to acquire its AMI Share in the Acquired Interest, then within thirty
(30) Days of the Offeree’s commitment to acquire its AMI Share of the Acquired
Interest, it shall pay to the AMI Acquiring Party its AMI Share of the
Consideration to the extent already paid or given by the AMI Acquiring Party or
enter into an agreement with the AMI Acquiring Party to pay or bear its share of
the Consideration to the extent not already paid or given by the AMI Acquiring
Party.

 

(b)                       When an Acquired Interest includes more than one
separate Interest within the AMI Area, an Offeree may not make separate
elections as to the separate Interests.  When an Acquired Interest is part of a
package deal or larger transaction which includes separate interests outside of
the AMI Area, the Offeree may make separate elections as to the separate
Interests within the AMI Area.  The AMI Acquiring Party shall, in good faith,
make an accurate and realistic allocation of  the Consideration attributable to
each of the separate interests acquired, or to be acquired, including the
separate Interests within the AMI Area.

 

13                       Withdrawal from Agreement

 

13.1             Right of withdrawal

 

(a)                      Subject to the provisions of this clause 13 and the
PSC, any Party not in default may at its option withdraw from this Agreement and
the PSC by giving notice to all other Parties stating its decision to withdraw. 
Such notice shall be unconditional and irrevocable when given, except as may be
provided in clause 13.7.

 

(b)                       The effective date of withdrawal for a withdrawing
Party shall be the end of the calendar month following the calendar month in
which the notice of withdrawal is given, provided that if all Parties elect to
withdraw, the effective date of withdrawal for each Party shall be the date
determined by clause 13.9.

 

(c)                        A Party may not withdraw if its Participating
Interest is subject to any Encumbrance that would continue to burden such
Participating Interest after such withdrawal unless the other Parties are
willing to accept the assignment upon withdrawal subject to the same (and then
only upon such terms and conditions as each other Party requires) and, if
necessary, any consents thereto are obtained.

 

(d)                       Notwithstanding any other clause of this Agreement, a
Party may not withdraw until the Minimum Work Obligations in respect of the then
current period under

 

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the PSC have been completed or discharged.

 

13.2              Complete withdrawal

 

(a)                      Within thirty (30) Days of receipt of each withdrawing
Party’s notification, each of the other Parties may also give notice that it
desires to withdraw from this Agreement and the PSC.  Should all Parties give
notice of withdrawal, the Parties shall proceed to abandon the Contract Area and
terminate the PSC and this Agreement.  If less than all of the Parties give such
notice of withdrawal, then the withdrawing Parties shall take all steps to
withdraw from the PSC and this Agreement on the earliest possible date and
execute and deliver all necessary instruments and documents to assign their
Participating Interest to the Parties which are not withdrawing, without any
compensation whatsoever, in accordance with the provisions of clause 13.6.

 

(b)                       Any Party withdrawing under clause 11.2 or under this
clause 13 shall withdraw from the entirety of the Contract Area, including all
Exploitation Areas and all Discoveries made prior to such withdrawal, and thus
abandon to the other Parties not joining in its withdrawal all its rights to the
production generated by operations after the effective date of such withdrawal
and all rights in associated Joint Property.

 

13.3              Rights of a withdrawing Party

 

A withdrawing Party shall have the right to receive its Entitlement produced
through the effective date of its withdrawal.  The withdrawing Party shall be
entitled to receive all information to which such Party is otherwise entitled
under this Agreement until the effective date of its withdrawal.  After giving
its notification of withdrawal, a Party shall not be entitled to vote on any
matters coming before the Operating Committee, other than matters for which such
Party has financial responsibility.

 

13.4              Obligations and liabilities of a withdrawing Party

 

(a)                       A withdrawing Party shall, following its notification
of withdrawal, remain liable only for its share of the following:

 

(i)                           costs of Joint Operations, and Exclusive
Operations in which it has agreed to participate, that were approved by the
Operating Committee or Consenting Parties as part of a Work Program and Budget
(including a multi-year Work Program and Budget under clause 6.10) or AFE prior
to such Party’s notification of withdrawal, regardless of when they are
incurred;

 

(ii)                        any Minimum Work Obligations for the current period
or phase of the PSC, and for any subsequent period or phase which has been
approved pursuant to clause 11.2 and with respect to which such Party has failed
to timely withdraw under clause 13.4(b);

 

(iii)                     expenditures described in clauses 4.2(b)(xiii) and
13.5 related to an emergency occurring prior to the effective date of a Party’s
withdrawal, regardless of when such expenditures are incurred; and

 

(iv)                    all other obligations and liabilities of the Parties or
Consenting Parties, as applicable, with respect to acts or omissions under this
Agreement prior to the effective date of such Party’s withdrawal for which such
Party would

 

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have been liable, had it not withdrawn from this Agreement.

 

The obligations and liabilities for which a withdrawing Party remains liable
shall specifically include its share of any costs of plugging and abandoning
wells or portions of wells or the removal and disposition of any PSC install
assets, both surface and subsea, in which it participated (or was required to
bear a share of the costs pursuant to clause 13.4(a)(i)) to the extent such
costs of plugging and abandoning or the removal and disposition of any PSC
install assets, both surface and subsea, are payable by the Parties under the
PSC.  Any Encumbrances which were placed on the withdrawing Party’s
Participating Interest prior to such Party’s withdrawal shall be fully satisfied
or released, at the withdrawing Party’s expense, prior to its withdrawal.  A
Party’s withdrawal shall not relieve it from liability to the non-withdrawing
Parties with respect to any obligations or liabilities attributable to the
withdrawing Party under this clause 13 merely because they are not identified or
identifiable at the time of withdrawal.

 

(b)                       Notwithstanding the foregoing, a Party shall not be
liable for any operations or expenditures it voted against (other than
operations and expenditures described in clause 13.4(a)(ii) or
clause 13.4(a)(iii)) if it sends notification of its withdrawal within five
(5) Days (or within twenty-four (24) hours for Urgent Operational Matters) of
the Operating Committee vote approving such operation or expenditure.  Likewise,
a Party voting against voluntarily entering into or extending of an Exploration
Period or Exploitation Period or any phase of the PSC or voluntarily extending
the PSC shall not be liable for the Minimum Work Obligations associated
therewith provided that it sends notification of its withdrawal within thirty
(30) Days of such vote pursuant to clause 11.2.

 

13.5              Emergency

 

If a well goes out of control or a fire, blow out, sabotage or other emergency
occurs prior to the effective date of a Party’s withdrawal, the withdrawing
Party shall remain liable for its Participating Interest share of the costs of
such emergency, regardless of when they are incurred.

 

13.6              Assignment

 

A withdrawing Party shall assign its Participating Interest free of cost to each
of the non-withdrawing Parties in the proportion which each of their
Participating Interests (prior to the withdrawal) bears to the total
Participating Interests of all the non-withdrawing Parties (prior to the
withdrawal), unless the non-withdrawing Parties agree otherwise.  The expenses
associated with the withdrawal and assignments shall be borne by the withdrawing
Party.

 

13.7              Approvals

 

A withdrawing Party shall promptly join in such actions as may be necessary or
desirable to obtain any Government approvals required in connection with the
withdrawal and assignments.  The non-withdrawing Parties shall use reasonable
endeavors to assist the withdrawing Party in obtaining such approvals.  Any
penalties or expenses incurred by the Parties in connection with such withdrawal
shall be borne by the withdrawing Party.  If the Government does not approve a
Party’s withdrawal and assignment to the other Parties, then the withdrawing
Party shall at its option either:

 

(a)                       retract its notice of withdrawal by notice to the
other Parties and remain a Party as

 

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if such notice of withdrawal had never been sent; or

 

(b)                       hold its Participating Interest in trust for the sole
and exclusive benefit of the non-withdrawing Parties with the right to be
reimbursed by the non-withdrawing Parties for any subsequent costs and
liabilities incurred by it for which it would not have been liable, had it
successfully withdrawn.

 

13.8              Security

 

A Party withdrawing from this Agreement and the PSC pursuant to this clause 13
shall provide Security satisfactory to the other Parties to satisfy any
obligations or liabilities for which the withdrawing Party remains liable in
accordance with clause 13.4, but which become due after its withdrawal,
including Security to cover the costs of an abandonment, if applicable.

 

13.9              Withdrawal or abandonment by all Parties

 

In the event all Parties decide to withdraw, the Parties agree that they shall
be bound by the terms and conditions of this Agreement for so long as may be
necessary to wind up the affairs of the Parties with the Government, to satisfy
any requirements of the Laws / Regulations and to facilitate the sale,
disposition or abandonment of property or interests held by the Joint Account,
all in accordance with clause 2.

 

14                        Relationship of Parties and tax

 

14.1              Relationship of Parties

 

The rights, duties, obligations and liabilities of the Parties under this
Agreement shall be individual, not joint or collective.  It is not the intention
of the Parties to create, nor shall this Agreement be deemed or construed to
create, a mining or other partnership, joint venture or association or (except
as explicitly provided in this Agreement) a trust.  This Agreement shall not be
deemed or construed to authorize any Party to act as an agent, servant or
employee for any other Party for any purpose whatsoever except as explicitly set
forth in this Agreement.  In their relations with each other under this
Agreement, the Parties shall not be considered fiduciaries except as expressly
provided in this Agreement.

 

14.2              Tax

 

Each Party shall be responsible for reporting and discharging its own tax
measured by the profit or income of the Party and the satisfaction of such
Party’s share of all contract obligations under the PSC and under this
Agreement.  Each Party shall protect, defend and indemnify each other Party from
any and all loss, cost or liability arising from the indemnifying Party’s
failure to report and discharge such taxes or satisfy such obligations.  The
Parties intend that all income and all tax benefits (including deductions,
depreciation, credits and capitalization) with respect to the expenditures made
by the Parties hereunder will be allocated by the Government tax authorities to
the Parties based on the share of each tax item actually received or borne by
each Party.  If such allocation is not accomplished for any non-United States
federal or state income tax purpose due to the application of the Laws /
Regulations or other Government action, the Parties shall attempt to adopt
mutually agreeable arrangements that will allow the Parties to achieve the
financial results intended.  Operator shall provide each Party, in a timely
manner and at such Party’s sole expense, with such information with respect to
Joint Operations as such Party may reasonably request for preparation of its tax
returns or responding to any audit or other tax proceeding.

 

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14.3              United States Tax Election

 

(a)                       If, for United States federal income tax purposes,
this Agreement and the operations under this Agreement are regarded as a
partnership and if the Parties have not agreed to form a tax partnership, each
U.S. Party elects to be excluded from the application of all of the provisions
of Subchapter “K”, Chapter 1, Subtitle “A” of the United States Internal Revenue
Code of 1986 (the Code), to the extent permitted and authorized by
Section 761(a) of the Code and the regulations promulgated under the Code. 
Operator, if it is a U.S. Party, is authorized and directed to sign and file for
each U.S. Party such evidence of this election as may be required by the
Internal Revenue Service, including all of the returns, statements, and data
required by the United States Treasury Regulations Sections 1.761-2 and
1.6031(a)-1(b)(5) and shall provide a copy of such filing to each U.S. Party. 
However, if Operator is not a U.S. Party, the Party who holds the greatest
Participating Interest among U.S. Parties shall fulfill the obligations of
Operator under this clause 14.3.  Should there be any requirement that any U.S.
Party give further evidence of this election, each U.S. Party shall execute such
documents and furnish such other evidence as may be required by the Internal
Revenue Service or as may be necessary to evidence this election.

 

(b)                       No Party shall give any notice or take any other
action inconsistent with the foregoing election.  If any income tax laws of any
state or other political subdivision of the United States or any future income
tax laws of the United States or any such political subdivision contain
provisions similar to those in Subchapter “K”, Chapter 1, Subtitle “A” of the
Code, under which an election similar to that provided by Section 761(a) of the
Code is permitted, each U.S. Party shall make such election as may be permitted
or required by such laws.  In making the foregoing election or elections, each
U.S. Party states that the income derived by it from operations under this
Agreement can be adequately determined without the computation of partnership
taxable income.

 

(c)                        Unless approved by every Non-U.S. Party, no activity
shall be conducted under this Agreement that would cause any Non-U.S. Party to
be deemed to be engaged in a trade or business within the United States under
United States income tax laws and regulations.

 

(d)                       A Non-U.S. Party shall not be required to do any act
or sign any instrument that might subject it to the taxation jurisdiction of the
United States.

 

(e)                        For the purposes of this clause 14.3, (i) U.S. Party
shall mean any Party that is subject to the income tax law of the United States
in respect with operations under this Agreement and (ii) Non-U.S. Party shall
mean any Party that is not subject to such income tax law.

 

15                        Venture Information, confidentiality, intellectual
property

 

15.1              Venture Information

 

(a)                       Except as otherwise provided in this clause 15.1 or in
clauses 4.4 and 8.4(a), each Party will be entitled to receive all Venture
Information related to operations in which such party is a participant.

 

For purposes of this Agreement:

 

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Venture Information means any information and results developed or acquired as a
result of Joint Operations and shall be Joint Property, unless provided
otherwise in accordance with this Agreement and the PSC.

 

(b)                       Each Party shall have the right to use all Venture
Information it receives without accounting to any other Party (without
prejudice, and subject, to the Parties’ respective rights under clause 12.5),
subject to any applicable patents and any limitations set forth in this
Agreement and the PSC.  For purposes of this clause 15.1, such right to use
shall include, the rights to copy, prepare derivative works, disclose, license,
distribute, and sell.

 

(c)                        Each Party may, subject to any applicable
restrictions and limitations set forth in the PSC, extend the right to use
Venture Information to each of its Affiliates which are obligated to terms not
less restrictive than this clause 15.1.

 

(d)                       The acquisition or development of Venture Information
under terms other than as specified in this clause 15.1 shall require the
approval of the Operating Committee.  The request for approval submitted by a
Party shall be accompanied by a description of, and summary of the use and
disclosure restrictions which would be applicable to, the Venture Information,
and any such Party will be obligated to use all reasonable efforts to arrange
for rights to use which are not less restrictive than specified in this
clause 15.1.

 

(e)                        All Venture Information received by a Party under
this Agreement is received on an “as is” basis without warranties, express or
implied, of any kind.  Any use of such Venture Information by a Party shall be
at such Party’s sole risk.

 

15.2              Confidentiality

 

(a)                       Subject to the provisions of the PSC and this
clause 15.2, the Parties agree that all information in relation with Joint
Operations or Exclusive Operations shall be considered confidential and shall be
kept confidential and not be disclosed during the term of the PSC (or for such
period thereafter if so provided in the PSC), except:

 

(i)                           to an Affiliate pursuant to clause 15.1(c);

 

(ii)                        to a Government or other entity when required by the
PSC;

 

(iii)                     to the extent such information is required to be
furnished in compliance with the applicable Laws / Regulations, or pursuant to
any legal proceedings or because of any order of any court binding upon a Party;

 

(iv)                    to prospective or actual attorneys engaged by any Party
where disclosure of such information is essential to such attorney’s work for
such Party;

 

(v)                       to prospective or actual contractors and consultants
engaged by any Party where disclosure of such information is essential to such
contractor’s or consultant’s work for such Party;

 

(vi)                    to a bona fide prospective transferee of a Party’s
Participating Interest to the extent appropriate in order to allow the
assessment of such Participating Interest (including an entity with whom a Party
and/or its Affiliates are conducting bona fide negotiations directed toward a
merger, consolidation or

 

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the sale of a majority of its or an Affiliate’s shares);

 

(vii)                 to a bank or other financial institution to the extent
appropriate to a Party arranging for funding;

 

(viii)              to the extent such information must be disclosed pursuant to
any rules or requirements of any Government or stock exchange having
jurisdiction over such Party, or its Affiliates; provided that if any Party
desires to disclose information in an annual or periodic report to its or its
Affiliates’ shareholders and to the public and such disclosure is not required
pursuant to any rules or requirements of any Government or stock exchange, then
such Party shall comply with clause 19.3;

 

(ix)                    to an entity providing insurance in respect of the
Party’s interest in the PSC or operations conducted thereunder;

 

(x)                       to its respective employees for the purposes of Joint
Operations or Exclusive Operations as the case may be, subject to each Party
taking customary precautions to ensure such information is kept confidential;
and

 

(xi)                    any information which, through no fault of a Party,
becomes a part of the public domain.

 

(b)                       Disclosure as pursuant to clauses 15.2(a)(v), (vi),
(vii), and (ix) shall not be made unless prior to such disclosure the disclosing
Party has obtained a written undertaking from the recipient party to keep the
information strictly confidential for the duration of the applicable undertaking
of confidentiality under the PSC and to use the information for the sole purpose
described in clauses 15.2(a)(v), (vi), (vii), and (ix), whichever is applicable,
with respect to the disclosing Party.

