Exhibit 10

 

EXECUTION VERSION

 

DATED 20 NOVEMBER 2012

 

 

(1)                                 SCS CORPORATION LTD.

 

 

 

 

 

(2)                                 TULLOW GUINEA LTD.

 

 

 

 

PURCHASE AND SALE AGREEMENT

 

 

 

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CONTENTS

 

ARTICLE I DEFINITIONS

2

 

 

ARTICLE II ASSIGNMENT OF INTEREST

6

 

 

ARTICLE III CONDITIONS PRECEDENT AND CLOSING

6

 

 

ARTICLE IV FARM-IN OBLIGATIONS

9

 

 

ARTICLE V OBLIGATIONS UNDER PSC AND JOA

13

 

 

ARTICLE VI INDEMNITY

13

 

 

ARTICLE VII INTERIM PERIOD OBLIGATIONS

17

 

 

ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF THE PARTIES

19

 

 

ARTICLE IX TAX

27

 

 

ARTICLE X CONFIDENTIALITY

29

 

 

ARTICLE XI NOTICES

30

 

 

ARTICLE XII LAW AND DISPUTE RESOLUTION

31

 

 

ARTICLE XIII FORCE MAJEURE

35

 

 

ARTICLE XIV DEFAULT

35

 

 

ARTICLE XV GENERAL PROVISIONS

36

 

 

ARTICLE XVI GUARANTEE

39

 

EXHIBITS

 

Exhibit “A” — PSC

 

Exhibit “B” — Contract Area

 

Exhibit “C” — Joint Operating Agreement

 

Exhibit “D” — Material Contracts

 

Exhibit “E” — Part I Closing Documents - Form of Assignment

 

                         Part II Closing Document - Form of Novation and
Amendment of JOA

 

Exhibit “F” — Guarantee

 

Exhibit “G” — Pending Litigation

 

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PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (“Agreement”) is entered into on this 20 day of
November 2012 (“Effective Date”)

 

BY and BETWEEN:

 

(1)                                 SCS CORPORATION LTD. (hereinafter referred
to as “SCS” or “Farmor”), a Cayman Island corporation with principal offices at
12012 Wickchester Lane, Suite 475, Houston, TX 77079, USA; and

 

(2)                                 TULLOW GUINEA LTD, (hereinafter referred to
as “Tullow” or “Farmee”), a company incorporated in England with principal
offices at 9 Chiswick Park, 566 Chiswick High Road, London, W4 5XT, England;

 

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 owns certain rights pertaining to the Hydrocarbon Production
Sharing Contract dated September 22, 2006 [<Contrat de Partage de Production
d’Hydrocarbures>] as amended March 25, 2010, between the Republic of Guinea and
SCS in respect of the Contract Area, offshore the Republic of Guinea (the
“PSC”);

 

WHEREAS, on December 4, 2009, Dana Petroleum E&P Limited (“Dana”) entered into
an agreement with SCS to acquire a twenty-three percent (23%) Participating
Interest in the PSC and JOA, effective January 30, 2010;

 

WHEREAS, on May 10, 2010, SCS received from the Government of Guinea a
Presidential Decree approving the PSC and formal acknowledgement of Dana as a
participant in the PSC by the Minister of Mines and Geology of Guinea (the “
Dana Arrêté”);

 

WHEREAS, in June 2012 SCS entered into a corporate continuance under the laws of
the State of Delaware, United States of America, to change its place of
incorporation to the Cayman Islands;

 

WHEREAS, as of the date of this Agreement, Farmor as Contractor holds a
seventy-seven percent (77%) Participating Interest in the PSC and the JOA and is
the Operator of the PSC and the Contract Area; and

 

WHEREAS, Farmor is willing to assign and transfer the Farm-In Interest to Farmee
and Farmee wishes to acquire the Farm-In Interest, subject to and in accordance
with the terms and conditions set forth herein.

 

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NOW THEREFORE, in consideration of the premises and the mutual covenants and
obligations set out below and to be performed, Farmor and Farmee agree as
follows:

 

ARTICLE I  DEFINITIONS

 

As used in this Agreement, the following capitalized words and terms shall have
the meaning ascribed to them below.  Any capitalized term used in this Agreement
and not specifically defined in this Agreement shall have the same meaning as in
the JOA.

 

Accrual Basis means the basis of accounting under which costs and benefits are
regarded as applicable to the period in which the liability for the costs
incurred or the right to the benefit arises regardless of when invoiced, paid or
received.

 

Additional Carried Costs has the meaning ascribed to such term in
Article 4.1(C) hereof

 

Additional Due Diligence has the meaning ascribed to such term in
Article 3.1(A).

 

Affiliate means a natural or juridical person that (i) Controls a Party, (ii) is
Controlled by a Party, or (iii) is Controlled by another natural or juridical
person that also Controls that Party.  “Control” as used herein means that a
person or entity has the direct or indirect ownership of more than fifty percent
(50%) of the voting rights of that person or entity.

 

Agreement means this Purchase and Sale, its recitals, Articles, Sections and
Exhibits, and any extension, renewal or amendment thereto agreed to in writing
by the Parties.

 

Appraisal Well has the meaning ascribed to such term in the JOA.

 

Approval Date means the date on which the Government formally approves the
assignment of the Farm-In Interest transferred hereunder as evidenced by the
issuance of an Arrêté under Guinea law.

 

Arrêté means a decree issued by the Minister of Mines and Geology of the
Republic of Guinea evidencing the final approval of the government to the
subject matter thereof.

 

Assignment means the assignment, substantially in the form attached as
Exhibit “E”, to be entered into by the Farmor and Farmee at Closing by which the
Farm-In Interest is transferred and conveyed by the Farmor to the Farmee.

 

Business Day means any day when banks in London and Houston are customarily open
excepting a Saturday, Sunday or a day on which such banks are authorized or
obligated by law to close.

 

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Carry Commencement Date means the date that is the earlier of: a) the
commencement of the Second Sub-Period; and b) in the event that the Contractor
elects to begin operations for the Farm-in Well prior to the commencement of the
Second Sub-Period, the date on which the commencement of operations relating to
the Farm-in Well is specified in a Work Program & Budget approved by the
Operating Committee (as such terms are defined in the JOA).  For the avoidance
of doubt, no spending associated for operations relating to the Farm-in Well
shall occur prior to such Carry Commencement Date.

 

Carry Period means the period commencing on the Carry Commencement Date and
terminating on the Carry Termination Date.

 

Carry Termination Date means the date which is ninety (90) calendar days
following the date on which the rig contracted to drill the Farm-in Well moves
off the well location.

 

Carried Costs has the meaning ascribed to it in Article 4.1(B).

 

Closing means the closing of the assignment and transfer of the Farm-In Interest
from the Farmor to the Farmee as provided in Section 3.4.

 

Closing Costs has the meaning ascribed to it in Section 4.2

 

Closing Date means the date that Closing actually occurs being determined in
accordance with Section 3.4(A).

 

Closing Notice has the meaning set forth in Section 4.2

 

Conditions Precedent shall have the meaning specified in Section 3.1(A).

 

Contract Area means the geographical area more particularly described in the
attached Exhibit “B.”

 

Contractor has the meaning ascribed to it in the PSC <Entrepeneur>.

 

Dollar or $ means a United States dollar.

 

Dispute means a dispute between the Parties arising out of or in connection with
this Agreement that cannot be resolved and is therefore to be resolved by
arbitration under Section 12.2.

 

Effective Date shall have the meaning specified on page 1.

 

Encumbrance means any mortgage, charge (fixed or floating), pledge, lien,
hypothecation, option, trust, right of set-off or other third party right or
interest (legal or equitable) including any right of pre-emption, assignment by
way of security, net profit interest, carried interest, overriding royalties,
production payments or any other security interest of any kind however created
or arising or

 

3

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any other agreement or arrangement having similar effect, including claims
relating to any of the foregoing.

 

Exploration Well means the exploration well referenced in Article 4.1(b) of the
first amendment to the PSC [<forage d’exploration>].

 

Farm-In Interest means the undivided forty percent (40%) Participating Interest
to be assigned, transferred and conveyed to Farmee under the terms of this
Agreement.

 

Farm-in Obligations shall mean the obligations to be fulfilled by the Farmee as
set out in Article IV.

 

Farm-In Well means an Exploration Well to be drilled pursuant to an approved
Work Program and Budget meeting the criteria specified in Section 4.4 drilled in
a minimum water depth of at least 2000 meters in the deepwater fan area of the
Concession offshore Guinea using a drilling rig which is either currently under
contract with an affiliate of Farmee in West Africa or which has similar
operating rates, mobilization and demobilization costs to such rigs currently
under contract with an Affiliate of Farmee in West Africa.

 

First Exploration Period has the meaning ascribed to it in the PSC.

 

Force Majeure shall have the same meaning as is set out in the JOA.

 

Government means the government of the Republic of Guinea and any political
subdivision, agency or instrumentality thereof including the Ministry.

 

Interim Period means the period from, and including, the Effective Date until,
and including, the Closing Date.

 

Joint Costs means the costs of Joint Operations which are charged to the Joint
Account (as defined in the JOA).

 

Joint Operations shall have the same meaning ascribed to in the JOA.

 

Joint Operating Agreement or JOA means the Operating Agreement executed between
SCS and Dana governing the conduct of Joint Operations in relation to the PSC, a
copy of which is attached hereto as Exhibit “C”, which shall be amended and
novated at Closing to join the Farmee as a party subject always to
Section 7.1(C).

 

Laws/Regulations mean those laws, statutes, rules and regulations governing
activities under the PSC.

 

LIBOR means the one (1) month term, London Interbank Offered Rate (LIBOR rate
or, in the case of such rate ceasing to be determined or being replaced, such
replacement rate commonly referenced or utilised in accordance with generally
accepted market practice for the determination of the London interbank offered
rate for deposits in US dollars as determined by the Parties, acting reasonably)
for US dollar deposits, as published in London by the Financial Times or, if not

 

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published, then by The Wall Street Journal (or, if not published by either of
such sources, as published by such other reference source selected by the
Parties, acting reasonably), 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.

 

Material Contracts means those agreements and contracts existing on the
Effective Date and identified in Exhibit D.

 

Ministry means the <Ministre des Mines et de la Géologie> of the Republic of
Guinea and any ministry succeeding to and assuming its responsibilities in
relation to the Farm-In Interest.

 

Operating Committee has the meaning ascribed to such term in the JOA.

 

Operator means the entity designated to conduct operations in the Contract Area
in accordance with the terms of the JOA, being at the date hereof the Farmor.

 

Operatorship means the duties of the Operator as defined under the JOA.

 

Participating Interest means as to any party to the PSC and the JOA, an
undivided legal and beneficial percentage interest of such party in the rights,
duties, interests and obligations in and under the PSC, the JOA, and all
Material Contracts.

 

Party and Parties shall have the meanings set out in the preamble to this
Agreement.

 

Past Costs means the Farmor’s Participating Interest share of all Petroleum
Costs incurred prior to the Effective Date in respect of Joint Operations in the
PSC.

 

Petroleum Code means the Petroleum Code and Implementation Decree of the
Republic of Guinea as amended effective as of the date of this Agreement.

 

Petroleum Costs shall have the meaning ascribed to such term in the PSC
[<Depenses Petrolieres>]

 

PSC means the Hydrocarbon Production Sharing Contract [<Contrat de Partage de
Production d’Hydrocarbures>] as defined in the preamble to this Agreement and
any further amendments, extensions or renewals thereto.

 

Second Sub-Period means the second sub-period of the Second Exploration Period
[<la deuxieme sous periode de trios ans de la Seconde Periode d’Exploration>]
(as defined in Article 4.1(b) of the PSC.

 

Second Exploration Period has the meaning ascribed to it in the PSC [<Seconde
Periode d’Exploration>].

 

Work Program and Budget has the meaning ascribed to it in the JOA.

 

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ARTICLE II  ASSIGNMENT OF INTEREST

 

Section 2.1 Assignment and Transfer

 

(A)                               Subject to the satisfaction of the Conditions
Precedent and the terms of this Agreement, and in consideration of the Farmee
carrying out the Farm-In Obligations, the Farmor agrees to assign and transfer
to Farmee, and Farmee agrees to accept, the Farm-In Interest at Closing, free,
subject to the terms of the JOA, the PSC and the Material Contracts, of all
Encumbrances.

 

(B)                               Immediately following the assignment and
transfer of the Farm-In Interest at Closing, the Participating Interests of the
Contractor under the PSC and JOA shall be:

 

 

 

Participating Interest

 

 

 

 

 

Farmor

 

37.00

%

 

 

 

 

Farmee

 

40.00

%

 

 

 

 

Dana

 

23.00

%

 

Section 2.2 Binding Effect

 

Farmor and Farmee shall be bound by this Agreement as of the Effective Date and
shall fully perform all of their respective obligations under this Agreement.

 

Section 2.3 Approval

 

The Farmor shall apply for the approval and authorization of the Government to
the transfer of the Farm-In Interest and shall submit the Assignment within
fifteen (15) days from the Effective Date to the Government to obtain
satisfaction of the Condition Precedent in Section 3.1(A)(i).

 

ARTICLE III  CONDITIONS PRECEDENT AND CLOSING

 

Section 3.1

 

(A)                               The transfer and assignment of the Farm-In
Interest shall be subject to the fulfillment of the following conditions to
Closing (each a “Condition Precedent” and together the “Conditions Precedent”):

 

(i)                                     a notice to the Government from the
Farmor in a form acceptable to Farmee, acting reasonably, requesting the Arrete
in Section 3.1(A)(ii).  Such notice shall clearly indicate Farmor’s intent to
resign as Operator under the JOA and transfer Operatorship to Farmee as soon as
practicable following Closing;

 

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(ii)                                  the receipt of an Arrêté signed by the
Minister of Mines and Geology, representing the necessary approvals and consents
of the Government pursuant to the PSC and the Laws/Regulations to the transfer
and assignment of the Farm-In Interest to the Farmee and to the appointment of
Farmee as a qualified Contractor as defined in the Petroleum Code;

 

(iii)                               a notice sent to the parties to the JOA by
the Farmor that effective as of Closing it is officially and irrevocably
providing notice pursuant to Section 4.9 of the JOA of its resignation as
Operator and calling an Operating Committee meeting as soon as practical to
appoint a successor Operator and that it shall vote its interest at such
Operating Committee meeting to appoint Farmee as Operator;

 

(iv)                              the execution by Dana of an amendment and
novation to the JOA in the form set out in Exhibit E;

 

(v)                                 the waiver of any pre-emptive rights, tag
along rights or other third party participation rights of a similar nature and
the receipt of all required consents under the JOA or any other agreements in
connection with the Farm-In Interest; and

 

(vi)                              the Farmee having completed, to its reasonable
satisfaction, a good faith due diligence review of the Farmor and the PSC in
order to ensure that the Farmor and the PSC comply with the requirements of the
Farmee’s compliance and anti-corruption policies (the “Additional Due
Diligence”).  Farmor and its Affiliates agree to provide Farmee with all
reasonable assistance in the conduct of the Additional Due Diligence, including
providing Farmee with all information reasonable requested by Farmee.   .

