OPERATING AGREEMENT
 
BETWEEN
 
SCS CORPORATION
 
AND
 
DANA PETROLEUM (E&P) LIMITED
 
COVERING:
 
THE HYDROCARBON PRODUCTION SHARING CONTRACT DATED SEPTEMBER 22, 2006
 
OFFSHORE REPUBLIC OF GUINEA
 
BASED ON
 
THE 2002 MODEL FORM INTERNATIONAL OPERATING AGREEMENT OF
 
THE ASSOCIATION OF INTERNATIONAL PETROLEUM NEGOTIATORS (“AIPN”)

 
 

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

 

TABLE OF CONTENTS
 
ARTICLE 1 DEFINITIONS
1
ARTICLE 2 EFFECTIVE DATE AND TERM
5
ARTICLE 3 SCOPE
5
3.1
Scope
5
3.2
Participating Interest
6
3.3
Ownership, Obligations and Liabilities
6
3.4
Government Participation
6
ARTICLE 4 OPERATOR
6
4.1
Designation of Operator
6
4.2
Rights and Duties of Operator
7
4.3
Operator Personnel
8
4.4
Information Supplied by Operator
10
4.5
Settlement of Claims and Lawsuits
11
4.6
Limitation on Liability of Operator
11
4.7
Insurance Obtained by Operator
12
4.8
Commingling of Funds
13
4.9
Resignation of Operator
14
4.10
Removal of Operator
14
4.11
Appointment of Successor
14
4.12
Health, Safety and Environment (HSE)
15
ARTICLE 5 OPERATING COMMITTEE
  16
5.1
Establishment of Operating Committee
16
5.2
Powers and Duties of Operating Committee
16
5.3
Authority to Vote
16
5.4
Subcommittees
17
5.5
Notice of Meeting
17
5.6
Contents of Meeting Notice
17
5.7
Location of Meetings
17
5.8
Operator’s Duties for Meetings
17
5.9
Voting Procedure
18
5.10
Record of Votes
19
5.11
Minutes
19
5.12
Voting by Notice
19
5.13
Effect of Vote
20
ARTICLE 6 WORK PROGRAMS AND BUDGETS
  21
6.1
Exploration and Appraisal
21
6.2
Development
22
6.3
Production
23
6.4
Itemization of Expenditures
23
6.5
Multi-Year Work Program and Budget
24
6.6
Contract Awards
24
6.7
Authorization for Expenditure (AFE) Procedure
25
6.8
Overexpenditures of Work Programs and Budgets
26
ARTICLE 7 OPERATIONS BY LESS THAN ALL PARTIES
  26
7.1
Limitation on Applicability
26
7.2
Procedure to Propose Exclusive Operations
27
7.3
Responsibility for Exclusive Operations
28
7.4
Consequences of Exclusive Operations
28
7.5
Premium to Participate in Exclusive Operations
30
7.6
Order of Preference of Operations
31
7.7
Stand-By Costs
32
7.8
Special Considerations Regarding Deepening and Sidetracking
33
7.9
Use of Property
33

 
ii

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

 

7.10
Lost Production
34
7.11
Production Bonuses
34
7.12
Conduct of Exclusive Operations
35
ARTICLE 8 DEFAULT
36
8.1
Default and Notice
36
8.2
Operating Committee Meetings and Data
36
8.3
Allocation of Defaulted Accounts
37
8.4
Remedies
38
8.5
Survival
40
8.6
No Right of Set Off
40
ARTICLE 9 DISPOSITION OF PRODUCTION
  41
9.1
Right and Obligation to Take in Kind
41
9.2
Disposition of Crude Oil
41
9.3
Disposition of Natural Gas
41
ARTICLE 10 ABANDONMENT
  41
10.1
Abandonment of Wells Drilled as Joint Operations
41
10.2
Abandonment of Exclusive Operations
42
ARTICLE 11 SURRENDER, EXTENSIONS AND RENEWALS
  42
11.1
Surrender
42
11.2
Extension of the Term
43
ARTICLE 12 TRANSFER OF INTEREST OR RIGHTS AND CHANGES IN CONTROL
  43
12.1
Obligations
43
12.2.
Transfer
44
12.3
Change in Control
45
ARTICLE 13 WITHDRAWAL FROM AGREEMENT
  46
13.1
Right of Withdrawal
46
13.2
Partial or Complete Withdrawal
46
13.3
Rights of a Withdrawing Party
46
13.4
Obligations and Liabilities of a Withdrawing Party
46
13.5
Emergency
47
13.6
Assignment
47
13.7
Approvals
48
13.8
Security
48
13.9
Withdrawal or Abandonment by all Parties
48
ARTICLE 14 RELATIONSHIP OF PARTIES AND TAX
  48
14.1
Relationship of Parties
48
14.2
Tax
48
14.3
United States Tax Election
49
ARTICLE 15 VENTURE INFORMATION - CONFIDENTIALITY - INTELLECTUAL PROPERTY
  49
15.1
Venture Information
49
15.2
Confidentiality
50
15.3
Intellectual Property
51
15.4
Continuing Obligations
51
15.5
Trades
51
ARTICLE 16 FORCE MAJEURE
  52
16.1
Obligations
52
16.2
Definition of Force Majeure
52
ARTICLE 17 NOTICES
  52
ARTICLE 18 APPLICABLE LAW - DISPUTE RESOLUTION - WAIVER OF SOVEREIGN IMMUNITY
  53
18.1
Applicable Law
53
18.2
Dispute Resolution
53
18.3
Expert Determination
55
18.4
Waiver of Sovereign Immunity
56
ARTICLE 19 ALLOCATION OF COST & PROFIT HYDROCARBONS
  56
19.1
Allocation of Total Production
56
19.2
Allocation of Hydrocarbons to Parties
56

 
iii

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

 

19.3
Use of Estimates
57
19.4
Principles
57
ARTICLE 20 GENERAL PROVISIONS
  57
20.1
Conduct of the Parties
57
20.2
Conflicts of Interest
58
20.3
Public Announcements
58
20.4
Successors and Assigns
58
20.5
Waiver
58
20.6
No Third Party Beneficiaries
59
20.7
Joint Preparation
59
20.8
Severance of Invalid Provisions
59
20.9
Modifications
59
20.10
Interpretation
59
20.11
Counterpart Execution
59
20.12
Entirety
60

Exhibit A          -           Accounting Procedure
Exhibit B           -           Contract Area

 
iv

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

 

OPERATING AGREEMENT
 
THIS AGREEMENT is made as of the 28th day of January 2010 (the “Effective Date”)
among SCS Corporation, a company existing under the laws of the State of
Delaware (hereinafter referred to as “SCS” or “Operator”) and Dana Petroleum
(E&P) Limited, a company existing under the laws of England, (hereinafter
referred to as “DANA”).  The companies named above, and their respective
successors and assignees (if any), may sometimes individually be referred to as
“Party” and collectively as the “Parties”.
 
WITNESSETH:
 
WHEREAS, SCS has entered into the Hydrocarbon Production Sharing Contract dated
September 22, 2006 with the Republic of Guinea (hereinafter referred to as
“Government”) covering certain areas located in the Offshore Area (the
“Contract”) which Contract is subject to a Memorandum of Understanding dated
September 11, 2009 between the Government and SCS; and
 
WHEREAS, SCS and DANA are Parties to the Contract; and
 
WHEREAS, the Parties desire to define their respective rights and obligations
with respect to their operations under the Contract;
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements and obligations set out below and to be performed, the Parties agree
as follows:
 
ARTICLE 1
DEFINITIONS
 
As used in this Agreement, the following words and terms shall have the meaning
ascribed to them below:
 
1.1
Accounting Procedure means the rules, provisions and conditions contained in
Exhibit A.

 
1.2
AFE means an authorization for expenditure pursuant to Article 6.7.

 
1.3
Affiliate means a legal entity which Controls, or is Controlled by, or which is
Controlled by an entity which Controls, a Party.

 
1.4
Agreed Interest Rate means interest compounded on a monthly basis, at the rate
per annum equal to the one (1) month term, London Interbank Offered Rate (LIBOR
rate) for U.S. dollar deposits, as published in London by the Financial Times or
if not published, then by The Wall Street Journal, plus two (2) percentage
points, 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, the rate of interest
to be charged shall be the maximum rate permitted by such applicable law.

 
1.5
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.

 
1.6
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.

 
1.7
Business Day means a Day on which both the banks in the United States and
Scotland are customarily open for business.

 
 

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

 

1.8
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.

 
1.9
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.

 
1.10
Commercial Discovery means any Discovery that is sufficient to entitle the
Parties to apply to the Government to commence exploitation.

 
1.11
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.

 
1.12
Consenting Party means a Party who agrees to participate in and pay its share of
the cost of an Exclusive Operation.

 
1.13
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 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.

 
1.14
Contract means the instrument identified in the recitals to this Agreement and
any extension, renewal or amendment thereto.

 
1.15
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 Contract, as such area may vary from time to time
during the term of validity of the Contract.

 
1.16
Control means the ownership directly or indirectly of more than fifty (50)
percent of the voting rights in a legal entity.  “Controls”, “Controlled by” and
other derivatives shall be construed accordingly.

 
1.17
Cost Hydrocarbons means that portion of the total production of Hydrocarbons
which is allocated to the Parties under the Contract and this Agreement for the
recovery of the costs and expenses incurred by the Parties and allowed to be
recovered pursuant to the Contract.

 
1.18
Crude Oil means all crude oils, condensates, and natural gas liquids at
atmospheric pressure which are subject to and covered by the Contract.

 
1.19
Day means a calendar day unless otherwise specifically provided.

 
1.20
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.

 
1.21
Development Plan means a plan for the development of Hydrocarbons from an
Exploitation Area.

 
1.22
Development Well means any well drilled for the production of Hydrocarbons
pursuant to a Development Plan.

 
1.23
Discovery means the discovery of an accumulation of Hydrocarbons whose existence
until that moment was unproven by drilling.

 
2

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

 
 
1.24
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.

 
1.25
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 Contract, as such
rights and obligations may be adjusted by the terms of any lifting, balancing
and other disposition agreements entered into pursuant to Article 9.

 
1.26
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.

 
1.27
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.

 
1.28
Exclusive Well means a well drilled pursuant to an Exclusive Operation.

 
1.29
Exploitation Area means that part of the Contract Area which is established for
development of a Commercial Discovery pursuant to the Contract or, if the
Contract 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.

 
1.30
Exploitation Period means any and all periods of exploitation during which the
production and removal of Hydrocarbons is permitted under the Contract.

 
1.31
Exploration Period means any and all periods of exploration set out in the
Contract.

 
1.32
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.

 
1.33
G & G Data means only geological, geophysical and geochemical data and other
similar information that is not obtained through a well bore.

 
1.34
Government means the government of the Republic of Guinea and any political
subdivision, agency or instrumentality thereof, including the Government Oil &
Gas Company.

 
1.35
Government Oil & Gas Company means the oil and gas company formed by the
Republic of Guinea for the purposes of the Contract under whatever name is
eventually given to the company.

 
1.36
Gross Negligence / Willful Misconduct means any act or failure to act (whether
sole, joint or concurrent) by any person or entity which was intended to cause,
or which was in reckless disregard of or wanton indifference to, harmful
consequences such person or entity knew, or should have known, such act or
failure would have on the safety or property of another person or entity.

 
1.37
Hydrocarbons means all substances which are subject to and covered by the
Contract, including Crude Oil and Natural Gas.

 
1.38
Joint Account means the accounts maintained by Operator in accordance with the
provisions of this Agreement, including the Accounting Procedure.

 
3

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

 
 
1.39
Joint Operations means those operations and activities carried out by Operator
pursuant to this Agreement, the costs of which are chargeable to all Parties.