 

15.3              Intellectual property

 

(a)                       Subject to clauses 15.3(c) and 15.5 and unless
provided otherwise in the PSC, all intellectual property rights in the Venture
Information shall be Joint Property.  Each Party and its Affiliates have the
right to use all such intellectual property rights in their own operations
(including joint operations or a production sharing arrangement in which the
party or its Affiliates has an ownership or equity interest) without the
approval of any other Party.  Decisions regarding obtaining, maintaining and
licensing such intellectual property rights shall be made by the Operating
Committee, and the costs thereof shall be for the Joint Account.  Upon unanimous
consent of the Operating Committee as to ownership, licensing rights, and income
distribution, the ownership of intellectual property rights in the Venture
Information may be assigned to the Operator or to a Party.

 

(b)                       Nothing in this Agreement shall be deemed to require a
Party to:

 

(i)                           divulge proprietary technology to any of the other
Parties; or

 

(ii)                        grant a license or other rights under any
intellectual property rights owned or controlled by such Party or its Affiliates
to any of the other Parties.

 

(c)                        If a Party or an Affiliate of a Party has proprietary
technology applicable to activities carried out under this Agreement which the
Party or its Affiliate desires to make available on terms and conditions other
than as specified in clause 15.3(a),

 

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the Party or Affiliate may, with the prior approval of the Operating Committee,
make the proprietary technology available on terms to be agreed.  If the
proprietary technology is so made available, then any inventions, discoveries,
or improvements which relate to such proprietary technology and which result
from Joint Account expenditures shall belong to such Party or Affiliate.  In
such case, each other Party shall have a perpetual, royalty-free, irrevocable
license to practice such inventions, discoveries, or improvements, but only in
connection with the Joint Operations.

 

(d)                       Subject to clause 4.6(b), all costs and expenses of
defending, settling or otherwise handling any claim which is based on the actual
or alleged infringement of any intellectual property right shall be for the
account of the operation from which the claim arose, whether Joint Operations or
Exclusive Operations,

 

15.4              Continuing obligations

 

Any Party ceasing to own a Participating Interest during the term of this
Agreement shall nonetheless remain bound by the obligations of confidentiality
in clause 15.2, and any disputes in relation thereto shall be resolved in
accordance with clause 18.2.

 

15.5              Trades

 

Operator may, with approval of the Operating Committee, make well trades and
data trades for the benefit of the Parties, with any data so obtained to be
furnished to all Parties who participated in the cost of the data that was
traded.  Operator shall cause any third party to such trade to enter into an
undertaking to keep the traded data confidential.

 

16                        Force Majeure

 

16.1              Obligations

 

If as a result of Force Majeure any Party is rendered unable, wholly or in part,
to carry out its obligations under this Agreement, other than the obligation to
pay any amounts due or to furnish Security, then the obligations of the Party
giving such notice, so far as and to the extent that the obligations are
affected by such Force Majeure, shall be suspended during the continuance of any
inability so caused and for such reasonable period thereafter as may be
necessary for the Party to put itself in the same position that it occupied
prior to the Force Majeure, but for no longer period.  The Party claiming Force
Majeure shall notify

 

the other Parties of the Force Majeure as soon as practicable after the
occurrence of the facts relied on and shall keep all Parties informed of all
significant developments.  Such notice shall give reasonably full particulars of
the Force Majeure and also estimate the period of time which the Party will
probably require to remedy the Force Majeure.  The affected Party shall use all
reasonable diligence to remove or overcome the Force Majeure situation as
quickly as possible in an economic manner but shall not be obligated to settle
any labor dispute except on terms acceptable to it, and all such disputes shall
be handled within the sole discretion of the affected Party.

 

16.2              Definition of Force Majeure

 

For the purposes of this Agreement, Force Majeure shall have the same meaning as
is set out in the PSC.

 

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17                        Notices

 

(a)                       Except as otherwise specifically provided, all notices
authorized or required between the Parties by any of the provisions of this
Agreement shall be in writing (in English) and delivered in person or by courier
service or by any electronic means of transmitting written communications which
provides written confirmation of complete transmission, and addressed to such
Parties, or by e-mail at the applicable e-mail address provided below.

 

(b)                       Oral communication does not constitute notice for
purposes of this Agreement, and telephone numbers for the Parties are listed
below as a matter of convenience only.

 

(c)                        A notice given under any provision of this Agreement
shall be deemed delivered only when received by the Party to whom such notice is
directed, and the time for such Party to deliver any notice in response to such
originating notice shall run from the date the originating notice is received.

 

Received for purposes of this clause 17 shall mean actual delivery of the notice
to the address of the Party specified hereunder or to be thereafter notified in
accordance with this clause 17.

 

(d)                       Each Party shall have the right to change its address
at any time and/or designate that copies of all such notices be directed to
another person at another address, by giving written notice thereof to all other
Parties.

 

Name:

SCS Corporation Ltd.

South Atlantic Petroleum Limited

 

 

 

Address:

12012 Wickchester Lane, Suite 475 Houston, TX 77079

12th Floor, South Atlantic Petroleum Towers 1, Adeola Odeku Street Victoria
Island, Lagos, Nigeria

 

 

 

Attention:

Mr. Ray Leonard

Dale Rollins

 

 

 

Email:

rleonard@hyperdynamics.com

Dale.Rollins@sapetro.com

 

 

 

Telephone:

+1.713.353.9400

 

With a copy to:

+234 1 270 1906

 

With a copy to:

 

 

 

Address:

[ · ]

[ · ]

Attention:

[ · ]

[ · ]

Facsimile:

[ · ]

[ · ]

Email:

[ · ]

[ · ]

Telephone:

[ · ]

[ · ]

 

18                        Applicable law, dispute resolution and waiver of
sovereign immunity

 

18.1              Applicable law

 

This Agreement and any non-contractual obligations arising out of or in
connection with it shall be governed by the substantive laws of England and
Wales, exclusive of any conflicts of law principles that could require the
application of the laws of any other jurisdiction, including the resolution of
all Disputes between or among Parties.

 

18.2              Dispute resolution

 

This clause 18.2 shall control the resolution of a Dispute between the Parties,
and the Parties waive any right to resolve such a Dispute under the PSC,
recognizing that any dispute mechanism in the PSC is solely for disputes between
the Parties on the one hand

 

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and the Government on the other hand.

 

(a)                       Notification:  A Party who desires to submit a Dispute
for resolution shall commence the dispute resolution process by providing the
other parties to the Dispute written notice of the Dispute (Notice of Dispute). 
The Notice of Dispute shall identify the parties to the Dispute and contain a
brief statement of the nature of the Dispute and the relief requested.  The
submission of a Notice of Dispute shall toll any applicable statutes of
limitation related to the Dispute, pending the conclusion or abandonment of
dispute resolution proceedings under this clause 18.

 

(b)                       Negotiations:  The parties to the Dispute with a value
under one million U.S. Dollars (US$1,000,000) shall seek to resolve such Dispute
by negotiation between Senior Executives.  A Senior Executive means any
individual who has authority to negotiate the settlement of the Dispute for a
Party.  Within ten  (10) Days after the date of the receipt by each party to the
Dispute of the Notice of Dispute (which notice shall request negotiations among
Senior Executives), the Senior Executives representing the parties to such
Dispute shall meet at a mutually acceptable time and place to exchange relevant
information in an attempt to resolve the Dispute.  If a Senior Executive intends
to be accompanied at the meeting by an attorney, each other party’s Senior
Executive shall be given written notice of such intention at least three
(3) Days in advance and may also be accompanied at the meeting by an attorney. 
If the Senior Executives are not able to reach a compromise, then either party
may refer the Dispute to arbitration under clause 18.2(c) below.

 

(c)                        Arbitration:  Any Dispute not finally resolved by
alternative dispute resolution procedures set forth in clause 18.2(b), or with a
value of one million U.S. Dollars (US$1,000,000) or more, shall be exclusively
and definitively resolved through final and binding arbitration, it being the
intention of the Parties that this is a broad form arbitration agreement
designed to encompass all possible disputes.

 

(i)                           Rules:  The arbitration shall be conducted in
accordance with the following arbitration rules (as then in effect) (the Rules):
Arbitration Rules of the London Court of International Arbitration (LCIA).

 

(ii)                        Number of arbitrators:  The arbitration shall be
conducted by three arbitrators, unless all parties to the Dispute agree to a
sole arbitrator within thirty (30) Days after the filing of the arbitration. 
For greater certainty, for purposes of this clause 18.2(c), the filing of the
arbitration means the date on which the claimant’s request for arbitration is
received by the other parties to the Dispute.

 

(iii)                     Method of appointment of the arbitrators:  If the
arbitration is to be conducted by a sole arbitrator, then the arbitrator will be
jointly selected by the parties to the Dispute.  If the parties to the Dispute
fail to agree on the arbitrator within thirty (30) Days after the filing of the
arbitration, then the LCIA shall appoint the arbitrator.

 

(iv)                    If the arbitration is to be conducted by three
arbitrators and there are only two parties to the Dispute, then each party to
the Dispute shall appoint one arbitrator within thirty (30) Days of the filing
of the arbitration, and the two arbitrators so appointed shall select the
presiding arbitrator within thirty (30) Days after the latter of the two
arbitrators has been appointed by the parties to the Dispute.  If a party to the
Dispute fails to appoint its party-appointed

 

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arbitrator or if the two party-appointed arbitrators cannot reach an agreement
on the presiding arbitrator within the applicable time period, then the LCIA
shall appoint the remainder of the three arbitrators not yet appointed.

 

(v)                       If the arbitration is to be conducted by three
arbitrators and there are more than two parties to the Dispute, then within
thirty (30) Days of the filing of the arbitration, all claimants shall jointly
appoint one arbitrator and all respondents shall jointly appoint one arbitrator,
and the two arbitrators so appointed shall select the presiding arbitrator
within thirty (30) Days after the latter of the two arbitrators has been
appointed by the parties to the Dispute.  If either all claimants or all
respondents fail to make a joint appointment of an arbitrator or if the
party-appointed arbitrators cannot reach an agreement on the presiding
arbitrator within the applicable time period, then the LCIA shall appoint the
remainder of the three arbitrators not yet appointed.

 

(vi)                    Consolidation:  If the Parties initiate multiple
arbitration proceedings, the subject matters of which are related by common
questions of law or fact and which could result in conflicting awards or
obligations, then all such proceedings may be consolidated into a single
arbitral proceeding.

 

(vii)                 Place of arbitration:  Unless otherwise agreed by all
parties to the Dispute, the place of arbitration shall be London, England.

 

(viii)              Language:  The arbitration proceedings shall be conducted in
the English language and the arbitrator(s) shall be fluent in the English
language.

 

(ix)                    Entry of judgment:  The award of the arbitral tribunal
shall be final and binding.  Judgment on the award of the arbitral tribunal may
be entered and enforced by any court of competent jurisdiction.

 

(x)                       Notice:  All notices required for any arbitration
proceeding shall be deemed properly given if sent in accordance with clause 17.

 

(xi)                    Qualifications and conduct of the arbitrators:  All
arbitrators shall be and remain at all times wholly impartial, and, once
appointed, no arbitrator shall have any ex parte communications with any of the
parties to the Dispute concerning the arbitration or the underlying Dispute
other than communications directly concerning the selection of the presiding
arbitrator, where applicable.

 

(xii)                 Interim measures:  Notwithstanding any requirements for
alternative dispute resolution procedures as set forth in clauses 18.2(b) and
(c), any party to the Dispute may apply to a court for interim measures:

 

(A)                     prior to the constitution of the arbitral tribunal (and
thereafter as necessary to enforce the arbitral tribunal’s rulings); or

 

(B)                     in the absence of the jurisdiction of the arbitral
tribunal to rule on interim measures in a given jurisdiction.

 

(xiii)              The Parties agree that seeking and obtaining such interim
measures shall not waive the right to arbitration.  The arbitrators (or in an
emergency the presiding arbitrator acting alone in the event one or more of the
other

 

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arbitrators is unable to be involved in a timely fashion) may grant interim
measures including injunctions, attachments and conservation orders in
appropriate circumstances, which measures may be immediately enforced by court
order.  Hearings on requests for interim measures may be held in person, by
telephone, by video conference or by other means that permit the parties to the
Dispute to present evidence and arguments.

 

(xiv)             Costs and attorneys’ fees:  All costs and expenses of the
arbitrators and the arbitral institution shall be borne by the parties equally;
each party shall bear its own costs and expenses in the preparation and
presentation of its case, including but not limited to attorneys’ fees, expert
fees and expenses, and witnesses expenses.

 

(xv)                Interest:  The award shall include interest, as determined
by the arbitral award, from the date of any default or other breach of this
Agreement until the arbitral award is paid in full Interest shall be awarded at
the Agreed Interest Rate.

 

(xvi)             Currency of award:  The arbitral award shall be made and
payable in United States dollars, free of any tax or other deduction.

 

(xvii)          Exemplary damages:  The Parties waive their rights to claim or
recover, and it is expressly agreed that the arbitrators shall have no authority
to award special, indirect, consequential, exemplary or punitive damages.

 

(xviii)       Waiver of challenge to decision or award:  To the extent permitted
by Law / Regulation, any right to appeal or challenge any arbitral decision or
award, or to oppose enforcement of or execution upon any such decision or award
before a court or any Government, is hereby waived by the Parties except with
respect to the limited grounds for modification or non-enforcement provided by
any applicable arbitration statute or treaty.

 

(d)                       Confidentiality:  All negotiations, mediation,
arbitration, and expert determinations relating to a Dispute (including a
settlement resulting from negotiation or mediation, an arbitral award, documents
exchanged or produced during a mediation or arbitration proceeding, and
memorials, briefs or other documents prepared for the arbitration) are
confidential and may not be disclosed by the Parties, their employees, officers,
directors, counsel, consultants, and expert witnesses, except (in accordance
with clause 15.2) to the extent necessary to enforce this clause 18 or any
arbitration award, to enforce other rights of a Party, or as required by Law /
Regulation; provided, however, that breach of this confidentiality provision
shall not void any settlement, expert determination or award.

 

18.3              Expert determination

 

(a)                       This clause 18.3 is the exclusive method to resolve
valuation determinations under clauses 8.4, 12.2 and 12.3 and the Parties hereby
agree that such decision shall be conducted expeditiously by an independent
expert selected unanimously by the parties to the Dispute.  The expert is not an
arbitrator of the Dispute and shall not be deemed to be acting in an arbitral
capacity.

 

(b)                       If the parties to the Dispute are unable to agree upon
an expert within ten (10) Days after receipt of the notice of request for an
expert determination, then, upon the

 

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request of any of the parties to the Dispute, the International Centre for
Expertise of the International Chamber of Commerce (ICC) shall appoint such
expert with at least fifteen (15) years’ experience in the valuation of
deepwater oil and gas fields in excess of one hundred and fifty million
(150,000,000) barrels expected ultimate recovery and such expert shall
administer such expert determination through the ICC’s Rules for Expertise,
unless challenged in an arbitration pursuant to clause 18.2(c) within thirty
(30) Days after the date the expert’s final decision is received by the parties
to the Dispute and until replaced by such subsequent arbitral award.  The only
basis upon which the expert’s final decision may be challenged is a claim that
the procedure set forth in this clause 18.3 was not complied with in a material
respect.  The amount of the valuation determined by the expert will not be
subject to challenge.

 

(c)                        The expert, once appointed, shall have no ex parte
communications with any of the parties to the Dispute concerning the expert
determination or the underlying Dispute.

 

(d)                       All Parties agree to cooperate fully in the
expeditious conduct of such expert determination and to provide the expert with
access to all facilities, books, records, documents, information and personnel
necessary to make a fully informed decision in an expeditious manner.

 

(e)                        Within thirty (30) Days of the expert’s appointment,
the expert shall receive a brief from each of the Parties which explains fully
such Party’s position and valuation.

 

(f)                         The expert shall endeavor to resolve the Dispute
within thirty (30) Days (but no later than sixty (60) Days) after the Parties’
submission of their briefs, taking into account the circumstances requiring an
expeditious resolution of the matter in dispute.  The expert’s decision shall be
final and binding on the parties to the Dispute.

 

(g)                        The expert shall not be appointed to act as an
arbitrator or as adviser to the parties to any Dispute without the written
consent of the parties to such Dispute.

 

18.4              Waiver of immunity from jurisdiction

 

Any Party that now or hereafter has a right to claim immunity from jurisdiction
for itself or any of its assets hereby waives any such immunity to the fullest
extent permitted by the Laws / Regulations of any applicable jurisdiction.  This
waiver includes immunity from:

 

(a)                       any expert determination, mediation, or arbitration
proceeding commenced pursuant to this Agreement;

 

(b)                       any judicial, administrative or other proceedings to
aid the expert determination, mediation, or arbitration commenced pursuant to
this Agreement; and

 

(c)                        any effort to confirm, enforce, or execute any
decision, settlement, award, judgment, service of process, execution order or
attachment (including pre-judgment attachment) that results from an expert
determination, mediation, arbitration or any judicial or administrative
proceedings commenced pursuant to this Agreement.

 

Each Party acknowledges that its rights and obligations hereunder are of a
commercial and not a governmental nature.