 

(B)                               The Farmor shall notify the Farmee as soon as
reasonably practicable upon satisfaction of each Condition Precedent, and in
respect of the Condition Precedent in Section 3.1(A)(i) shall provide the Farmee
with a copy of the Arrêté received from the Government approving the transfer
and assignment promptly following the Approval Date.

 

Section 3.2 Acts to be Performed

 

(A)       Each Party shall use commercially reasonable efforts to execute all
documents and do and procure to be done all such acts and things as are
reasonably within its power to ensure the Conditions Precedent are satisfied as
soon as is reasonably practicable after execution of this Agreement, and in any
event not later than ninety (90) days from the Effective Date (or such later
date as may be agreed by the Parties).   The Condition Precedents may only be
waived by the Farmee upon written notice of such waiver to the other Party.

 

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(B)       Farmee agrees to provide Farmor with adequate and timely notice of any
potential issues with regard to the Additional Due Diligence so that Farmor can
respond appropriately and, subject to Farmor providing all reasonable assistance
in an prompt and efficient manner, to complete the Additional Due Diligence as
soon as reasonably practicable and not later than 17 December 2012.

 

Section 3.3 Termination

 

(A)                               Any period of Force Majeure under Article XIII
notwithstanding, if the Conditions Precedent are not satisfied or waived where
appropriate within ninety (90) days from the Effective Date, or such later date
as may be agreed by the Parties, then either Party has the right to terminate
this Agreement by giving fourteen (14) days written notice to the other Party in
accordance with the provisions of Article XI, and this Agreement shall terminate
on expiry of such notice unless prior thereto the Conditions Precedent are
satisfied.

 

(B)                               The Farmee shall be entitled to terminate this
Agreement upon a breach of Farmor’s Interim Period covenants under Section 7.1.

 

(C)                               Termination of this Agreement under this
Section 3.3 shall be without prejudice to any breach by a Party of its
obligations under Section 3.2.  Save as aforesaid termination shall be without
any liability of the Farmor or the Farmee hereunder save for any rights of a
Party in respect of any prior breach of this Agreement. The provisions of
Articles IX, X, XI, XII and Article XV shall survive termination and continue to
bind the Parties.

 

Section 3.4 Closing

 

(A)                               Unless agreed in writing by the Parties to the
contrary, Closing shall take place at 0900 hours London Time in the offices of
Farmor’s counsel, Baker Botts, in London, England, on a date five (5) Business
Days following receipt by Farmee of the Farmor’s validly issued notice under
Section 3.1(B) specifying that the last remaining Condition Precedent in
Section 3.1(A) has been fulfilled.  At Closing, if not done previously:

 

(i)                                     the Farmor shall provide Farmee with a
copy of the Arrêté authorizing the transfer and assignment of the Farm-In
Interest as referred to in Section 3.1(A);

 

(ii)                                  the Farmor shall provide a copy of the
notice to the parties to the JOA evidencing the Farmor’s resignation as Operator
under the JOA as referred to in Section 3.1(A)(iii);

 

(iii)                               the Farmor shall provide the amendment and
novation to the JOA referred to in Section 3.1(A)(iv) duly executed by all the
parties thereto other than the Farmee;

 

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(iv)                              the Farmee and the Farmor shall execute the
Assignment;

 

(v)                                 the Farmee shall execute the amendment and
novation of the JOA referred to in Section 3.1(A)(iv);

 

(vi)                              the Farmor shall provide any copies of waivers
or consents required under the JOA or any other agreement in connection with the
Farm-In Interest, as referred to in Section 3.1(A)(v); and

 

(vii)                           the Farmee shall pay to Farmor by wire transfer
in immediately available funds to an account designated by Farmor the amount of
consideration representing the Closing Costs.

 

(B)                               The Farmor and Farmee shall execute all such
other documents and do all such other acts and things as may reasonably be
required in order to complete the transfer and assignment of the Farm-In
Interest.

 

(C)                               Except as expressly provided to the contrary
in this Agreement or the Documents, after Closing, all rights and obligations of
the Farmor and Farmee under the JOA and PSC shall be in accordance with their
respective Participating Interests set out in Section 2.1(B).

 

ARTICLE IV  FARM-IN OBLIGATIONS

 

Section 4.1

 

In consideration of the assignment and transfer by the Farmor of the Farm-In
Interest to the Farmee, subject to Closing, the Farmee shall be liable for the
Farmee’s Farm-In Obligations as follows:

 

(A)                               the Farmee shall reimburse the Farmor for Past
Costs equal to Twenty Seven Million US Dollars ($ 27,000,000);

 

(B)                               the Farmee shall carry Farmor in respect of
100% of Farmor’s Participating Interest share of all eligible costs,
expenditures, expenses and liabilities of Joint Operations incurred during the
Carry Period pursuant to Work Program and Budget approved, following the
Effective Date, pursuant to Article 5.9(B) or (C) of the JOA, as appropriate, as
determined on an Accrual Basis, (herein collectively referred to as the “Carried
Costs”) provided that, the Carried Costs shall only apply for costs attributable
to Joint Operations in respect of the Carry Period and shall be subject to a
maximum gross expenditure cap of $100,000,000 by the Contractor during the Carry
Period (including all the Contractor’s Participating Interest share of such
costs) (the “Carried Costs Cap”).  For the avoidance of doubt, in the event that
a replacement or substitute well in respect of the Farm In Well is required to
be drilled under the terms of the PSC, the Carried Costs Cap shall apply on a
cumulative/aggregate

 

9

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basis to the costs associated with the Farm In Well and the substitute or
replacement well, rather than applying as a separate cap to the Farm In Well and
the substitute or replacement well. All costs in excess of the Carried Costs Cap
shall, subject to Closing, be borne by the Parties in proportion to their
respective Participating Interests as set out in Section 2.1(B).  For the
avoidance of doubt, in the event that the Farmor’s Participating Interest
changes prior to or during the Carry Period, the Farmee shall carry the Farmor
in respect of 100% of Farmor’s revised Participating Interest share of costs,
expenditures, expenses and liabilities of Joint Operations incurred during the
Carry Period provided that the Farmee’s maximum liability for payments made to
or on behalf of the Farmor during the Carry Period shall not exceed and shall be
capped at US$37,000,000;

 

(C)                               provided that following the completion of the
Farm-in Well, the Farmee approves the drilling of an Appraisal Well in respect
of the Farm-In Well and such Appraisal Well is approved by the Operating
Committee as a Joint Operation, the Farmee shall pay one hundred percent (100%)
of the Farmor’s Participating Interest share of all costs, expenditures and
expenses and liabilities of Joint Operations relating to such Appraisal Well as
referred to in this Section 4.1 (C), as determined on an Accrual Basis, (herein
collectively referred to as the “Additional Carried Costs”) provided that, in
respect of this Section 4.1(C) such Additional Carried Costs shall only apply
for costs attributable to Joint Operations in respect of such Appraisal Well and
shall be subject to a maximum gross expenditure cap of $100,000,000 (including
all the Contractor’s Participating Interest share of such costs) (the
“Additional Carried Costs Cap”). All costs in excess of the Additional Carried
Costs Cap shall, subject to Closing, be borne by the Parties in proportion to
their respective Participating Interests.  For the avoidance of doubt, in the
event that the Farmor’s Participating Interest changes prior to or during
operations relating to the period in respect of which Additional Carried Costs
apply, the Farmee shall carry the Farmor in respect of 100% of Farmor’s revised
Participating Interest share of costs, expenditures, expenses and liabilities of
Joint Operations relating to the Appraisal Well provided that the Farmee’s
maximum liability for payments made to or on behalf of the Farmor in respect of
the Additional Carried Costs shall not exceed and shall be capped at
US$37,000,000

 

(D)                               After Farmee has concluded the payment of the
Carried Costs and the Additional Carried Costs, as applicable subject to this
Section 4.1, all further Joint Costs incurred shall be paid in accordance with
each Party’s Participating Interest, subject to Closing and subject to the JOA. 
Payments by Farmee under this Section 4.1 shall be in addition to the Farmee’s
obligation to pay the Farmee’s own Participating Interest share of all cash
calls, advances (including indirect charges), and other obligations under the
PSC and JOA, provided however that Farmee’s

 

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Participating Interest share of such costs shall be included in calculating the
Carried Costs Cap and the Additional Carried Costs Cap.

 

(E)                                The Farmee shall be released and discharged
in full of its Farm-In Obligations under the Agreement, only in the event that
the Contract Area is surrendered or relinquished in its entirety or the PSC is
terminated, in which case the Farmee shall be entitled to withdraw under the
JOA, the PSC and this Agreement.

 

(F)                                 Other than as in 4.1(E) the Farmee shall
have no right withdraw under the JOA, the PSC or this Agreement until the Farmee
has discharged in full the Farm-In Obligations. The payment of the Carried Costs
and, if applicable, the Additional Carried Costs is personal to the Farmor and
the right to receive such payments may not be transferred or assigned to any
third party without the express written consent of the Farmee.

 

Section 4.2 Payment to be made at Closing

 

At least five (5) Business Days before Closing, Farmor shall send a notice in
writing (the “Closing Notice”) to Farmee setting out the following (the “Closing
Costs”):

 

(A)                               confirmation that the Farmor has incurred at
least US$27,000,000 Past Costs and that the Past Costs will therefore be due and
payable by the Farmee to the Farmor at Closing, along with supporting
documentation evidencing such expenditures;

 

(B)                               the Farmor’s good faith estimate of the costs
of Joint Operations attributable to the Farm-in Interest (being a 40%
Participating Interest share of Joint Costs) accruing during the Interim Period
along with supporting documentation evidencing such expenditures; and

 

(C)                               in the event that the Carry Period has
commenced prior to Closing, the amount of the Carried Costs and/or Additional
Carried Costs which have accrued during the Interim Period along with supporting
documentation evidencing such expenditures.

 

Section 4.3 Closing Costs Adjustments

 

(A)                               The Farmee shall accept and pay at Closing the
amount of the Closing Costs set out in the Closing Notice, provided that such
acceptance and payment shall be without prejudice to the right of the Farmee,
within a period of seventy-five (75) days of Closing, to give a notice to the
Farmor disputing the correctness of the Farmor’s notice.  In such event the
Farmor and the Farmee shall meet and endeavor to resolve such dispute within
thirty (30) days, and if not resolved such dispute shall be referred to an
independent firm of reputable international accountants for determination.  Such
firm shall carry out its determination as an expert in

 

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accordance with Section 12.3, and the determination shall be final and binding
on the Parties save as provided in Section 12.3.

 

(B)                               If, as a result of an expert determination or
any agreement reached by the Farmor and the Farmee, an amount is repayable from
the Farmor to the Farmee, in addition to such amount, the Farmor shall pay
interest on such amount equal to LIBOR + 200 basis points and charged from, and
including, the Closing until, and excluding, the date of repayment.

 

Section 4.4 Farm In Well Commitment

 

In further consideration of the assignment and transfer of the Farm-In Interest,
the Farmor and Farmee agree to vote in favour of an Operating Committee proposal
to renew the Second Exploration Period and to enter into the Second Sub-Period
and to satisfy the relinquishment obligations contemplated thereby. 
Furthermore, the Parties agree to use reasonable endeavours to agree a Work
Program and Budget which provides for the commencement of drilling of the
Farm-in Well not later than 1 April 2014.

 

Section 4.5 Exclusion of AGR Legal Expenses

 

Notwithstanding anything to the contrary in this Agreement, the Parties hereby
agree that Farmee shall have no liability for, and shall not contribute any
amounts towards, the costs, fees, liabilities or expenses associated with the
AGR lawsuit (as such term is defined minutes of the Operating Committee meeting
dated 24 September 2012) and that all such costs, fees, liabilities or expenses
shall be for the account of SCS.

 

Section 4.6 Costs of Transfer

 

Any costs, expenses, fees, stamp duties or other levies payable to the
Government in connection with the Assignment for the transfer of the Farm-In
Interest, excluding income and capital gains taxes described in Article IX,
shall be borne and paid promptly by Farmee.

 

Section 4.7 Cost Recovery Rights

 

In respect of Past Costs, Carried Costs and Additional Carried Costs (as
applicable) paid for by the Farmee, to the extent that these costs are cost
recoverable as Petroleum Costs under the PSC, the rights to the petroleum
allocated for such cost recovery shall be for the benefit of the Farmee in
connection with all payments made and costs incurred by the Farmee pursuant to
this Agreement, including without limitation the Past Cost, the Carried Costs
and the Additional Carried Costs.

 

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ARTICLE V  OBLIGATIONS UNDER PSC AND JOA

 

The obligations under the PSC, the JOA, and the Material Contracts shall apply
to the Farm-In Interest with effect from the Closing Date.

 

ARTICLE VI  INDEMNITY

 

Section 6.1

 

Following Closing, and subject to the limitations set forth in Sections 6.5,
6.6, 6.7, 6.8 and 6.9 herein, Farmee and its successors and assigns shall
defend, indemnify, hold harmless and forever release Farmor and its Affiliates,
and all of its and their respective equity holders, partners, members,
directors, officers, managers, employees, agents and representatives,
(collectively, the “Farmor Indemnified Parties”) for (a) Farmee’s breach of the
Farm-In Obligations, and (b) any costs, charges, expenses (including legal fees
and professional charges) liabilities and obligations arising from and against
claims, demands, causes of action, loss or damage attributable to any breach by
Farmee of any of the Farm-In Obligations, or of any of the representations or
warranties contained in Section 8.2, or any breach by Farmee of its other
covenants or agreements under this Agreement.  Farmee shall be entitled to take
and/or require Farmor to take any action it might reasonably request to resist
such liabilities subject to being indemnified by Farmee for all reasonable costs
incurred.  Farmor shall give Farmee all reasonable cooperation, access and
assistance for the purposes of considering and resisting such liability as it
may reasonably require.

 

Section 6.2

 

Following Closing, and subject to the limitations set forth in Sections 6.5,
6.6, 6.7, 6.8 and 6.9 or otherwise in this Agreement, Farmor and its successors
and assigns shall defend, indemnify, hold harmless and forever release Farmee
and its Affiliates, and all of its and their respective equity holders,
partners, members, directors, officers, managers, employees, agents and
representatives, (collectively, the “Farmee Indemnified Parties”) for (a) any
costs, charges, expenses (including legal fees and professional charges),
expenditures, liabilities, obligations and claims arising in connection with the
PSC or the JOA and relating to, and to the extent of, the Farm-In Interest which
the Farmee may suffer, sustain or incur, as determined on an Accrual Basis, to
the period prior to the Effective Date (on the understanding that any damages
and costs recovered shall belong solely to the Farmor); and (b) any breach by
Farmor of any of the representations or warranties contained in Section 8.1 or
any breach by Farmor of its covenants or agreements under this Agreement. 
Farmor shall be entitled to take and/or require Farmee to take any action it
might reasonably request to resist such liabilities, subject to being
indemnified by the Farmor for all reasonable costs incurred.  Farmee shall give
Farmor all reasonable cooperation,

 

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access and assistance for the purposes of considering and resisting such
liability as it may reasonably require.