 
1.40
Joint Property means, at any point in time, all wells, facilities, equipment,
materials, information (subject always to the provisions of Article 15.3 below),
funds and property (other than Hydrocarbons) held for use in Joint Operations.

 
1.41
Laws / Regulations means those laws, statutes, rules and regulations governing
activities under the Contract.

 
1.42
Minimum Work Obligations means those work and/or expenditure obligations
specified in the Contract that must be performed in order to satisfy the
obligations of the Contract.

 
1.43
Natural Gas means all gaseous hydrocarbons (including wet gas, dry gas and
residue gas) which are subject to and covered by the Contract, but excluding
Crude Oil.

 
1.44
Non-Consenting Party means each Party who elects not to participate in an
Exclusive Operation.

 
1.45
Non-Operator means each Party to this Agreement other than Operator.

 
1.46
Operating Committee means the committee constituted in accordance with Article
5.

 
1.47
Operator means a Party to this Agreement designated as such in accordance with
Articles 4 or 7.12(F).

 
1.48
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 the Contract and
this Agreement.

 
1.49
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.

 
1.50
Profit Hydrocarbons means that portion of the total production of Hydrocarbons,
in excess of Cost Hydrocarbons, which is allocated to the Parties under the
terms of the Contract.

 
1.51
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.

 
1.52
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.

 
1.53
Security means (i) a guarantee or standby 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 Contract 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, standby 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.

 
1.54
Senior Supervisory Personnel means, with respect to a Party, any individual who
functions as its senior resident manager who directs all operations and
activities of such Party in the country or region in which he is resident, and
any manager who directly reports to such senior resident manager in such country
or region, but excluding all managers or supervisors who are responsible for or
in charge of installations or facilities, onsite drilling, construction or
production and related operations, or any other field operations; and, in any of
the above alternatives, any individual who functions for such Party or one of
its Affiliates at a management level equivalent to or superior to the tier
selected, or any officer or director of such Party or one of its Affiliates.

 
4

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

 
 
1.55
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.

 
1.56
Testing means an operation intended to evaluate the capacity of a Zone to
produce Hydrocarbons.  “Test” and other derivatives shall be construed
accordingly.

 
1.57
Urgent Operational Matters has the meaning ascribed to it in Article 5.12(A)(1).

 
1.58
Work Program and Budget means a work program for Joint Operations and budget
therefor as described and approved in accordance with Article 6 and shall not
necessarily mean, but shall not exclude the minimum exploration program required
of the Parties under the Contract.

 
1.59
Zone means a stratum of earth containing or thought to contain an accumulation
of Hydrocarbons separately producible from any other accumulation of
Hydrocarbons.

 
ARTICLE 2
EFFECTIVE DATE AND TERM
 
This Agreement shall have effect from the Effective Date (as defined in the
preamble to this Agreement) and shall continue in effect until the following
occur in accordance with the terms of this Agreement: the Contract terminates;
all materials, equipment and personal property used in connection with Joint
Operations or Exclusive Operations have been disposed of or removed; and final
settlement (including settlement in relation to any financial audit carried out
pursuant to the Accounting Procedure) has been made.  Notwithstanding the
preceding sentence: (i) Article 10 shall remain in effect until all abandonment
obligations under the Contract have been satisfied; and (ii) Article 4.5,
Article 8, Article 15.2, Article 18 and the indemnity obligation under Article
20.1 (A) shall remain in effect until all obligations have been extinguished and
all Disputes have been resolved.  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.
 
ARTICLE 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 Contract,
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 Contract, the following activities are outside of the scope of
this Agreement and are not addressed herein:

 
 
(1)
construction, operation, ownership, maintenance, repair and removal of
facilities downstream from the delivery point (as determined under Article 9) of
the Parties’ Entitlements;

 
 
(2)
transportation of the Parties’ Entitlements downstream from the delivery point
(as determined under Article 9);

 
5

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

 
 
 
(3)
marketing and sales of Hydrocarbons, except as expressly provided in
Article 7.12(E), Article 8.4 and Article 9;

 
 
(4)
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 Contract); and

 
 
(5)
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: 
77%

 
DANA: 
23%

 
(B)
If a Party transfers all or part of its Participating Interest pursuant to the
provisions of this Agreement and the Contract, 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 Contract, all Joint Property, and any Hydrocarbons produced from the
Contract Area shall, subject to the terms of the Contract, be owned by the
Parties in accordance with their respective Participating Interests.

 
 
(B)
Unless otherwise provided in this Agreement, the obligations of the Parties
under the Contract 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 accordance with
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.

 
3.4
Government Participation

 
If Government Oil & Gas Company, elects to participate in the rights and
obligations of Parties pursuant to Article 15 of the Contract, the Parties shall
contribute, in proportion to their respective Participating Interests, to the
interest to be acquired by Government Oil & Gas Company.  The effective date of
the Government’s participation shall be the date of the adoption of the
development plan under Article 7 of the Contract.
 
The Parties shall execute 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 or related to the transfer of such
interests and the joinder of the Government shall be credited to the Parties in
proportion to their Participating Interests.
 
ARTICLE 4
OPERATOR
 
4.1
Designation of Operator

 
SCS is designated as Operator and agrees to act as such in accordance with this
Agreement.

 
6

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

 
 
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 Contract 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:

 
 
(1)
perform Joint Operations in accordance with the provisions of the Contract, the
Laws / Regulations, this Agreement, and the decisions of the Operating Committee
not in conflict with this Agreement;

 
 
(2)
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;

 
 
(3)
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;

 
 
(4)
subject to Article 4.6 and the Accounting Procedure, neither gain a profit nor
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;

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

 
 
(6)
acquire all permits, consents, approvals, and surface or other rights that may
be required for or in connection with the conduct of Joint Operations;

 
 
(7)
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 and to
conduct financial audits as provided in the Accounting Procedure;

 
 
(8)
undertake to maintain the Contract in full force and effect in accordance 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 liens, charges and encumbrances
arising out of Joint Operations;

 
 
(9)
pay to the Government for the Joint Account, within the periods and in the
manner prescribed by the Contract and the Laws / Regulations, all periodic
payments, royalties, taxes, fees and other payments pertaining to Joint
Operations but excluding any taxes measured by the incomes of the Parties;

 
 
(10)
carry out the obligations of Operator pursuant to the Contract, including
preparing and furnishing such reports, records and information as may be
required pursuant to the Contract;

 

 
7

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

 
 
 
(11)
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 Contract and Joint
Operations, including serving as the Contractor’s representatives on the
Petroleum Operations Management Committee under Article 9 of the
Contract.  Operator shall notify the other Parties as soon as possible of such
meetings.  Subject to the Contract 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 Contract 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 Parties;

 
 
(12)
in accordance with Article 9.3 and any decisions of the Operating Committee,
assess (to the extent lawful) alternatives for the disposition of Natural Gas
from a Discovery;

 
 
(13)
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): (i) take all
necessary and proper measures for the protection of life, health, the
environment and property; and (ii) 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;

 
 
(14)
establish and implement pursuant to Article 4.12 an HSE plan to govern Joint
Operations which is designed to ensure compliance with applicable HSE laws,
rules and regulations and this Agreement;

 
 
(15)
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
indemnities against, and recover losses and damages suffered by them (insofar as
recovered under their contracts) from, such contractors; and

 
 
(c)
require such contractors to take insurance required by Article 4.7(H).

 
4.3
Operator Personnel

 
 
(A)
Operator shall engage or retain only such employees, Secondees, contractors,
consultants and agents as are reasonably necessary to conduct Joint
Operations.  For the purposes of this Article 4.3, “Secondee” means an employee
of a Non-Operator (or its Affiliate) who is seconded to Operator to provide
services under a secondment agreement to be negotiated and entered into between
Operator and such Non-Operator; and “Secondment” means placement within
Operator’s organization in accordance with this Article 4.3 of one or more
persons who are employed by a Non-Operator or an Affiliate.

 
 
(B)
Subject to the Contract and this Agreement, Operator shall determine the number
of employees, Secondees, contractors, consultants and agents, the selection of
such persons, their hours of work, and (except for Secondees) the compensation
to be paid to all such persons in connection with Joint Operations.

 
8

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

 
 
 
(C)
No Secondment may be implemented except (i) in situations requiring particular
expertise or involving projects of a technical, operational or economically
challenging nature; and (ii) in the manner set out in paragraphs (1) to (7)
below.

 
 
(1)
Any Party may propose Secondment for a designated purpose related to Joint
Operations.  Any proposal for Secondment must include the:

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

 
 
(b)
duration of the Secondment;

 
 
(c)
number of Secondees and minimum expertise, qualifications and experience
required;

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

 
 
(e)
estimated costs of the Secondment.

 
 
(2)
In relation to a proposed Secondment meeting the requirements of
Article 4.3(C)(1), Operator shall as soon as reasonably practicable approve
(such approval to not be unreasonably withheld) or reject any Secondment
proposed by a Non-Operator. Without prejudice to Operator’s right to conduct
Joint Operations in accordance with this Agreement and the Contract, Operator
shall consider such Secondment proposal in light of the: (i) expertise and
experience required for the relevant Joint Operations; (ii) expertise and
experience of Operator’s personnel; and (iii) potential benefits of such
Secondment to the conduct of Joint Operations.

 
 
(3)
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.

 
 
(4)
As to each approved and authorized Secondment position, Operator shall request
Non-Operators to nominate, by a specified date, qualified personnel to be the
Secondee for such position.  Each Non-Operator has the right (but not the
obligation) to nominate for each Secondment position one or more proposed
Secondees who such Non-Operator considers reasonably qualified to fulfill the
designated purpose and scope of such Secondment.

 
 
(5)
Following the deadline for submitting nominations, Operator shall consider the
expertise and experience of each such nominee in light of the expertise and
experience required for the approved and authorized Secondment position, and
shall select from the nominees the best qualified person, unless Operator
reasonably demonstrates that no nominee is qualified to fulfill the designated
purpose and scope of such Secondment.

 
9

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

 

 
(6)
Operator shall have the right to terminate the Secondment for cause in
accordance with the secondment agreement provided for under Article 4.3(D).

 
 
(7)
Although each Secondee shall report to and be directed by Operator, each
Secondee shall remain at all times the employee of the Party (or its Affiliate)
nominating such Secondee.

 
 
(D)
Any Secondment under this Agreement shall be in accordance with a separate
secondment agreement to be negotiated and entered into between Operator and the
employer of the Secondee, which agreement shall be consistent with this Article
4.3.

 
 
(E)
All costs related to Secondment and Secondees that are within the Work Program
and Budget related to such Secondment position shall be charged to the Joint
Account.

 
 
(F)
If any Secondee acting as the Senior Supervisory Personnel of Operator or its
Affiliates engages in Gross Negligence / Willful Misconduct which proximately
causes the Parties to incur damage, loss, cost, expense or liability for claims,
demands or causes of action referred to in Articles 4.6(A) or 4.6(B), then all
such damages, losses, costs, expenses and liabilities shall be allocated to
Operator, in accordance with Article 4.6.

 
4.4
Information Supplied by Operator

 
 
(A)
Operator shall provide Non-Operators 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:

 
 
(1)
copies of all logs or surveys, including in digitally recorded format if such
exists;

 
 
(2)
daily drilling reports;

 
 
(3)
copies of all Tests and core data and analysis reports;

 
 
(4)
final well recap report;

 
 
(5)
copies of plugging reports;

 
 
(6)
copies of final geological and geophysical maps, seismic sections and shot point
location maps;

 
 
(7)
engineering studies, development schedules and quarterly progress reports on
development projects;

 
 
(8)
field and well performance reports, including reservoir studies and reserve
estimates;

 
 
(9)
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;

 
 
(10)
gas balancing reports under agreements provided for in Article 9.3;

 
 
(11)
such additional information as a Non-Operator may reasonably request, provided
that 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.  Only Non-Operators who pay
such costs will receive such additional information; and

 
10

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

 
 
 
(12)
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 Article 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 Hundred
Thousand U.S. dollars (US$100,000) 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 for the Joint Account.