 

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19                        General provisions

 

19.1              Conduct of the Parties

 

(a)                       Each Party warrants that it and its Affiliates have
not made, offered, or authorized and will not make, offer, or authorize with
respect to the matters which are the subject of this Agreement, any payment,
gift, promise or other advantage, whether directly or through any other person
or entity, to or for the use or benefit of any public official (i.e., any person
holding a legislative, administrative or judicial office, including any person
employed by or acting on behalf of a public agency, a public enterprise or a
public international organization) or any political party or political party
official or candidate for office, where such payment, gift, promise or advantage
would violate:

 

(i)                           the applicable Laws / Regulations of the Republic
of Guinea;

 

(ii)                        the Laws / Regulations of the country of
incorporation of such Party or such Party’s ultimate parent company and of the
principal place of business of such ultimate parent company;

 

(iii)                     the United Kingdom’s anti-corruption Laws /
Regulations, including the Anti-Bribery Act 2010 and the Anti-Terrorism Crime &
Security Act 2001;

 

(iv)                    the U.S. Foreign Corrupt Practices Act; or

 

(v)                       the principles described in the Convention on
Combating Bribery of Foreign Public Officials in International Business
Transactions, signed in Paris on December 17, 1997, which entered into force on
February 15, 1999, and the Convention’s Commentaries.

 

(b)                       Each Party shall defend, indemnify and hold the other
Parties harmless from and against any and all claims, damages, losses,
penalties, costs and expenses arising from or related to, any breach by such
first Party of such warranty.  Such indemnity obligation shall survive
termination or expiration of this Agreement.  Each Party shall promptly:

 

(i)                           respond in reasonable detail to any notice from
any other Party reasonably connected with the above-stated warranty; and

 

(ii)                        furnish applicable documentary support for such
response upon request from such other Party.  In the event of an allegation or
confirmation of breach of clause 19.1(c), upon reasonable prior written notice,
each Party shall be permitted to access and audit the books and records of any
other Party reasonably related to compliance with this clause; provided,
however, that any documentary support provided hereunder or audit conducted
hereunder shall not include any documents or information which are subject to
attorney-client privilege or which such Party may not disclose under the terms
of any third party agreement.

 

(c)                        Each Party agrees to:

 

(i)                           maintain adequate internal controls;

 

(ii)                        properly record and report all transactions; and

 

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(iii)                     comply with the Laws / Regulations applicable to it.

 

Each Party must rely on the other Parties’ system of internal controls, and on
the adequacy of full disclosure of the facts, and of financial and other data
regarding the Joint Operations undertaken under this Agreement.  No Party is in
any way authorized to take any action on behalf of another Party that would
result in an inadequate or inaccurate recording and reporting of assets,
liabilities or any other transaction, or which would put such Party in violation
of its obligations under the l Laws / Regulations applicable to the operations
under this Agreement.

 

(d)                       In connection with contracts for services and supplies
for Joint Operations, Operator, and any Non-Operator that engages or enters into
an agreement with a third party for services for its own account, shall obtain
express anticorruption provisions, including where appropriate in such Party’s
opinion, applicable anticorruption legislation provisions, audit rights, and
termination provisions, in any such contract.

 

19.2              Conflicts of interest

 

(a)                       The Non-Operators recognize that Operator and its
Affiliates are involved in Hydrocarbons exploration, development and production
operations in addition to those contemplated by this Agreement (Operator Other
Operations).  As such, it may be the case that suppliers, customers and other
organizations and individuals with whom Operator does business or seeks to do
business in connection with the activities contemplated by this Agreement may
also do business with Operator in Operator Other Operations.  Subject to clause
19.2(b), Operator undertakes to avoid any conflict of interest between its own
interests (including the interests of Affiliates) and the interests of the other
Parties in dealing with suppliers, customers and all other organizations or
individuals doing or seeking to do business with the Parties in connection with
activities contemplated under this Agreement.  If a Non-Operator believes that
such an conflict of interest exists, such Non-Operator shall provide written
notice to the Operator detailing the alleged conflict of interest.  If such
Non-Operator establishes that it is highly and substantially more probable to be
true than not that such conflict of interest exists, Operator shall have ninety
(90) Days to eliminate such conflict of interest in a manner reasonably
satisfactory to such Non-Operator.

 

(b)                       The provisions of clause 19.2(a):

 

(i)                           shall not apply to:

 

(A)                     Operator’s performance which is in accordance with the
local preference laws or policies of the Government; or

 

(B)                     Operator’s acquisition of products or services from an
Affiliate, or the sale thereof to an Affiliate, made in accordance with the
terms of this Agreement; and

 

(ii)                        shall not be deemed in any way or for any purpose to
create any form of partnership or to impose any tortious or fiduciary duty on
the Operator and no Party shall have the power, authority or right to assume or
impose any such obligations or liability with respect to clause 19.2(a) by, for
or on behalf of the Operator without the prior written approval of the Operator.

 

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Unless otherwise agreed, the Parties and their Affiliates are free to engage or
invest (directly or indirectly) in an unlimited number of activities or
businesses, any one or more of which may be related to or in competition with
the business activities contemplated under this Agreement, without having or
incurring any obligation to offer any interest in such business activities to
any Party.

 

19.3              Public announcements

 

(a)                       Operator shall be responsible for the preparation and
release of all public announcements and statements regarding this Agreement or
the Joint Operations; provided that no public announcement or statement shall be
issued or made unless, prior to its release, all the Parties have been furnished
with a copy of such statement or announcement and the approval of Parties which
are not Affiliates of Operator holding fifty percent (50%) or more of the
Participating Interests not held by Operator or its Affiliates has been
obtained.  Where a public announcement or statement becomes necessary or
desirable because of danger to or loss of life, damage to property or pollution
as a result of activities arising under this Agreement, Operator is authorized
to issue and make such announcement or statement without prior approval of the
Parties, but shall promptly furnish all the Parties with a copy of such
announcement or statement.

 

(b)                       If a Party wishes to issue or make any public
announcement or statement regarding this Agreement or the Joint Operations, it
shall not do so unless, prior to the release of the public announcement or
statement, such Party furnishes all the Parties with a copy of such announcement
or statement, and obtains the approval of Parties which are not Affiliates of
the Party or Parties making the public announcement or statement holding fifty
percent (50%) or more of the Participating Interests not held by such announcing
Party or its Affiliates; provided that:

 

(i)                           notwithstanding any failure to obtain such
approval, no Party shall be prohibited from issuing or making any such public
announcement or statement if it is necessary to do so in order to comply with
the applicable Laws / Regulations of any Government, legal proceedings or stock
exchange having jurisdiction over such Party or its Affiliates as set forth in
clause 15.2 (after giving five (5) Days’ prior notice thereof to the other
Party, to the extent practicable); and,

 

(ii)                        any such required public announcement shall include
only that portion of information which the disclosing Party is legally required
to disclose and the disclosing Party shall provide to the other Party a copy of
such announcement pursuant to this clause.

 

(c)                        The Parties will use their reasonable endeavors to
develop a communications protocol for public announcements reporting the results
of drilling operations undertaken pursuant to this Agreement.

 

19.4              Successors and assigns

 

Subject to the limitations on Transfer contained in clause 12, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
the Parties.

 

19.5              Waiver

 

No waiver by any Party of any one or more defaults by another Party in the
performance

 

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of any provision of this Agreement shall operate or be construed as a waiver of
any future default or defaults by the same Party, whether of a like or of a
different character.  Except as expressly provided in this Agreement no Party
shall be deemed to have waived, released or modified any of its rights under
this Agreement unless such Party has expressly stated, in writing, that it does
waive, release or modify such right.

 

19.6              No third party beneficiaries

 

Except as provided under clause 4.6(b), a person who is not a party to this
Agreement shall have no rights under The Contracts (Rights of Third Parties) Act
1999 (the Act), and the interpretation of this Agreement shall exclude any
rights under legislative provisions conferring rights under a contract to
persons not a party to that contract.

 

19.7              Joint preparation

 

Each provision of this Agreement shall be construed as though all Parties
participated equally in the drafting of the same.  Consequently, the Parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting party shall not be applicable to this Agreement.

 

19.8              Severance of invalid provisions

 

If and for so long as any provision of this Agreement shall be deemed to be
judged invalid for any reason whatsoever, such invalidity shall not affect the
validity or operation of any other provision of this Agreement except only
insofar as shall be necessary to give effect to the construction of such
invalidity, and any such invalid provision shall be deemed severed from this
Agreement without affecting the validity of the balance of this Agreement.

 

19.9              Modifications

 

Except as is provided in clauses 11.2(b) and 19.8, there shall be no
modification of this Agreement or the PSC except by written consent of all
Parties.

 

19.10       Counterpart execution

 

This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed an original Agreement for all purposes; provided
that no Party shall be bound to this Agreement unless and until all Parties have
executed a counterpart.  For purposes of assembling all counterparts into one
document, Operator is authorized to detach the signature page from one or more
counterparts and, after signature thereof by the respective Party, attach each
signed signature page to a counterpart.

 

19.11       Entirety

 

Each of the Parties to this Agreement confirms that this Agreement, represents
the entire understanding, and constitutes the whole agreement, in relation to
its subject matter and supersedes any previous agreement between the Parties
with respect thereto and, without prejudice to the generality of the foregoing,
excludes any warranty, condition or other undertaking implied at law or by
custom, usage or course of dealing.

 

19.12       Priority with respect to the PSC

 

To the extent of any conflict between terms of this Agreement and the terms of
the PSC

 

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regarding the rights and obligations of the Parties as between themselves, the
terms of this Agreement shall control; it being recognized that the intent of
the PSC is to govern the relationship between the Parties on the one hand and
the Government on the other hand.

 

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Schedule 1                —

Dictionary and Interpretation Rules

 

1                               Dictionary

 

As used in this Agreement, the following words and terms shall have the meaning
ascribed to them below:

 

Accounting Procedure means the rules, provisions and conditions contained in
Exhibit A.

 

Acquired Interest has the meaning provided in clause 12.5.

 

Acquiring Party has the meaning provided in clause 8.4.

 

Act has the meaning provided in clause 19.6.

 

AFE means an authorization for expenditure pursuant to clause 6.12.

 

Affiliate means a legal entity which Controls, or is Controlled by, or which is
Controlled by an entity which Controls, a Party.

 

Agreed Interest Rate means interest compounded on a monthly basis, at the rate
per annum equal to nine percent (9%), applicable on the first Business Day prior
to the due date of payment and thereafter on the first Business Day of each
succeeding calendar month.  If the aforesaid rate is contrary to any applicable
usury Law / Regulation, the rate of interest to be charged shall be the maximum
rate permitted by such applicable Law / Regulation.

 

Agreement means this agreement, together with the Exhibits attached to this
agreement, and any extension, renewal or amendment hereof agreed to in writing
by the Parties.

 

AIPN Model Form means the 2012 version of the Model International Joint
Operating Agreement prepared by the Association of International Petroleum
Negotiators.

 

AIPN Model Form Lifting Procedure means the lifting procedure at Exhibit D of
the AIPN Model Form.

 

Amount in Default has the meaning provided in clause 8.3.

 

AMI Acquiring Party has the meaning provided in clause 12.5.

 

AMI Area means the Contract Area covered by the PSC as of the Effective Date.

 

AMI Consideration has the meaning provided in clause 12.5.

 

AMI Share means the ratio of the Offeree’s Participating Interest to the total 
Participating Interests of the Parties (including the AMI Acquiring Party)
acquiring a portion of the Acquired Interest under clause 12.5.

 

AMI Term means the three (3) year period immediately following the Effective
Date.

 

Anti-Bribery Laws and Obligations means for each Party: (a) the applicable laws
of the Republic of Guinea; (b) the anti-corruption laws of any Home Country
Government

 

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Authority applying to a Party or any Affiliate of a Party, (c) the U.S. Foreign
Corrupt Practices Act; (d) the OECD Principles; (e); the U.K.  Bribery Act 2010
and (f) any other implementing legislation with respect to (a), (b), (c),
(d) and (e) above.

 

Appraisal Well means any well (other than an Exploration Well or a Development
Well) whose purpose at the time of commencement of drilling such well is to
appraise the extent or the volume of Hydrocarbon reserves contained in an
existing Discovery.

 

Appraised Value has the meaning provided in clause 8.4.

 

Business Day means a Day on which the banks in Houston, Texas are customarily
open for business.

 

Buy-Out Option has the meaning provided in clause 8.4.

 

Buy-Out Option Notice has the meaning provided in clause 8.4.

 

Buy-Out Option Price means the price to be paid to a Defaulting Party in
connection with the exercise of the Buy-Out Option, which price is to be
determined pursuant to clause 8.4(g).

 

Calendar Quarter means a period of three (3) months commencing with January 1
and ending on the following March 31, a period of three (3) months commencing
with April 1 and ending on the following June 30, a period of three (3) months
commencing with July 1 and ending on the following September 30, or a period of
three (3) months commencing with October 1 and ending on the following
December 31, all in accordance with the Gregorian Calendar.

 

Calendar Year means a period of twelve (12) months commencing with January 1 and
ending on the following December 31 according to the Gregorian Calendar.

 

Cash Transfer has the meaning provided in clause 12.1.

 

Cash Value has the meaning provided in clause 12.1.

 

Change in Control has the meaning provided in clause 12.1.

 

C-I-C Notice has the meaning provided in clause 12.3(c).

 

Code has the meaning provided in clause 14.3(a).

 

Commercial Discovery means any Discovery that is sufficient to entitle the
Parties to apply for authorization from the Government to commence exploitation.

 

Completion means an operation intended to complete a well through the Christmas
tree as a producer of Hydrocarbons in one or more Zones, including the setting
of production casing, perforating, stimulating the well and production Testing
conducted in such operation.  Complete and other derivatives shall be construed
accordingly.

 

Consenting Party means a Party who agrees to participate in and pay its share of
the cost of an Exclusive Operation.

 

Consequential Loss means any loss, damages, costs, expenses or liabilities
caused (directly or indirectly) by any of the following arising out of, relating
to, or connected with this Agreement or the operations carried out under this
Agreement: (i) reservoir or

 

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formation damage; (ii) inability to produce, use or dispose of Hydrocarbons;
(iii) loss or deferment of income; (iv) punitive damages; or (v) other indirect
damages or losses whether or not similar to the foregoing.

 

Contract Area means as of the Effective Date the area that is described in
Exhibit B.  The perimeter or perimeters of the Contract Area shall correspond to
that area covered by the PSC, as such area may vary from time to time during the
term of validity of the PSC.

 

Control means the ownership directly or indirectly of fifty (50) percent or more
of the voting rights in a legal entity.  Controls, Controlled by and other
derivatives shall be construed accordingly.

 

Crude Oil means all crude oils, condensates, and natural gas liquids at
atmospheric pressure which are subject to and covered by the PSC.

 

Day means a calendar Day unless otherwise specifically provided.

 

Decommissioning means all work required for the abandonment of Joint Property in
accordance with good oil field practice and applicable legal obligations,
including, where required, plugging of wells, abandonment, disposal, demolition,
removal and/or cleanup of facilities, and any necessary site remediation and
restoration.

 

Decommissioning Costs means the costs of Decommissioning.

 

Decommissioning Work Program and Budget means the work program for
Decommissioning and a budget therefor.

 

Delivery Point means the point at which title and risk of loss of each Party’s
Entitlement passes to such Party, as determined in accordance with the PSC and
clause 9.

 

Default Notice has the meaning provided in clause 8.1.

 

Defaulting Party has the meaning provided in clause 8.1.

 

Default Period has the meaning provided in clause 8.1.

 

Deepening means an operation whereby a well is drilled to an objective Zone
below the deepest Zone in which the well was previously drilled, or below the
deepest Zone proposed in the associated AFE (if required), whichever is the
deeper.  Deepen and other derivatives shall be construed accordingly.

 

Development Plan means a plan for the development of Hydrocarbons from an
Exploitation Area.

 

Development Well means any well drilled for the production of Hydrocarbons
pursuant to a Development Plan.

 

Dictionary has the meaning provided in clause 1.1.

 

Disagreeing Party has the meaning provided in clause 12.3.

 

Discounted Net Cost has the meaning provided in clause 10.3.

 

Discounted Net Value has the meaning provided in clause 10.3.

 

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Discount Rate has the meaning provided in clause 10.3.

 

Discovery means the discovery of an accumulation of Hydrocarbons whose existence
until that moment was unproven by drilling.

 

Dispute means any dispute, controversy or claim (of any and every kind or type,
whether based on contract, tort, statute, regulation, or otherwise) arising out
of, relating to, or connected with this Agreement or the operations carried out
under this Agreement, including any dispute as to the construction, validity,
interpretation, enforceability or breach of this Agreement.

 

Effective Date has the meaning provided in clause 2.1.

 

Encumbrance and Encumber have the meanings provided in clause 12.1.

 

Entitlement means that quantity of Hydrocarbons (excluding all quantities used
or lost in Joint Operations) of which a Party has the right and obligation to
take delivery pursuant to the terms of this Agreement and the PSC, as such
rights and obligations may be adjusted by the terms of any lifting, balancing
and other disposition agreements entered into pursuant to clause 9.