 

Section 6.3

 

THE DEFENSE, INDEMNIFICATION, HOLD HARMLESS, RELEASE AND ASSUMED OBLIGATIONS
PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE
LIABILITIES, LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE OR RESULTED
SOLELY OR IN PART FROM THE GROSS, SOLE, ACTIVE, PASSIVE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF LAW OF
OR BY ANY INDEMNIFIED PARTY.  FARMEE AND FARMOR ACKNOWLEDGE THAT THIS STATEMENT
COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

 

Section 6.4

 

All claims for indemnification under Section 6.1 and Section 6.2 shall be
asserted and resolved as follows:

 

(A)                               The term “Indemnifying Party” when used in
connection with particular liabilities shall mean the Party or Parties having an
obligation to indemnify another Party or Parties with respect to such
Liabilities pursuant to Section 6.1 or Section 6.2, and the term “Indemnified
Party” when used in connection with particular Liabilities shall mean the Party
or Parties having the right to be indemnified with respect to such Liabilities
by another Party or Parties pursuant to Section 6.1 or Section 6.2.

 

(B)                               To make a claim for indemnification under
Section 6.1 or Section 6.2, an Indemnified Party shall notify the Indemnifying
Party of its claim under this Section 6.4 including the specific details of and
specific basis under this Agreement for its claim (the “Claim Notice”).  In the
event that the claim for indemnification is based upon a claim by a third party
against the Indemnified Party (a “Claim”), the Indemnified Party shall provide
its Claim Notice promptly after the Indemnified Party has actual knowledge of
the Claim and shall enclose a copy of all papers (if any) served with respect to
such Claim; provided that the failure of any Indemnified Party to give notice of
a Claim as provided in this Section 6.4 shall not relieve the Indemnifying Party
of its obligations under Section 6.1 and Section 6.2 (as applicable) except to
the extent such failure results in insufficient time being available to permit
the Indemnifying Party to effectively defend against the Claim or otherwise
materially prejudices the Indemnifying Party’s ability to defend against the
Claim.  In the event that the claim for indemnification is based upon an
inaccuracy or breach of a representation, warranty, covenant or agreement, the
Claim Notice shall

 

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specify the representation, warranty, covenant or agreement that was inaccurate
or breached.

 

(C)                               In the case of a claim for indemnification
based upon a Claim, the Indemnifying Party shall have thirty (30) days from its
receipt of the Claim Notice to notify the Indemnified Party whether it admits or
denies its liability to defend the Indemnified Party against such Claim at the
sole cost and expense of the Indemnifying Party.  The Indemnified Party is
authorized, prior to and during such thirty (30) day period, to file any motion,
answer or other pleading that it shall deem necessary or appropriate to protect
its interests or those of the Indemnifying Party and that is not prejudicial to
the Indemnifying Party.

 

(D)                               If the Indemnifying Party admits its
liability, it shall have the right and obligation to diligently defend, at its
sole cost and expense, the Claim.  The Indemnifying Party shall have full
control of such defense and proceedings, including any compromise or settlement
thereof.  If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate in contesting any Claim which the Indemnifying Party elects to
contest.  The Indemnified Party may participate in, but not control, any defense
or settlement of any Claim controlled by the Indemnifying Party pursuant to this
Section 6.4.  An Indemnifying Party shall not, without the written consent of
the Indemnified Party, (i) settle any Claim or consent to the entry of any
judgment with respect thereto which does not include an unconditional written
release of the Indemnified Party from all liability in respect of such Claim or
(ii) settle any Claim or consent to the entry of any judgment with respect
thereto in any manner that may materially and adversely affect the Indemnified
Party (other than as a result of money damages covered by the indemnity).

 

(E)                                If the Indemnifying Party does not admit its
liability or admits its liability but fails to diligently prosecute or settle
the Claim, then the Indemnified Party shall have the right to defend against the
Claim at the sole cost and expense of the Indemnifying Party, with counsel of
the Indemnified Party’s choosing, subject to the right of the Indemnifying Party
to admit its liability and assume the defense of the Claim at any time prior to
settlement or final determination thereof.  If the Indemnifying Party has not
yet admitted its liability for a Claim, the Indemnified Party shall send written
notice to the Indemnifying Party of any proposed settlement and the Indemnifying
Party shall have the option for ten (10) days following receipt of such notice
to (i) admit in writing its liability for the Claim and (ii) if liability is so
admitted, reject, in its reasonable judgment, the proposed settlement.

 

(F)                                 In the case of a claim for indemnification
not based upon a Claim, the Indemnifying Party shall have thirty (30) days from
its receipt of the Claim Notice to (i) cure the liabilities complained of,
(ii) admit its liability for such liability or (iii) dispute the claim for such
liabilities.  If the Indemnifying

 

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Party does not notify the Indemnified Party within such thirty (30) day period
that it has cured the liabilities or that it disputes the claim for such
liabilities, the amount of such liabilities shall conclusively be deemed a
liability of the Indemnifying Party hereunder.

 

Section 6.5

 

No Indemnified Party shall be entitled to make and no Indemnifying Party shall
be liable for any claim for indemnification pursuant to this Article VI unless
and until the aggregate amount of all liabilities incurred by an Indemnified
Party and subject to indemnification under this Article VI exceeds $500,000 in
which case the Indemnified Party shall be entitled to recover the entire amount
of its loss, not only the excess.

 

Section 6.6

 

No Indemnifying Party shall be liable for any claim for indemnification with
respect to any breach by an Indemnifying Party of the representations and
warranties contained in Article VIII unless it has received a Claim Notice with
respect to such claim on or before the day that is twelve (12) months after the
Effective Date.  The Indemnified Party may issue a Claim Notice pursuant to
Article VI for any claim other than one for indemnification with respect to any
breach by an Indemnifying Party of the representations and warranties contained
in Article VIII before the end of the statutory period of limitations provided
for under any applicable Law.

 

Section 6.7

 

An Indemnifying Party’s liability with respect to any breach by an Indemnifying
Party of the representations and warranties contained in Article VIII shall not
exceed, in the aggregate, one hundred percent (100%) of the total consideration
paid by Farmee to date of claim.

 

Section 6.8

 

None of the Farmee Indemnified Parties nor Farmor Indemnified Parties shall be
entitled to recover from Farmor or Farmee, or their respective Affiliates, any
special, indirect, consequential, punitive, exemplary, remote or speculative
damages, including damages for lost profits of any kind arising under or in
connection with or with respect to this Agreement or the transactions
contemplated hereby, except to the extent any such indemnitee suffers such
damages (including costs of defense and reasonable attorneys’ fees incurred in
connection with defending against such damages) to a third party, which damages
(including costs of defense and reasonable attorneys’ fees incurred in
connection with defending against such damages) shall not be excluded by this
provision as to recovery hereunder.  Subject to the preceding sentence, Farmee,
on behalf of each of the Farmee Indemnified Parties, and Farmor, on behalf of
each of the Farmor Indemnified Parties, waive any right to recover any special,

 

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indirect, consequential, punitive, exemplary, remote or speculative damages,
including damages for lost profits of any kind arising under or in connection
with or with respect to this Agreement or the transactions contemplated hereby.

 

Section 6.9

 

The amount of any liabilities for which any of the Indemnified Party is entitled
to indemnification under this Agreement or in connection with or with respect to
the transactions contemplated by this Agreement shall be reduced by any
corresponding (i) tax benefit created or generated or (ii) insurance proceeds
received.

 

ARTICLE VII  INTERIM PERIOD OBLIGATIONS

 

Section 7.1 Farmor Interim Period Covenants

 

Farmor hereby covenants the following to the Farmee during the Interim Period:

 

(A)                               Material Developments during the Interim
Period.

 

(i)                                     Farmor shall promptly notify Farmee in
writing and provide details upon the occurrence, during the Interim Period, of
(a) any written notice of default or termination received by or given to Farmor
with respect to the PSC, any Material Contracts or the JOA, (b) any written
notice of any pending or threatened claim, demand, action, suit, inquiry or
proceeding related to the PSC, any Material Contracts or the JOA, (c) any
material damage, destruction or loss to major assets under the PSC or the JOA,
or (d) any event or circumstance which occurs between the Effective Date and the
Approval Date that (i) would have a material adverse effect on the business,
operations, financial condition or results of operations under the PSC or the
JOA, taken as a whole, or (ii) would render impossible Farmee’s right to the
assignment of the Farm-In Interest.

 

(ii)                                  Farmor shall continue to conduct its
activities in the ordinary course of business and to maintain the PSC in
accordance with good oilfield practices and to pay its Participating Interest
share of all cost, expenses and expenditures when due.

 

(iii)                               Farmor shall not amend or terminate, or
agree to amend or terminate (without the Farmee’s prior written consent) the
JOA, PSC or any Material Contracts unless legally obliged to do so.

 

(iv)                              Farmor shall not agree to sell, assign or
create any Encumbrance over the Farm-In Interest and shall not enter into or
become party to any farm in or farm out agreements, oil or gas sale or supply

 

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agreements or novation agreements or any other agreement or arrangements in
relation to the Farm-In Interest or any other Participating Interest held by
Farmor, without the consent of Farmee, such consent not to be unreasonably
withheld.

 

(B)                               Voting.

 

(i)                                     Farmor agrees to consult with Farmee
before voting on all decisions under the JOA and the PSC from the Effective Date
and until such time as Farmee formally assumes the duties of Operator under the
JOA, including all matters coming before the Operating Committee under the JOA. 
During such period, in respect to any decision that is presented to the
Operating Committee for a vote or other approval, the Farmor shall promptly
notify the Farmee and request a direction on such vote within a reasonable time
period.  Provided that the Farmee provides such direction within the reasonable
time period so-specified, the Farmor shall be required to vote its Participating
Interest, in accordance with such instructions given by Farmee, provided further
that, except with the prior written consent of the Farmor and the Farmee, the
Farmor shall not approve any Work Program and Budget relating to the Farm-In
Well or in respect of any other work exceeding $500,000, shall not approve any
decision to enter into the Second Sub-Period or approve the drilling of the
Farm-In Well, unless such other work relates to an emergency when the Farmor
shall have the rights granted to the Operator by the JOA. The Parties mutually
intend for Farmee to be appointed Operator under the JOA as soon as practicable
following Closing, and if practicable, intend to seek a waiver of the 120 day
time period set out in the JOA for the resignation of Operator and appointment
of a successor operator.  For the avoidance of doubt, during the period from the
Effective Date until such time as Farmee officially becomes Operator under the
JOA, Farmee acknowledges that Farmor shall continue to charge the Joint Account
in its capacity as Operator for all expenses allowed under the JOA, including
without limitation those provided for in Sections 4.9 , 4.11, and the Accounting
Provisions therein.  Notwithstanding any waiver or abridgement of the 120 day
period for the transfer of operatorship under the JOA, the Parties agree to
support the right of Farmor to charge to the Joint Account all reasonable costs
of transitioning operatorship to Farmee, whether prior to or following such
transfer to Farmee.

 

(ii)                                  Section 7.1(B)(i) shall not apply to any
decision or vote relating to any matter that materially adversely affects the
rights and liabilities of Farmor in respect of its Participating Interest, and
in respect of the foregoing the Farmor shall be entitled to vote as it shall
solely determine. Provided, that if Farmor makes any vote or decision

 

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pursuant to this Section 7.1(B)(ii) which is contrary to the instructions of
Farmee and materially adversely affects the Farm In Interest , Farmee shall be
entitled to terminate this Agreement with no further liability upon 10 Business
Days notice in writing to Farmor.

 

Section 7.2 Mutual Covenants

 

Farmee and Farmor each covenant to comply with each of the following
undertakings:

 

(A)                               Each Party, as applicable, agrees to use
commercially reasonable efforts to satisfy, in an expeditious manner, the
Conditions Precedent as provided in Section 3.1.

 

(B)                               During the Interim Period, the Farmor shall
have the exclusive right and obligation to represent the Parties in all dealings
with the Government with respect to matters related to this Agreement, the JOA
and PSC.  The Farmor shall request the agreement of Dana for the Farmee to
attend as observer any meetings under the JOA and of the Government to attend as
observer any meetings with the Government in the capacity of observer under the
PSC.

 

(C)                               The Parties shall not take any action, nor
fail to take any action, during the Interim Period that would result in a breach
of any of its representations and warranties under this Agreement.

 

(D)                               Farmor shall not directly or indirectly have
any responsibility, liability, or expense as a result of undertakings or
agreements of Farmee, for brokerage fees, finder’s fees, agent’s commissions, or
other similar forms of compensation in connection with the transactions
contemplated by this Agreement.

 

ARTICLE VIII  REPRESENTATIONS AND WARRANTIES OF THE PARTIES

 

Section 8.1 Farmor’s Representations and Warranties

 

Farmor represents and warrants that each of the statements in this Section 8.1
is true and complete as of the Effective Date and in respect of Sections 8.1(A),
(B), (C), (D), (E), (F), (G) (H), (I) and (J) shall be deemed to be repeated by
Farmor to be true at Closing.  Farmor hereby represents and warrants that:

 

(A)                               Corporate Authority

 

Farmor is a corporation duly organized and validly existing under the laws of
the jurisdiction of the Cayman Islands.  Farmor is qualified to conduct business
in each jurisdiction where necessary to perform this Agreement.

 

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Farmor has all requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder, to consummate the transactions
contemplated hereby, and to conduct its business as now conducted.  All
corporate acts required to be taken by Farmor to authorize the execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly and properly taken, and no
further shareholder action on the part of Farmor is required.  This Agreement
has been duly executed and delivered by Farmor and constitutes a legal, valid
and binding obligation of Farmor, enforceable against Farmor in accordance with
its terms, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors’ rights generally and general principles of equity.

 

(B)                               Title

 

Subject to the assignment of a twenty-three percent (23%) undivided
Participating Interest in the Contract to Dana approved by the Government of the
Republic of Guinea, Farmor is the sole legal and beneficial owner  of, and has
good and marketable title to, a seventy-seven percent (77%) undivided
Participating Interest in and to the PSC as declared by the Decree of the
Interim President of the Republic of Guinea dated May 10, 2010 (Exhibit E), and
in the JOA and Material Contracts, free and clear of any Encumbrances, other
than the liens, claims, burdens or encumbrances in favor of the Government
according to the terms of the PSC, applicable Laws, the JOA and Material
Contracts.  The PSC, the JOA and the Material Contracts are in full force and
effect, and, as at the Effective Date, no notice of default, termination, or
breach under the PSC or JOA, has been received by Farmor or, to the knowledge of
Farmor, by any other party thereto.  The PSC and JOA, together with applicable
Laws, contains the entirety of the obligation of Farmor to the Government, and
no other understanding or agreement exists between Farmor and the Government in
relation to the subject matter of the PSC except as otherwise disclosed under
this Agreement. The PSC, the JOA and the Material Contracts are the only
material contracts, agreements, understandings or obligations of the Farmor
related to the Contract Area. EXCEPT AS STATED ABOVE, FARMOR MAKES NO
REPRESENTATION, WARRANTY OR OTHER STATEMENT OR OPINION AS TO TITLE, EXPRESS OR
IMPLIED, AND FARMEE ACKNOWLEDGES THAT IT TAKES THE PARTICIPATING INTEREST
HEREUNDER WITHOUT WARRANTY EXCEPT AS EXPRESSLY MADE ABOVE.