 
 
(C)
Notwithstanding Article 4.5(A) and Article 4.5(B), each Party shall have the
right to participate in any such suit, prosecution, defense or settlement
conducted in accordance with Article 4.5(A) and Article 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 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, STRICT LIABILITY OR OTHER LEGAL FAULT OF OPERATOR (OR ANY
SUCH INDEMNITEE).

 
 
(B)
THE PARTIES SHALL (IN PROPORTION TO THEIR PARTICIPATING INTERESTS) DEFEND AND
INDEMNIFY OPERATOR AND 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,
STRICT LIABILITY OR OTHER LEGAL FAULT OF OPERATOR (OR ANY SUCH INDEMNITEE).

 
11

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

 
 
 
(C)
Notwithstanding Articles 4.6(A) or 4.6(B), if any Senior Supervisory Personnel
of Operator or its Affiliates engage in Gross Negligence / Willful Misconduct
which proximately causes the Parties to incur damage, loss, cost, expense or
liability for claims, demands or causes of action referred to in Articles 4.6(A)
or 4.6(B), then, in addition to its Participating Interest share, Operator shall
bear only the actual damage, loss, cost, expense and liability to repair,
replace and/or remove Joint Property so damaged or lost, if any.

 
Notwithstanding the foregoing, under no circumstances shall Operator (except as
a Party to the extent of its Participating Interest) or any other Indemnitee
bear any Consequential Loss or Environmental Loss.
 
 
(D)
Nothing in this Article 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 Contract 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 underwrite any or all of the
insurance to be obtained by Operator under Articles 4.7(A) and 4.7(B), through
such Party's Affiliate insurance company or, if such direct insurance is not so
permitted, through reinsurance policies to such Party's Affiliate insurance
company; provided that the security and creditworthiness of such insurance
arrangements are satisfactory to Operator, and that such arrangements will not
result in any part of the premiums for such insurance not being recoverable
under the Contract, or being significantly higher than the market rate.

 
(D)
Subject to the Contract and the Laws / Regulations, any Party may elect not to
participate in the insurance to be procured under Articles 4.7(A) and 4.7(B)
provided such Party:

 
 
 (1)
gives prompt written notice to that effect to Operator;

 
(2)
does nothing which may interfere with Operator’s negotiations for such insurance
for the other Parties;

 
(3)
obtains insurance prior to or concurrent with the commencement of relevant
operations and maintains such insurance (in respect of which a current
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 Article 4.7(A) and/or Article 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
Article 4.7(F), 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 Contract 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

 
12

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

 

 
(4)
is 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 less 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)
Operator shall, with respect to all insurance obtained under this Article 4.7:

 
(1)
use reasonable endeavors to procure or cause to be procured such insurance prior
to or concurrent with, the commencement of relevant operations and maintain or
cause to be maintained such insurance during the term of the relevant operations
or any longer term required under the Contract or the Laws / Regulations;

 
(2)
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;

 
(3)
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;

 
(4)
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

 
(5)
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.

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

 
(1)
obtain and maintain any and all insurance in the types and amounts required by
the Contract, the Laws / Regulations or any decision of the Operating Committee;

 
(2)
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

 
(3)
provide Operator with certificates reflecting 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.

 
13

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

 
 
Interest Bearing Account: The Operating Committee may decide that monies
Operator receives for the Joint Account shall be deposited in an
interest-bearing accountat any time.  Interest earned shall be allocated among
the Parties on an equitable basis taking into account the date of the funding by
each Party and its share of the Joint Account monies.  Operator shall apply such
earned interest to the next succeeding cash call or, if directed by the
Operating Committee, pay it to the Parties.
 
4.9
Resignation of Operator

 
Subject to Article 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 resignation.
 
4.10
Removal of Operator

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

 
 
(1)
Operator becomes insolvent or bankrupt, or makes an assignment for the benefit
of creditors;

 
 
(2)
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;

 
 
(3)
a receiver is appointed for a substantial part of Operator’s assets; or

 
 
(4)
Operator dissolves, liquidates, is wound up, or otherwise terminates its
existence.

 
 
(B)
Subject to Article 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 Article 4.10(B)
shall be made by an affirmative vote of two (2) or more of the total number of
Non-Operators holding a combined Participating Interest of at least twenty-five
percent (25%).  However, if Operator disputes such alleged commission of or
failure to cure a material breach and dispute resolution proceedings are
initiated pursuant to Article 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 Article
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-five percent (25%), 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 Article 4.11.

 
 
(D)
If there is a direct or indirect change in Control of Operator (other than a
transfer of Control to an Affiliate of Operator), Operator shall be required to
promptly notify the other Parties.  The Operating Committee shall vote pursuant
to Article 5.9 within thirty (30) Days of such notification on whether or not a
successor Operator should be named pursuant to Article 4.11.

 
4.11
Appointment of Successor

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

 
14

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

 
 
 
(A)
The Operating Committee shall meet as soon as possible to appoint a successor
Operator pursuant to the voting procedure of Article 5.9.  No Party may be
appointed successor Operator against its will.  No entity shall be appointed
operator unless it can demonstrate to the satisfaction of the Operating
Committee that it has the requisite financial and technical capability and that
its appointment would not be counter to or violate the law in any of the
jurisdictions in which the parties are incorporated, have their principal place
of business or are licensed to do business.

 
 
(B)
If Operator is removed, other than in the case of Article 4.10(C) or Article
4.10(D), 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 be compensated out of the Joint Account
for its reasonable expenses directly related to its resignation or removal,
except in the case of Article 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 inventory and audit shall be
charged to the Joint Account.

 
 
(E)
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.  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
Health, Safety and Environment (“HSE”)

 
 
(A)
With the goal of achieving safe and reliable operations in compliance with
applicable HSE laws, rules and 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:

 
 
(1)
establish and implement an HSE plan in a manner consistent with standards and
procedures generally followed in the international petroleum industry under
similar circumstances, including Recommended Practice 75 of the American
Petroleum Institute and provide such plan and any amendments to the Operating
Committee and to all interest owners as soon as practicable;

 
 
(2)
design and operate Joint Property consistent with the HSE plan; and

 
 
(3)
conform with locally applicable HSE laws, rules and regulations and other
HSE-related statutory requirements that may apply.

 
 
(B)
The Operating Committee shall from time to time review details of Operator’s HSE
plan and Operator’s implementation thereof.

 
 
(C)
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.

 
15

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

 
 
 
(D)
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 Article 4.12.

 
 
(E)
Operator shall establish and enforce rules consistent with those generally
followed in the international petroleum industry under similar circumstances
that, at a minimum, prohibit within the Contract Area the following:

 
 
(1)
possession, use, distribution or sale of firearms, explosives, or other weapons
without the prior written approval of senior management of Operator;

 
 
(2)
possession, use, distribution or sale of alcoholic beverages without the prior
written approval of senior management of Operator; and

 
 
(3)
possession, use, distribution or sale of illicit or non-prescribed controlled
substances and the misuse of prescribed drugs.

 
 
(F)
Without prejudice to a Party’s rights under Article 4.2(B)(7), with reasonable
advance notice, 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.

 
ARTICLE 5
OPERATING COMMITTEE
 
5.1
Establishment of Operating Committee

 
To provide for the overall supervision and direction of Joint Operations, 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 date of this
Agreement 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
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 Contract and
properly explore and exploit the Contract Area in accordance with this Agreement
and in a manner appropriate in the circumstances.
 
5.3
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.

 
16

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

 
 
5.4
Subcommittees

 
The Operating Committee may establish such subcommittees, including technical
subcommittees, as the Operating Committee may deem appropriate.  The functions
of such subcommittees shall be in an advisory capacity or as otherwise
determined unanimously by the Parties.  Each Party shall have the right to
appoint a representative to each subcommittee.  As soon as practicable upon
formation, the Operating Committee shall consider the establishment of a
technical subcommittee for geologic exploration and, upon the commencement of
planning for operations,  a technical subcommittee for engineering.  The parties
shall each be allowed to appoint three (3) representatives to each subcommittee.
 
5.5
Notice of Meeting

 
 
(A)
Operator may call a meeting of the Operating Committee by giving notice to the
Parties at least fifteen (15) 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 fifteen (15) 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.

 
5.6
Contents of Meeting Notice

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

 
 
(1)
the date, time and location of the meeting;

 
 
(2)
an agenda of the matters and proposals to be considered and/or voted upon; and

 
 
(3)
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 seven (7) Days 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.

 
5.7
Location of Meetings

 
All meetings of the Operating Committee shall be held at the offices of the
Operator, or elsewhere as the Operating Committee may decide.
 
5.8
Operator’s Duties for Meetings

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

 
 
(1)
timely preparation and distribution of the agenda;

 
 
(2)
organization and conduct of the meeting; and

 
 
(3)
preparation of a written record or minutes of each meeting.

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

 
17

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

 
 
5.9
Voting Procedure

 
Except as otherwise expressly provided in this Agreement, decisions, approvals
and other actions of the Operating Committee on all proposals 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 (2) or more Parties which are not
Affiliates then having collectively at least fifty percent (50%) 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 (2) or more Parties which are not
Affiliates then having collectively at least sixty-seven percent (67%) of the
Participating Interests.

 
 
(C)
All decisions, approvals and other actions for which column (C) below is checked
shall require the affirmative vote of all of the  Parties which are not
Affiliates then having collectively at least one hundred percent (100%) of the
Participating Interests.

 

 
Matter
(A)
(B)
(C)
(1)
Minimum Work Obligations.
   
X
(2)
Drilling, Deepening, Testing, Sidetracking, Plugging Back, Recompleting or
Reworking Exploration Wells in addition to those contained in the Minimum Work
Program.
 
X
 
(3)
Drilling, Deepening, Testing, Sidetracking, Plugging Back, Recompleting or
Reworking Appraisal Wells.
 
X
 
(4)
Development Plans.
 
X
 
(5)
Completion of a well.
 
X
 
(6)
Plugging and abandoning a well.
 
X
 
(7)
Acquisition of G & G Data.
 
X
 
(8)
Construction of processing, treatment, compression, gathering, transportation
and other downstream facilities.
 
X
 
(9)
Contract awards (if approval is required).
 
X
 
(10)
Determination that a Discovery is a Commercial Discovery.
 
X
 
(11)
Unitization under the terms of the Contract with an adjoining contract area.
   
X
(12)
Establishment of an interest bearing account for Joint Account monies.
X
   
(13)
Acquisition and development of Venture Information under terms other than as
specified in Article 15.
 
X
 
(14)
Naming of successor operator upon vote under Article 4.11 (D).
 
X
 
(15)
Voluntary Relinquishment of a portion of the Contract Area
   
X
(16)
Mandatory Relinquishment of a portion of the Contract Area, provided that, in
the case of insufficient votes for approval, the relinquished portion of the
Contract Area shall be determined by use of the procedure set forth in Article
6.1 (D) as adapted to include the Operating Committee’s inability to agree on
such relinquishment.
 
X
 
(17)
Annual Work Programs and Budgets or any amendment thereto
 
X
 
(18)
Choice of governing law and selection of governing rules for dispute resolution.
X
   
(19)
All other matters within the Operating Committee’s authority.
X
   

 
18

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

 
5.10
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.
 
5.11
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 to the minutes.  A
failure to give notice specifying objection 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 Article 5.10 shall take precedence over the minutes
described above.
 