 

Environmental Loss means any loss, damages, costs, expenses or liabilities
(other than Consequential Loss) caused by a discharge of Hydrocarbons,
pollutants or other contaminants into or onto any medium (such as land, surface
water, ground water and/or air) arising out of, relating to, or connected with
this Agreement or the operations carried out under this Agreement, including any
of the following: (i) injury or damage to, or destruction of, natural resources
or real or personal property; (ii) cost of pollution control, cleanup and
removal; (iii) cost of restoration of natural resources; and (iv) fines,
penalties or other assessments.

 

Exclusive Operation means those operations and activities carried out pursuant
to this Agreement, the costs of which are chargeable to the account of less than
all the Parties.

 

Exclusive Well means a well drilled pursuant to an Exclusive Operation.

 

Exploitation Area means that part of the Contract Area which is established for
development of a Commercial Discovery pursuant to the PSC or, if the PSC does
not establish an exploitation area, then that part of the Contract Area which is
delineated as the exploitation area in a Development Plan approved as a Joint
Operation or as an Exclusive Operation.

 

Exploitation Period means any and all periods of exploitation during which the
production and removal of Hydrocarbons is permitted under the PSC.

 

Exploration Period means any and all periods of exploration set out in the PSC.

 

Exploration Well means any well the purpose of which at the time of the
commencement of drilling is to explore for an accumulation of Hydrocarbons,
which accumulation was at that time unproven by drilling.

 

Force Majeure has the meaning provided in clause 16.2.

 

G & G Data means only geological, geophysical and geochemical data and other
similar information that is not obtained through a well bore.

 

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Government means the government of the Republic of Guinea and any political
subdivision, agency or instrumentality thereof.

 

Government Oil & Gas Company means any company associated with the Government
with the purpose of, or involved in exploration or production of Hydrocarbons.

 

Government Entity means any government, including the Government, and all
departments, political subdivisions, instrumentalities, agencies, corporations
or commissions under the direct or indirect control thereof or owned thereby and
shall include any court, arbitral tribunal, legislature, council or other state
government or national, regional, municipal or local authorities.

 

Gross Negligence / Willful Misconduct means, any act or failure to act (whether
sole, joint or concurrent) by any person or entity which was in reckless
disregard of or wanton indifference to, harmful consequences such person or
entity knew, or should have known, such act or failure would have on the safety
or property of another person or entity.

 

Home Country Government Authority means any Government Entity where a Party or
any of its direct or indirect parent companies is organized or has its principal
place of business.

 

HSE means Health, Safety, and the Environment.

 

Hydrocarbons means all substances which are subject to and covered by the PSC,
including Crude Oil and Natural Gas.

 

ICC has the meaning provided in clause 18.3.

 

Indemnitees has the meaning provided in clause 4.6.

 

Initial Work Program and Budget has the meaning provided in clause 6.2.

 

Interest means any kind of right, title or interest in oil and/or gas in the AMI
Area, including leasehold interest, fee interest, fee interest, mineral
interest, royalty interest, overriding royalty interest, non-participating
royalty interest, working interest, earned interest or carried working interest,
whether producing or non-producing, acquired by any means whatsoever, including
production sharing contract, permit, license, concession, lease, purchase,
assignment or farm-in.

 

Interpretation Rules has the meaning provided in clause 1.2.

 

Joint Account means the accounts maintained by Operator in accordance with the
provisions of this Agreement, including the Accounting Procedure,

 

Joint Operations means those operations and activities carried out by Operator
pursuant to this Agreement, the costs of which are chargeable to all Parties.

 

Joint Property means, at any point in time, all wells, facilities, equipment,
materials, information, funds and property (other than Hydrocarbons) held for
use in Joint Operations.

 

Laws / Regulations means those laws, statutes, rules, regulations, and
Government orders and decrees governing activities under the PSC.

 

LCIA has the meaning provided in clause 18.2.

 

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Lien Holder has the meaning provided in clause 12.2.

 

Management Committee means the “Oil and Gas Operations Committee” described in
Article 9 of the PSC.

 

Minimum Work Obligations means those work and/or expenditure obligations
specified in the PSC that must be performed in order to satisfy the obligations
of the PSC.

 

Natural Gas means all gaseous hydrocarbons (including wet gas, dry gas and
residue gas) which are subject to and covered by the PSC, but excluding Crude
Oil.

 

Non-Consenting Party means each Party who elects not to participate in an
Exclusive Operation.

 

Non-Operator means each Party to this Agreement other than Operator.

 

Non-U.S. Party has the meaning provided in clause 14.3.

 

Notice of Dispute has the meaning provided in clause 18.2.

 

OECD Principles means the following principles, which are based on the
principles set forth in Article 1.1 and 1.2 of the OECD Convention on Combating
Bribery of Foreign Public Officials in International Business Transactions,
signed in Paris on 17 December 1997, and entered into force on 15 February 1999,
and the Convention’s commentaries, namely, that:

 

(a)         It is unlawful for any person intentionally to offer, promise or
give any undue pecuniary or other advantage, whether directly or through
intermediaries, to a foreign public official, for that official or for a third
party, in order that the official act or refrain from acting in relation to the
performance of official duties, in order to obtain or retain business or other
improper advantage in the conduct of international business; and

 

(b)         Complicity in, including incitement, aiding and abetting, or
authorization of an act of bribery of a foreign public official shall be
unlawful.  Furthermore, attempt and conspiracy to bribe a foreign public
official of a country that is not a Party’s Home Country Government Authority
shall be unlawful to the same extent as attempt and conspiracy to bribe a public
official of a country that is a Party’s Home Country Government Authority.

 

Offeree has the meaning provided in clause 12.5.

 

Operating Committee means the committee constituted in accordance with clause 5.

 

Operator means a Party to this Agreement designated as such in accordance with
clauses 4 or 7.12(f).

 

Operator Other Operations has the meaning provided in clause 19.2.

 

Package Sale has the meaning provided in clause 12.2.

 

Participating Interest means as to any Party, the undivided interest of such
Party (expressed as a percentage of the total interests of all Parties) in the
rights and obligations derived from the Parties’ interest in this Agreement as
set out in clause 3.2 and in the rights and obligations derived from the
Parties’ aggregate undivided interest in the PSC.

 

85

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Party means a party to this Agreement.  The initial Parties to this Agreement
are set forth in the preamble to this Agreement.

 

Plugging Back means a single operation whereby a deeper Zone is abandoned in
order to attempt a Completion in a shallower Zone.  Plug Back and other
derivatives shall be construed accordingly.

 

Production Bonus has the meaning provided in clause 7.11.

 

Production Forecast has the meaning provided in clause 9.5.

 

PSC has the meaning provided in Background Paragraph A.

 

Received has the meaning provided in clause 17.

 

Recompletion means an operation whereby a Completion in one Zone is abandoned in
order to attempt a Completion in a different Zone within the existing wellbore. 
Recomplete and other derivatives shall be construed accordingly.

 

Reserve Fund has the meaning provided in clause 8.4.

 

Reworking means an operation conducted in the wellbore of a well after it is
Completed to secure, restore, or improve production in a Zone which is currently
open to production in the wellbore.  Such operations include well stimulation
operations, but exclude any routine repair or maintenance work, or drilling,
Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of a well. 
Rework and other derivatives shall be construed accordingly.

 

Rules has the meaning provided in clause 18.2.

 

SAPETRO has the meaning provided in the Preamble.

 

SCS has the meaning provided in the Preamble.

 

Second Amendment has the meaning provided in Background Paragraph A.

 

Secondee means an employee of a Non-Operator or its Affiliate, who is subject to
Secondment.

 

Secondment means the placement under clause 4.3 of an employee of a Non-Operator
or its Affiliate in Operator’s organization to provide services under a
Secondment Agreement between Operator and such Non-Operator or its Affiliates.

 

Security means (i) a guarantee or letter of credit issued by a bank; (ii) an
on-demand bond issued by a surety corporation; (iii) a corporate guarantee;
(iv) any financial security required by the PSC or this Agreement; and (v) any
financial security agreed from time to time by the Parties; provided, however,
that the bank, surety or corporation issuing the guarantee, letter of credit,
bond or other security (as applicable) has a credit rating indicating it has a
sufficient worth to pay its obligations in all reasonably foreseeable
circumstances.

 

Senior Executive has the meaning provided in clause 18.2.

 

Senior Supervisory Personnel means, with respect to a Party, any individual who
functions as its senior onsite manager or supervisor who is responsible for or
in charge of

 

86

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seismic acquisition, drilling, construction or production and related
operations, or any other field operations, but excluding all individuals
functioning at a level below such manager or supervisor; or any individual who
functions for such Party or one of its Affiliates at a management level
equivalent to or superior to that described; or any officer or director of such
Party or one of its Affiliates.

 

Sidetracking means the directional control and intentional deviation of a well
from vertical so as to change the bottom hole location unless done to straighten
the hole or to drill around junk in the hole or to overcome other mechanical
difficulties.  Sidetrack and other derivatives shall be construed accordingly.

 

Tag-Along Eligible Interest has the meaning provided in clause 12.4.

 

Tag-Along Interest has the meaning provided in clause 12.4.

 

Tag-Along Closing has the meaning provided in clause 12.4.

 

Tag-Along Notice has the meaning provided in clause 12.4.

 

Tag-Along Participating Parties has the meaning provided in clause 12.4.

 

Tag-Along Party has the meaning provided in clause 12.4.

 

Tag-Along Right has the meaning provided in clause 12.4.

 

Tag-Along Transfer has the meaning provided in clause 12.4.

 

Tag-Along Transferor has the meaning provided in clause 12.4.

 

Transfer has the meaning provided in clause 12.1.

 

Transfer Date has the meaning provided in clause 8.4.

 

Transfer Notice has the meaning provided in clause 12.2(f).

 

Testing means an operation intended to evaluate the capacity of a Zone to
produce Hydrocarbons.  Test and other derivatives shall be construed
accordingly.

 

Total Amount in Default has the meaning provided in clause 8.3.

 

Urgent Operational Matters has the meaning ascribed to it in clause 5.13.

 

U.S. Party has the meaning provided in clause 14.3.

 

Venture Information has the meaning provided in clause 15.1.

 

Work Program and Budget means a work program for Joint Operations and budget
therefor as described and approved in accordance with clause 6.

 

Zone means a stratum of earth containing or thought to contain an accumulation
of Hydrocarbons separately producible from any other accumulation of
Hydrocarbons.

 

87

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2                               Interpretation Rules

 

In this Agreement, unless the contrary intention appears:

 

(a)               references to a recital, clause, schedule, attachment,
annexure or exhibit is to a recital, clause, schedule, attachment, annexure or
exhibit of or to this Agreement;

 

(b)               a reference to this Agreement or another instrument includes
any variation or replacement of any of them;

 

(c)                a reference to any Law / Regulations shall include any
amendment, replacement or re-enactment of them for the time being in force and
any by-laws, statutory instruments, rules, regulations, notices, orders,
directions, consents or permissions made under them and any conditions attaching
to them;

 

(d)               the singular includes the plural and vice versa;

 

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

 

(f)                 a reference to a person includes a reference to the person’s
executors, administrators, substitutes, successors and permitted assigns;

 

(g)                the world “including” or any variant there means “including
without limitation”;

 

(h)               the table of contents and all headings in this Agreement are
included for convenience only and shall not affect this Agreement’s construction
or validity;

 

(i)                   References to “month” or “year” shall unless otherwise
stated mean a Gregorian calendar “month” or “year,” respectively;

 

(j)                  In the computation of periods of time from a specified date
to a later specified date the word “from” shall mean “from and including” and
the words “until” and “to” shall respectively mean “until and including” and “to
and including”;

 

(k)               In the computation of periods of time specified for giving any
notice, such periods shall be exclusive of the day on which the notice was
deemed to have been given in accordance with this Agreement and inclusive of the
day on which the event or action specified in such notice is due to occur or be
taken;

 

(l)                   Any provision or stipulation that an action may or shall
be taken within a specified number of days shall mean that such action may or
shall be taken within the number of days so specified starting at 00:00 hours on
the day on which the light or obligation to take such action arose; and

 

(m)           Where an expression is defined, another part of speech or form of
that expression shall have a corresponding meaning.

 

88

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Execution page

 

Executed as an agreement.

 

 

Signed for SCS Corporation Ltd. by:

 

 

 

 

 

Signature

 

 

 

 

 

Name

 

 

 

 

 

Title

 

 

 

 

 

Signed and delivered by South Atlantic Petroleum Limited by:

 

 

 

 

 

Signature

 

 

 

 

 

Name

 

 

 

                      

 

Title

 

 

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

 

Exhibit A —
Accounting Procedure

 

[See attached]

 

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

 

 

EXHIBIT A

 

ACCOUNTING PROCEDURE

 

ATTACHED TO AND MADE A PART OF
THAT CERTAIN
JOINT OPERATING AGREEMENT

 

BY AND BETWEEN
SCS CORPORATION LTD.
AND
SOUTH ATLANTIC PETROLEUM LIMITED

 

EFFECTIVE
[             ], 2017

 

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

 

TABLE OF CONTENTS

 

 

Section 1 GENERAL PROVISIONS

3

 

 

 

1.1

Purpose

3

 

 

 

1.2

Interpretation

3

 

 

 

1.3

Definitions

3

 

 

 

1.4

Joint Account Records and Currency Exchange

4

 

 

 

1.5

Statements

5

 

 

 

1.6

Cash Calls

5

 

 

 

1.7

Adjustments

8

 

 

 

1.8

Audits

8

 

 

 

1.9

Allocations

10

 

 

 

1.10

Procedure for Unscheduled Direct Charges

10

 

 

 

Section 2 DIRECT CHARGES

11

 

 

 

2.1

Costs Chargeable to the Joint Account

11

 

 

 

2.2

Licenses, Permits

11

 

 

 

2.3

Salaries, Wages, and Related Costs

11

 

 

 

2.4

Employee Relocation Costs

12

 

 

 

2.5

Offices, Camps, and Miscellaneous Facilities

12

 

 

 

2.6

Material

12

 

 

 

2.7

Equipment, Facilities and Utilities Owned by Operator and Affiliates of Operator

12

 

 

 

2.8

Services

13

 

 

 

2.9

Insurance

14

 

 

 

2.10

Damages and Losses to Property

14

 

 

 

2.11

Litigation, Dispute Resolution, and Associated Legal Expenses

15

 

 

 

2.12

Taxes and Duties

15

 

 

 

2.13

Surveys

15

 

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2.14

Environmental

15

 

 

 

2.15

Decommissioning and Reclamation

15

 

 

 

2.16

Other Expenditures

15

 

 

 

Section 3 INDIRECT CHARGES

16

 

 

 

3.1

Indirect Services And Related Office Costs

16

 

 

 

3.2

Amount

16

 

 

 

3.3

Exclusions

17

 

 

 

Section 4 ACQUISITION OF MATERIAL

17

 

 

 

4.1

Acquisitions

17

 

 

 

4.2

Materials Furnished by Operator

17

 

 

 

4.3

Premium Prices

18

 

 

 

4.4

Warranty of Material Furnished by Operator

18

 

 

 

Section 5 DISPOSAL OF MATERIALS

18

 

 

 

5.1

Disposal

18

 

 

 

5.2

Material Purchased by a Party or Affiliate

19

 

 

 

5.3

Division In Kind

19

 

 

 

5.4

Sales to Third Parties

19

 

 

 

Section 6 INVENTORIES

19

 

 

 

6.1

Periodic Inventories - Notice and Representation

19

 

 

 

6.2

Special Inventories

19

 

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ACCOUNTING PROCEDURE

 

SECTION 1
GENERAL PROVISIONS

 

1.1                               Purpose

 

1.1.1                     The purpose of this Accounting Procedure is to
establish equitable methods for determining charges and credits applicable to
Joint Operations under the Agreement to the end that no Party shall gain or lose
in relation to other Parties.

 

1.1.2                     If the methods prove unfair or inequitable to Operator
or Non-Operators, then the Parties shall meet and in good faith try to agree on
changes deemed necessary to correct any unfairness or inequity.

 

1.2                               Interpretation

 

1.2.1                     In the event of a conflict between the provisions of
this Accounting Procedure and the provisions of the Agreement, the provisions of
the Agreement shall control.

 

1.2.2                     Where alternative provisions are shown in this form
and none is selected, the first alternative shall be part of this Accounting
Procedure. Where optional provisions are shown in this form, only the optional
provisions selected shall be part of this Accounting Procedure.

 

1.3                               Definitions

 

All capitalized words in this Accounting Procedure shall have the meaning
specified in the Agreement. Certain other terms used in this Accounting
Procedure are defined as follows:

 

“Agreement” means the Joint Operating Agreement with an effective date of
             2017, entered into by and between SCS Corporation Ltd. and South
Atlantic Petroleum Limited, to which this Accounting Procedure is attached as an
exhibit.

 

“Cash basis” means that basis of accounting under which only costs actually paid
and revenue actually received are included for any period.

 

“Cash Call” means any request for the Parties to advance their respective
Participating Interest shares of estimated cash requirements for the next
Calendar Month’s Joint Operations in accordance with an approved Work Program
and Budget.

 

“Cash Call Month” means the month in respect of the relevant Cash Call.