 

(C)                               Documents

 

Farmor has provided Farmee with complete and correct copies of the PSC, the
Material Contracts, and JOA as at the Effective Date. Where

 

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Farmor has provided any English translation of a document, Farmor has done so as
a courtesy to the Farmee and Farmor makes no representation or warranty as to
the accuracy of the translation.

 

The PSC, the JOA and the Material Contracts are the only material documents in
force and effect which govern or relate to the creation, existence and validity
of the Farm-In Interest, save and except for applicable laws and regulations.

 

(D)                               No Conflicts

 

The execution, delivery, and performance of this Agreement by Farmor, the
consummation of the transactions contemplated hereby, and the compliance by
Farmor with the provisions hereof will not (i) violate any provision of the
certificate of incorporation, memorandum and articles of association, bylaws or
other governing documents of Farmor, (ii) result in a default (with due notice
or lapse of time or both) or the creation of any lien or encumbrance or give
rise to any right of termination, cancellation, or acceleration under any note,
bond, mortgage, indenture, license, or agreement to which Farmor is a party or
which affects the Farm-In Interest, (iii) violate any judgment, order, ruling,
or decree applicable to Farmor or the Farm-In Interest, or (iv) violate any Law
applicable to Farmor or the Farm-In Interest.  Farmor has no reason to believe
that any required consent, approval or authorization to the Assignment and
transfer of the Farm-In Interest will not be obtained in due course.

 

(E)                                Compliance with Laws, PSC, and Operating
Agreement

 

As far as the Farmor is aware, the Contractor has complied in all material
respects with all applicable Laws in the performance of the Contractor’s
obligations under the PSC.

 

(F)                                 Litigation or other legal proceedings

 

No action, litigation claim or other legal proceeding in connection with the
Farm-In Interest, the PSC or the JOA is pending or threatened and the Farmor is
not aware of any circumstances which may give rise to such action, litigation
claim or legal proceeding except as disclosed in Appendix “G”.

 

(G)                               Rights of Dana

 

With regard to the right of Dana under article 12.2(F) of the JOA to submit an
offer for the Farm-In Interest, the Farmor hereby confirms that it has given
notice to Dana under article 12.2(F)(1) of the JOA and the Farmor is free to
proceed to transfer the Farm-In Interest to third parties.

 

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(H)                              Authorizations of the Government

 

The Farmor has obtained and is maintaining all authorizations of the Government
that are necessary or required for the ownership and operation of the PSC.  The
Farmor has provided Farmee with copies of all such authorizations of the
Government held by Farmor. The PSC has, so far as the Farmor is aware, been
operated in accordance with the conditions and provisions of all such
authorizations of the Government and in compliance with all obligations
thereunder or imposed thereby and no notices of violation have been received by
the Farmor or, so far as the Farmor is aware, by any third party, and no
proceedings are pending or, so far as the Farmor is aware, threatened that might
result in any modification, revocation, termination, or suspension of any such
authorizations of the Government or which would require any corrective or
remediation action by Farmor.

 

(I)                                   Environmental Matters

 

(i)                                     Environmental Laws.  The PSC has been
operated and maintained in compliance with all applicable Laws pertaining to or
for the purpose of protecting the human or natural environment (“Environmental
Laws”).

 

(ii)                                  Remedial Obligations.  There has been no
contamination of, or releases into, groundwater, surface water or soil resulting
from the operation of the PSC which requires reporting or remediation under
applicable Environmental Laws (or would require such reporting or remediation,
were all facts known to the Government).  All hazardous substances and solid,
liquid and gaseous wastes generated from the operation of the PSC have been
handled and disposed of in accordance with applicable Environmental Laws.

 

(J)                                   Information about Joint Operations

 

(i)                                     Force Majeure. There is no event,
condition, or circumstance currently ongoing or present, or reasonably expected,
with respect to performance of rights or obligations which constitutes Force
Majeure under the PSC or the JOA.

 

(ii)                                  Activity in Area.  As far as the Farmor is
aware, there is no third-party activity in the Contract Area, or condition or
circumstance that would prevent operations in the Contract Area.

 

(iii)                               Calls and options.  Save as provided in the
PSC and the JOA, no person has any call upon, option to purchase, or similar
right to obtain, production from or attributable to the PSC.

 

(iv)                              Non-compete agreements; Area of Mutual
Interest (“AMI”) Agreements.  There are no agreements, AMI agreements or other 
arrangements that will be binding on Farmor after execution of this

 

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Agreement which restrict or affect Farmor’s ability to compete with any person
or in any geographic area or engage in any line of business or acquire rights
and interests in any geographic area.

 

(v)                                 Surety, guaranty, and indemnification
agreements.  Farmor is not subject to any obligation to guarantee or act as
surety for any obligation of another person or to indemnify or insure another
person against loss or third party claim, which obligation will be binding on
Farmor in respect of the PSC or JOA after execution of this Agreement, except
indemnifications of the Government pursuant to the PSC and indemnifications of
the operator under the JOA.

 

(vi)                              Swaps, hedges, and other derivative
contracts.  None of the Documents consist of, nor is the PSC subject to, any
hedge contracts, futures contracts, swap contracts, option contracts, or similar
derivatives contracts.

 

(vii)                           Non-consent elections.  No operations are being
conducted or have been conducted with respect to the PSC as to which Farmor has
elected to be a non-consenting party or sole risk party under the JOA.

 

(viii)                        Proper and timely payments.  Farmor has made
proper and timely payment of all of its share of costs and expenses under the
JOA, to the extent due as of the execution of this Agreement.

 

(K)                              EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY
REPRESENTED OTHERWISE IN THIS AGREEMENT AND WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, FARMOR EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY,
EXPRESS, STATUTORY OR IMPLIED, AS TO  (I) THE CONTENTS, CHARACTER OR NATURE OF
ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY ENGINEERING,
GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE ASSIGNED
INTERESTS, (II) THE QUANTITY, QUALITY OR  RECOVERABILITY OF HYDROCARBONS IN OR
FROM THE ASSIGNED INTERESTS, (III) ANY ESTIMATES OF THE VALUE OF THE ASSIGNED
INTERESTS OR FUTURE REVENUES GENERATED BY THE ASSIGNED INTERESTS, (IV) THE
PRODUCTION OF HYDROCARBONS FROM THE ASSIGNED INTERESTS, (V) THE MAINTENANCE,
REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSIGNED
INTERESTS, (VI) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE
AVAILABLE TO FARMEE OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS,
CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS

 

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CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING
THERETO AND (VII) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR
TRADEMARK INFRINGEMENT.  EXCEPT AS AND TO THE LIMITED EXTENT EXPRESSLY
REPRESENTED OTHERWISE IN SECTION 8.1 OF THIS AGREEMENT, FARMOR FURTHER DISCLAIMS
ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, OF
MERCHANTABILITY, FREEDOM FROM LATENT VICES OR DEFECTS, FITNESS FOR A PARTICULAR
PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY OF THE ASSIGNED
INTERESTS, RIGHTS OF A PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION
OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, IT BEING EXPRESSLY UNDERSTOOD
AND AGREED BY THE PARTIES HERETO THAT FARMEE SHALL BE DEEMED TO BE OBTAINING THE
ASSIGNED INTERESTS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS
IS” AND “WHERE IS” WITH ALL FAULTS OR DEFECTS (KNOWN OR UNKNOWN, LATENT,
DISCOVERABLE OR UNDISCOVERABLE), AND THAT FARMEE HAS MADE OR CAUSED TO BE  MADE
SUCH INSPECTIONS AS FARMEE DEEMS APPROPRIATE.

 

(L)                                EXCEPT TO THE EXTENT OF PARAGRAPH (I) ABOVE,
FARMOR HAS NOT AND WILL NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING ANY
MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS
INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL
RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE
CONTRACT AREA OR THE PROPERTIES COMPRISING THE ASSIGNED INTERESTS, AND NOTHING
IN THIS AGREEMENT OR OTHERWISE, SAVE FOR PARAGRAPH (I) ABOVE, SHALL BE CONSTRUED
AS SUCH A REPRESENTATION OR WARRANTY.  SAVE FOR PARAGRPH (I) ABOVE, FARMEE SHALL
BE DEEMED TO BE TAKING THE ASSIGNED INTERESTS “AS IS” AND “WHERE IS” WITH ALL
FAULTS FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION AND THAT FARMEE HAS MADE OR
CAUSED TO BE MADE SUCH ENVIRONMENTAL INSPECTIONS AS FARMEE DEEMS APPROPRIATE.

 

(M)                            FARMOR AND FARMEE AGREE THAT, TO THE EXTENT
REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN
REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTIONS 8.1 K THROUGH 8.1 M ARE
“CONSPICUOUS” DISCLAIMERS FOR THE PURPOSE OF ANY APPLICABLE LAW.

 

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Section 8.2 Farmee’s Representations and Warranties

 

Farmee represents and warrants that each of the statements in Section 8.2 is
true and complete as of the Effective Date and shall be deemed to be repeated to
be true by Farmee at Closing.  Farmee hereby represents and warrants that:

 

(A)                               Corporate Authority

 

Farmee is a corporation duly organized and validly existing under the laws of
England and Wales. Farmee is qualified to conduct business in each jurisdiction
where necessary to perform this Agreement.  Farmee has all requisite corporate
power and authority to enter into this Agreement, to perform its obligations
hereunder, to consummate the transactions contemplated hereby, and to conduct
its business as now conducted.  All corporate acts required to be taken by
Farmee to authorize the execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, have been duly and
properly taken, and no further shareholder action on the part of Farmee is
required.  This Agreement has been duly executed and delivered by Farmee and
constitutes a legal, valid and binding obligation of Farmee, enforceable against
Farmee in accordance with its terms, subject to applicable bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and general
principles of equity.

 

(B)                               No conflict

 

The execution, delivery, and performance of this Agreement by Farmee, the
consummation of the transactions contemplated hereby, and the compliance by
Farmee with the provisions hereof will not (i) violate any provision of the
certificate of incorporation, memorandum and articles of association, bylaws or
other governing documents of Farmee, (ii) result in a default (with due notice
or lapse of time or both) or the creation of any lien or encumbrance or give
rise to any right of termination, cancellation, or acceleration under any note,
bond, mortgage, indenture, license, or agreement to which Farmee is a party,
(iii) violate any judgment, order, ruling, or decree applicable to Farmee, or
(iv) violate any Law applicable to Farmee.

 

(C)                               Brokers Fees

 

Farmee has incurred no liability, contingent or otherwise, for brokers’ or
finders’ fees relating to the transactions contemplated by this Agreement for
which Farmor or Farmor’s Affiliates shall have any responsibility.

 

(D)                               No Reliance

 

In making its decision to enter into this Agreement and to consummate the
transactions contemplated hereby, Farmee, except to the extent of

 

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Farmor’s express representations, warranties, agreements and covenants contained
in this Agreement, (a) has relied or shall rely solely on its own independent
investigation and evaluation of the Farm-In Interest and the advice of its own
legal, tax, economic, environmental, engineering, geological and geophysical
advisors and the express provisions of this Agreement and not on any comments,
statements, projections or other materials made or given by any representatives
or consultants or advisors of Farmor, and (b) has satisfied or shall satisfy
itself through its own due diligence as to the environmental and physical
condition of the Farm-In Interests. Farmee has no knowledge of any fact that
results in the breach of any representation, warranty or covenant of Farmor
given hereunder.

 

(E)                                Claims and Litigation

 

As far as the Farmee is aware, there are no material claims, demands, actions,
suits, governmental inquiries, or proceedings pending, or to Farmee’s knowledge,
threatened, against Farmee which would have an adverse effect upon the
consummation of the transactions contemplated by this Agreement.

 

(F)                                 Financing

 

Farmee has sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to fulfill all of its obligations under
the PSC, JOA and this Agreement.

 

(G)                               Technical Capability

 

Farmee has the technical capability, personnel and resources to fulfill its
obligations under this Agreement.

 

Section 8.3 Mutual Representations and Warranties

 

The Parties make the following representations and warranties to each other as
of the Effective Date and again as of the Closing:

 

(A)       Payments

 

Neither Party nor any of its Affiliates have made, offered, or authorized and
will not make, offer or authorize any payment, gift, promise or other advantage,
in connection with the matters which are the subject to this Agreement, whether
directly or indirectly 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

 

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official or candidate for office, where such payment, gift or promise would
violate: (a) the applicable laws of the Republic of Guinea; (b) the laws of the
country of formation of the Party or such Party’s ultimate parent company (or
its principal place of business); (c) 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, (d) the United States
Foreign Corrupt Practices Act, or (e) the UK Bribery Act of 2010.

 

(B)       Other Representations and Warranties

 

The execution, delivery, and performance of this Agreement by each Party, the
consummation of the transactions contemplated hereby, and the compliance with
the provisions hereof will not, to the best of each Party’s knowledge and
belief:

 

a.              violate any applicable Laws/Regulations, judgment, decree or
award;

 

b.              contravene the organization documents of a Party; or

 

c.               result in a violation of a term or provision, or constitute a
default or accelerate the performance of an obligation under any contract or
agreement executed by a Party hereto.

 

Section 8.4 Disclaimer of Other Representations and Warranties

 

Except for the representations and warranties provided in this Article VIII, the
Parties make no, and disclaim any, warranty or representation of any kind,
either express, implied, statutory, or otherwise, including, without limitation,
the accuracy or completeness of any data, reports, records, projections,
information, or materials now, heretofore, or hereafter furnished or made
available to Farmee in connection with this Agreement or the PSC.

 

ARTICLE IX TAX

 

Section 9.1 Tax Obligations

 

Save, as provided in Section 4.6, 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 contractual obligations under the
PSC and under this Agreement.  Each Party shall protect, defend and indemnify
the 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

 

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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 Laws or
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.  The 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.

 

Section 9.2 Joint Levy

 

If interpretation or enforcement of the PSC by the Government imposes joint and
several liability on the Parties for any levy, charge or tax, the Parties agree
to cross indemnify each other to the extent that such levy, charge or tax is
owed by one Party individually.

 

Section 9.3 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 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 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 Section 9.3. 
Should there be any requirement that any Party give further evidence of this
election, each Party shall execute such documents and furnish such other
evidence as may be required by the Internal Revenue Service or as may be
necessary to evidence this election.

 

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 Party shall make such election as may be permitted or required
by such laws.  In making the foregoing election or

 

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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.