5.12
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:

 
 
(1)
Forty Eight(48) hours in the case of operations which involve the use of a
drilling rig 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

 
 
(2)
Fifteen(15) Days in the case of all other proposals.

 
 
(B)
Except in the case of Article 5.12(A)(1), 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 Article 10, any Party failing to communicate its vote in a
timely manner shall be deemed to have voted against such proposal.

 
19

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

 
 
 
(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.

 
5.13
Effect of Vote

 
All decisions taken by the Operating Committee pursuant to this Article 5 shall
be conclusive and binding on all the Parties, except in the following cases:
 
 
(A)
If pursuant to this Article 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 Article 7, an Exclusive Operation involving operations
essentially the same as those proposed for such Joint Operation.

 
 
(1)
For proposals related to Urgent Operational Matters, such right shall be
exercisable for twenty-four (24) hours after the time specified in Article
5.12(A)(1) has expired or after receipt of Operator’s notice given to the
Parties pursuant to Article 5.13(D), as applicable.

 
 
(2)
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 Article 5.6 or Article 5.12.

 
 
(3)
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 Article 5.6 or Article 5.12.

 
 
(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
Article 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 Article 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 Operating Committee’s second approval of such contemplated operation.

 
 
(C)
If the Consenting Parties to an Exclusive Operation under Article 5.13(A) or
Article 5.13(B) concur, then the Operating Committee may, at any time, pursuant
to this Article 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:

 
20

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

 
 
 
(1)
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

 
 
(2)
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 Article 5.12(A)(1) 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 Article 7 an
Exclusive Operation to continue such operation.
 
ARTICLE 6
WORK PROGRAMS AND BUDGETS
 
6.1
Exploration and Appraisal

 
 
(A)
Within ninety (90) Days after the Effective Date, Operator shall deliver to the
Parties a proposed Work Program and Budget detailing the Joint Operations to be
performed for the remainder of the current Calendar Year and, if appropriate,
for the following Calendar Year.  Within thirty (30) Days of such delivery, the
Operating Committee shall meet to consider and to endeavor to agree on a Work
Program and Budget.

 
 
(B)
On or before the ninetieth (90th) Day  before the last day of each Calendar
Year, Operator shall deliver to the Parties a proposed Work Program and Budget
detailing the Joint Operations to be performed for the following Calendar
Year.  Within thirty (30) Days of such delivery, the Operating Committee shall
meet to consider and to endeavor to agree on a Work Program and Budget.

 
 
(C)
If a Discovery is made, Operator shall deliver any notice of Discovery required
under the Contract 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.  If the Operating
Committee determines that the Discovery merits appraisal, Operator within ninety
(90) Days 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 Contract, the
Operating Committee shall meet to consider, modify and then either approve or
reject the appraisal Work Program and Budget.  If the appraisal Work Program and
Budget is approved by the Operating Committee, Operator shall take such steps as
may be required under the Contract 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.

 
 
(D)
The Work Program and Budget agreed pursuant to this Article shall include at
least that part of the Minimum Work Obligations required to be carried out
during the Calendar Year in question under the terms of the Contract.  If within
the time periods prescribed in this Article 6.1 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 Calendar Year in question that
receives the largest Participating Interest vote (even if less than the
applicable percentage under Article 5.9) shall be deemed adopted as part of the
annual Work Program and Budget.  If competing proposals receive equal votes,
then Operator shall choose between those competing proposals.  Any portion of a
Work Program and Budget adopted pursuant to this Article 6.1(D) instead of
Article 5.9 shall contain only such operations for the Joint Account as are
necessary to maintain the Contract in full force and effect, including such
operations as are necessary to fulfill the Minimum Work Obligations required for
the given Calendar Year.

 
21

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

 
 
 
(E)
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 Government if required by the Contract.

 
 
(F)
Subject to Article 6.8, approval of any such Work Program and Budget which
includes:

 
 
(1)
an Exploration Well, whether by drilling, Deepening or Sidetracking, shall
include approval for only expenditures necessary for the drilling, Deepening or
Sidetracking of such Exploration Well, as applicable.  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 Parties in accordance with Article 5.12(A)(1) 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.

 
(2)
an Appraisal Well, whether by drilling, Deepening or Sidetracking, shall include
approval for - Casing Point Election - only expenditures necessary for the
drilling, Deepening or Sidetracking of such Appraisal Well, as applicable.  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 Parties in accordance with Article 5.12(A)(1) 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.

 
(G)
Any Party desiring to propose a Completion attempt, or an alternative Completion
attempt, must do so within the time period provided in Article 5.12(A)(1) by
notifying all other Parties.  Any such proposal shall include an AFE for such
Completion costs.

 
6.2
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 Article 6.5) and provisional Work
Programs and Budgets for the remainder of the development of the Discovery,
which shall contain, inter alia:

 
 
(1)
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;

 
 
(2)
an estimated date for the commencement of production;

 
 
(3)
a delineation of the proposed Exploitation Area; and

 
 
(4)
any other information requested by the Operating Committee.

 
22

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

 

 
(B)
After receipt of the Development Plan and prior to any applicable deadline under
the Contract, 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 Contract
and take such other steps as may be required under the Contract to secure
approval of the Development Plan by the Government.  In the event the Government
requires changes in the Development Plan, 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 ninetieth (90th) Day before the last day  of each Calendar Year submit a
Work Program and Budget for the Exploitation Area, for the following Calendar
Year.  Subject to Article 6.5, 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.

 
6.3
Production

 
On or before the ninetieth (90th) Day before the last day  of each Calendar
Year, Operator shall deliver to the Parties 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 following Calendar
Year.  Within thirty (30) Days of such delivery, the Operating Committee shall
agree upon a production Work Program and Budget, failing which the provisions of
Article 6.1(D) shall be applied mutatis mutandis.
 
6.4
Itemization of Expenditures

 
 
(A)
During the preparation of the proposed Work Programs and Budgets and Development
Plans contemplated in this Article 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 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:

 
 
(1)
identify each work category in sufficient detail to afford the ready
identification of the nature, scope and duration of the activity in question;

 
 
(2)
include such reasonable information regarding Operator’s allocation procedures
and estimated manpower costs as the Operating Committee may determine;

 
 
(3)
comply with the requirements of the Contract;

 
(4)           contain an estimate of funds to be expended by Calendar Quarter;
and
 
 
(5)
during the Exploration Period, provide a forecast of annual expenditures and
activities through the end of the following three year  period.

 
 
(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.

 
23

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

 
6.5
Multi-Year Work Program and Budget

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.  If the Contract
requires that Work Programs and Budgets be submitted to the Government for
approval, such multi-year Work Program and Budget shall be submitted to 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 Contract.
 
6.6
Contract Awards

 
Subject to the Contract, Operator shall award each contract for Joint Operations
on the following basis (the amounts stated are in thousands of U.S. dollars):
 

   
Procedure A
 
Procedure B
 
Procedure C
             
Exploration and Appraisal Operations
 
0 to $100,000US
 
$100,001US   to
$1,000,000US
 
>$1,000,001US
             
Development Operations
 
0 to $500,000US
 
$500,001US to
$5,000,000US 
 
>$5,000,001US
             
Production Operations
  
0 to $1,000,000US
  
$1,000,001US to
$2,500,000US
  
>$2,500,001US

 
Procedure A

 
 
(A)
Operator shall award the contract to the best qualified contractor as determined
by cost and ability to perform the contract without the obligation to tender and
without informing or seeking the approval of the Operating Committee, except
that before entering into contracts with Affiliates of Operator exceeding
$100,000 U.S. dollars, Operator shall obtain the approval of the Operating
Committee.

 
 
Procedure B

 
 
(B)
Operator shall:

 
 
(1)
provide the Parties with a list of the entities whom Operator proposes to invite
to tender for the said contract;

 
 
(2)
add to such list any entity whom a Party reasonably requests to be added within
fourteen (14) Days of receipt of such list;

 
 
(3)
complete the tendering process within a reasonable period of time;

 
 
(4)
inform the Parties of the entities to whom the contract has been awarded,
provided that before awarding contracts to Affiliates of Operator which exceed
$100,000 U.S. dollars, Operator shall obtain the approval of the Operating
Committee;

 
 
(5)
circulate to the Parties a competitive bid analysis stating the reasons for the
choice made; and

 
 
(6)
upon the request of a Party, provide such Party with a copy of the final version
of the contract.

 
24

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

 
 
 
Procedure C

 
 
(C)
Operator shall:

 
 
(1)
provide the Parties with a list of the entities whom Operator proposes to invite
to tender for the said contract;

 
 
(2)
add to such list any entity whom a Party reasonably requests to be added within
fourteen (14) Days of receipt of such list;

 
 
(3)
prepare and dispatch the tender documents to the entities on the list as
aforesaid and to Non-Operators;

 
 
(4)
after the expiration of the period allowed for tendering, consider and analyze
the details of all bids received;

 
 
(5)
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;

 
 
(6)
obtain the approval of the Operating Committee to the recommended bid; and

 
 
(7)
upon the request of a Party, provide such Party with a copy of the final version
of the contract.

 
6.7
Authorization for Expenditure (“AFE”) Procedure

 
 
(A)
Prior to incurring any commitment or expenditure for the Joint Account, which is
estimated to be:

 
 
(1)
in excess of $500,000 U.S. dollars in an exploration or appraisal Work Program
and Budget;

 
 
(2)
in excess of $1,000,000 U.S. dollars in a development Work Program and Budget;
and

 
 
(3)
in excess of $2,000,000 U.S. dollars in a production Work Program and Budget,

 
Operator shall send to each Non-Operator an AFE as described in Article
6.7(C).  Notwithstanding the above, Operator shall not be obliged to furnish an
AFE to the Parties with respect to any Minimum Work Obligations, workovers of
wells and general and administrative costs that are listed as separate line
items in an approved Work Program and Budget.
 
 
 (B)
Prior to making any expenditures or incurring any commitments for work subject
to the AFE procedure in Article 6.7(A), Operator shall obtain the approval of
the Operating Committee.  If the Operating Committee approves an AFE for the
operation within the applicable time period under Article 5.12(A), Operator
shall be authorized to conduct the operation under the terms of this
Agreement.  If the Operating Committee fails to approve an AFE for the operation
within the applicable time period, the operation shall be deemed
rejected.  Operator shall promptly notify the Parties if the operation has been
rejected, and, subject to Article 7, any Party may thereafter propose to conduct
the operation as an Exclusive Operation under Article 7.  When an operation is
rejected under this Article 6.7(B) or an operation 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 be deemed to be
revised accordingly.

 
25

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

 
 
 
(C)
Each AFE proposed by Operator shall:

 
 
(1)
identify the operation by specific reference to the applicable line items in the
Work Program and Budget;

 
 
(2)
describe the work in detail;

 
 
(3)
contain Operator’s best estimate of the total funds required to carry out such
work;

 
 
(4)
outline the proposed work schedule;

 
 
(5)
provide a timetable of expenditures, if known; and

 
 
(6)
be accompanied by such other supporting information as is necessary for an
informed decision.

 
6.8           Overexpenditures of Work Programs and Budgets
 
 
(A)
For 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 overexpenditure for such line item up to ten percent (10%) of the
authorized amount for such line item; provided that the cumulative total of all
overexpenditures for a Calendar Year shall not exceed five percent (5%) of the
total annual Work Program and Budget in question.

 
 
(B)
At such time Operator reasonably anticipates the limits of Article 6.8(A) will
be exceeded, Operator shall furnish to the Operating Committee (Operational AFE
System) a supplemental AFE for the estimated expenditures for the Operating
Committee’s approval, and Operator shall provide reasonable details of such
overexpenditures.  The Work Program and Budget shall be revised accordingly and
the overexpenditures permitted in Article 6.8(A) shall be based on the revised
Work Program and Budget.  Operator shall promptly give notice of the amounts of
overexpenditures when actually incurred.