 

“Designated Affiliate Charges” shall have the meaning set forth in
Section 2.8.2.

 

“Joint Bank Account(s)” means the local and foreign bank accounts, designated in
the name of the Operator, established, maintained and operated, for the benefit
of the Parties, by the Operator for the Joint Operations, into which the Parties
shall deposit, or cause to be deposited, all funds required for the Joint
Operations pursuant to Operator’s Cash Calls and from which all payments for the
Joint Account shall be effected.

 

“Material” means machinery, equipment, and supplies acquired and held for use in
Joint Operations.

 

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

 

“Section” means a section of this Accounting Procedure.

 

1.4                               Joint Account Records and Currency Exchange

 

1.4.1                     Operator shall at all times maintain and keep true and
correct records of the production and disposition of all Hydrocarbons, of all
costs and expenditures under the Agreement, and of other data necessary or
proper for the settlement of accounts between the Parties in connection with
their rights and obligations under the Agreement to enable Parties to comply
with their income tax and other legal and contractual obligations.

 

1.4.2                     Operator shall maintain accounting records pertaining
to Joint Operations in accordance with generally accepted accounting practices
used in the international petroleum industry, the Laws, the provisions of the
Contract, and the Agreement.

 

1.4.3                     Operator shall maintain the Joint Account in the
English language and in U.S. dollars as well as in any other language and
currency required by the Laws or the Contract. Operator shall record conversions
of currency at the rate actually experienced in the conversion. Operator shall
record any currency translations to express the amount of expenditures and
receipts for which a currency conversion has not actually occurred, in addition
to any requirements of the Laws and Contract, in accordance with Operator’s
normal practice. Operator shall provide a statement describing its practice to
the Non-Operators upon request.

 

1.4.4                     Operator shall charge or credit any currency exchange
gains or losses to the Joint Account, except as otherwise specified in this
Accounting Procedure. Operator shall separately identify any exchange gains or
losses.

 

1.4.5                     All bank transactions in foreign and local currencies
shall be made through Joint Bank Accounts.

 

1.4.6                     The Operator shall verify, obtain and forward to
Non-Operators, on a monthly basis, copies of Joint Bank Accounts statements for
the preceding month, accompanied by copies of relevant reconciling documents,
not later than the 21st day of the following month. Operator shall verify all
credits and debits relating to the bank transactions reported in such
statements.

 

1.4.7                     The Operator shall instruct the banks in which the
Joint Bank Accounts are held to send, regularly, copies of the statements of
balances in the Joint Bank Accounts directly to the Non-Operators.

 

1.4.8                     Except as may otherwise be agreed by the Parties, all
payments for Joint Operating expenditures shall be made solely from the Joint
Bank Account(s) established pursuant to this Accounting Procedure.

 

1.4.9                     This Accounting Procedure shall apply separately,
mutatis mutandis, to Exclusive Operations. Accordingly, Operator shall maintain
charges and credits applicable to Exclusive Operations separately from charges
and credits applicable to Joint Operations. In determining and calculating the
remuneration of the Consenting Parties, including the premiums for Exclusive
Operations, Operator shall express the costs and expenditures in U.S. dollars
(irrespective of the currency in which the expenditures were incurred).

 

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

 

1.4.10              Operator shall use the Cash basis for accounting in
preparing accounts concerning the Joint Operations. Operator shall show accruals
as memorandum items.

 

1.5                               Statements

 

1.5.1                     On or before the twentieth (20th) Day of each Calendar
Month, Operator shall submit a statement to each Party of the costs and
expenditures incurred by Operator during the prior Calendar Month, indicating by
appropriate classification the nature of the costs, the corresponding budget
category, the portion of the costs charged to each Party, and the portion of the
costs being billed to a Party by that statement.

 

1.5.2                     Operator’s statements required by Section 1.5.1 shall
also contain the following information:

 

(a)                                 the funds received pursuant to Cash Calls
setting forth the currencies received from each Party;

 

(b)                                 the share of each Party in total
expenditures;

 

(c)                                  the accrued expenditures;

 

(d)                                 the current account balance of each Party;

 

(e)                                  a summary of costs, credits, and
expenditures on a current Calendar Month; year-to-date, and inception-to-date
basis or other periodic basis, as agreed by the Parties;

 

(f)                                   the working capital balance; and

 

(g)                                  the details of unusual charges and credits
more than U.S. $250,000.

 

Operator shall group the expenditures in the statement by the categories and
line items designated in the approved Work Program and Budget to aid the Parties
in comparing the actual expenditures against the Work Program and Budget.

 

1.5.3                     Operator shall, upon request by a Non-Operator,
furnish a description of the accounting classifications used by Operator.

 

1.5.4                     Operator shall express amounts included in the
statements in U.S. dollars and reconcile them to the currencies paid pursuant to
a Cash Call or paid pursuant to a statement.

 

1.5.5                     Each Party shall be responsible for preparing its own
accounting and tax reports. Operator, to the extent that the information is
reasonably available from the Joint Account records, shall provide Non-Operators
in a timely manner with the information necessary to comply with their income
tax and other legal and contractual obligations. If the information is not
reasonably available to Operator, then the information shall be provided to the
requesting Party (i) if  the requesting Party needs the information to meet its
accounting and tax requirements; (ii) if the Joint Account records of Operator
are the only source from which the information can be acquired by the requesting
Party; (iii) if the Operator can  develop the information, (iv) if the
requesting Party pays the costs incurred by Operator to prepare the information,
and (v) if preparing the information will not unduly burden the administrative
and technical personnel of Operator. Only the requesting Party that pays the
costs will receive the information requested.

 

1.6                               Cash Calls

 

1.6.1                     Upon approval of any Work Program and Budget, Operator
may submit to each Party a Cash Call for the next Calendar Month’s operations.
The Cash Call shall equal the

 

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Operator’s estimate of the money to be spent in the currencies required to
perform its duties under the approved Work Program and Budget during the next
Calendar Month. For informational purposes Operator shall submit with the Cash
Call an estimate of the funds required for each of the two Calendar Months
following the Calendar Month for which the Cash Call is made. The Cash Call and
the two-Calendar Month estimate shall be detailed by the categories designated
in the approved Work Program and Budget.

 

1.6.2                     Operator shall submit each Cash Call in writing and
deliver it to each Party not less than 15 Days before the due date for payment
of the Cash Call. Operator shall set the due date, but the due date shall be no
sooner than the first Business Day of the Calendar Month for which the funds
subject of the Cash Call are required. Each Party shall pay any Cash Call free
of bank charges.  Any bank charges deducted from the payment of a Cash Call 
shall be borne by the Party that made the payment.

 

1.6.3                     Each Party shall wire transfer to Operator at the
Joint Bank Account the share corresponding to the Party of the full amount of
each Cash Call in the currencies requested or any other currencies acceptable to
Operator. Operator may charge the each Party the entire cost of converting the
currency furnished to the currency requested in the Cash Call.

 

1.6.4                     If Operator issues a Cash Call for a Calendar Month
but becomes aware of additional sums of money needed for that Calendar Month,
then Operator may revise the outstanding Cash Call if the revision is made
before the 15-day period prior to the due date of the outstanding Cash Call.
Otherwise, Operator may make an additional Cash Call for the Calendar Month in
question. The due date for payment of the additional Cash Call shall be 10 Days
after receipt of the Cash Call by each Party, but no sooner than the first
Business Day of the Calendar Month for which the additional Cash Call is made.

 

1.6.5                     If payment of a Cash Call by a Party exceeds its share
of cash expenditures for a Calendar Month, then the next Cash Call for that
Party shall be reduced by the excess. However, if the excess is greater than the
estimated Cash Call for that Party for the next Calendar Month, then the Party
may request a refund from Operator of the difference between the excess and the
estimated Cash Call for that Party for the next Calendar Month if the difference
is more than U.S. $100,000. Operator shall refund the difference within 15 Days
after receipt of a request from the relevant Party.

 

1.6.6                     If Operator does not refund the money within the time
required, then Operator shall, at the sole cost and expense of Operator, pay the
Party that requested the refund interest on the unpaid balance at the Agreed
Interest Rate from the due date until the payment is received by the Party that
requested the refund.

 

1.6.7                     If the amounts paid by a Party pursuant to a Cash Call
are less than its share of cash expenditures for the Month covered by the Cash
Call, then Operator may add the deficiency to subsequent Cash Calls or bill the
Party for the deficiency in the statement rendered by Operator to the relevant
Party under Section 1.5.1.

 

1.6.8                     Pursuant to the Agreement, the Operator may not
commingle monies received for the Joint Account with Operator funds not related
to Joint Operations. The provisions of this Section 1.6 for payment of Cash
Calls shall also apply to Operator.

 

1.6.9                     Interest paid into a bank account into which funds
received by Operator from the Parties are deposited shall be applied against the
next Cash Call or, if directed by the

 

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

 

Operating Committee, paid to the Parties. The interest thus received shall be
allocated to the Parties on a proportionate basis taking into consideration the
date of funding by each Party of the account in proportion to the total funding
of the account. Operator shall provide the Parties a monthly statement
summarizing receipts, disbursements, and transfers and beginning and ending
balances for each bank account.

 

1.6.10              If Operator does not issue a Cash Call to the Parties, then
Operator shall bill each Party for its share of expenditures in the statement
rendered by Operator to the Parties under Section 1.5.1.

 

1.6.11              Each Party shall pay the amount requested of that Party by a
Cash Call on or before the due date specified in the Cash Call. The due date for
any amount billed to a Party in a statement from Operator shall be 15 Days
following receipt of the statement from Operator.  Any late payment of a Cash
Call or an amount billed in a statement by a Party prior to a Default Period
applicable to that Party, should it become a Defaulting Party, shall accrue
interest in favor of Operator at the Agreed Interest Rate from its due date
until the earlier of the date payment is received by Operator or the beginning
of a Default Period as to that Party as a Defaulting Party.

 

1.6.12              Subject to the Laws, Operator shall have the right, at any
time and from time to time, to convert the funds received pursuant to a Cash
Call or any part of those funds to other currencies to the extent that the
currencies are then required for operations. The cost of any conversion of funds
shall be charged to the Joint Account.  Operator shall not bear any currency
fluctuation related risk.

 

1.6.13              Operator shall try to maintain funds held for the Joint
Account in bank accounts at a level consistent with that required for the
prudent conduct of Joint Operations.

 

1.6.14              The Non-Operators may dispute a Cash Call on the basis that
Operator’s estimated expenditures for the Cash Call Month exceeds what costs and
expenditures should reasonably be incurred for the Joint Account for that month
based on the approved Work Programme and Budget and the total of all actual
expenditures to date applicable to such Work Programme and Budget after
adjusting the Work Programme and Budget for any cost overruns permitted or
approved under the Agreement.

 

1.6.15              In the event that the Non-Operators so dispute any portion
of a Cash Call, the Non-Operators shall give to the Operator a notice in writing
specifying the amount in dispute and the reason therefor not later than eight
(8) days from the date of receipt of such Cash Call.

 

1.6.16              The Non-Operators may not, however, dispute any portion of a
Cash Call required for the protection of life and property or for the prevention
of pollution as defined in approved Work Programme and Budget.

 

1.6.17              Subject to Clause 1.6.15, the undisputed portion of the Cash
Call shall be paid by the Non-Operators into the Joint Bank Account not later
than the due date and the Parties shall use their best endeavours to resolve the
matter on the disputed portion promptly. Upon settlement, the disputed portion
or amount agreed, as the case may be, shall be paid by the Non-Operators into
the Joint Bank Account not later than 10 days from the date of resolution of the
dispute.

 

1.6.18              If the dispute is not settled by the date Non-Operators
receive Operator’s itemized return of actual expenditures for the Cash Call
Month with respect to which the dispute arose provided such actual expenditures
are in accordance with the Work

 

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

 

Programme and Budget as adjusted pursuant to the limit permitted pursuant to the
Agreement, the Non-Operators shall pay into the Joint Bank Account, by the due
date of the next Cash Call, or shall receive a credit against the amount of such
Cash Call, as the case may be, the difference between:

 

1.6.18.1              the undisputed portion of the Cash Call with respect to
which the dispute arose and which has already been paid by Non-Operators; and

 

1.6.18.2              the actual expenditure for such Cash Call Month.

 

1.7                               Adjustments

 

Payment by a Non-Operator of any Cash Calls or amounts billed in a statement
shall not prejudice the right of that Non-Operator to protest or question the
correctness of the Cash Calls or amounts billed; however, all statements
rendered to Non-Operators by Operator during any Calendar Year shall
conclusively be presumed to be true and correct after 24 Calendar Months
following the end of the Calendar Year unless within that 24-Calendar Month
period a Non-Operator takes written exception to a charge and makes claim on
Operator for adjustment. Operator shall provide a response to all written
exceptions whether or not contained in an audit report within the time period
prescribed in Section 1.8.5.

 

1.8                               Audits

 

1.8.1                     A Non-Operator, upon at least 60 Days advance notice
in writing to Operator and all other Non-Operators, shall have the right to
audit the Joint Account and records of Operator relating to the accounting
hereunder for any Calendar Year within the 24-Calendar Month period following
the end of the Calendar Year; however, the conduct of any audit shall not extend
the time for taking a written exception to and for adjustments of account as
provided in Section 1.7. Operator shall provide Non-Operators reasonable access
to Operator’s personnel and to the facilities, warehouses, and offices directly
or indirectly serving Joint Operations as well as the source documents
reasonably necessary to support Operator charges to the Joint Account for
purposes of the audit and to examine, copy, and retain the copies of the source
documents. The cost of each audit and the copies of Joint Account records shall
be borne by Non-Operators participating in the audit. If two or more
Non-Operators give notice of audit, then they shall make a reasonable effort to
conduct joint or simultaneous audits in a manner that will result in a minimum
of inconvenience to Operator. At any time before commencement of the audit,
Non-Operators participating in the audit may request from Operator information
limited to that normally used for pre-audit work such as trial balance, general
ledger, and sub-ledger data. Operator shall provide the information in
electronic format or if electronic format is not available, then in hard copy,
within 30 Days after the written request from Non-Operator.

 

1.8.2                     If Operator does not provide for the requested audit
of a charge under Section 1.8.1 within the 24-Calendar Month period provided in
Section 1.7, then Operator shall credit the Joint Account for the charge in
question no later than 30 days after expiration of the 24-Calendar Month period.

 

1.8.3                     Any information obtained by a Party under the
provisions of this Section 1.8 that does not relate directly to the Joint
Operations shall be kept confidential and shall not be disclosed to any party,
except as would otherwise be permitted by the Agreement.

 

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

 

1.8.4                     If the Joint Account and the records of Operator
relating to accounting under the Contract are subject to audit under the Laws or
the Contract, then the cost of the audit shall be charged to the Joint Account,
and a copy of the audit report shall be furnished to each Non-Operator.

 

1.8.5                     At the conclusion of an audit under the provisions of
this Section 1.8, the Parties shall try to settle outstanding matters
expeditiously. To this end the Parties conducting the audit will make a
reasonable effort to prepare and distribute a written report to Operator and all
the Parties that participated in the audit within 90 Days after the conclusion
of each audit. The report shall include all written exceptions and claims for
adjustment with supporting documentation arising from the audit, along with
comments pertinent to the operation of the accounts and records. The 90-Day time
period for preparing and distributing the written report shall not extend the
24-Calendar Month period for taking written exception to and making a claim on
Operator for adjustment under Section 1.7. Operator shall reply to the report
from the Parties conducting the audit within 90 Days after it is received by
Operator. Should a Party participating in the audit consider that the report or
reply requires further investigation of any exception in the report, that Party
shall have the right to further investigate the exception for a period of 60
Days. The further investigation shall not extend the 24-Calendar Month period
for taking written exception to and making a claim on Operator for adjustments
under Section 1.7.

 

1.8.6                     All adjustments resulting from an audit agreed between
Operator and the Non-Operator conducting the audit shall be reflected promptly
in the Joint Account by Operator and reported to the Non-Operator. If any
dispute shall arise in connection with an audit, then the dispute shall be
reported to and discussed by the Operating Committee, and, unless otherwise
agreed by the Parties to the dispute, resolved in accordance with the provisions
of clause 18 of the Agreement.

 

1.8.7                     Any Party may audit the records of a Non-Operator or
its Affiliate relating to charges under Section 2.8.1 and Section 2.8.3. The
provisions of this Section 1.8 shall apply mutatis mutandis to that audit.
Should the charges be rejected because of the audit, the charges shall be
charged back to the Party that provided the service or whose Affiliate provided
the service.

 

1.8.8                     The provisions of this Section 1.8 apply to audits
required under the Agreement when there is a change of Operator except that the
60 Day advance notice and the advance information provisions of Section 1.8.1
shall not apply.

 

1.8.9                     The rights of Non-Operators as to adjustments under
Section 1.7 and audits under Section 1.8 in relation to Designated Affiliate
Charges shall be governed by this Section 1.8.9.