 

ARTICLE X CONFIDENTIALITY

 

Section 10.1 CONFIDENTIALITY

 

Except as otherwise provided in the PSC and the JOA, each Party agrees that all
information disclosed under this Agreement, except information in the public
domain or lawfully in possession of the other Party prior to the Effective Date,
shall be considered confidential and shall not be disclosed to any other person
or entity without the prior written consent of the Party which owns such
confidential information. This obligation of confidentiality shall remain in
force during the term of the PSC and for a period of three (3) years thereafter.
Notwithstanding the foregoing, confidential information may be disclosed without
consent and without violating the obligations contained in this Article in the
following circumstances:

 

1.              to an Affiliate provided the Affiliate is bound to the
provisions of this Article X and the Party disclosing is responsible for the
violation of an Affiliate;

 

2.              to the Government when required by the PSC;

 

3.              to the extent such information is required to be furnished in
compliance with the applicable Laws/Regulations, or pursuant to any legal
proceedings or because of any order of any court binding upon a Party;

 

4.              to  attorneys engaged, or proposed to be engaged, by any Party
where disclosure of such information is essential to such attorneys’ work for
such Party and such attorneys are bound by an obligation of confidentiality;

 

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

 

6.              to a bona fide prospective transferee of a Party’s Participating
Interest, or portion thereof, 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);

 

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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;

 

9.              to its respective employees, subject to each Party taking
sufficient precautions to ensure such information is kept confidential;

 

10.       to the extent any information which, through no fault of a Party,
becomes a part of the public domain; and

 

11.       to the other parties to the PSC and JOA and the Government solely to
the extent as may be required to satisfy the Conditions Precedent.

 

Section 10.2

 

Disclosure pursuant to Sections 10.1(5), (6), (7) and (11) shall not be made
unless prior to such disclosure the disclosing Party has obtained a written
undertaking from the recipient party to keep the information strictly
confidential for at least as long as the period set out above and to use the
information for the sole purpose described in Sections 10.1(5), (6), (7), and
(11), whichever is applicable, with respect to the disclosing Party.

 

ARTICLE XI NOTICES

 

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, by
courier service or by any electronic means of transmitting written
communications which provides written confirmation of complete transmission, and
properly addressed to the other Party.  Verbal 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 shall mean actual delivery of the notice to the address
of the Party specified hereunder.

 

All notices shall be addressed as follows:

 

If to Farmor:

 

Attn: Paolo Amoruso, SCS Corporation Ltd., 12012 Wickchester Lane, Suite 475,
Houston, TX 77079, USA Telephone +1 713.353.9400, Facsimile +1 713.353.9434.

 

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If to Farmee:

 

Attn:  General Counsel, Tullow Guinea Ltd, 9 Chiswick Park, 566 Chiswick High
Road, London, W4 5XT, England. Telephone: +44 20 3249 9000, Facsimile: +44 20
3249 8801.

 

ARTICLE XII LAW AND DISPUTE RESOLUTION

 

Section 12.1 Governing Law

 

This Agreement and any dispute or claim arising out of or in connection with it
or its subject matter or formation (including non-contractual disputes or
claims) shall be governed by and construed in accordance with the laws of Texas,
excluding any choice of law rules which would refer the matter to the laws of
another jurisdiction.

 

Section 12.2 Dispute Resolution

 

(a)                           Notification.  A Party who desires to submit a
Dispute for resolution shall commence the dispute resolution process by
providing the other party to the Dispute written notice of the Dispute (“Notice
of Dispute”).  The Notice of Dispute shall  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 XII.

 

(b)                           Arbitration.  Any Dispute not finally resolved
between the Parties 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 international arbitration rules (as
then in effect) (the “Rules”): Arbitration Rules of the American Arbitration
Association (the “AAA”).

 

2.                                      Number of Arbitrators.  The arbitration
shall be conducted by three arbitrators, unless both 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 Section 12.2(B), 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.

 

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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 the American Arbitration Association
shall appoint the arbitrator.

 

4.                                      If the arbitration is to be conducted by
three arbitrators, 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.

 

5.                                      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.

 

6.                                      Place of Arbitration.  Unless otherwise
agreed by the Parties to the Dispute, the place of arbitration shall be Houston,
Texas.

 

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

 

8.                                      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.

 

9.                                      Notice.  All notices required for any
arbitration proceeding shall be deemed properly given if sent in accordance with
Article XI.

 

10.                               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

 

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concerning the arbitration or the underlying Dispute other than communications
directly concerning the selection of the presiding arbitrator, where applicable.

 

11.                               Interim Measures.  Either 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 (1) grant interim measures including
injunctions, attachments and conservation orders in appropriate circumstances,
which measures may be immediately enforced by court order and (2) enforce
interim measures lawfully granted by a court before the appointment of the
tribunal.  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.

 

12.                               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.

 

13.                               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 LIBOR plus 200 basis points.

 

14.                               Currency of Award.  The arbitral award shall
be made and payable in 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

 

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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.

 

(c)          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 X) to the
extent necessary to enforce this Article XII 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.

 

Section 12.3 Expert Determination

 

Section 12.2 shall not apply to any matter referred to an expert, in relation to
which the Parties hereby agree that such decision shall be conducted
expeditiously by an expert selected unanimously by the parties.  The expert is
not an arbitrator and shall not be deemed to be acting in an arbitral capacity.
The Party desiring an expert determination shall give the other Party 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.  Both 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
determine the matter in 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, absent fraud,
miscarriage of justice or manifest error.

 

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Section 12.4 Section 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 XIII FORCE MAJEURE

 

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, 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 Party of the Force Majeure within a reasonable time after the
occurrence of the facts relied on and shall keep the other Party 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 a commercially reasonable manner but shall not be
obligated to settle any labor dispute except on terms acceptable to it. All such
disputes shall be handled within the sole discretion of the affected Party.

 

ARTICLE XIV DEFAULT

 

Section 14.1 Default

 

If Farmee fails to pay the amounts due under Article IV of this Agreement by the
applicable dates, Farmee shall be in default hereunder and such amounts shall
accrue interest payable to the Farmor at LIBOR + 200 basis points calculated on
the outstanding balance from, and including, the due date until, and excluding
the date of payment.

 

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Section 14.2  Reassignment

 

Without prejudice to the JOA and to any and all other legal rights and remedies
available to Farmor under this Agreement or at law, in the event that Farmee
fails to perform its obligations under Article IV within the time frame provided
in Section 4.4, Farmor shall have the option, exercisable at any time after 30
days from Farmor’s written notice to Farmee of Farmee’s failure to fulfill on a
timely basis its obligations under Article IV within the time frame provided in
Section 4.4, to require that Farmee assign Farmee’s entire Participating
Interest to Farmor free of cost.  In this event, Farmee agrees to execute any
and all such documents as are necessary for such assignment in the same form and
manner as the original assignment; and, to assist in obtaining any required
Government approval of such reassignment.  The Parties expressly recognize and
agree that any default or failure on the part of the Farmee to comply with its
obligations under Section 4.1 shall be a default under the JOA and subject
Farmee and its Participating Interest to the provisions under the JOA for such
default or failure to comply, including all default and remedies provisions
under Article 8 of the JOA and any other applicable provision thereunder.

 

ARTICLE XV GENERAL PROVISIONS

 

Section 15.1  Assignments

 

i.                  Prior to the Closing Date neither Party shall assign any
portion of its rights and obligations under this Agreement without the express
written consent of the Farmor, such consent not to be unreasonably withheld.

 

ii.               Either Party may, after Closing and with the express written
consent of the other Parties (such consent not to be unreasonably withheld),
assign all or a portion of its rights and obligations under this Agreement to a
third party to the extent it assigns a corresponding interest of the Farm-In
Interest, and such third party enters into a novation of this Agreement to
become a party hereto in the place of the assigning Farmor or Farmee.

 

iii.            Farmee shall not assign any portion of its rights and
obligations under this Agreement without the express prior written consent of
the Farmor until it has fulfilled all of the Farmee’s Farm-In Obligations. In
the event that the Farm In Well is completed and the Farmee notifies the Farmor
that it does not view such well as warranting appraisal, the Farm In Obligations
shall be fulfilled notwithstanding no Appraisal Well having been drilled.

 

Section 15.2   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

 

36

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

 

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.

 

Section 15.3   Further Assurances

 

Each of the Parties shall do all such acts and execute and deliver all such
documents as shall be reasonably required in order to fully perform and carry
out the terms of this Agreement.

 

Section 15.4   Waiver

 

No waiver by a Party of any one or more defaults by the other 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,
neither 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.

 

Section 15.5 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.

 

Section 15.6 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.

 

Section 15.7 Modifications

 

There shall be no modification of this Agreement except by written consent of
both Parties.

 

Section 15.8 Priority of Agreement

 

In the event of any conflict between the provisions of the main body of this
Agreement and its Exhibits, the provisions of the main body of the Agreement
shall prevail. In the event of any conflict between this Agreement and the JOA,

 

37

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

 

this Agreement shall prevail. In the event of any conflict between this
Agreement and the PSC, this Agreement shall prevail unless such would be in
violation of the Laws of Guinea or the terms of the PSC.

 

Section 15.9 Interpretation

 

Headings. The topical headings used in this Agreement are for convenience
purposes 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.

 

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

 

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

 

Article. Unless otherwise provided, reference to any Article or an Exhibit means
an Article or Exhibit of the Agreement.

 

Include. “include” and “including” shall mean to be inclusive without limiting
the generality of the description preceding such term and are used in an
illustrative sense and not a limiting sense.

 

Section 15.10 Counterpart Execution

 

This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed an original Agreement for all purposes; provided
that neither 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, Farmor 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.

 

Section 15.11 Public Announcements

 

No public announcement or statement regarding the terms or existence or this
Agreement shall be made without prior written consent of both Farmor and Farmee
Parties with such disclosure not intended to be publicly announced prior to the
Effective Date; provided that, notwithstanding any failure to obtain such
approval, neither Farmor or Farmee shall be prohibited from issuing or making
any such public announcement or statement to the extent 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; however, the Parties shall use reasonable endeavours to
(i) consult with the other Party in advance of such required public announcement
in

 

38

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

 

order to agree the form, content and timing of such disclosure and (ii) shall
include only that portion information which the disclosing Party is advised by
written opinion of counsel (including in-house counsel) is legally required. 
Such opinion shall be delivered to the other Party prior to any such public
announcement.

 

Section 15.12 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.

 

ARTICLE XVI GUARANTEE

 

Farmee shall provide Farmor with the security in the form attached as Exhibit F
to guarantee the obligations under this Agreement, the JOA and the Contract.

 

The Parties have executed this Agreement as of the Effective Date.

 

 

SCS CORPORATION LTD

 

TULLOW GUINEA LTD.

 

 

 

By:

 

 

By:

 

 

 

 

 

 

 

Name:

 

 

Name:

 

 

 

 

 

 

 

Title:

 

 

Title:

 

 

 

39

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

 

Exhibit “A”
PSC

 

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

[g276111ke13i001.gif]

 

[g276111ke13i002.gif]

 

[g276111ke13i003.gif]

 

[g276111ke13i004.gif]

 

[g276111ke13i005.gif]

 

[g276111ke13i006.gif]

 

[g276111ke13i007.gif]

 

[g276111ke13i008.gif]

 

[g276111ke13i009.gif]

 

[g276111ke13i010.gif]

 

[g276111ke13i011.gif]

 

[g276111ke13i012.gif]

 

[g276111ke13i013.gif]

 

[g276111ke13i014.gif]

 

[g276111ke13i015.gif]

 

 

[g276111ke15i001.gif]

 

 

[g276111ke15i002.gif]

 

 

[g276111ke15i003.gif]

 

 

[g276111ke15i004.gif]

 

 

[g276111ke15i005.gif]

 

 

[g276111ke15i006.gif]

 

 

[g276111ke15i007.gif]

 

 

[g276111ke15i008.gif]

 

 

[g276111ke15i009.gif]

 

 

[g276111ke15i010.gif]

 

 

[g276111ke15i011.gif]

 

 

[g276111ke15i012.gif]

 

 

[g276111ke15i013.gif]

 

 

[g276111ke15i014.gif]

 

 

[g276111ke15i015.gif]

 

 

[g276111ke15i016.gif]

 

 

[g276111ke15i017.gif]

 

 

[g276111ke15i018.gif]

 

 

[g276111ke15i019.gif]

 

 

[g276111ke15i020.gif]

 

 

[g276111ke15i021.gif]

 

 

[g276111ke15i022.gif]

 

 

[g276111ke15i023.gif]

 

 

 

[g276111ke17i001.gif]

 

 

[g276111ke17i002.gif]

 

 

[g276111ke17i003.gif]

 

 

[g276111ke17i004.gif]

 

 

[g276111ke17i005.gif]

 

 

[g276111ke17i006.gif]

 

 

[g276111ke17i007.gif]

 

 

 

[g276111ke19i001.gif]

 

 

[g276111ke19i002.gif]

 

 

[g276111ke19i003.gif]

 

 

[g276111ke19i004.gif]

 

 

[g276111ke19i005.gif]

 

 

[g276111ke19i006.gif]

 

 

[g276111ke19i007.gif]

 

 

[g276111ke19i008.gif]

 

 

[g276111ke19i009.gif]

 

 

[g276111ke19i010.gif]

 

 

[g276111ke19i011.gif]

 

 

[g276111ke19i012.gif]

 

 

[g276111ke19i013.gif]

 

 

 

 

Exhibit “B”
Contract Area

 

The Contract Area represented on the attached map consists of an area deemed
equal to approximately 24,000 square kilometers.

 

Retained Area - Corner Coordinates For Each Block In Retained Area

 

Block

 

Point

 

X

 

Y

 

Lat_DD

 

Lon_DD

 

Lat_DMS

 

Lon_DMS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B4

 

1

 

292473.3

 

965766.4

 

8.732222

 

-16.88639

 

8°43’56”

 

-16°6’49”

B4

 

2

 

263884.8

 

1002183

 

9.06

 

-17.14806

 

9°3’36”

 

-17°51’7”

B4

 

3

 

364358.9

 

1070832

 

9.685

 

-16.23639

 

9°41’6”

 

-16°45’49”

B4

 

4

 

393242.9

 

1035108

 

9.362778

 

-15.97222

 

9°21’46”

 

-15°1’40”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C3

 

1

 

440313.3

 

1013561

 

9.168812

 

-15.54328

 

9°10’7”

 

-15°27’24”

C3

 

2

 

421603.8

 

1000580

 

9.051111

 

-15.71333

 

9°3’4”

 

-15°17’12”

C3

 

3

 

393242.9

 

1035108

 

9.362778

 

-15.97222

 

9°21’46”

 

-15°1’40”

C3

 

4

 

411232

 

1047520

 

9.475447

 

-15.80867

 

9°28’31”

 

-15°11’28”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C4

 

1

 

421603.8

 

1000580

 

9.051111

 

-15.71333

 

9°3’4”

 

-15°17’12”

C4

 

2

 

320143.9

 

931320.6

 

8.421945

 

-16.63361

 

8°25’19”

 

-16°21’59”

C4

 

3

 

292473.3

 

965766.4

 

8.732222

 

-16.88639

 

8°43’56”

 

-16°6’49”

C4

 

4

 

393242.9

 

1035108

 

9.362778

 

-15.97222

 

9°21’46”

 

-15°1’40”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D3

 

1

 

362005.9

 

959896.7

 

8.681759

 

-16.2543

 

8°40’54”

 

-16°44’44”

D3

 

2

 

479811.7

 

1040954

 

9.416945

 

-15.18389

 

9°25’1”

 

-15°48’57”

D3

 

3

 

511872.8

 

1008244

 

9.121111

 

-14.89194

 

9°7’16”

 

-14°6’29”

D3

 

4

 

445976.8

 

962610.9

 

8.708056

 

-15.49111

 

8°42’29”

 

-15°30’31”

D3

 

5

 

417751.1

 

982681.8

 

8.889167

 

-15.74806

 

8°53’21”

 

-15°15’7”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E3

 

1

 

543394.8

 

975662.5

 

8.82622

 

-14.60538

 

8°49’34”

 

-14°23’40”

E3

 

2

 

485593

 

935433.2

 

8.46252

 

-15.13089

 

8°27’45”

 

-15°52’8”

E3

 

3

 

445976.8

 

962610.9

 

8.708056

 

-15.49111

 

8°42’29”

 

-15°30’31”

 

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

 

E3

 

4

 

511872.8

 

1008244

 

9.121111

 

-14.89194

 

9°7’16”

 

-14°6’29”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F2

 

1

 

545020.9

 

976792

 

8.83642

 

-14.59058

 

8°50’11”

 

-14°24’33”

F2

 

2

 

590677.7

 

1008503

 

9.122536

 

-14.17476

 

9°7’21”

 

-14°49’30”

F2

 

3

 

621595.4

 

975064.5

 

8.81939

 

-13.89433

 

8°49’9”

 

-13°6’20”

F2

 

4

 

575778.7

 

943812.8

 

8.537727

 

-14.31143

 

8°32’15”

 

-14°41’18”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F3

 

1

 

485593

 

935433.2

 

8.46252

 

-15.13089

 

8°27’45”

 

-15°52’8”

F3

 

2

 

545025.7

 

976799.9

 

8.836491

 

-14.59054

 

8°50’11”

 

-14°24’34”

F3

 

3

 

575778.7

 

943812.8

 

8.537727

 

-14.31143

 

8°32’15”

 

-14°41’18”

F3

 

4

 

524510.7

 

908849

 

8.222016

 

-14.77746

 

8°13’19”

 

-14°13’21”

 

[g276111ke19ai001.jpg]

 

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

 

Exhibit “C”
Joint Operating Agreement

 

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

 

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

23

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

51

16.1

Obligations

51

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

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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

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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,

 

4

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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.