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

 
ARTICLE 7
OPERATIONS BY LESS THAN ALL PARTIES
 
7.1
Limitation on Applicability

 
 
(A)
No operations may be conducted in furtherance of the Contract except as Joint
Operations under Article 5 or as Exclusive Operations under this Article 7.  No
Exclusive Operation shall be conducted (other than the tie-in of Exclusive
Operation facilities with existing production facilities pursuant to Article
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 Article 5, and may not be
proposed or conducted as Exclusive Operations under this Article 7.

 
 
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, no Exclusive Operations may be
conducted until the Minimum Work Obligations are fulfilled.

 
26

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

 
 
 
(C)
No Party may propose or conduct an Exclusive Operation under this Article 7
unless and until such Party has properly exercised its right to propose an
Exclusive Operation pursuant to Article 5.13, or is entitled to conduct an
Exclusive Operation pursuant to Article 10.

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

 
 
(1)
drilling and/or Testing of Exploration Wells and Appraisal Wells;

 
 
(2)
Completion of Exploration Wells and Appraisal Wells not then Completed as
productive of Hydrocarbons;

 
 
(3)
Deepening, Sidetracking, Plugging Back and/or Recompletion of Exploration Wells
and Appraisal Wells;

 
 
(4)
development of a Commercial Discovery;

 
 
(5)
acquisition of G & G Data;

 
 
(6)
any operations specifically authorized to be undertaken as an Exclusive
Operation under Article 10; and

 
 
(7)
operations for treating, processing, dehydrating, gathering and transporting
production. .

 
No other type of operation may be proposed or conducted as an Exclusive
Operation.
 
7.2
Procedure to Propose Exclusive Operations

 
 
(A)
Subject to Article 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 Article 7.4(B) or Article 7.4(F) and have no option
to reinstate such rights under Article 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.

 
 
(1)
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.

 
 
(2)
For proposals to develop a Discovery, any Party wishing to exercise such right
must so notify Operator and the Party proposing to develop within sixty (60)
Days after receipt of the notice proposing the Exclusive Operation.

 
 
(3)
For all other proposals, any such Party wishing to exercise such right must so
notify the proposing Party and Operator within ten (10) 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.

 
27

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

 
 
 
(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:(1) The Party proposing the Exclusive
Operation, together with any other Consenting Parties, shall have the right
exercisable for the applicable notice period set out in Article 7.2(B), to
instruct Operator (subject to Article 7.12(F)) to conduct the Exclusive
Operation.

 
 
(2)
If the Exclusive Operation is conducted, the Consenting Parties shall bear a
Participating Interest in such Exclusive Operation, the numerator of which is
such Consenting Party’s Participating Interest as stated in Article 3.2(A) and
the denominator of which is the aggregate of the Participating Interests of the
Consenting Parties as stated in Article 3.2(A), or as the Consenting Parties may
otherwise agree.

 
 
(3)
If such Exclusive Operation has not been commenced within ninety (90) Days
(excluding (i) unreasonable failure or refusal on the Operator’s part  or (ii)
any extension specifically agreed by all Parties or allowed by the force majeure
provisions of Article 16) after the date of the instruction given to Operator
under Article 7.2(E)(1), 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 Article 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
agreed under Article 7.2(E) the entire cost and liability of conducting an
Exclusive Operation and shall indemnify the Non-Consenting Parties from any and
all 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 liens and encumbrances of every kind created
by or arising from such Exclusive Operation.

 
 
(B)
Notwithstanding Article 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 regard to any Exclusive Operation, for so long as a Non-Consenting Party
has the option under Article 7.4(C) to reinstate the rights it relinquished
under Article 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 purpose 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 Article 3.2(A) of the
cost incurred in obtaining such G & G Data.

 
 
(B)
Subject to Article 7.4(C) and Articles 7.6(E) and 7.8, if selected, 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:

 
28

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

 
 
 
(1)
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

 
 
(2)
all of each such Non-Consenting Party’s right pursuant to the Contract 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 Article 7.4(B):

 
 
(1)
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 thirty (30) Days (or
forty-eight (48) hours for Urgent Operational Matters) from receipt of such
appraisal program, each Non-Consenting Party shall have the option to reinstate
the rights it relinquished pursuant to Article 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
Articles 7.5(A) and 7.5(B).

 
 
(2)
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 Government under the Contract.  For sixty (60) Days from
receipt of such Development Plan or such lesser period of time prescribed by the
Contract, each Non-Consenting Party shall have the option to reinstate the
rights it relinquished pursuant to Article 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 Articles 7.5(A) and 7.5(B).

 
 
(3)
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 forty-eight (48) 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 Article 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 Articles 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.

 
29

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

 
 
(D)
If a Non-Consenting Party does not properly and in a timely manner exercise its
option under Article 7.4(C), including paying all amounts due in accordance with
Articles 7.5(A) and 7.5(B), such Non-Consenting Party shall have forfeited the
options as set out in Article 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 Article 7.4(C)).

 
 
(E)
A Non-Consenting Party exercising its option under Article 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 Articles
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 Articles 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 Article
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 Article 7.2(E). If all Parties participate in the
proposed operation, then such operation shall be conducted as a Joint Operation
pursuant to Article 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 Government under the appropriate
provision of the Contract requesting a meeting to advise the Government 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 Contract).  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 Article 7.4(C)), each Non-Consenting Party
to such Development Plan shall:

 
 
(1)
if the Contract so allows, elect not to apply for an Exploitation Area covering
such development and forfeit all interest in such Exploitation Area, or

 
 
(2)
if the Contract 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 thirty (30) Days of the exercise of
its option under Article 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 Article
7.4(B), and that were not previously paid by such Non-Consenting Party.

 
30

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

 
 
(B)
In addition to the payment required under Article 7.5(A), immediately following
the exercise of its option under Article 7.4(C) each such Non-Consenting Party
shall be liable to reimburse the Consenting Parties who took the risk of such
Exclusive Operations (in proportion to their respective Participating Interests)
an amount equal to the total of:

 
 
(1)
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 obtaining of the portion of the G & G Data
which pertains to the Discovery, and that were not previously paid by such
Non-Consenting Party; plus

 
 
(2)
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 Article 7.4(B), and that were not
previously paid by such Non-Consenting Party; plus

 
 
(3)
Four Hunderd percent (400%) 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 Article 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 Article
7.5(B) shall within thirty (30) Days of the exercise of its option under Article
7.4(C), pay in immediately available funds the full amount due from it under
Article 7.5(B) to such Consenting Parties, in the currency designated by such
Consenting Parties.

 
 
(D)
The Non-Consenting Party exercising its option under Article 7.4(C) shall, in
accordance with Article 19, be entitled to all Cost Hydrocarbons derived from
reimbursements made under Article 7.5(A).  Such Non-Consenting Party shall not
be entitled to Cost Hydrocarbons associated with payments made under
Article 7.5(B), unless the Contract or any Laws / Regulations require
otherwise.  Each Consenting Party shall have the right to refuse to accept all
or any portion of its share of amounts paid under Articles 7.5(A) and
7.5(B).  In such case the refused amount shall be distributed to each
non-refusing Consenting Party on a pro-rata basis.

 
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 five (5) 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 Article 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 Article 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).

 
31

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

 
 
(D)
Each Party shall then have two (2) 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 Article
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.

 
 
(E)
Notwithstanding the provisions of Article 7.4(B), if for reasons other than the
encountering of granite 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 Article 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 Article 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
Article 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 Article 7.2(B)(1) 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.

 
 
32

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

 

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 Article 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 Article 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 Article 7.5(B), and such Non-Consenting Party’s payment
pursuant to Article 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

 
 
(A)
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.

 
 
 (B)
Any Party (whether owning interests in the platform or not) shall be permitted
to use spare slots in a platform constructed pursuant to this Agreement for
purposes of drilling Exploration Wells and/or Appraisal Wells and running tests
in the Contract Area and not part of any planned development.  No Party except
an owner of a platform may drill Development Wells or run production from a well
(except production resulting from initial well tests) from the platform without
the prior written consent of all platform owners.  If all owners of the platform
participate in the drilling of a well, then no fee shall be payable under this
Article 7.9(B).  Otherwise, each time a well is drilled from a platform, the
Consenting Parties in the well shall pay to the owners of the platform until all
wells drilled by such Parties have been plugged and abandoned a monthly fee
equal to (1) that portion of the total cost of the platform (including costs of
material, fabrication, transportation and installation), divided by the number
of months of useful life established for the platform under the tax law of the
host country, that one well slot bears to the total number of slots on the
platform plus (2) that proportionate part of the monthly cost of operating,
maintaining and financing the platform that the well drilled under this Article
7.9(B) bears to the total number of wells served by such platform.  Consenting
Parties who have paid to drill a well from a platform under this Article 7.9(B)
shall be entitled to Deepen or Sidetrack that well for no additional charge if
done prior to moving the drilling rig off of location.

 
33

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

 
 
(C)
Spare capacity in equipment that is constructed pursuant to this Agreement and
used for processing or transporting Crude Oil and Natural Gas after it has
passed through primary separators and dehydrators (including treatment
facilities, gas processing plants and pipelines) shall be available for use by
any Party for Hydrocarbon production from the Contract Area on the terms set
forth below.  All Parties desiring to use such equipment shall nominate capacity
in such equipment on a monthly basis by notice to Operator at least ten (10)
Days prior to the beginning of each month.  Operator may nominate capacity for
the owners of the equipment if they so elect.  If at any time the capacity
nominated exceeds the total capacity of the equipment, the capacity of the
equipment shall be allocated in the following priority:  (1) first, to the
owners of the equipment up to their respective Participating Interest shares of
total capacity, (2) second, to owners of the equipment desiring to use capacity
in excess of their Participating Interest shares, in proportion to the
Participating Interest of each such Party and (3) third, to Parties not owning
interests in the equipment, in proportion to their Participating Interests in
the Agreement.  Owners of the equipment shall be entitled to use up to their
Participating Interest share of total capacity without payment of a fee under
this Article 7.9(C). Otherwise, each Party using equipment pursuant to this
Article 7.9(C) shall pay to the owners of the equipment monthly throughout the
period of use an arm’s-length fee based upon third party charges for similar
services in the vicinity of the Contract Area.  If no arm’s-length rates for
such services are available, then the Party desiring to use equipment pursuant
to this Article 7.9(C) shall pay to the owners of the equipment a monthly fee
equal to (1) that portion of the total cost of the equipment, divided by the
number of months of useful life established for such equipment under the tax law
of the host country, that the capacity made available to such Party on a fee
basis under this Article 7.9(C) bears to the total capacity of the equipment
plus (2) that portion of the monthly cost of maintaining, operating and
financing the equipment that the capacity made available to such Party on a fee
basis under this Article 7.9(C) bears to the total capacity of the equipment.

 
 
(D)
Payment for the use of a platform under Article 7.9(B) or the use of equipment
under Article 7.9(C) shall not result in an acquisition of any additional
interest in the equipment or platform by the paying Parties.  However, such
payments shall be included in the costs which the paying Parties are entitled to
recoup under Article 7.5.

 
 
(E)
Parties electing to use spare capacity on platforms or in equipment pursuant to
Article 7.9(B) or Article 7.9(C) shall indemnify the owners of the equipment or
platform against any and all costs and liabilities incurred as a result of such
use (including any Consequential Loss and Environmental Loss) but excluding
costs and liabilities for which Operator is solely responsible under Article
4.6.