 

1.8.9.1                     If a Non-Operator takes written exception to and
makes a claim on Operator for adjustment under Section 1.7 of any Designated
Affiliate Charge or requests an audit of the charges under Section 1.8, then
Operator shall conduct an audit of the charges as follows:

 

(a)                                 The rates and other supporting documentation
for the charges shall be audited by an internationally recognized independent
public accounting firm selected by the Operating Committee or, should the
Operating Committee fail to reach a decision, by the Operator.

 

(b)                                 The accounting firm audit fee shall be for
the Joint Account.

 

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(c)                                  Within 12 Calendar Months after a
Non-Operator requests an adjustment or audit of Designated Affiliate Charges,
Operator shall furnish the Non-Operator a copy of a report from the accounting
firm stating whether the Designated Affiliate Charges:

 

(i)                                    represent a complete and accurate
allocation of the charges to the Joint Operations;

 

(ii)                                exclude any element of profit;

 

(iii)                            exclude any duplication of costs covered under
Section 2 and Section 3 and;

 

(iv)                             are consistent in application to all the
activities of the Affiliate.

 

1.8.9.2                     The Designated Affiliate Charges to the Joint
Account in question shall conclusively be presumed to be true and correct 90
days after Operator has furnished the Non-Operator the report from the
accounting firm as provided in Section 1.8.9.1 (c) unless within that 90-day
period (i) the Non-Operator that originally made a written exception and claim
on Operator for adjustment renews the written exception and claim for adjustment
or (ii) the Non-Operator that requested the audit takes written exception to the
charges and makes claim on Operator for adjustment.

 

1.8.9.3                     If Operator fails to conduct the audit provided for
under Section 1.8.9.1, then Operator shall credit the Joint Account for the
charge in question no later than 30 days after expiration of the 12-Calendar
Month period.

 

1.9                               Allocations

 

If it becomes necessary for Operator to allocate any costs or expenditures to or
between Joint Operations and any other operations outside the Agreement, then
the allocation shall be made on an equitable basis. For informational purposes
only, Operator shall furnish a description of its allocation procedures
pertaining to these costs and expenditures and its rates for personnel and other
charges, along with each proposed Work Program and Budget. The allocation shall
be subject to audit under Section 1.8.

 

1.10                        Procedure for Unscheduled Direct Charges

 

Operator may charge the Non-Operators whether by statement or Cash Call for
their proportionate share of the following unscheduled direct costs:

 

(a)   costs which should have been charged to the Joint Account but were charged
to other operations not covered by the Contract and were the subject of audit
exceptions outside of this Accounting Procedure if charged by Operator to the
Non-Operators within 24 Calendar Months from the time the audit exception
outside of this Accounting Procedure is resolved by Operator;

 

(b)   revision of Joint Account costs that result from a physical inventory of
the Material provided for in Section 6 if charged by Operator to the
Non-Operators within 24 Calendar Months from the time the physical inventory is
completed by Operator;

 

(c)   costs subject of audit exceptions or other requirements by the Government
or Government Oil & Gas Company under the Contract if charged by Operator to the
Non-Operators within 24 Calendar Months from the time the audit exception or
other

 

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requirement by the Government or Government Oil & Gas Company is resolved by
Operator; and

 

(d)   other direct costs incurred by Operator but not previously charged to the
Non-Operators if charged by Operator to the Non-Operators within the 24-Calendar
Month period following the end of the Calendar Year in which the costs were
first incurred by Operator.

 

SECTION 2
DIRECT CHARGES

 

2.1                               Costs Chargeable to the Joint Account

 

2.1.1                     Operator may charge the Joint Account for all direct
costs and expenditures incurred by Operator in the conduct of Joint Operations
within the limits of approved Work Programs and Budgets, and as permitted in
clause 4.2(b)(xiii) (emergencies), in clause 4.11(c) (costs related to
resignation or removal of Operator), and in clause 4.11(d) (inventory and audit
of an Operator that has resigned or been removed) of the Agreement.

 

2.1.2                     Any charge by Operator to the Joint Account shall
exclude profit to Operator, any Non-Operator and their respective Affiliates
except charges for equipment, facilities and utilities owned by Operator under
Section 2.7.1 or an Affiliate of Operator under Section 2.7.2; and, charges for
services by an Affiliate of Operator, a Non-Operator, or any Affiliate of a
Non-Operator under Section 2.8.1.

 

2.1.3                     Direct costs and expenditures chargeable to the Joint
Account are more fully described and addressed in Sections 2.2 through
Section 2.16. Direct costs exclude indirect costs, which are described and
addressed in Section 3.

 

2.2                               Licenses, Permits

 

Operator shall charge the Joint Account for all costs for the acquisition,
maintenance, renewal, or relinquishment of licenses, permits, contractual
rights, and surface rights acquired for Joint Operations, and bonuses paid in
accordance with the Contract when paid by Operator in accordance with the
provisions of the Agreement.

 

2.3                               Salaries, Wages, and Related Costs

 

2.3.1                     Operator may charge the Joint Account for all
salaries, wages, and related costs of employees of Operator and its Affiliates
directly engaged in Joint Operations, including everything constituting the
employees’ total compensation, as well as the cost to Operator of holiday,
vacation, sickness, disability benefits, living and housing allowances, travel
time, bonuses, and other customary allowances applicable to salaries and wages,
as well as the costs to Operator for employee benefits, including employee group
life insurance, group medical insurance, hospitalization, retirement, and
severance payments and other benefit plans of a like nature applicable to labor
costs of Operator.

 

2.3.2                     Operator may charge the Joint Account for all costs
associated with organizational restructuring of Operator or its Affiliates
(e.g., separation benefits, relocation costs, asset disposition costs), limited
to employees directly engaged in Joint Operations on a full time basis; however,
all other costs associated with organizational restructuring of Operator or its
Affiliates require the approval of the Parties.

 

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2.3.3                     Operator may charge the Joint Account for all accrued
costs of benefit plans required by the Laws upon the first to occur of (i) the
time the benefit is payable to the employee or (ii) upon termination of the
Agreement; however, upon withdrawal of a Party from the Agreement, that Party
shall pay its Participating Interest share of the accrued costs.

 

2.3.4                     Operator may charge the Joint Account for all
expenditures or contributions made pursuant to assessments imposed by
governmental authority for payments regarding or on account of employees
described in Section 2.3.1.

 

2.3.5                     Operator may charge the Joint Account for all
salaries, wages, and related costs on an actual basis or on a rate basis. Any
rate used must be based on the average cost to Operator in accordance with
Operator’s usual practice. Operator shall determine its average cost annually
and calculate expatriate and national employee rates separately.

 

2.3.6                     Operator may charge the Joint Account for all
reasonable expenses (including travel costs) reimbursed to employees under the
usual practice of Operator.

 

2.4                               Employee Relocation Costs

 

2.4.1                     Operator may charge the Joint Account for all
relocation costs of employees assigned to Joint Operations. If the employee
works on activities other than Joint Operations, then relocation costs shall be
allocated on an equitable basis.

 

2.4.2                     Relocation costs include transportation of employees,
families of employees, personal and household effects of the employee and
family, transit expenses, and all other related costs in accordance with
Operator’s usual practice.

 

2.4.3                     Operator may not charge the Joint Account for
relocation costs to an assignment that is not with the Joint Operations unless
the place of the new assignment is the point of origin of the employee or unless
otherwise agreed by the Operating Committee.

 

2.5                               Offices, Camps, and Miscellaneous Facilities

 

Operator may charge the Joint Account for all costs of maintaining offices,
sub-offices, camps, warehouses, housing, and other facilities of Operator and
its Affiliates directly serving the Joint Operations. If the facilities also
serve operations other than the Joint Operations, then the costs shall be
allocated to the properties served on an equitable basis.

 

2.6                               Material

 

2.6.1                     Operator may charge the Joint Account for all cost,
net of discounts taken by Operator, for Material purchased or furnished by
Operator, including export brokers’ fees, transportation charges, loading and
unloading fees, export and import duties and license fees associated with the
procurement of Material, and any in-transit losses not covered by insurance. So
far as it is reasonably practicable and consistent with efficient and economical
operation, Operator shall purchase Material only as may be required for
immediate use and shall not accumulate or store surplus Material.

 

2.7                               Equipment, Facilities and Utilities Owned by
Operator and Affiliates of Operator

 

2.7.1                     Operator may charge the Joint Account for equipment,
facilities, and utilities owned by Operator at rates not to exceed commercial
rates of non-affiliated third parties then prevailing in the area for like
equipment, facilities, and utilities.

 

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2.7.2                     Operator may charge the Joint Account for equipment,
facilities, and utilities under contracts with Affiliates of Operator provided
the charge does not exceed commercial rates of non-affiliated third parties then
prevailing in the area for like equipment, facilities, and utilities.   If
clause 6.11 of the Agreement requires Operating Committee approval of the
contract with the Affiliate of Operator, the terms of Operating Committee
approval shall control. Where Operating Committee approval is not required:

 

(a)                                 Operator shall furnish Non-Operators a list
of rates and the basis of application of the rates under any contract with its
Affiliate upon request by a Non-Operator; and

 

(b)                                 Operator may revise the rates from time to
time if Operator determines that the rates are either excessive or insufficient;
however, revisions shall not be made more than once every six Calendar Months.

 

2.7.3                     If drilling tools and other equipment owned by
Operator or Affiliates of Operator are lost in the hole or damaged beyond
repair, then Operator shall:

 

2.7.3.1                     notify the Non-Operators of such loss or damage;

 

2.7.3.2                     provided that such loss or damage has not been
caused by the Gross Negligence/Wilful Misconduct of the Operator, charge the
Joint Account for replacement cost less depreciation plus transportation costs
to deliver like equipment (which, in the opinion of the Operator, is required
for the continued conduct of the Joint Operations) to the location where used.

 

2.8                               Services

 

2.8.1                     Operator may charge the Joint Account for services
under a contract with non-affiliated third parties.  Operator may also charge
the Joint Account for services normally provided by non-affiliated third parties
under a contract with an Affiliate of Operator, a Non-Operator, or an Affiliate
of a Non-Operator provided the charge does not exceed the commercial rates of
non-affiliated third parties then prevailing in the area considering like
quality and availability of services.  If clause 6.11 of the Agreement requires
Operating Committee approval of the contract with an Affiliate of Operator, a
Non-Operator, or an Affiliate of a Non-Operator, the terms of Operating
Committee approval shall control.  This Section 2.8.1 does not apply to
Section 2.8.2 and Section 2.8.3.

 

2.8.2                     Operator may charge the Joint Account for all cost of
services performed by technical and professional personnel of Operator
Affiliates not working directly for or assigned to Operator whose services are
requested by Operator for a specific activity and where the services are charged
to the Joint Operations based on hourly rates or other allocation method for
time spent performing the requested services (“Designated Affiliate Charges”).
The cost of Designated Affiliate Charges include: salaries and wages, lost time,
governmental assessments, employee benefits, rent, utilities, clerical support
staff, drafting, telephone and other communication expenses, computer support,
supplies, depreciation, and other reasonable costs. Examples of services
performed giving rise to Designated Affiliate Charges include:

 

Geologic Studies and Interpretation

Seismic Data Processing

Well Log Analysis, Correlation and Interpretation

 

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Laboratory Services

Ecological and Environmental Engineering

Decommissioning (Abandonment) and Reclamation

Well Site Geology

Project Management and Engineering

Source Rock Analysis

Petrophysical Analysis

Geochemical Analysis

Drilling Supervision

Development Evaluation

Project Accounting and Professional Services

Other Data Processing

 

2.8.3                     Operator may charge the Joint Account for all cost of
services performed with the approval of Operator by the technical and
professional personnel of Non-Operators and their Affiliates.  The costs of such
services include salaries and wages, lost time, governmental assessments,
employee benefits, rent, utilities, clerical support staff, drafting, telephone
and other communication expenses, computer support, supplies, depreciation, and
other reasonable costs.

 

A Non-Operator shall bill Operator for the costs of services charged under this
Section 2.8.3 on or before the last Day of each Calendar Month for charges for
the preceding Calendar Month, to which charges Non-Operator shall not add an
administrative overhead rate. Within 30 Days after receipt of a bill for the
charges, Operator shall pay the amount due thereon.

 

2.8.4                     Operator’s charges for services under Section 2.8.2
and  Non-Operator’s charges for services under Section 2.8.3 shall not exceed
the commercial rates of non-affiliated third parties then prevailing in the area
considering like quality and availability of the services.

 

2.9                               Insurance

 

Operator may charge the Joint Account for all premiums paid for insurance to be
carried for the benefit of the Joint Operations as required by the Laws, the
Contract, or the Agreement.

 

2.10                        Damages and Losses to Property

 

2.10.1              Operator may charge the Joint Account for all costs or
expenditures necessary to replace or repair damages or losses incurred by fire,
flood, storm, theft, accident, or any other cause. Operator shall furnish
Non-Operators written notice of damages or losses incurred which are more than
U.S. $500,000 as soon as practical after report of the same has been received by
Operator. All losses which are more than U.S. $500,000 shall be listed
separately in the Calendar Month statement of costs and expenditures.

 

2.10.2              Operator shall credit the Joint Account for all settlements
received from insurance carried for the benefit of Joint Operations and from
others for losses or damages to Joint Property or Materials. Each Party shall be
credited with its Participating Interest share of the credits except where the
credits are derived from insurance purchased by Operator for fewer than all
Parties in which event the proceeds of the credits shall be credited to those
Parties for whom the insurance was purchased in proportion to the contribution
of each toward purchase of the insurance.

 

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2.10.3              Operator may charge the Joint Account for all expenditures
incurred in the settlement of all losses, claims, damages, and judgments for the
account of Joint Operations.

 

2.11                        Litigation, Dispute Resolution, and Associated Legal
Expenses

 

2.11.1              Operator may charge the Joint Account for all costs and
expenses of litigation, dispute resolution, and associated legal services
provided by non-affiliated third parties necessary for the protection of the
Joint Operations under the Agreement.

 

2.11.2              Operator may charge the Joint Account for all costs and
expenses of litigation, dispute resolution, and associated legal services
provided by the legal staff of any Party or Affiliate of a Party upon approval
of the Operating Committee.

 

2.12                        Taxes and Duties

 

2.12.1              Operator may charge the Joint Account for all taxes, duties,
assessments, and governmental charges, of every kind and nature, assessed or
levied upon or in connection with the Joint Operations, other than any that are
measured by or based upon the revenues, income, or net worth of a Party.

 

2.12.2              If Operator or an Affiliate is subject to income or
withholding tax because of services performed at cost for the operations under
the Agreement, then Operator’s or the Affiliate’s charges for the services may
be increased (grossed up) by the amount of the taxes incurred.

 

2.13                        Surveys

 

Operator may charge the Joint Account for all costs incurred on the Joint
Property because of legal requirements for archaeological and geophysical
surveys relative to identification and protection of cultural resources

 

2.14                        Environmental

 

Operator may charge the Joint Account for all costs incurred for HSE,
environmental or ecological surveys as may be required by any regulatory
authority, including costs to provide or have available pollution containment
and removal equipment and the costs of actual control, clean up, and remediation
resulting from contamination of the environment as required by the Laws or as
deemed appropriate by Operator for prudent operations.

 

2.15                        Decommissioning and Reclamation

 

Operator may charge the Joint Account for all costs incurred for decommissioning
and reclamation of the Joint Property, including costs required by governmental
or other regulatory authority or by the Contract.

 

2.16                        Other Expenditures

 

Operator may charge the Joint Account for all other direct costs and
expenditures incurred by Operator for Joint Operations in accordance with
approved Work Programs and Budgets and this Section 2.

 

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SECTION 3
 INDIRECT CHARGES

 

3.1                               Indirect Services And Related Office Costs

 

Operator may charge the Joint Account monthly for the cost of indirect services
and related office costs of Operator and its Affiliates not otherwise provided
in this Accounting Procedure. Indirect costs chargeable under this Section 3
represent the cost of general assistance and support services provided by the
organizational units of Operator and its Affiliates not directly involved in
Joint Operations and are costs that are not practical to identify or associate
with Joint Operations but are for services that provide Joint Operations with
needed and necessary resources. No cost or expenditure included under Section 2
shall be included or duplicated under Section 3. The charges under Section 3 are
not subject to audit under Sections 1.8.1 and 1.8.2 other than to verify that
the overhead percentages are applied correctly to the expenditure basis.

 

3.2                               Amount

 

3.2.1                     Operator’s indirect charge under Section 3.1 for any
month shall equal the greater of (1) the total amount of indirect charges for
the period beginning at the start of the Calendar Year through the end of the
period covered by Operator’s invoice (“Year-to-Date”) determined under
Section 3.2.2, less indirect charges previously made under Section 3.1 for the
Calendar Year in question, or (2) the amount of the minimum assessment
determined under Section 3.2.3, calculated on an annualized basis (but reduced
pro rata for periods of less than one year), less indirect charges previously
made under Section 3.1 for the Calendar Year in question.