 

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

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(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.

 

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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

 

7

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Contract;

 

(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,

 

8

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their hours of work, and (except for Secondees) the compensation to be paid to
all such persons in connection with Joint Operations.

 

(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.

 

(6)                                 Operator shall have the right to terminate
the Secondment for cause in

 

9

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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

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(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

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(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

 

12

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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

 

(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

 

13

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proposals to the Operating Committee with respect to the commingling of funds to
achieve financial efficiency.

 

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

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(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

 

15

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to Operator, Non-Operators shall have the right to participate in such HSE
assessments.

 

(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.

 

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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

 

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subcommittees.

 

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

 

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(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

 

 

 

 

 

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.

 

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(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,

 

20

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such operation shall not be discontinued without the consent of the Operating
Committee; provided, however, that such operation may be discontinued if:

 

(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

 

21

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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.

 

(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.

 

(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

 

22

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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.

 

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

 

23

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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.

 

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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.

 

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(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

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(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

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(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

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(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.

 

(D)          If a Non-Consenting Party does not properly and in a timely manner
exercise its option under

 

29

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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

 

30

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to Article 7.4(B), and that were not previously paid by such Non-Consenting
Party.

 

(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

 

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receiving the largest aggregate Participating Interest vote.  Operator shall
deliver notice of such result to all Parties entitled to participate in the
operation within five (5) Days (or twenty-four (24) hours for Urgent Operational
Matters).

 

(D)          Each Party shall then have 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.

 

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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.

 

(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

 

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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

 

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determination of the Production Bonus under the Contract shall be utilized in
the calculations in this Article 7.11.

 

7.12        Conduct of Exclusive Operations

 

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

 

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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

 

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vote or approval of the Defaulting Party;

 

(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,

 

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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.

 

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

 

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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.

 

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

 

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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.

 

(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.

 

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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:

 

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(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

 

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require the unanimous consent of the Parties.

 

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.

 

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“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;

 

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(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

 

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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.

 

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;

 

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(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.

 

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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.

 

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14.3                        United States Tax Election

 

(A)                               If, for United States federal income tax
purposes, this Agreement and the operations under this Agreement are regarded as
a partnership and if the Parties have not agreed to form a tax partnership, each
U.S. Party elects to be excluded from the application of all of the provisions
of Subchapter “K”, Chapter 1, Subtitle “A” of the United States Internal Revenue
Code of 1986, 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.

 

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(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.

 

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(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.

 

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

 

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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

 

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Facsimile: +44 1224 652 401

 

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).

 

(2)                                 Number of Arbitrators.  The arbitration
shall be conducted by three arbitrators, unless all

 

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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.

 

(10)                          Interim Measures.  Notwithstanding any
requirements for alternative dispute resolution

 

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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. 

 

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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.

 

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.

 

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(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.

 

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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.

 

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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.

 

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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:

Jan 28, 2010

 

 

 

 

 

 

 

DANA PETROLEUM (E&P) LIMITED

 

 

 

 

 

 

 

By: 

/s/ Stuart M. Paton

 

 

Stuart M. Paton

 

Title:

Technical & Commercial Director

 

Date:

Jan 28, 2010

 

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EXHIBIT “A”

ACCOUNTING PROCEDURE

 

Attached to and made part of the Operating Agreement, hereinafter called the
“Agreement,” effective on            , 2010, by and between SCS CORPORATION, and
DANA PETROLEUM (E&P) LIMITED.

 

SECTION 1
GENERAL PROVISIONS

 

1.1                               Purpose.

 

1.1.1                     The purpose of this Accounting Procedure is to
establish equitable methods for determining charges and credits applicable to
operations under the Agreement which reflect the costs of Joint Operations to
the end that no Party shall gain or lose in relation to other Parties.

 

1.1.2                     The Parties agree, however, that if the methods prove
unfair or inequitable to Operator or Non-Operators, the Parties shall meet and
in good faith endeavor to agree on changes in methods deemed necessary to
correct any unfairness or inequity.

 

1.2                               Conflict with Agreement.

 

In the event of a conflict between the provisions of this Accounting Procedure
and the provisions of the Agreement to which this Accounting Procedure is
attached, the provisions of the Agreement shall prevail.

 

1.3                               Definitions.

 

The definitions contained in the Agreement to which this Accounting Procedure is
attached shall apply to this Accounting Procedure and have the same meanings
when used herein. Certain terms used herein are defined as follows:

 

“Accrual basis” means that basis of accounting under which costs and benefits
are regarded as applicable to the period in which the liability for the cost is
incurred or the right to the benefit arises, regardless of when invoiced, paid,
or received.

 

“Cash basis” means that basis of accounting under which only costs actually paid
and revenue actually received are included for any period.

 

“Country of Operations” means Republic of Guinea.

 

“Material” means machinery, equipment and supplies acquired and held for use in
Joint Operations.

 

“Section” means a section of this Accounting Procedure.

 

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1.4                               Joint Account Records and Currency Exchange.

 

1.4.1                     Operator shall at all times maintain and keep true and
correct records of the production and disposition of all liquid and gaseous
Hydrocarbons, and of all costs and expenditures under the Agreement, as well as
other data necessary or proper for the settlement of accounts between the
Parties hereto in connection with their rights and obligations under the
Agreement and to enable Parties to comply with their respective applicable
income tax and other laws.

 

1.4.2                     Operator shall maintain accounting records pertaining
to Joint Operations in accordance with generally accepted accounting practices
used in the international petroleum industry and any applicable statutory
obligations of the Country of Operations as well as the provisions of the
Contract and the Agreement.

 

1.4.3                     The Joint Account shall be maintained by Operator in
the English language and in United States of America (“U.S.”) currency and in
such other language and currency as may be required by the laws of the Country
of Operations or the Contract. Conversions of currency shall be recorded at the
rate actually experienced in that conversion. Currency translations are used to
express the amount of expenditures and receipts for which a currency conversion
has not actually occurred. Currency translations for expenditures and receipts
shall be recorded in accordance with Operator’s normal practice. A statement
describing the practice will be provided to the Non-Operators upon request.

 

1.4.4                     Any currency exchange gains or losses shall be
credited or charged to the Joint Account, except as otherwise specified in this
Accounting Procedure. Any such exchange gains or losses shall be separately
identified as such.

 

1.4.5                     This Accounting Procedure shall apply, mutatis
mutandis, to Exclusive Operations in the same manner that it applies to Joint
Operations; provided, however, that the charges and credits applicable to
Consenting Parties shall be separately maintained. For the purpose of
determining and calculating the remuneration of the Consenting Parties,
including the premiums for Exclusive Operations, the costs and expenditures
shall be expressed in U.S. currency (irrespective of the currency in which the
expenditure was incurred).

 

1.4.6                     The Accrual basis for accounting shall be used in
preparing accounts concerning the Joint Operations.

 

1.5                               Statements and Billings.

 

1.5.1                     Unless otherwise agreed by the Parties, Operator shall
submit monthly to each Party, on or before the tenth Day of each month,
statements of the costs and expenditures incurred during the prior month,
indicating by appropriate classification the nature thereof, the corresponding
budget category, and the portion of such costs charged to each of the Parties.

 

These statements, as a minimum, shall contain the following information:

 

·                                          advances of funds setting forth the
currencies received from each Party,

 

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·                                          the share of each Party in total
expenditures,

 

·                                          the accrued expenditures,

 

·                                          the current account balance of each
Party,

 

·                                          summary of costs, credits, and
expenditures on a current month, year-to-date, and inception-to-date basis or
other periodic basis, as agreed by Parties (such expenditures shall be grouped
by the categories and line items designated in the approved Work Program and
Budget submitted by Operator in accordance with Article 6.4 of the Agreement so
as to facilitate comparison of actual expenditures against that Work Program and
Budget), and

 

·                                          details of unusual charges and
credits in excess of U.S. $ 10,000.

 

1.5.2                     Operator shall, upon request, furnish a description of
the accounting classifications used by it.

 

1.5.3                     Amounts included in the statements and billings shall
be expressed in U.S. currency and reconciled to the currencies advanced.

 

1.5.4                     Each Party shall be responsible for preparing its own
accounting and tax reports to meet the requirements of the Country of Operations
and of all other countries to which it may be subject. Operator, to the extent
that the information is reasonably available from the Joint Account records,
shall provide in a timely manner to Non-Operators the necessary information to
facilitate the discharge of such responsibility.

 

1.6                               Payments and Advances.

 

1.6.1                     Upon approval of any Work Program and Budget, if
Operator so requests, each Non-Operator shall advance its share of estimated
cash requirements for the succeeding month’s operations. Each such cash call
shall be equal to the Operator’s estimate of the money to be spent in the
currencies required to perform its duties under the approved Work Program and
Budget during the month concerned. For informational purposes the cash call
shall contain an estimate of the funds required for the succeeding 2 months
detailed by the categories designated in the approved Work Program and Budget
submitted by Operator in accordance with Article 6.4 of the Agreement.

 

1.6.2                     Each such cash call, detailed by the categories
designated in the approved Work Program and Budget submitted by Operator in
accordance with Article 6.4 of the Agreement, shall be made in writing and
delivered to all Non-Operators not less than fifteen Days before the payment due
date. The due date for payment of such advances shall be set by Operator but
shall be no sooner than the first Business Day of the month for which the
advances are required. All advances shall be made without bank charges. Any
charges related to receipt of advances from a Non-Operator shall be borne by
that Non-Operator.

 

1.6.3                     Each Non-Operator shall wire transfer its share of the
full amount of each such cash call to Operator on or before the due date, in the
currencies requested or any other currencies acceptable to Operator and at a
bank designated by Operator. If currency

 

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provided by a Non-Operator is other than the requested currency, then the entire
cost of converting to the requested currency shall be charged to that
Non-Operator.

 

1.6.4                     Notwithstanding the provisions of Section 1.6.2,
should Operator be required to pay any sums of money for the Joint Operations
which were unforeseen at the time of providing the Non-Operators with said
estimates of its requirements, Operator may make a written request of the
Non-Operators for special advances covering the Non-Operators’ share of such
payments. Each such Non-Operator shall make its proportional special advances
within 10 Days after receipt of such notice.

 

1.6.5                     If a Non-Operator’s advances exceed its share of cash
expenditures, the next succeeding cash advance requirements, after such
determination, shall be reduced accordingly. However, if the amount of such
excess advance is greater than the amount of the next month’s estimated cash
requirements for such Non-Operator, the Non-Operator may request a refund of the
difference, which refund shall be made by Operator within ten Days after receipt
of the Non-Operator’s request provided that the amount is in excess of U.S.
$100,000.

 

1.6.6                     If Non-Operator’s advances are less than its share of
cash expenditures, the deficiency shall, at Operator’s option, be added to
subsequent cash advance requirements or be paid by Non-Operator within ten Days
following the receipt of Operator’s billing to Non-Operator for such deficiency.

 

1.6.7                     If, under the provisions of the Agreement, Operator is
required to segregate funds received from the Parties, any interest received on
such funds shall be applied against the next succeeding cash call or, if
directed by the Operating Committee, distributed quarterly. The interest thus
received shall be allocated to the Parties on an equitable basis taking into
consideration date of funding by each Party to the accounts in proportion to the
total funding into the account. A monthly statement summarizing receipts,
disbursements, transfers to each joint bank account and beginning and ending
balances thereof shall be provided by Operator to the Parties. Any interest
received by Operator from interest-bearing accounts containing commingled funds
received from the Parties shall be credited to the Parties in accordance with
the allocation procedure as set forth above.

 

1.6.8                     If Operator does not request Non-Operators to advance
their share of estimated cash requirements, each Non-Operator shall pay its
share of cash expenditures within ten Days following receipt of Operator’s
billing.

 

1.6.9                     Payments of advances or billings shall be made on or
before the due date. In accordance with Article 8 of the Agreement, if these
payments are not received by the due date the unpaid balance shall bear and
accrue interest from the due date until the payment is received by Operator at
the Agreed Interest Rate. For the purpose of determining the unpaid balance and
interest owed, Operator shall translate to U.S. currency all amounts owed in
other currencies using the currency exchange rate, determined in accordance with
Section 1.4.3, at the close of the last Business Day prior to the due date for
the unpaid balance.

 

1.6.10              Subject to governmental regulation, Operator shall have the
right, at any time and from time to time, to convert the funds advanced or any
part thereof to other currencies to the

 

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extent that such currencies are then required for operations. The cost of any
such conversion shall be charged to the Joint Account.

 

1.6.11              Operator shall endeavor to maintain funds held for the Joint
Account in bank accounts at a level consistent with that required for the
prudent conduct of Joint Operations.

 

1.6.12              If under the Agreement, Operator is required to segregate
funds received from or for the Joint Account, the provisions under Section 1.6
for payments and advances by Non-Operators shall apply also to Operator.

 

1.7                               Adjustments.

 

Payments of any advances or billings shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof; provided, however,
all bills and statements rendered to Non-Operators by Operator during any
Calendar Year shall conclusively be presumed to be true and correct after twenty
four months following the end of such Calendar Year, unless within the said
twenty four month period a Non-Operator takes written exception thereto and
makes claim on Operator for adjustment. Failure on the part of a Non-Operator to
make claim on Operator for adjustment within such period shall establish the
correctness thereof and preclude the filing of exceptions thereto or making
claims for adjustment thereon. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory of
the Material as provided for in Section 6. Operator shall be allowed to make
adjustments to the Joint Account after such twenty four month period if these
adjustments result from audit exceptions outside of this Accounting Procedure,
third party claims, or Government or Government Oil & Gas Company requirements.
Any such adjustments shall be subject to audit within the time period specified
in Section 1.8.1.