 
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
Royalty

 
The royalty payable by the Parties under Article 13.1 of the Contract
(“Royalty”) shall be charged to the Joint Account if there is no Hydrocarbon
production from an Exclusive Operation at the time it is incurred.  If there is
Hydrocarbon production from one or more Exclusive Operations, then any Royalty
which becomes payable under the Contract shall be borne by the Parties in
accordance with their Participating Interests.
 
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 Contract shall be utilized in
the calculations in this Article 7.11.
 
34

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

 
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 Contract.

 
 
(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
Article 6.2, or should any Party propose (but not yet have the right to
commence) a development in accordance with this Article 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
Article 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 Article 5.9, 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, but in any event shall resign on the
unanimous request of the Consenting Parties, as Operator for the Exploitation
Area for such Discovery, and the Consenting Parties shall select a Consenting
Party to serve as Operator for such Exclusive Operation only.

 
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.
 
35

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

 
ARTICLE 8
DEFAULT
 
8.1
Default and Notice

 
(A) 
Any Party that fails to:

 
 
(1)
pay when due its share of Joint Account expenses (including cash advances and
interest); or

 
 
(2)
obtain and maintain any Security required of such Party under the Contract 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 Article 8, “Default Period” means the period beginning
five (5) Business Days from the date that the Default Notice is issued in
accordance with this Article 8.1 and ending when all the Defaulting Party’s
defaults pursuant to this Article 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:

 
 
(1)
call or attend Operating Committee or subcommittee meetings;

 
 
(2)
vote on any matter coming before the Operating Committee or any subcommittee;

 
 
(3)
access any data or information relating to any operations under this Agreement;

 
 
(4)
consent to or reject data trades between the Parties and third parties, nor
access any data received in such data trades;

 
 
(5)
Transfer (as defined in Article 12.1) all or part of its Participating Interest,
except to non-defaulting Parties in accordance with this Article 8;

 
 
(6)
consent to or reject any Transfer (as defined in Article 12.1) or otherwise
exercise any other rights in respect of Transfers under this Article 8 or under
Article 12;

 
 
(7)
receive its Entitlement in accordance with Article 8.4;

 
 
(8)
withdraw from this Agreement under Article 13; or

 
 
(9)
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 Contract.

 
 
(B)
Notwithstanding any other provisions in this Agreement, during the Default
Period:

 
 
(1)
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;

 
 
(2)
any matters requiring a unanimous vote or approval of the Parties shall not
require the vote or approval of the Defaulting Party;

 
36

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

 
 
(3)
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 Article 5.13 and Article 7; and

 
 
(4)
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 Article 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 obtain or maintain any
Security required of such Party in order to maintain the Contract 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.  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.  For the purposes of this Article 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; (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 allow Operator to obtain or maintain Security, in accordance with
Article 8.3(A)(ii); 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 Article 8.3(A).  Otherwise, each
non-defaulting Party shall satisfy its obligations under Article 8.3(A)(i)
before the Default Period commences and its obligations under Article 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 Article 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
Article 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
Article 8.3(C), except to the extent Operator would be liable under Article 4.6.

 
37

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

 
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 (as defined in Article
8.4(C)), 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 Article
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 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 (as defined in Article 8.4(C)), if applicable.  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.

 
 
(C)
The non-defaulting Parties shall be entitled to apply the net proceeds received
under Articles 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)
Each Party grants to each of the other Parties the right and option to acquire
(the “Buy-Out Option”) all of its Participating Interest for a value (the
“Appraised Value”) as determined in this Article 8.4(D) in the event that such
Party becomes a Defaulting Party and fails to fully remedy all its defaults by
the thirtieth (30th) Day following the date of the Default Notice.  If a
Defaulting Party fails to remedy its default by the thirtieth (30th) Day
following the date of the Default Notice, then, 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 may, but shall not be
obligated to, exercise such Buy-Out Option by notice to the Defaulting Party and
each non-defaulting Party (the “Option Notice”). The Defaulting Party shall be
obligated to transfer, pursuant to Article 13.6, effective on the date of the
Option Notice, its Participating Interest to the non-defaulting Parties having
exercised the Buy-Out Option (each, an “Acquiring Party”). If, within thirty
(30) Days after the Buy-Out Option is first exercised by an Acquiring Party,
other non-defaulting Parties become an Acquiring Party, each Acquiring Party
shall acquire a proportion of the Participating Interest of the Defaulting Party
equal to the ratio of its own Participating Interest to the total Participating
Interests of all Acquiring Parties and pay such proportion of the Appraised
Value (as defined below), unless they otherwise agree.  Each Acquiring Party
shall specify in its Option Notice a value for the Defaulting Party’s
Participating Interest.  Within five (5) Days of the Option Notice, the
Defaulting Party shall (i) notify the Acquiring Parties that it accepts, with
respect to each Acquiring Party, the value specified by such Acquiring Party in
its Option Notice (in which case this value is, with respect to such Acquiring
Party, the “Appraised Value”); or (ii) refer the Dispute to an independent
expert pursuant to Article 18.3 for determination of the value of its
Participating Interest (in which case the value determined by such expert shall
be deemed the “Appraised Value”).  If the Defaulting Party fails to so notify
the Acquiring Parties, then the Defaulting Party shall be deemed to have
accepted, with respect to each Acquiring Party, such Acquiring Party’s proposed
value as the Appraised Value.

 
38

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

 
If the valuation of the Defaulting Party’s Participating Interest is referred to
an expert, such expert shall determine the Appraised Value which shall be equal
to the fair market value of the Defaulting Party’s Participating Interest, less
the following: (i) the Total Amount in Default; (ii) all costs, including the
costs of the expert, to obtain such valuation; and (iii) ninety percent (90%) of
the fair market value of the Defaulting Party’s Participating Interest.
 
The Appraised Value shall be paid to the Defaulting Party in four (4)
installments, each equal to 25% of the Appraised Value as follows:
 
 
(1)
the first installment shall be due and payable to the Defaulting Party within
15 Days after the date on which the Defaulting Party’s Participating Interest is
effectively transferred to the Acquiring Parties (the “Transfer Date”);

 
 
(2)
the second installment shall be due and payable to the Defaulting Party within
180 Days after the Transfer Date;

 
 
(3)
the third installment shall be due and payable to the Defaulting Party within
365 Days after the Transfer Date; and

 
 
(4)
the fourth installment shall be due and payable to the Defaulting Party within
545 Days after the Transfer Date.

 
 
(E)
In addition to the other remedies available to the non-defaulting Parties under
this Article 8 and any other rights available to each non-defaulting Party to
recover its portion of the Total Amount in Default, in the event a Defaulting
Party fails to remedy its default within thirty (30) Days of the Default Notice,
the non-Defaulting Parties may elect to enforce a mortgage and security interest
on the Defaulting Party’s Participating Interest as set forth below, subject to
the Contract and the Laws / Regulations. 

 
 
(1)
Each Party grants to each of the other Parties, in pro rata shares based on
their relative Participating Interests, a mortgage and security interest on its
Participating Interest, whether now owned or hereafter acquired, together with
all products and proceeds derived from that Participating Interest
(collectively, the “Collateral”) as security for (i) the payment of all amounts
owing by such Party (including interest and costs of collection) under this
Agreement; and (ii) any Security which such Party is required to provide under
the Contract. 

 
 
(2)
Should a Defaulting Party fail to remedy its default by the thirtieth (30th) Day
following the date of the Default Notice, then, each non-defaulting Party shall
have the option, exercisable at any time thereafter during the Default Period,
to foreclose its mortgage and security interest against its prorata share of the
Collateral by any means permitted under the Contract and the Laws / Regulations
and to sell all or any part of that Collateral in public or private sale after
providing the Defaulting Party and other creditors with any notice required by
the Contract or the Laws / Regulations, and subject to the provisions of Article
12.   Except as may be prohibited by the Contract or the Laws / Regulations, the
non-defaulting Party that forecloses its mortgage and security interest shall be
entitled to become the purchaser of the Collateral sold and shall have the right
to credit toward the purchase price the amount to which it is entitled under
Article 8.4.   Any deficiency in the amounts received by the foreclosing party
shall remain a debt due by the Defaulting Party.  The foreclosure of mortgages
and security interests by one non-defaulting Party shall neither affect the
amounts owed by the Defaulting Party to the other non-defaulting Parties nor in
any way limit the rights or remedies available to them.  Each Party agrees that,
should it become a Defaulting Party, it waives the benefit of any appraisal,
valuation, stay, extension or redemption law and any other debtor protection law
that otherwise could be invoked to prevent or hinder the enforcement of the
mortgage and security interest granted above.

 
39

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

 
 
(3)
Each Party agrees to execute such memoranda, financing statements and other
documents, and make such filings and registrations, as may be reasonably
necessary to perfect, validate and provide notice of the mortgages and security
interests granted by this Article 8.4(E). 

 
 
(F)
For purposes of Articles 8.4(D) and 8.4(E), as elected, 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 in order to render the transfer of its Participating Interest legally
valid, including obtaining all governmental 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 liens and 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 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.

 
 
(G)
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.

 
 
(H)
The rights and remedies granted to the non-defaulting Parties in this Article 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 Contract, 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 Article 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 appropriate in the
circumstances.
 
40

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

 
ARTICLE 9
DISPOSITION OF PRODUCTION
 
9.1
Right and Obligation to Take in Kind

 
Except as otherwise provided in this Article 9 or in Article 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 Contract.  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 Contract.  The Government Oil & Gas Company may, if necessary and
practicable, also be party to the lifting agreement; if the Government Oil & Gas
Company is a party to the lifting agreement, then the Parties shall endeavor to
obtain its agreement to the principles set forth in this Article 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 Article 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.
 
9.3
Disposition of Natural Gas

 
The Parties recognize that if Natural Gas is discovered it may be necessary for
the Parties to enter into special arrangements for the disposal of the Natural
Gas, which are consistent with the Development Plan and subject to the terms of
the Contract.
 
ARTICLE 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 Article
5.12(A)(1) or Article 5.12(A)(2), 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
Article 5.13(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 Article 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 Article 10.1:

 
41

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

 
 
(1)
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 Article 5.6, Article 5.12(A)(1) or Article
5.12(A)(2), 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.
 
 
(2)
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 Article 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.

 
 
(3)
Subject to Article 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.

 
10.2
Abandonment of Exclusive Operations

 
This Article 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 Article 10).
 
ARTICLE 11
SURRENDER, EXTENSIONS AND RENEWALS
 
11.1
Surrender

 
 
(A)
If the Contract requires the Parties to surrender any portion of the Contract
Area, Operator shall advise the Operating Committee of such requirement at least
one hundred and twenty (120) 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 Article 5 the size and shape of the surrendered area,
consistent with the requirements of the Contract.  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
Contract shall require the unanimous consent of the Parties.

 
42

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

 
11.2
Extension of the Term

 
 
(A)
A proposal by any Party to enter into or extend the term of any Exploration or
Exploitation Period or any phase of the Contract, or a proposal to extend the
term of the Contract, shall be brought before the Operating Committee pursuant
to Article 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 Contract or to extend the
term of the Contract, 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 Article 13.

 
ARTICLE 12
TRANSFER OF INTEREST OR RIGHTS AND CHANGES IN CONTROL
 
12.1
Obligations

 
(A) 
Subject to the requirements of the Contract,

 
 
(i)
any Transfer (except Transfers pursuant to Article 7, Article 8 or Article 13)
shall be effective only if it satisfies the terms and conditions of Article
12.2; and

 
 
(ii)
a Party subject to a Change in Control must satisfy the terms and conditions of
Article 12.3.

 
Should a Transfer subject to this Article 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 Article, in 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 Article.