 

3.2.2                     Unless exceeded by the minimum assessment under
Section 3.2.3, Operator’s aggregate Year-to-Date indirect charges shall be a
percentage of the Year-to-Date expenditures, calculated on the following scale
(U.S. Dollars):

 

Annual Expenditures

 

$0 to $5,000,000 of expenditures = 3%

 

Next $5,000,000 of expenditures = 2%

 

Excess above $10,000,000 of expenditures = 0.5%

 

provided that the amount to be charged to the Joint Account in each Calendar
Year in respect of indirect services and related office costs of Operator and
its Affiliates shall not exceed One Million United States Dollars
(U.S. $1,000,000), unless approved by the Operating Committee utilizing the
voting procedure under clause 5.10(a) of the Agreement.

 

3.2.3                     Indirect Charge for Projects.

 

Regarding major projects (including pipelines, gas reprocessing and processing
plants, final loading and terminalling facilities, and dismantling for
decommissioning of platforms and related facilities), when the estimated cost of
each project amounts to more than U.S. $25,000,000, Operator may make a separate
indirect charge for the project if approved by the Operating Committee at the
time of approval of the project.

 

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Notwithstanding the foregoing, the Operating Committee must approve of the
Operator’s  indirect rates and related calculation method for development
operations, production operations, and dismantling for decommissioning of
platforms and related facilities before the submission of the first annual
budget for those phases of operations.

 

3.3                               Exclusions

 

When calculating the monthly indirect charge, the Operator shall not include in
the expenditures the indirect charge (calculated either as a percentage of
expenditures or as a minimum monthly charge), rentals on surface rights acquired
and maintained for the Joint Account, guarantee deposits, pipeline tariffs,
concession acquisition costs, bonuses paid in accordance with the Contract,
royalties and taxes on production or revenue to the Joint Account paid by
Operator, expenditures associated with major construction projects for which a
separate indirect charge is established hereunder, payments to third parties in
settlement of claims, and other similar items.

 

Credits arising from any government subsidy payments, disposition of Material,
and receipts from third parties for settlement of claims shall not be deducted
by Operator from total expenditures in determining the indirect charge.

 

SECTION 4
 ACQUISITION OF MATERIAL

 

4.1                               Acquisitions

 

Operator shall charge for Materials purchased for the Joint Account at
Operator’s actual cost. The price of Materials purchased shall include export
broker’s fees, insurance, transportation charges, loading and unloading fees,
import duties, license fees, demurrage (retention charges) associated with the
procurement of Materials, and applicable taxes, less all discounts taken.

 

4.2                               Materials Furnished by Operator

 

Operator shall purchase Materials required for operations for direct charge to
the Joint Account whenever practicable, except Operator may furnish Materials
from its stock under the following conditions:

 

4.2.1                     New Materials (Condition “A”)

 

4.2.2                     If Operator furnishes new Materials transferred from
Operator’s warehouse or other properties of Operator, the price charged shall be
the net cost determined in accordance with Section 4.1 as if Operator had
purchased the new Material just before its transfer, but in no event exceeding
the then current market price.

 

4.2.3                     Used Materials (Conditions “B” and “C”)

 

4.2.3.1                     If Operator furnishes used Material, then the
Material must be in sound and serviceable condition and suitable for use without
repair or reconditioning. Operator shall classify such Material as Condition “B”
and price the Material at no more than 75% of the new purchase net cost at the
time of transfer.

 

4.2.3.2                     Regarding Materials not meeting the requirements of
Section 4.2.2.1, but which can be made suitable for use after being repaired or
reconditioned, Operator shall classify such material as Condition “C” and price
the

 

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Material at 50% of the new purchase net cost at the time of transfer. Operator
may charge the Joint Account with the cost of reconditioning  if the Condition
“C” price, plus cost of reconditioning, does not exceed the Condition “B” price;
and if that Material so classified meets the requirements for Condition “B”
Material upon being repaired or reconditioned.

 

4.2.3.3                     Operator shall price Material that cannot be
classified as Condition “B” or Condition “C” at a value commensurate with its
use.

 

4.2.3.4                     Operator shall grade Tanks, derricks, buildings, and
other items of Material involving erection costs, if transferred in knocked-down
condition, as to condition as provided in Section 4.2.2, and price same on the
basis of knocked-down price of like new Material.

 

4.2.3.5                     Operator shall grade Material including drill pipe,
casing, and tubing, that is no longer useable for its original purpose but is
useable for some other purpose, as to condition as provided in Section 4.2.2 and
price same on the basis of the current price of items normally used for the
other purpose if sold to third parties.

 

4.3                               Premium Prices

 

Whenever Material is not readily obtainable at prices specified in Sections 4.1
and 4.2 because of national emergencies, strikes, or other unusual causes over
which Operator has no control, Operator may charge the Joint Account for the
required Material at Operator’s actual cost incurred in procuring the Material,
in making it suitable for use, and in moving it to the Contract Area.

 

4.4                               Warranty of Material Furnished by Operator

 

Operator does not warrant the condition or fitness for the purpose intended of
the Material furnished. If defective Material is furnished by Operator for the
Joint Account, then any credit granted shall not be passed to the Joint Account
until adjustment has been received by Operator from the manufacturers or their
agents.

 

SECTION 5
 DISPOSAL OF MATERIALS

 

5.1                               Disposal

 

Operator shall be under no obligation to purchase the interest of Non-Operators
in new or used surplus Materials. Operator shall have the right to dispose of
Materials but shall advise and secure prior agreement of the Operating Committee
of any proposed disposition of Materials having an original cost to the Joint
Account either individually or in the aggregate of U.S. $100,000 or more. When
Joint Operations are relieved of Material charged to the Joint Account, Operator
shall advise each Non-Operator of the original cost of the Material to the Joint
Account so that the Parties may eliminate the costs from their asset records.
Operator shall credit the Joint Account for Material sold by Operator in the
month in which payment is received for the Material. Any Material sold or
disposed of by Operator under this Section 5 shall be on an “as is, where is”
basis without guarantees or warranties of any kind or nature. If Operator incurs
costs in disposing of the Materials, then Operator may charge such costs to the
Joint Account.

 

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5.2                               Material Purchased by a Party or Affiliate

 

Operator shall credit to the Joint Account proceeds received from Material
purchased from the Joint Property by a Party or its Affiliate, and value new
Material in the same manner as new Material under Section 4.2.1 and value used
Material in the same manner as used Material under Section 4.2.2, unless
otherwise agreed by the Operating Committee.

 

5.3                               Division In Kind

 

If Material is divided among the Parties, the division shall be in proportion to
the Parties’ respective interests in the Material. Thereupon, the Operator shall
charge each Party with the value (determined in accordance with the procedure
set forth in Section 5.2) of the Material received or receivable by it.

 

5.4                               Sales to Third Parties

 

Operator shall credit proceeds received from Material purchased from the Joint
Property by third parties to the Joint Account at the net amount collected by
Operator from the buyer. If the sales price is less than the value determined in
accordance with the procedure set forth in Section 5.2, then approval by the
Operating Committee shall be required before the sale. Any claims by the buyer
for defective Materials or otherwise shall be charged back to the Joint Account
if and when paid by Operator.

 

SECTION 6
 INVENTORIES

 

6.1                               Periodic Inventories - Notice and
Representation

 

Operator shall take at reasonable intervals, but at least annually, inventories
of all Material held in warehouse stock on which detailed accounting records are
normally maintained. Operator shall charge the expense of conducting periodic
inventories to the Joint Account. Operator shall give Non-Operators written
notice at least 60 Days in advance of its intention to take inventory, and
Non-Operators, at their sole cost and expense, shall each be entitled to have a
representative present. If any Non-Operator fails to be represented at the
inventory, such Non-Operator shall be bound to accept the inventory taken by
Operator. Operator shall in any event furnish each Non-Operator with a
reconciliation of overages and shortages and charge any inventory adjustments
for overages and shortages to the Joint Account. Any adjustment equal to U.S.
$500,000 or more shall be brought to the attention of the Operating Committee.

 

6.2                               Special Inventories

 

6.2.1                     Whenever there is a sale or change of a Participating
Interest in the Agreement, Operator shall take a special inventory provided the
seller, the purchaser, or both agree to bear all of the expense of the
inventory. Both the seller and the purchaser shall be entitled to be represented
when the special inventory occurs and shall be bound by the inventory taken.

 

6.2.2                     A Non-Operator, upon at least 60 Days advance notice
in writing to Operator and all other Non-Operators, shall have the right to take
inventories of all Material held in warehouse stock on which detailed accounting
records are normally maintained provided that such an exercise shall not
interfere with the Joint Operations. The cost of each inventory shall be borne
by Non-Operators participating in the inventory. If two or more Non-Operators
give notice of an inventory, then they shall make a

 

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

 

reasonable effort to conduct joint or simultaneous inventories in a manner that
will result in a minimum of inconvenience to Operator.

 

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

 

Exhibit B —

Contract Area

 

The Contract Area means the Contract Area identified in the Second Amendment, as
set forth below:

 

[g102873ks45i001.jpg]

 

[g102873ks45i002.jpg]

 

21

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

 

 

 

Exhibit C —

Initial Work Program and Budget

 

[See attached]

 

22

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

 

EXHIBIT C

 

Assignment

 

[See attached]

 

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

 

DATED              , 2017

 

SCS CORPORATION LTD.

 

and

 

SOUTH ATLANTIC PETROLEUM LIMITED

 

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

 

DEED OF ASSIGNMENT

 

50% PARTICIPATING INTEREST

 

PRODUCTION SHARING CONTRACT

 

REPUBLIC OF GUINEA

 

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

 

1

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

 

THIS ASSIGNMENT is made the      day of         , 2017 (the “Effective Date”)

 

BETWEEN

 

(1)                                SCS CORPORATION LTD. a company registered in
the Cayman Islands, with its address at 12012 Wickchester Lane, Suite 475,
Houston, TX 77079, USA, a wholly owned subsidiary of Hyperdynamics Corporation,
a Delaware corporation traded on the OTCQX (the “Assignor”); and

 

(2)                                SOUTH ATLANTIC PETROLEUM LIMITED a company
registered under the laws of the Federal Republic of Nigeria, with its
registered address at 11th and 12th Floors, South Atlantic Petroleum Towers, 1
Adeola Odeku Street, Victoria Island, Lagos, Nigeria (the “Assignee”);

 

each being referred to individually as a “Party” and collectively as the
“Parties”.

 

WHEREAS

 

(A)                              The Assignor is the owner of an undivided one
hundred percent Participating Interest in that certain Hydrocarbons Production
Sharing Contract between the Republic of Guinea and SCS Corporation dated
September 22, 2006; as amended by that certain Amendment No. 1 to the
Hydrocarbons Production Sharing Contract between the Republic of Guinea and SCS
Corporation dated March 25, 2010; and as further amended by that memorandum of
understanding between the Republic of Guinea and SCS Corporation Ltd. dated
August 19, 2016 and that certain Second Amendment to the Hydrocarbons Production
Sharing Contract between the Republic of Guinea and SCS Corporation Ltd. dated
September 14, 2016 and duly approved by a Decree No. 275/PRG/SGG of the
President of the Republic dated 21 September 2016 covering the area in the
Republic of Guinea shown on Exhibit A to the Farmout Agreement (as amended, the
“PSC”); and

 

(B)                              Pursuant to that certain Farmout Agreement
between SCS Corporation Ltd. and South Atlantic Petroleum Limited dated as of
          , 2017 (the “Farmout Agreement”), for valuable consideration the
Assignor has agreed to assign to the Assignee an undivided fifty percent (50%)
Participating Interest in the PSC, including all rights, benefits, liabilities
and obligations in respect thereof (the “Transferred Interest”).

 

NOW THE PARTIES HEREBY AGREE AS FOLLOWS:-

 

1.                                      Unless otherwise defined herein, words
and expressions defined in the Farmout Agreement shall have the same meaning
when used in this Assignment.

 

2.                                      For good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), with effect from the
Effective Date:

 

(a)                                 the Assignor assigns and transfers, subject
to the terms of the PSC and the Farmout Agreement, the Transferred Interest to
the Assignee and the Assignee accepts the Transferred Interest; and

 

2

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

 

(b)                                 the Assignee shall assume and perform the
liabilities and obligations arising from and after the Effective Date and be
entitled to the rights and benefits under the PSC in the place of the Assignor
in respect of the Transferred Interest.

 

3.                                   Subject to the terms of the PSC and the
Farmout Agreement, with effect from the Effective Date, the Assignee undertakes
and covenants to assume, observe, perform, discharge and be bound by all
liabilities and obligations in respect of the Transferred Interest in the place
of the Assignor whether actual, accrued, contingent or otherwise and to be bound
by the PSC in place of the Assignor in respect of the Transferred Interest.

 

4.                                      Without prejudice to Clause 3, each
Party shall be solely responsible for the payment of its own costs in the
preparation and execution of this Assignment.

 

5.                                      Except as otherwise provided in the
Farmout Agreement, or agreed by the Parties in writing on or following the date
of this Assignment, no representation or warranty, express or implied, is given
by or required from the Assignor in connection with the Transferred Interest or
with the assignment contemplated in this Assignment.

 

6.                                      Each Party represents and warrants for
the benefit of the other that its entry into and performance of this Assignment
are within its full corporate power and authority and are duly authorized in
accordance with its constitutional documents and the laws of its place of
incorporation.

 

7.                                      Each Party shall use all reasonable
endeavors to do or procure any such acts and execute or procure the execution of
any such documents as may from time to time reasonably be required to give
effect to the transfer of the Transferred Interest in accordance with this
Assignment including without limitation, execution of a form of assignment in
the French language suitable for submission to the Government.

 

8.                                      This Assignment shall be governed by and
construed in accordance with the laws of England and Wales except to the extent
that the Law of the Republic of Guinea is necessarily applied to effect or
determine the transfer of interest in the PSC.

 

9.                                      This Assignment is expressly made
subject to the terms and conditions of the Farmout Agreement, including without
limitation, Sections 1.2 and 1.4, and Articles 4 and 8.

 

10.                               A person who is not a party to this Assignment
shall have no rights under The Contracts (Rights of Third Parties) Act 1999, and
the interpretation of this Assignment shall exclude any rights under legislative
provisions conferring rights under a contract to persons not a party to that
contract.

 

11.                               This Assignment may be executed in any number
of counterparts and each such counterpart shall be deemed an original Assignment
for all purposes, all of which taken together shall constitute one and the same
instrument; provided that no Party shall be bound to this Assignment unless and
until all Parties have executed a counterpart.

 

12.                               Article 12 of the Farmout Agreement shall
apply to this Assignment.

 

3

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

 

13.                               This Assignment is subject to receipt of any
consent and approval of the Government which may be required in connection with
this Assignment, and shall become of force and effect on the Effective Date.

 

[Signature page follows]

 

4

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

 

IN WITNESS WHEREOF this Assignment has been duly executed by the Parties as a
deed on the date first above written.

 

Signed and delivered for and on behalf of

 

SCS CORPORATION LTD.

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

Signed and delivered for and on behalf of

 

SOUTH ATLANTIC PETROLEUM LIMITED

 

By:

 

 

Name:

 

 

Title:

 

 

 

[NOTE: Conform to execution requirements.]

 

5

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

 

Exhibit D

Farmor Parent Guaranty

 

[See attached]

 

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

 

GUARANTY

 

THIS GUARANTY is entered into effective the 30th day of March, 2017 by
Hyperdynamics Corporation (the ‘‘Guarantor”), in favor of South Atlantic
Petroleum Limited (“Sapetro”);

 

WHEREAS, SCS Corporation Ltd. (“SCS”) and Sapetro have entered into that certain
Farmout Agreement (the “Farmout Agreement”) relating to that certain
Hydrocarbons Production Sharing Contract between the Republic of Guinea and SCS
Corporation dated September 22, 2006; as amended by that certain Amendment No. 1
to the Hydrocarbons Production Sharing Contract between the Republic of Guinea
and SCS Corporation dated March 25, 2010; and as further amended by that
memorandum of understanding between the Republic of Guinea and SCS Corporation
Ltd. dated August 19, 2016 and that certain Second Amendment to the Hydrocarbons
Production Sharing Contract between the Republic of Guinea and SCS Corporation
Ltd. dated September 14, 2016 and duly approved by a Decree No. 275/PRG/SGG of
the President of the Republic dated 21 September 2016 covering the area in the
Republic of Guinea shown on Exhibit A to the Farmout Agreement;

 

WHEREAS, the Guarantor will receive substantial and direct benefits from the
transactions contemplated by Sapetro and SCS and has agreed to enter into this
Guaranty to provide assurance for the performance of SCS’s obligations; and

 

WHEREAS, the Guarantor has agreed to guarantee the performance by SCS of its
obligations under the Farmout Agreement.

 

NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL OBLIGATIONS AND COVENANTS, THE
PARTIES HERETO AGREE AS FOLLOWS:

 

1.             The Guarantor hereby irrevocably guarantees full compliance with
and the due performance by SCS of all obligations of SCS under the Farmout
Agreement, when and if due and payable, (the “Obligations”); but in no event
shall the Guarantor be subject hereunder to consequential, exemplary, equitable,
punitive, tort, or other similar damages, and shall not be liable hereunder for
lost profits.