 

1.8                               Audits.

 

1.8.1                     A Non-Operator, upon at least sixty Days advance
notice in writing to Operator and all other Non-Operators, shall have the right
to audit the Joint Accounts and records of Operator relating to the accounting
hereunder for any Calendar Year within the twenty four month period following
the end of such Calendar Year except as otherwise provided in Section 3.1.
Non-Operators shall have reasonable access to Operator’s personnel and to the
facilities, warehouses, and offices directly or indirectly serving Joint
Operations. The cost of each such audit shall be borne by Non-Operators
participating in the audit. Where there are two or more Non-Operators, the
Non-Operators shall make a reasonable effort to conduct joint or simultaneous
audits in a manner that will result in a minimum of inconvenience to the
Operator. Non-Operators must take written exception to and make claim upon the
Operator for all discrepancies disclosed by said audit within said twenty four
month period. Non-Operators may request information from the Operator prior to
the commencement of the audit. Operator will provide the information in
electronic format or hard copy documents, if electronic format is not available.
Operator will provide the information requested within thirty Days before
commencement of the audit but in no event sooner than thirty Days after the
written request. The information requested shall be limited to that normally
used for pre-audit work such as trial balance, general ledger, and sub-ledger
data.

 

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1.8.2                     Operator shall endeavor to produce information from
its Affiliates reasonably necessary to support charges from those Affiliates to
the Joint Account other than those charges referred to in Section 3.1.

 

1.8.3                     Except for charges under Section 2.7.1, the following
provisions apply to all charges from Operator for its Affiliates.

 

In addition to the information provided by the Operator under Section 1.8.2, a
Non-Operator may seek to audit the books and records of an Affiliate of Operator
relating to the charges by the Affiliate to the Joint Account for the same
Calendar Year as provided in Section 1.8.1. The audit shall be conducted by an
independent public accounting firm designated by the Affiliate. The cost of such
firm shall be borne by Non-Operators who requested the confirmation. The
Non-Operator will seek agreement with the Affiliate on the audit scope to
confirm the details and facts relating to such charges. The audit scope proposed
by Non-Operator shall be fair and reasonable.

 

If the independent public accounting firm of the Affiliate declines to conduct
the audit or is not internationally recognized, the Non-Operator will seek
agreement with the Affiliate on a firm that is an internationally recognized
independent public accounting firm. The cost of using such firm shall be borne
by the Non-Operator who requested the audit.

 

Operator will endeavor to cause its Affiliate to not unreasonably withhold
approval of the use of an internationally recognized independent public
accounting firm or of the scope of examination requested by Non-Operators.

 

No amounts paid to an Affiliate of Operator, which the Non-Operator seeks to
audit, may be charged to the Joint Account if the Affiliate of the Operator does
not allow audit of such amounts as provided above and the scope of audit
proposed by the Non-Operator was fair and reasonable.

 

1.8.4                     The provisions of Section 1.8.3 shall apply mutatis
mutandis to such audit unless otherwise agreed by the Parties.

 

Any Party may audit the records of an Affiliate of another Party relating to
that Affiliate’s charges under Section 2.7.1. The provisions of Section 1.8.3
shall apply mutatis mutandis to such audits unless otherwise agreed by the
Parties. Should such charges be rejected under the provisions of 1.8.3, such
charges shall be charged back to the Party whose Affiliate provided the service.

 

Any Party may audit the records of Operator’s Affiliate relating to charges
under Section 2.6. The provisions of Section 1.8.3 shall apply mutatis mutandis
to such audits unless otherwise agreed by the Parties.

 

Any Party may audit the records of a Non-Operator or its Affiliate relating to
charges under Section 2.7.3. The provisions of Section 1.8.3 shall apply mutatis
mutandis to such audit, unless otherwise agreed by the Parties. Should such
charges be rejected under the provisions of 1.8.3, such charges shall be charged
back to the Party whose Affiliate provided the service.

 

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1.8.5                     Any information obtained by a Party under the
provisions of Section 1.8 which does not relate directly to the Joint Operations
shall be kept confidential and shall not be disclosed to any party, except as
would otherwise be permitted by Article 15.2(A)(3) and (10) of the Agreement.

 

1.8.6                     In the event that the Operator is required by law or
the Contract to employ a public accounting firm to audit the Joint Account and
records of Operator relating to the accounting hereunder, the cost thereof shall
be a charge against the Joint Account, and a copy of the audit shall be
furnished to each Party.

 

1.8.7                     At the conclusion of each audit, the Parties shall
endeavor to settle outstanding matters expeditiously. To this end the Parties
conducting the audit will make a reasonable effort to prepare and distribute a
written report to the Operator and all the Parties who participated in the audit
as soon as possible and in any event within ninety Days after the conclusion of
each audit. The report shall include all claims, with supporting documentation,
arising from such audit together with comments pertinent to the operation of the
accounts and records. Operator shall make a reasonable effort to reply to the
report in writing as soon as possible and in any event no later than ninety Days
after receipt of the report. Should the Non-Operators consider that the report
or reply requires further investigation of any item therein, the Non-Operators
shall have the right to conduct further investigation in relation to such matter
notwithstanding the provisions of Sections 1.7 and 1.8.1 that the period of
twenty four months may have expired. However, conducting such further
investigation shall not extend the twenty four month period for taking written
exception to and making a claim upon the Operator for all discrepancies
disclosed by said audit. Such further investigations shall be commenced within
thirty Days and be concluded within sixty Days after the receipt of such report
or reply, as the case may be.

 

1.8.8                     All adjustments resulting from an audit agreed between
the Operator and the Non-Operator conducting the audit shall be reflected
promptly in the Joint Account by the Operator and reported to the
Non-Operator(s). If any dispute shall arise in connection with an audit, it
shall be reported to and discussed by the Operating Committee, and, unless
otherwise agreed by the parties to the dispute, resolved in accordance with the
provisions of Article 18 of the Agreement. If all the parties to the dispute so
agree, the adjustment(s) may be referred to an independent expert agreed to by
the parties to the dispute e.g. an independent accounting firm. At the election
of the parties to the dispute, the decision of the expert will be binding upon
such parties. Unless otherwise agreed, the cost of such expert will be shared
equally by all parties to the dispute.

 

1.8.9                     The provisions of this Section 1.8 apply to audits
conducted under Article 4.11(D) of the Agreement except that the sixty Day
advance notice and the advance information provisions of Section 1.8.1 shall not
apply.

 

1.9                               Allocations.

 

If it becomes necessary to allocate any costs or expenditures to or between
Joint Operations and any other operations, such allocation shall be made on an
equitable basis. For informational purposes only, Operator shall furnish a
description of its allocation procedures pertaining to these costs and
expenditures and its rates for personnel and other charges, along with each
proposed Work Program and Budget. Such allocation basis shall be subject to
audit under Section 1.8.

 

7

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

 

SECTION 2
DIRECT CHARGES

 

Operator shall charge the Joint Account for all costs and expenditures incurred
by Operator for the conduct of Joint Operations within the limits of approved
Work Programs and Budgets or as otherwise specified in the Agreement. Charges
for services normally provided by an operator such as those contemplated in
Sections 2.7.2 and 2.7.3 which are provided by a Party’s Affiliate shall reflect
the cost to the Affiliate, excluding profit, for performing such services,
except as otherwise provided in Section 2.6, and Section 2.7.1.

 

The costs and expenditures shall be recorded as required for the settlement of
accounts between the Parties hereto in connection with the rights and
obligations under the Agreement and for purposes of complying with the tax laws
of the Country of Operations and of such other countries to which any of the
Parties may be subject.

 

Chargeable costs and expenditures may include:

 

2.1                               Licenses, Permits, Etc.

 

All costs, if any, attributable to the acquisition, maintenance, renewal or
relinquishment of licenses, permits, contractual and/of surface rights acquired
for Joint Operations and bonuses paid in accordance with the Contract when paid
by Operator in accordance with the provisions of the Agreement.

 

2.2                               Salaries, Wages and Related Costs.

 

Salaries, wages and related costs include everything constituting the employees’
total compensation, as well as the cost to Operator of holiday, vacation,
sickness, disability benefits, living and housing allowances, travel time,
bonuses, and other customary allowances applicable to the salaries and wages
chargeable hereunder, as well as the costs to Operator for employee benefits,
including but not limited to employee group life insurance, group medical
insurance, hospitalization, retirement, severance payments required by the laws
or regulations of the Country of Operations (additional severance payments in
excess of those provided by the laws or regulations of the Country of Operations
shall be chargeable to the Joint Account to the extent that they are in
accordance with Operator’s benefit policies), and other benefit plans of a like
nature applicable to labor costs of Operator.

 

All costs associated with organizational restructuring (e.g., separation
benefits, relocation costs, asset disposition costs) of Operator or its
Affiliates, other than those costs which are directly related to employees of
Operator who are directly engaged in Joint Operations on a full time basis, will
require the approval of the Parties to be chargeable to the Joint Account.

 

Any costs associated with Country of Operations benefit plans which are not
currently funded shall be accrued and not be paid by Non-Operators, unless
otherwise approved by the Operating Committee, until the same are due and
payable to the employee, upon withdrawal of a Party pursuant to the Agreement
and then only by the withdrawing Party, or upon termination of the Agreement,
whichever occurs first.

 

Expenditures or contributions made pursuant to assessments imposed by
governmental authority for payments with respect to or on account of employees
described in Section 2.2.1 and Section

 

8

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

 

2.2.2 shall be chargeable to the Joint Account. Because the funding of a defined
benefit plan is not necessarily representative of the cost to the Operator for
the retirement plan, the actuarially determined service cost shall be charged to
the Joint Account instead of the amount of cash paid to fund the retirement
plan.

 

2.2.1                     The salaries, wages and related costs of employees of
Operator and its Affiliates temporarily or permanently assigned in the Country
of Operations and directly engaged in Joint Operations shall be chargeable to
the Joint Account.

 

2.2.2                     The salaries, wages and related costs of employees of
Operator and its Affiliates temporarily or permanently assigned outside the
Country of Operations directly engaged in Joint Operations and not otherwise
covered in Section 2.7.2 shall be chargeable to the Joint Account.

 

2.2.3                     Costs for salaries, wages and related costs may be
charged to the Joint Account on an actual basis or at a rate based upon the
average cost in accordance with Operator’s usual practice. In determining the
average cost, expatriate and national employees’ rates shall be calculated
separately and reviewed at least annually.

 

2.2.4                     Reasonable expenses (including related travel costs)
of those employees whose salaries and wages are chargeable to the Joint Account
under Sections 2.2.1 and 2.2.2 and for which expenses the employees are
reimbursed under the usual practice of Operator shall be chargeable to the Joint
Account.

 

2.2.5                     If employees are engaged in other activities in
addition to the Joint Operations, the cost of such employees shall be allocated
on an equitable basis.

 

2.3                               Employee Relocation Costs.

 

2.3.1                     Except as provided in Section 2.3.3, Operator’s cost
of employees’ relocation to or from an assignment with the Joint Operations,
whether within or outside the Country of Operations and whether permanently or
temporarily assigned to the Joint Operations, shall be chargeable to the Joint
Account. If such employee works on other activities in addition to Joint
Operations, such relocation costs shall be allocated on an equitable basis.

 

2.3.2                     Such relocation costs shall include transportation of
employees, families, personal and household effects of the employee and family,
transit expenses, and all other related costs in accordance with Operator’s
usual practice.

 

2.3.3                     Relocation costs to an assignment that is not with the
Joint Operations shall not be chargeable to the Joint Account unless the place
of the new assignment is the point of origin of the employee or unless otherwise
agreed by the Operating Committee.

 

2.4                               Offices, Camps, and Miscellaneous Facilities.

 

Cost of maintaining any offices, sub-offices, camps, warehouses, housing, and
other facilities of the Operator and/or Affiliates directly serving the Joint
Operations. If such facilities serve operations in addition to the Joint
Operations the costs shall be allocated to the properties served on an equitable
basis.

 

9

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

 

 

2.5                               Material.

 

Cost, net of discounts taken by Operator, of Material purchased or furnished by
Operator shall be charged to the Joint Account. Such costs shall include, but
are not limited to, export brokers’ fees, transportation charges, loading,
unloading fees, export and import duties and license fees associated with the
procurement of Material and in-transit losses, if any, not covered by insurance.
So far as it is reasonably practical and consistent with efficient and
economical operation, only such Material shall be purchased for, and the cost
thereof charged to, the Joint Account as may be required for immediate use.

 

2.6                               Exclusively Owned Equipment and Facilities of
Operator and Affiliates.

 

Charges for exclusively owned equipment, facilities, and utilities of Operator
or any of its Affiliates at rates not to exceed the average commercial rates of
non-affiliated third parties then prevailing for like equipment, facilities, and
utilities for use in the area where the same are used hereunder. On request,
Operator shall furnish Non-Operators a list of rates and the basis of
application. Such rates shall be revised from time to time if found to be either
excessive or insufficient, but not more than once every six months.

 

Exclusively owned drilling tools and other equipment lost in the hole or damaged
beyond repair may be charged at replacement cost less depreciation plus
transportation costs to deliver like equipment to the location where used.

 

2.7                               Services.

 

2.7.1                     The charges for services provided by third parties,
including the Affiliates of the respective Parties which have contracted with
Operator to perform services that are normally provided by third parties, other
than those services covered by Section 2.7.2 and Section 2.7.3, shall be
chargeable to the Joint Account. Such charges for services by the Affiliates of
the respective Parties shall not exceed those currently prevailing if performed
by non-affiliated third parties, considering quality and availability of
services.

 

2.7.2                     The cost of services performed by Operator’s
Affiliates technical and professional staffs not located within the Country of
Operation and not otherwise covered under Section 2.2.2, shall be chargeable to
the Joint Account. The individual rates shall include salaries and wages of such
technical and professional personnel, lost time, governmental assessments, and
employee benefits. Costs shall also include all support costs necessary for such
technical and professional personnel to perform such services, such as, but not
limited to, rent, utilities, support staff, drafting, telephone and other
communication expenses, computer support, supplies, depreciation, and other
reasonable expenses. Examples of such services include the following:

 

Geologic Studies and Interpretation

Seismic Data Processing

Well Log Analysis, Correlation and Interpretation

Laboratory Services

Ecological and Environmental Engineering

Decommissioning (Abandonment) and Reclamation

Well Site Geology

Project Management and Engineering

 

10

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

 

Source Rock Analysis

Petrophysical Analysis

Geochemical Analysis

Drilling Supervision

Development Evaluation

Project Accounting and Professional Services

 

Costs incurred as payment for access to, and use of, technical data,
intellectual property and know-how of the Operator’s group of Affiliates in
accordance with the technology participation agreement between the Operator and
its Affiliates and in accordance with the customary cost sharing system
applicable to operating companies within the Operator’s group of Affiliates.
Such costs shall be included in annual Work Program and Budgets as a separate
line item subject to the approval of the Operating Committee.