(B) 
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;
and
 
“Cash Value” means the portion of the total monetary value (expressed in U.S.
dollars) of the consideration being offered by the proposed transferee
(including any cash, other assets, and tax savings to the transferor from a
non-cash deal) that reasonably should be allocated to the Participating Interest
subject to the proposed Transfer or Change in Control.
 
“Change in Control” means 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 fifty percent (50%) of the aggregate
market value of the assets of such Party and its Affiliates that are subject to
the change in Control.   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 an assignment or transfer in security.  “Encumber” and other
derivatives shall be construed accordingly.
 
43

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

 
“Transfer” means any sale, assignment, Encumbrance or other disposition by a
Party of any rights or obligations derived from the Contract or this Agreement
(including its Participating Interest), other than its Entitlement and its
rights to any credits, refunds or payments under this Agreement, and 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 holding a Participating Interest of less than nine percent (9%) or
any interest other than a Participating Interest in the Contract and this
Agreement.

 
 
(B)
Subject to the terms of Articles 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,
except to an Affiliate, the Party serving as Operator shall be deemed to have
resigned as Operator, effective on the date the Transfer becomes effective under
this Article 12, in which event a successor Operator shall be appointed in
accordance with Article 4.11.  If Operator transfers all of its Participating
Interest to an Affiliate, that Affiliate shall automatically become the
successor Operator, provided that the transferring Operator shall remain liable
for its Affiliate's performance of its obligations.

 
 
(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 Contract 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 Contract.

 
 
(D)
A transferee shall have no rights in the Contract or this Agreement (except any
notice and cure rights or similar rights that may be provided to a Lien Holder
(as defined in Article 12.2(E)) by separate instrument signed by all Parties)
unless and until:

 
 
(1)
it expressly undertakes in an instrument reasonably satisfactory to the other
Parties to perform the obligations of the transferor under the Contract and this
Agreement in respect of the Participating Interest being transferred and obtains
any necessary Government approval for the Transfer and furnishes any guarantees
required by the Government or the Contract on or before the applicable
deadlines; and

 
 
(2)
except in the case of a Transfer to an Affiliate, 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 Contract and this
Agreement.

 
No consent shall be required under this Article 12.2(D)(2) 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.
 
 
(E)
Nothing contained in this Article 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, provided that:

 
 
(1)
such Party shall remain liable for all obligations relating to such interest;

 
44

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

 
 
(2)
the Encumbrance shall be subject to any necessary approval of the Government and
be expressly subordinated to the rights of the other Parties under this
Agreement; and

 
 
(3)
such Party shall ensure that any Encumbrance shall be expressed to be without
prejudice to the provisions of this Agreement.

 
 
(F)
Any Transfer (other than a Transfer to an Affiliate and the granting of an
Encumbrance as provided in Article 12.2(E)) shall be subject to the following
procedure.

 
 
(1)
In the event that a Party wishes to transfer any part or all of its
Participating Interest, prior to the transferor entering into a written
agreement providing for such a Transfer (whether or not such agreement is
binding) the transferor shall send the other Parties notice of its intention and
invite them to submit offers for the Participating Interest subject to the
Transfer.  The other Parties shall have thirty (30) Days from the date of such
notification to deliver a counter-notification with a binding offer in
accordance with Article 12.2(F)(3).  If the transferor notifies the offering
Party or Parties that the binding offer presents an acceptable basis for
negotiating a Transfer agreement, the transferor and that offering Party or
Parties shall have the next sixty (60) Days in which to negotiate in good faith
and execute the terms and conditions of a mutually acceptable Transfer
agreement.  If the transferor does not find that any Party's offer presents an
acceptable basis for negotiating a Transfer agreement, or if the above sixty
(60) Days elapse and the transferor in its sole discretion believes that a fully
negotiated agreement based on the offer deemed acceptable by the transferor with
all offering Parties is not imminent, the transferor shall be entitled for a
period of one hundred eighty (180) Days from the expiration of the thirty (30)
Day offer period or the sixty (60) Day negotiation period, respectively, plus
such additional period as may be necessary to secure governmental approvals, to
Transfer all or such portion of its Participating Interest to a third party,
subject to the obligations set forth in this Article 12.

 
 
(2)
If more than one Party counter-notifies the transferor 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.

 
 
(3)
All Parties desiring to give such a counter-notice shall meet to formulate a
joint offer.  Each such Party shall make known to the other Parties the highest
price or value that it is willing to offer to the transferor.  The proposal with
the highest price or value shall be offered to the transferor as the joint
proposal of the Parties still willing to participate in such offer under the
provisions of Article 12.2(F)(1) above.

 
 
(G)
Notwithstanding anything to the contrary contained therein, the terms of
Article 12.2(F) shall only apply to Cash Transfers and shall not apply to
Transfers that are not Cash Transfers.

 
12.3
Change in Control

 
 
(A)
A Party subject to a Change in Control shall notify the Government with respect
to the Change in Control.

 
 
 (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 Contract 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 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 Contract and this Agreement during the then-current Exploration or
Exploitation Period or phase of the Contract.

 
45

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

 
ARTICLE 13
WITHDRAWAL FROM AGREEMENT
 
13.1
Right of Withdrawal

 
 
(A)
Subject to the provisions of this Article 13 and the Contract, any Party not in
default may at its option withdraw from this Agreement and the Contract 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 Article 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 Article 13.9.

 
13.2
Partial or 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 Contract.  Should all Parties give notice of withdrawal,
the Parties shall proceed to abandon the Contract Area and terminate the
Contract 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 Contract 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 Article 13.6.

 
 
(B)
Any Party withdrawing under Article 11.2 or under this Article 13 shall at its
option, (1) withdraw from the entirety of the Contract Area, or (2) withdraw
only from all exploration activities under the Contract, but not from any
Exploitation Area, Commercial Discovery, or Discovery (whether appraised or not)
made prior to such withdrawal.  Such withdrawing Party shall retain its rights
in Joint Property, but only insofar as they relate to any such Exploitation
Area, Commercial Discovery or Discovery, and shall abandon all other rights in
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:

 
 
(1)
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 Article 6.5) or AFE prior to such Party’s notification of
withdrawal, regardless of when they are incurred;

 
46

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

 
 
(2)
any Minimum Work Obligations for the current period or phase of the Contract,
and for any subsequent period or phase which has been approved pursuant to
Article 11.2 and with respect to which such Party has failed to timely withdraw
under Article 13.4(B);

 
 
(3)
expenditures described in Articles 4.2(B)(13) 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;

 
 
(4)
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 have been
liable, had it not withdrawn from this Agreement; and

 
 
(5)
in the case of a partially withdrawing Party, any costs and liabilities with
respect to Exploitation Areas, Commercial Discoveries and Discoveries from which
it has not withdrawn.

 
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 in which it participated (or was required to bear a
share of the costs pursuant to Article 13.4(A)(1)) to the extent such costs of
plugging and abandoning are payable by the Parties under the Contract.  Any
mortgages, liens, pledges, charges or other 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 Article 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 Article 13.4(A)(2) or Article 13.4(A)(3)) 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
Contract or voluntarily extending the Contract 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
Article 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.
 
47

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

 
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 (1) retract its notice of withdrawal by notice
to the other Parties and remain a Party as if such notice of withdrawal had
never been sent, or (2) 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 Contract pursuant to this
Article 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 Article 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 Article 2.
 
ARTICLE 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 Contract 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 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.
 
48

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

 
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, as amended (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 execute 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 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.  However, if Operator is not a U.S. Party, the
Party who holds the greatest Participating Interest among the U.S. Parties shall
fulfill the obligations of Operator under this Article 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 execute any instrument
which might subject it to the taxation jurisdiction of the United States.

 
 
(E)
For the purposes of this Article 14.3, “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.  “Non-U.S. Party” shall mean any Party that is not subject
to such income tax law.

 
ARTICLE 15
VENTURE INFORMATION - CONFIDENTIALITY - INTELLECTUAL PROPERTY
 
15.1
Venture Information

 
 
(A)
Except as otherwise provided in this Article 15 or in Articles 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.  “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 Contract.  Each Party shall have the right to use
all Venture Information it receives without accounting to any other Party,
subject to any applicable patents and any limitations set forth in this
Agreement and the Contract. For purposes of this Article 15, such right to use
shall include the rights to copy, prepare derivative works, disclose, license,
distribute, and sell.

 
 
(B)
Each Party may, subject to any applicable restrictions and limitations set forth
in the Contract, extend the right to use Venture Information to each of its
Affiliates which are obligated to terms not less restrictive that this Article
15.

 
49

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

 
 
(C)
The acquisition or development of Venture Information under terms other than as
specified in this Article 15 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 Article 15.

 
(D)
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 Contract and this Article 15, 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 Contract and for a period of three (3) years
thereafter to any person or entity not a Party to this Agreement, except:

 
(1)
to an Affiliate pursuant to Article 15.1(B);

 
(2)
to a governmental agency or other entity when required by the Contract;

 
(3)
to the extent such information is required to be furnished in compliance with
the applicable law or regulations, or pursuant to any legal proceedings or
because of any order of any court binding upon a Party;

 
(4)
to prospective or actual attorneys engaged by any Party where disclosure of such
information is essential to such attorney’s work for such Party;

 
(5)
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;

 
(6)
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 the
sale of a majority of its or an Affiliate's shares);

 
(7)
to a bank or other financial institution to the extent appropriate to a Party
arranging for funding;

 
(8)
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 Article 20.3;

 
(9)
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

 
(10)
any information which, through no fault of a Party, becomes a part of the public
domain.

 
50

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

 
 
(B)
Disclosure as pursuant to Articles 15.2(A)(5), (6), and (7) 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 three (3) years and to use the information for the
sole purpose described in Articles 15.2(A)(5), (6), and (7), whichever is
applicable, with respect to the disclosing Party.

15.3
Intellectual Property

 
 
(A)
Subject to Articles 15.3(C) and 15.5 and unless provided otherwise in the
Contract, 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 in the course of carrying out activities charged to the Joint Account, a
Party or an Affiliate of a Party makes or conceives any inventions, discoveries,
or improvements which primarily relate to or are primarily based on the
proprietary technology of such Party or its Affiliates, then all intellectual
property rights to such inventions, discoveries, or improvements shall vest
exclusively in such Party and each other Party shall have a perpetual,
royalty-free, irrevocable license to use such inventions, discoveries, or
improvements, but only in connection with the Joint Operations.

 
(D)
Subject to Article 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 Article 15.2, and any disputes in relation thereto shall be resolved in
accordance with Article 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.
 
51

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

 
ARTICLE 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 within a reasonable
time 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 mean circumstances
which were beyond the reasonable control of the Party concerned and shall
include strikes, lockouts and other industrial disturbances even if they were
not “beyond the reasonable control” of the Party.
 
ARTICLE 17
NOTICES
 
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 contains a binding electronic
signature or other demonstration of authenticity, and addressed to such
Parties.  Oral communication does not constitute notice for purposes of this
Agreement, and e-mail addresses and telephone numbers for the Parties are listed
below as a matter of convenience only.  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 Article 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 Article 17.  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.
 
Ray Leonard, President and Chief Executive Officer
SCS Corporation
One Sugar Creek Center Blvd., Suite 125
Sugar Land, Texas 77478, USA
Telephone +1 713.353.9400
Facsimile +1 713.353.9434

With copy to:
Robert P. Thibault
Robert B. Bearman
PATTON BOGGS LLP
1801 California Street
Suite 4900
Denver, CO 80218
Tel: 303 894 6191
Facsimile: 303 894 9239
 
Dana Petroleum (E&P) Limited
John Downey
Manager International Business and New Ventures
17 Carden Place
Aberdeen, AB10 1UR, Scotland
UK Telephone +44 1224 652 400
Facsimile: +44 1224 652 401
 
52

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

 
ARTICLE 18
APPLICABLE LAW - DISPUTE RESOLUTION - WAIVER OF SOVEREIGN IMMUNITY
 
18.1
Applicable Law

 
The substantive laws of the State of Texas, of the United States, exclusive of
any conflicts of laws principles that could require the application of any other
law, shall govern this Agreement for all purposes, including the resolution of
all Disputes between or among Parties.
 