 

2.             This Guaranty is a primary obligation of the Guarantor and shall
be construed as unconditional and absolute. This Guaranty is a continuing
guarantee and shall continue in effect until the obligations are performed or
satisfied in full.  This Guaranty shall be reinstated if at any time any payment
of any Obligation is rescinded or must otherwise be restored or returned by
Sapetro upon the insolvency, bankruptcy or reorganization of SCS or for any
other reason whatsoever, all as though such payment had not been made.
Notwithstanding any other provision contained herein, in respect of the
Guarantor or SCS, the liabilities and obligations of the Guarantor under the
provisions of this Guaranty or the Farmout Agreement shall not either
individually or when aggregated together be greater than or different in
character or extent from the liabilities and obligations of SCS to Sapetro under
the terms of the Agreement.

 

3.             The Guarantor shall not be discharged or released from its
obligations hereunder by:

 

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

 

(a)           any extension, renewal, settlement, compromise or waiver by
Sapetro of any of the Obligations or the termination of the Farmout Agreement;

 

(b)           any modification or amendment of any documentation in respect of
the Farmout Agreement; or

 

(c)           any insolvency, bankruptcy, reorganization or other similar
proceeding affecting SCS or its assets or any resulting release or discharge of
any Obligation.

 

4.             In the event of a failure by SCS to make payment under
Section 3.1 of the Farmout Agreement, Sapetro shall submit written notice to
Guarantor. Upon receipt of written notice of the failure to pay, Guarantor
shall, within five (5) days of receipt of the notice, make payment to Sapetro of
the unpaid amount, by wire transfer to the account specified in the notice.

 

5.             In the event and for the duration that Guarantor makes payment on
the Obligations, the Guarantor shall be entitled to all rights and benefits to
which SCS is entitled under the Farmout Agreement.

 

6.             Upon payment of all Obligations owing to Sapetro, the Guarantor
shall be subrogated to the rights of Sapetro against SCS.

 

7.             This Guaranty shall inure to the benefit of Sapetro and its
successors and assigns, and shall be binding upon the Guarantor and its
successors and assigns.

 

8.             The parties hereto shall not transfer their obligations under
this Guaranty without the prior written consent of the other party, which
consent shall not be unreasonably withheld.

 

9.             This Guaranty shall terminate as of the satisfaction of the
Obligations; provided that, this Guaranty shall remain in full force and effect
thereafter until (but only until) all Obligations arising prior to such
termination have been satisfied.

 

10.          The Guarantor hereby waives diligence, presentment, demand for
payment, protest, notice of acceptance or any other notice whatsoever.

 

11.          The Guarantor, in signing the Guaranty, warrants to Sapetro that:

 

(a)           The Guarantor is a corporation duly organized under the laws of
Delaware and existing in good standing and has full power and authority to make
and deliver this Guaranty,

 

(b)           The signing and delivery and performance of this Guaranty by the
Guarantor has been duly authorized by all necessary actions of its directors and
shareholders and does not and will not violate the provisions of, or constitute
default under, any presently applicable law or its articles of incorporation or
by-laws or any agreement presently binding on it, and

 

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

 

(c)           This Guaranty has been duly signed and delivered by the authorized
officer(s) of the Guarantor and constitutes its lawful, binding and legally
enforceable obligation.

 

12.          Notwithstanding anything else herein set forth, this Guaranty, as
supplemented by the Farmout Agreement, constitutes the entire agreement between
Sapetro and the Guarantor with respect to the subject matter hereof and cancels
and supersedes any prior understandings and agreements between such parties with
respect thereto. There are no representations, warranties, terms, conditions,
undertakings or collateral agreements, expressed, implied or statutory, between
such parties other than expressly set forth in this Guaranty.

 

13.          Any notice, demand, request or other communication to be given in
connection with this Guaranty shall be addressed to Guarantor at:

 

Hyperdynamics Corporation

12012 Wickchester Lane, Suite 475

Houston, TX 77079, USA

Attention: Mr. Ray Leonard

Facsimile: + 1 713-353-9421

 

14.          This Guaranty is governed by and construed in accordance with the
laws of England and Wales.

 

15.          Article XII of the Farmout Agreement shall apply to this Guaranty.

 

[Signature Page Follows]

 

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

 

IN WITNESS WHEREOF, each party hereto has caused this Guaranty to be duly
executed as a deed by its duly authorized officer as of the date and year first
above written.

 

 

Hyperdynamics Corporation

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

South Atlantic Petroleum Limited

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

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

 

Exhibit E

Farmee Parent Guaranty

 

[See attached]

 

GUARANTY

 

THIS GUARANTY is entered into effective the       day of               , 2017 by
South Atlantic Petroleum Limited (the ‘‘Guarantor”), in favor of SCS Corporation
Ltd. (“SCS”);

 

WHEREAS, Guarantor and SCS have entered into that certain Farmout Agreement (the
“Farmout Agreement”) relating to that certain Hydrocarbons Production Sharing
Contract between the Republic of Guinea and SCS Corporation dated September 22,
2006; as amended by that certain Amendment No. 1 to the Hydrocarbons Production
Sharing Contract between the Republic of Guinea and SCS Corporation dated
March 25, 2010; and as further amended by that memorandum of understanding
between the Republic of Guinea and SCS Corporation Ltd. dated August 19, 2016
and that certain Second Amendment to the Hydrocarbons Production Sharing
Contract between the Republic of Guinea and SCS Corporation Ltd. dated
September 14, 2016 and duly approved by a Decree No. 275/PRG/SGG of the
President of the Republic dated 21 September 2016 covering the area in the
Republic of Guinea shown on Exhibit A to the Farmout Agreement;

 

WHEREAS, Guarantor has assigned all of its rights, obligations and liabilities
as Farmee under the Farmout Agreement to                 (“Assignee”) and
Assignee has agreed to assume all such rights, obligations and liabilities;

 

WHEREAS, the Guarantor will receive substantial and direct benefits from the
transactions contemplated by SCS and Assignee and has agreed to enter into this
Guaranty to provide assurance for the performance of Assignee’s obligations; and

 

WHEREAS, the Guarantor has agreed to guarantee the performance by Assignee of
its obligations under the Farmout Agreement.

 

NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL OBLIGATIONS AND COVENANTS, THE
PARTIES HERETO AGREE AS FOLLOWS:

 

16.                               The Guarantor hereby irrevocably guarantees
full compliance with and the due performance by Assignee of all obligations of
Assignee under the Farmout Agreement, when and if due and payable, (the
“Obligations”); but in no event shall the Guarantor be subject hereunder to
consequential, exemplary, equitable, punitive, tort, or other similar damages,
and shall not be liable hereunder for lost profits.

 

17.                               This Guaranty is a primary obligation of the
Guarantor and shall be construed as unconditional and absolute. This Guaranty is
a continuing guarantee and shall continue in effect until the obligations are
performed or satisfied in full.  This Guaranty shall be reinstated if at any
time any payment of any Obligation is rescinded or must otherwise be

 

7

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

 

restored or returned by SCS upon the insolvency, bankruptcy or reorganization of
Assignee or for any other reason whatsoever, all as though such payment had not
been made. Notwithstanding any other provision contained herein, in respect of
the Guarantor or Assignee, the liabilities and obligations of the Guarantor
under the provisions of this Guaranty or the Farmout Agreement shall not either
individually or when aggregated together be greater than or different in
character or extent from the liabilities and obligations of Assignee to SCS
under the terms of the Farmout Agreement.

 

18.                               The Guarantor shall not be discharged or
released from its obligations hereunder by:

 

(a)                                 any extension, renewal, settlement,
compromise or waiver by SCS of any of the Obligations or the termination of the
Farmout Agreement;

 

(b)                                 any modification or amendment of any
documentation in respect of the Farmout Agreement; or

 

(c)                                  any insolvency, bankruptcy, reorganization
or other similar proceeding affecting Assignee or its assets or any resulting
release or discharge of any Obligation.

 

19.                               In the event of a failure by Assignee to make
payment under Section 3.1 of the Farmout Agreement, SCS shall submit written
notice to Guarantor. Upon receipt of written notice of the failure to pay,
Guarantor shall, within five (5) days of receipt of the notice, make payment to
Assignee of the unpaid amount, by wire transfer to the account specified in the
notice.

 

20.                               In the event and for the duration that
Guarantor makes payment on the Obligations, the Guarantor shall be entitled to
all rights and benefits to which Assignee is entitled under the Farmout
Agreement.

 

21.                               Upon payment of all Obligations owing to SCS,
the Guarantor shall be subrogated to the rights of SCS against Assignee.

 

22.                               This Guaranty shall inure to the benefit of
SCS and its successors and assigns, and shall be binding upon the Guarantor and
its successors and assigns.

 

23.                               The parties hereto shall not transfer their
obligations under this Guaranty without the prior written consent of the other
party, which consent shall not be unreasonably withheld.

 

24.                               This Guaranty shall terminate as of the
satisfaction of the Obligations; provided that, this Guaranty shall remain in
full force and effect thereafter until (but only until) all Obligations arising
prior to such termination have been satisfied.

 

25.                               The Guarantor hereby waives diligence,
presentment, demand for payment, protest, notice of acceptance or any other
notice whatsoever.

 

8

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

 

26.                               The Guarantor, in signing the Guaranty,
warrants to SCS that:

 

(a)                                 The Guarantor is a [corporation] duly
organized under the laws of the Federal Republic of Nigeria and existing in good
standing and has full power and authority to make and deliver this Guaranty,

 

(b)                                 The signing and delivery and performance of
this Guaranty by the Guarantor has been duly authorized by all necessary actions
of its directors and shareholders and does not and will not violate the
provisions of, or constitute default under, any presently applicable law or its
[articles of incorporation or by-laws] or any agreement presently binding on it,
and

 

(c)                                  This Guaranty has been duly signed and
delivered by the authorized officer(s) of the Guarantor and constitutes its
lawful, binding and legally enforceable obligation.

 

27.                               Notwithstanding anything else herein set
forth, this Guaranty, as supplemented by the Farmout Agreement, constitutes the
entire agreement between SCS and the Guarantor with respect to the subject
matter hereof and cancels and supersedes any prior understandings and agreements
between such parties with respect thereto. There are no representations,
warranties, terms, conditions, undertakings or collateral agreements, expressed,
implied or statutory, between such parties other than expressly set forth in
this Guaranty.

 

28.                               Any notice, demand, request or other
communication to be given in connection with this Guaranty shall be addressed to
Guarantor at:

 

 

Attention:                        

Fax:                                 

 

29.                               Assignee hereby assumes all rights,
obligations and liabilities of Farmee under the Farmout Agreement.

 

30.                               This Guaranty is governed by and construed in
accordance with the laws of England and Wales.

 

31.                               Article XII of the Farmout Agreement shall
apply to this Guaranty.

 

[Signature Page Follows]

 

9

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

 

IN WITNESS WHEREOF, each party hereto has caused this Guaranty to be duly
executed as a deed by its duly authorized officer as of the date and year first
above written.

 

 

South Atlantic Petroleum Limited

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

SCS Corporation Ltd.

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

[NOTE: Conform to execution requirements.]

 

10

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

 

Exhibit F

Work Program and Budget

 

[See attached]

 

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

 

[g102873ks53i001.jpg]

[g102873ks53i002.jpg]

 

WORK PROGRAM AND BUDGET
FOR EXTENSION PERIOD

 

Oil and Gas Operations Management Committee Meeting
October 31 - November 3, 2016
Houston, Texas

 

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

 

[g102873ks55i001.jpg]

2016 Budget

[g102873ks55i002.jpg]

 

USD ‘000 Gross

 

2016 Q1

 

2016 Q2

 

2016 Q3

 

2016 Q4

 

Firm

 

Contingent

 

Total

 

E:00 Exploration Common Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX - BR - Licences, Fees & Bonuses

 

 

 

 

 

$

37,544

 

 

 

$

37,544

 

$

0

 

$

37,544

 

EX - JOA PCO Capex

 

 

 

 

 

$

75,000

 

$

75,000

 

$

150,000

 

$

0

 

$

150,000

 

Total E:00 Exploration Common Costs

 

 

 

 

 

$

112,544

 

$

75,000

 

$

187,544

 

$

0

 

$

187,544

 

E.EL Licence Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX Licence Management Non Project

 

 

 

 

 

$

21,000

 

$

21,000

 

$

42,000

 

$

0

 

$

42,000

 

Total E.EG Exploration Other

 

 

 

 

 

$

21,000

 

$

21,000

 

$

42,000

 

$

0

 

$

42,000

 

E.EC Local Community Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guinea SI Projects

 

 

 

 

 

 

 

$

50,000

 

$

50,000

 

$

0

 

$

50,000

 

EX Local Community Development Non Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total E.EC Local Community Development

 

 

 

 

 

$

0

 

$

50,000

 

$

50,000

 

$

0

 

$

50,000

 

E.EG Exploration Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Local Office Costs

 

 

 

 

 

 

 

$

150,000

 

$

150,000

 

$

0

 

$

150,000

 

EX General Non Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total E.EG Exploration Other

 

 

 

 

 

$

0

 

$

150,000

 

$

150,000

 

$

0

 

$

150,000

 

E.ET: Studies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Studies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX Studies Non Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total E.ET: Studies

 

 

 

 

 

$

0

 

$

0

 

$

0

 

$

0

 

$

0

 

E:ED Drilling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GUINEA - Fatala Well

 

 

 

 

 

$

400,000

 

$

4,000,000

 

$

4,400,000

 

$

0

 

$

4,400,000

 

GUINEA- Well 2

 

 

 

 

 

$

100,000

 

$

150,000

 

$

250,000

 

 

 

$

250,000

 

GUINEA- Well 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX Drilling Non Project

 

 

 

 

 

 

 

 

 

$

0

 

$

0

 

$

0

 

Total E:ED Drilling

 

 

 

 

 

$

500,000

 

$

4,150,000

 

$

4,650,000

 

$

0

 

$

4,650,000

 

TOTAL EXPLORATION CAPEX

 

 

 

 

 

$

633,544

 

$

4,446,000

 

$

5,079,544

 

$

0

 

$

5,079,544

 

 

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

 

[g102873ks57i001.jpg]

2017 Budget

[g102873ks57i002.jpg]

 

USD ‘000 Gross

 

2017 Q1

 

2017 Q2

 

2017 Q3

 

2017 Q4

 

Firm

 

Contingent

 

Total

 

E:00 Exploration Common Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX - BR - Licences, Fees & Bonuses

 

 

 

 

 

$

37,544

 

 

 

$

37,544

 

$

0

 

$

37,544

 

EX - JOA PCO Capex

 

$

75,000

 

$

75,000

 

$

75,000

 

$

75,000

 

$

300,000

 

$

0

 

$

300,000

 

Total E:00 Exploration Common Costs

 

$

75,000

 

$

75,000

 

$

112,544

 

$

75,000

 

$

337,544

 

$

0

 

$

337,544

 

E.EL Licence Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX Licence Management Non Project

 

$

21,000

 

$

21,000

 

$

21,000

 

$

21,000

 

$

84,000

 

$

0

 

$

84,000

 

Total E.EG Exploration Other

 

$

21,000

 

$

21,000

 

$

21,000

 

$

21,000

 

$

84,000

 

$

0

 

$

84,000

 

E.EC Local Community Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guinea SI Projects

 

$

50,000

 

$

50,000

 

$

50,000

 

$

50,000

 

$

200,000

 

$

0

 

$

200,000

 

EX Local Community Development Non Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total E.EC Local Community Development

 

$

50,000

 

$

50,000

 

$

50,000

 

$

50,000

 

$

200,000

 

$

0

 

$

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E.EG Exploration Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Local Office Costs

 

$

150,000

 

$

150,000

 

$

150,000

 

$

150,000

 

$

600,000

 

$

0

 

$

600,000

 

EX General Non Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total E.EG Exploration Other

 

$

150,000

 

$

150,000

 

$

150,000

 

$

150,000

 

$

600,000

 

$

0

 

$

600,000

 

E.ET: Studies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Studies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX Studies Non Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total E.ET: Studies

 

$

0

 

$

0

 

$

0

 

$

0

 

$

0

 

$

0

 

$

0

 

E:ED Drilling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GUINEA - Fatala Well

 

$

15,500,000

 

$

26,000,000

 

 

 

 

 

$

41,500,000

 

 

 

$

41,500,000

 

GUINEA- Well 2

 

$

2,000,000

 

$

51,000,000

 

 

 

 

 

 

 

$

53,000,000

 

$

53,000,000

 

GUINEA- Well 3

 

 

 

 

 

$

46,000,000

 

 

 

 

 

$

46,000,000

 

$

46,000,000

 

EX Drilling Non Project

 

 

 

 

 

 

 

 

 

$

0

 

$

0

 

$

0

 

Total E:ED Drilling

 

$

17,500,000

 

$

77,000,000

 

$

46,000,000

 

$

0

 

$

41,500,000

 

$

99,000,000

 

$

140,500,000

 

TOTAL EXPLORATION CAPEX

 

$

17,796,000

 

$

77,296,000

 

$

46,333,544

 

$

296,000

 

$

42,721,544

 

$

99,000,000

 

$

141,721,544

 

 

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