18.2
Dispute Resolution

 
 
(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 Article 18.

 
 
(B)
Negotiations.  The parties to the Dispute shall seek to resolve any 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 thirty (30) 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 the
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.  Notwithstanding the above, any Party may initiate arbitration
proceedings pursuant to Article 18.2 (D) or  mediation proceedings pursuant to
Article 18.2 (C) concerning such Dispute within thirty (30) Days after the date
of receipt of the Notice of Dispute.

 
 
(C)
Mediation.  Upon mutual agreement, the parties to the Dispute shall seek to
resolve the Dispute by mediation. Within thirty (30) Days after the date of the
receipt by each party to the Dispute of the Notice of Dispute, any party to the
Dispute may initiate such mediation pursuant to the American Arbitration
Association mediation rules then in effect, as modified herein] by sending all
other parties to the Dispute a written request that the Dispute be
mediated.  The Parties receiving such written request will promptly respond to
the requesting Party so that all parties to the Dispute may jointly select a
neutral mediator and schedule the mediation session.  The mediator shall meet
with the parties to the Dispute to mediate the Dispute within thirty (30) Days
after the date of receipt of the written request for mediation. Notwithstanding
the above, any Party may initiate arbitration proceedings pursuant to Article
18.2 (D) concerning such Dispute within thirty (30) Days after the date of
receipt of the Notice of Dispute

 
 
(D)
Arbitration.  Any Dispute not finally resolved by alternative dispute resolution
procedures set forth in Articles 18.2(B) and 18.2(C) 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.

 
 
(1)
Rules.  The arbitration shall be conducted in accordance with the following
arbitration rules (as then in effect) (the “Rules”): International Arbitration
Rules of the American Arbitration Association (AAA).

 
53

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

 
 
(2)
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 Article 18.2(D), 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.

 
 
(3)
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
American Arbitration Association shall appoint the arbitrator.

 
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 arbitrator or if the two party-appointed arbitrators cannot
reach an agreement on the presiding arbitrator within the applicable time
period, then the American Arbitration Association shall appoint the remainder of
the three arbitrators not yet appointed.
 
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
American Arbitration Association shall appoint the remainder of the three
arbitrators not yet appointed.
 
 
(4)
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.

 
 
(5)
Place of Arbitration.  Unless otherwise agreed by all parties to the Dispute,
the place of arbitration shall be Houston, Texas.

 
 
(6)
Language.  The arbitration proceedings shall be conducted in the English
language and the arbitrator(s) shall be fluent in the English language.

 
 
(7)
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.

 
 
(8)
Notice.  All notices required for any arbitration proceeding shall be deemed
properly given if sent in accordance with Article 17.

 
 
(9)
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.

 
54

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

 
 
(10)
Interim Measures.  Notwithstanding any requirements for alternative dispute
resolution procedures as set forth in Articles 18 (C), any party to the Dispute
may apply to a court for interim measures (i) prior to the constitution of the
arbitral tribunal (and thereafter as necessary to enforce the arbitral
tribunal’s rulings); or (ii) in the absence of the jurisdiction of the arbitral
tribunal to rule on interim measures in a given jurisdiction.  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 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.

 
 
(11)
Costs and Attorneys’ Fees.  The arbitral tribunal is authorized to award costs
and attorneys’ fees and to allocate them between the parties to the
Dispute.  The costs of the arbitration proceedings, including attorneys’ fees,
shall be borne in the manner determined by the arbitral tribunal.

 
 
(12)
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.

 
 
(14)
Currency of Award.  The arbitral award shall be made and payable in United
States dollars, free of any tax or other deduction.

 
 
(15)
Exemplary Damages.  The Parties waive their rights to claim or recover, and the
arbitral tribunal shall not award, any punitive, multiple, or other exemplary
damages (whether statutory or common law) except to the extent such damages have
been awarded to a third party and are subject to allocation between or among the
parties to the Dispute.

 
 
(16)
Waiver of Challenge to Decision or Award.  To the extent permitted by law, any
right to appeal or challenge any arbitral decision or award, or to oppose
enforcement of any such decision or award before a court or any governmental
authority, 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.

 
 
(E)
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 Article 15.2) to
the extent necessary to enforce this Article 18 or any arbitration award, to
enforce other rights of a Party, or as required by law or pursuant to any rules
or requirements of any government or stock exchange; provided, however, that
breach of this confidentiality provision shall not void any settlement, expert
determination or award.

 
18.3
Expert Determination

 
For any decision referred to an expert, the Parties hereby agree that such
decision shall be conducted expeditiously by an 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. The Party desiring an
expert determination shall give the other parties to the Dispute written notice
of the request for such determination.  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 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 and shall
administer such expert determination through the ICC’s Rules for Expertise.  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.  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.  Before issuing his
final decision, the expert shall issue a draft report and allow the parties to
the Dispute to comment on it.  The expert shall endeavor to resolve the Dispute
within thirty (30) Days (but no later than sixty (60) Days) after his
appointment, 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 unless challenged in an arbitration
pursuant to Article 18.2(D) within sixty (60) Days of the date the expert’s
final decision is received by the parties to the Dispute and until replaced by
such subsequent arbitral award. In such arbitration (i) the expert determination
on the specific matter shall be entitled to a rebuttable presumption of
correctness; and (ii) the expert shall not (without the written consent of the
parties to the Dispute) be appointed to act as an arbitrator or as adviser to
the parties to the Dispute.
 
55

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

 
18.4
Waiver of Sovereign Immunity

 
Any Party that now or hereafter has a right to claim sovereign immunity for
itself or any of its assets hereby waives any such immunity to the fullest
extent permitted by the laws of any applicable jurisdiction.  This waiver
includes immunity from (i) any expert determination, mediation, or arbitration
proceeding commenced pursuant to this Agreement; (ii) any judicial,
administrative or other proceedings to aid the expert determination, mediation,
or arbitration commenced pursuant to this Agreement; and (iii) 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.
 
ARTICLE 19
ALLOCATION OF COST & PROFIT HYDROCARBONS
 
19.1
Allocation of Total Production

 
 
(A)
The total quantity of Hydrocarbons produced and measured at the delivery point
(as determined in accordance with Article 9) from each Exploitation Area and to
which the Parties are collectively entitled under the Contract shall be composed
of Cost Hydrocarbons and Profit Hydrocarbons in accordance with the provisions
of the Contract.

 
 
(B)
Operator shall develop and the Operating Committee shall approve procedures for
allocating such Cost Hydrocarbons and Profit Hydrocarbons during each Calendar
Quarter among the individual Exploitation Areas based upon the following
principles.

 
 
(1)
Cost Hydrocarbons shall be allocated in the following order: (1) current period
operating expenses, (2) current and prior period exploration expense, (3)
development capital expenditures and (4) any unrecovered costs carried forward
from prior period across the contract area.

 
 
(2)
All allocations made pursuant to this Article 19 shall incorporate adjustments
to reflect differences in value if different qualities of Hydrocarbons are
produced.

 
19.2
Allocation of Hydrocarbons to Parties

 
 
(A)
Cost Hydrocarbons and Profit Hydrocarbons allocated to Exploitation Areas
pursuant to Article 19.1 shall be allocated to the Parties in proportion to
their Participating Interests in each such Exploitation Area.

 
56

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

 
 
(B)
Notwithstanding anything to the contrary contained in this Article 19, and to
the extent allowed under the Contract, Cost Hydrocarbons which are not
specifically attributable to an Exploitation Area, if any, shall be allocated to
the Parties in proportion to their respective participation in the operations
which underlie any such Cost Hydrocarbons, provided, however, that the rights of
a Party to Cost Hydrocarbons or Profit Hydrocarbons from an Exploitation Area to
which it is a participant shall not be impaired by the rights of any other Party
to recover Cost Hydrocarbons which are not specifically attributable to such
Exploitation Area.

 
19.3
Use of Estimates

 
 
Initial distribution of Hydrocarbons pursuant to this Article 19 shall be based
upon estimates furnished by Operator pursuant to Article 9, with adjustments for
actual figures to be made in kind within forty-five (45) Days after the end of
the Calendar Quarter and at any later date when adjustments must be made with
the Government under the Contract.

 
19.4
Principles

 
If no allocation procedure is approved by the Operating Committee in accordance
with Article 19.1, the Parties shall nonetheless be bound by the principles set
forth in this Article 19 with regard to the allocation of Cost Hydrocarbons and
Profit Hydrocarbons.
 
ARTICLE 20
GENERAL PROVISIONS
 
20.1
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 of Republic of Guinea; (ii) the laws 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; or (iii) 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.  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 in good time (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.

 
 
(B)
Each Party agrees to (i) maintain adequate internal controls; (ii) properly
record and report all transactions; and (iii) comply with the laws 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 laws applicable to the operations under this
Agreement.

 
57

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

 
20.2
Conflicts of Interest

 
 
(A)
Operator undertakes that it shall 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.

 
 
(B)
The provisions of the preceding paragraph shall not apply to:  (1) Operator’s
performance which is in accordance with the local preference laws or policies of
the Government; or (2) 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.

 
 
(C)
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.

 
20.3
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 at least two (2) 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 at least two (2) Parties which are not Affiliates
holding fifty percent (50%) or more of the Participating Interests not held by
such announcing Party or its Affiliates; provided that, 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, rules or regulations of any
government, legal proceedings or stock exchange having jurisdiction over such
Party or its Affiliates as set forth in Article 15.2.

 
20.4
Successors and Assigns

 
Subject to the limitations on Transfer contained in Article 12, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
the Parties.
 
20.5
Waiver

 
No waiver by any Party of any one or more defaults by another Party in the
performance 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.
 
58

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

 
20.6
No Third Party Beneficiaries

 
Except as provided under Article 4.6 (B), 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.
 
20.7
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.
 
20.8 
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 so
far 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.
 
20.9
Modifications

 
Except as is provided in Articles 11.2(B) and 20.8, there shall be no
modification of this Agreement or the Contract except by written consent of all
Parties.
 
20.10
Interpretation

 
 
(A)
Headings.  The topical headings used in this Agreement are for convenience only
and shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any topic
are to be found in any particular Article.

 
 
(B)
Singular and Plural.  Reference to the singular includes a reference to the
plural and vice versa.

 
 
(C)
Gender.  Reference to any gender includes a reference to all other genders.

 
 
(D)
Article.  Unless otherwise provided, reference to any Article or an Exhibit
means an Article or Exhibit of this Agreement.

 
 
(E)
Include.  “include” and “including” shall mean include or including without
limiting the generality of the description preceding such term and are used in
an illustrative sense and not a limiting sense.

 
20.11
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.
 
59

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

 
20.12
Entirety

 
With respect to the subject matter contained herein, this Agreement (i) is the
entire agreement of the Parties; and (ii) supersedes all prior understandings
and negotiations of the Parties.
 
IN WITNESS of their agreement each Party has caused its duly authorized
representative to sign this instrument on the date indicated below such
representative’s signature.

 
SCS CORPORATION
   
By:
/s/ Ray Leonard
 
Ray Leonard
Title:
President and Chief Executive Officer
Date:
January 28, 2010
 
DANA PETROLEUM (E&P) LIMITED
   
By:
/s/ Stuart M. Paton
 
Stuart M. Paton
Title: 
Technical & Commercial Director
Date:
January 28, 2010 

 
 
60

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