 

2.7.3                     The cost of services performed with the approval of
Operator by the technical and professional staffs of the Non-Operators and the
Affiliates of the respective Non-Operators, including the cost to such
Affiliates and Non-Operators of their respective secondees, shall be chargeable
to the Joint Account. The individual rates shall include salaries and wages of
such technical and professional personnel and secondees, lost time, governmental
assessments, and employee benefits. Costs (other than for secondees) shall also
include all support costs necessary for such technical and professional
personnel to perform such services, such as, but not limited, to rent,
utilities, support staff, drafting, telephone and other communication expenses,
computer support, supplies, depreciation, and other reasonable expenses.

 

2.7.4                     A Non-Operator shall bill Operator for direct costs of
services and of secondees charged under the provisions of Section 2.7.3 on or
before the last Day of each month for charges for the preceding month, to which
charges Non-Operator shall add an administrative overhead rate at the rates
stated in Section 3.2.2.. Within thirty Days after receipt of a bill for such
charges, Operator shall pay the amount due thereon.

 

2.7.5                     The charges for services under Section 2.7.2 and
Section 2.7.3 shall not exceed those currently prevailing if performed by
non-affiliated third parties, considering the quality and availability of such
services.

 

2.8                               Insurance.

 

Premiums paid for insurance required by law, he Contract or the Agreement to be
carried for the benefit of the Joint Operations.

 

2.9                               Damages and Losses to Property.

 

2.9.1                     All costs or expenditures necessary to replace or
repair damages or losses incurred by fire, flood, storm, theft, accident, or any
other cause shall be chargeable to the Joint Account. Operator shall furnish
Non-Operators written notice of damages or losses incurred in excess of U.S.
$10,000 as soon as practical after report of the same has been received by
Operator. All losses in excess of U.S. $ 10,000 shall be listed separately in
the monthly statement of costs and expenditures.

 

11

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

 

2.9.2                     Credits for settlements received from insurance
carried for the benefit of Joint Operations and from others for losses or
damages to Joint Property or Materials shall be chargeable to the Joint Account.
Each Party shall be credited with its Participating Interest share thereof
except where such receipts are derived from insurance purchased by Operator for
less than all Parties in which event such proceeds shall be credited to those
Parties for whom the insurance was purchased in the proportion of their
respective contributions toward the insurance coverage.

 

2.9.3                     Expenditures incurred in the settlement of all losses,
claims, damages, judgments, and other expenses for the account of Joint
Operations shall be chargeable to the Joint Account.

 

2.10                        Litigation, Dispute Resolution and Associated Legal
Expenses.

 

The costs and expenses of litigation, dispute resolution and associated legal
services necessary for the protection of the Joint Operations under the
Agreement as follows:

 

2.10.1              Legal services, other than those provided by the Parties or
their Affiliate employees, necessary or expedient for the protection of the
Joint Operations, and all costs and expenses of litigation, arbitration or other
alternative dispute resolution procedure, including reasonable attorneys’ fees
and expenses, together with all judgments obtained against the Parties or any of
them arising from the Joint Operations.

 

2.10.2              The Operating Committee may determines that, litigation,
arbitration or other alternative dispute resolution procedures resulting from
actions or claims affecting the Joint Operations hereunder may be handled by the
legal staff of one or any of the Parties or their respective Affiliates; and a
charge commensurate with the reasonable costs of providing and furnishing such
services rendered may be made by the Party or its Affiliates providing such
service to Operator for the Joint Account.

 

2.11                        Taxes and Duties.

 

All taxes, duties, assessments and governmental charges, of every kind and
nature, assessed or levied upon or in connection with the Joint Operations,
other than any that are measured by or based upon the revenues, income and net
worth of a Party.

 

If Operator or an Affiliate is subject to income or withholding tax as a result
of services performed at cost for the operations under the Agreement, its
charges for such services may be increased (grossed up) by the amount of such
taxes incurred.

 

2.12                        Ecological and Environmental.

 

Costs incurred on the Joint Property as a result of statutory regulations for
archaeological and geophysical surveys relative to identification and protection
of cultural resources and/or other environmental or ecological surveys as may be
required by any regulatory authority. Also, costs to provide or have available
pollution containment and removal equipment plus costs of actual control, clean
up and remediation resulting from responsibilities associated with Hydrocarbon
contamination as required by all applicable laws and regulations.

 

12

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

 

2.13                        Decommissioning (Abandonment) and Reclamation.

 

Costs incurred for decommissioning (abandonment) and reclamation of the Joint
Property, including costs required by governmental or other regulatory authority
or by the Contract.

 

2.14                        Other Expenditures.

 

Any other costs and expenditures incurred by Operator for the necessary and
proper conduct of the Joint Operations in accordance with approved Work Programs
and Budgets or as otherwise specified in the Agreement and not covered in
Section 2 or in Section 3, including but not limited to royalties paid on Joint
Operations pursuant to Section 7.11 of the Agreement and Section 13.1 of the
Contract (as such term is defined in the Agreement).

 

SECTION 3
INDIRECT CHARGES

 

3.1                               Purpose.

 

Operator shall charge the Joint Account monthly for the cost of indirect
services and related office costs of Operator and its Affiliates not otherwise
provided in this Accounting Procedure. Indirect costs chargeable under Section 3
represent the cost of general assistance and support services provided by
Operator and its Affiliates. These costs are such that it is not practical to
identify or associate them with specific projects but are for services which
provide the Joint Operations with needed and necessary resources which Operator
requires and provide a real benefit to Joint Operations. No cost or expenditure
included under Section 2 shall be included or duplicated under Section 3. The
charges under Section 3 are not subject to audit under Sections 1.8.1 and 1.8.2
other than to verify that the overhead percentages are applied correctly to the
expenditure basis.

 

3.2                               Amount.

 

3.2.1                     The indirect charge under Section 3.1 for any month
shall equal the greater of the total amount of indirect charges for the period
beginning at the start of the Calendar Year through the end of the period
covered by Operator’s invoice (“Year-to-Date”) determined under Section 3.2.2,
less indirect charges previously made under Section 3.1 for the Calendar Year in
question, or the amount of the minimum assessment determined under Section
3.2.3, calculated on an annualized basis (but reduced pro rata for periods of
less than one year), less indirect charges previously made under Section 3.1 for
the Calendar Year in question.

 

3.2.2                     Unless exceeded by the minimum assessment under
Section 3.2.3, the aggregate Year-to-Date indirect charges shall be a percentage
of the Year-to-Date expenditures, calculated on the following scale (U.S.
Dollars):

 

Annual Expenditures

 

$0 to $1,000,000 of expenditures = 2.0%

 

Next $9,000,000 of expenditures = 1.0%

 

Excess above $10,000,000 of expenditures = 0.5%

 

13

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

 

3.2.3                     A minimum amount of U.S. $100,000 shall be assessed
each Calendar Year calculated from the Effective Date and shall be reduced pro
rata for periods of less than a year.

 

3.2.4                     Indirect Charge for Projects.

 

As to major projects (such as, but not limited to, pipelines, gas reprocessing
and processing plants, final loading and terminaling facilities, and dismantling
for decommissioning of platforms and related facilities) when the estimated cost
of each project amounts to more than U.S. $ 100,000 a separate indirect charge
for such project shall be approved by the Operating Committee” or “Parties”) at
the time of approval of the project.

 

During its process of winding-up Joint Operations Operator shall have the right
to charge the greater of the sliding scale percentage rate or the minimum
indirect charge for a period of twenty four months. If the winding-up process
continues beyond the end of such period, the charge shall be confined to and
based upon the sliding scale percentage rate in Section 3.2.2..

 

Notwithstanding the foregoing, the indirect rates and related calculation method
for development operations, production operations, and dismantling for
decommissioning of platforms and related facilities shall be agreed upon by the
Operating Committee prior to the submission of the first annual budget for those
phases of operations.

 

3.3                               Exclusions.

 

The expenditures used to calculate the monthly indirect charge shall not include
the indirect charge (calculated either as a percentage of expenditures or as a
minimum monthly charge), rentals on surface rights acquired and maintained for
the Joint Account, guarantee deposits, pipeline tariffs, concession acquisition
costs, bonuses paid in accordance with the Contract, royalties and taxes on
production or revenue to the Joint Account paid by Operator, expenditures
associated with major construction projects for which a separate indirect charge
is established hereunder, payments to third parties in settlement of claims, and
other similar items.

 

Credits arising from any government subsidy payments, disposition of Material,
and receipts from third parties for settlement of claims shall not be deducted
from total expenditures in determining such indirect charge.

 

SECTION 4
ACQUISITION OF MATERIAL

 

4.1                               Acquisitions.

 

Materials purchased for the Joint Account shall be charged at net cost paid by
the Operator. The price of Materials purchased shall include, but shall not be
limited to export broker’s fees, insurance, transportation charges, loading and
unloading fees, import duties, license fees, and demurrage (retention charges)
associated with the procurement of Materials, and applicable taxes, less all
discounts taken.

 

14

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

 

4.2                               Materials Furnished by Operator.

 

Materials required for operations shall be purchased for direct charge to the
Joint Account whenever practicable, except the Operator may furnish such
Materials from its stock under the following conditions:

 

4.2.1                     New Materials (Condition “A”).

 

New Materials transferred from the warehouse or other properties of Operator
shall be priced at net cost determined in accordance with Section 4.1 as if
Operator had purchased such new Material just prior to its transfer.

 

Such net costs shall in no event exceed the then current market price.

 

4.2.2                     Used Materials (Conditions “B” and “C”).

 

4.2.2.1                                   Material which is in sound and
serviceable condition and suitable for use without repair or reconditioning
shall be classed as Condition “B” and priced at 75% of such new purchase net
cost at the time of transfer.

 

4.2.2.2                                   Materials not meeting the requirements
of Section 4.2.2.1, but which can be made suitable for use after being repaired
or reconditioned, shall be classed as Condition “C” and priced at 50% of such
new purchase net cost at the time of transfer. The cost of reconditioning shall
also be charged to the Joint Account provided the Condition “C” price, plus cost
of reconditioning, does not exceed the Condition “B” price; and provided that
Material so classified meet the requirements for Condition “B” Material upon
being repaired or reconditioned.

 

4.2.2.3                                   Material, which cannot be classified
as Condition “B” or Condition “C”, shall be priced at a value commensurate with
its use.

 

4.2.2.4                                   Tanks, derricks, buildings, and other
items of Material involving erection costs, if transferred in knocked-down
condition, shall be graded as to condition as provided in Section 4.2.2, and
priced on the basis of knocked-down price of like new Material.

 

4.2.2.5                                   Material including drill pipe, casing
and tubing, which is no longer useable for its original purpose but is useable
for some other purpose, shall be graded as to condition as provided in Section
4.2.2. Such Material shall be priced on the basis of the current price of items
normally used for such other purpose if sold to third parties.

 

4.3                               Premium Prices.

 

Whenever Material is not readily obtainable at prices specified in Sections 4.1
and 4.2 because of national emergencies, strikes or other unusual causes over
which Operator has no control, Operator may charge the Joint Account for the
required Material at Operator’s actual cost incurred procuring such Material, in
making it suitable for use, and moving it to the Contract Area, provided that
notice in writing, including a detailed description of the Material required and
the required delivery date, is furnished to Non-Operators of the proposed charge
at least ten Days

 

15

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

 

(or such shorter period as the parties may mutually agree in writing) before the
Material is projected to be needed for operations and prior to billing
Non-Operators for such Material the cost of which exceeds U.S. $25,000. Each
Non-Operator shall have the right, by so electing and notifying Operator within
five Days (or such shorter period as the Parties may mutually agree in writing)
after receiving notice from Operator, to furnish in kind all or part of his
share of such Material per the terms of the notice which is suitable for use and
acceptable to Operator both as to quality and time of delivery. Such acceptance
by Operator shall not be unreasonably withheld. If Material furnished is deemed
unsuitable for use by Operator, all costs incurred in disposing of such Material
or returning Material to owner shall be borne by the Non-Operator furnishing the
same unless otherwise agreed by the Parties. If a Non-Operator fails to properly
submit an election notification within the designated period, Operator is not
required to accept Material furnished in kind by that Non-Operator. If Operator
fails to submit proper notification prior to billing Non-Operators for such
Material, Operator shall only charge the Joint Account on the basis of the price
allowed during a “normal” pricing period in effect at time of movement.

 

4.4                               Warranty of Material Furnished by Operator.

 

Operator does not warrant the condition or fitness for the purpose intended of
the Material furnished. In case defective Material is furnished by Operator for
the Joint Account, credit shall not be passed to the Joint Account until
adjustment has been received by Operator from the manufacturers or their agents.

 

SECTION 5
DISPOSAL OF MATERIALS

 

5.1                               Disposal.

 

Operator shall be under no obligation to purchase the interest of Non-Operators
in new or used surplus Materials. Operator shall have the right to dispose of
Materials but shall advise and secure prior agreement of the Operating Committee
of any proposed disposition of Materials having an original cost to the Joint
Account either individually or in the aggregate of U.S. $200,000 or more. When
Joint Operations are relieved of Material charged to the Joint Account, Operator
shall advise each Non-Operator of the original cost of such Material to the
Joint Account so that the Parties may eliminate such costs from their asset
records. Credits for Material sold by Operator shall be made to the Joint
Account in the month in which payment is received for the Material. Any Material
sold or disposed of under this Section 5 shall be on an “as is, where is” basis
without guarantees or warranties of any kind or nature. Costs and expenditures
incurred by Operator in the disposition of Materials shall be charged to the
Joint Account.

 

5.2                               Material Purchased by a Party or Affiliate.

 

Proceeds received from Material purchased from the Joint Property by a Party or
an Affiliate thereof shall be credited by Operator to the Joint Account, with
new Material valued in the same manner as new Material under Section 4.2.1 and
used Material valued in the same manner as used Material under Section 4.2.2,
unless otherwise agreed by the Operating Committee.

 

5.3                               Division In Kind.

 

Division of Material in kind, if made between the Parties, shall be in
proportion to their respective interests in such Material. Each Party will
thereupon be charged individually with the value

 

16

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(determined in accordance with the procedure set forth in Section 5.2) of the
Material received or receivable by it.

 

5.4                               Sales to Third Parties.

 

Proceeds received from Material purchased from the Joint Property by third
parties shall be credited by Operator to the Joint Account at the net amount
collected by Operator from the buyer. If the sales price is less than the value
determined in accordance with the procedure set forth in Section 5.2, then
approval by the Operating Committee shall be required prior to the sale. Any
claims by the buyer for defective materials or otherwise shall be charged back
to the Joint Account if and when paid by Operator.

 

SECTION 6
INVENTORIES

 

6.1                               Periodic Inventories - Notice and
Representation.

 

At reasonable intervals, but at least annually, inventories shall be taken by
Operator of all Material held in warehouse stock on which detailed accounting
records are normally maintained. The expense of conducting periodic inventories
shall be charged to the Joint Account. Operator shall give Non-Operators written
notice at least sixty Days in advance of its intention to take inventory, and
Non-Operators, at their sole cost and expense, shall each be entitled to have a
representative present. The failure of any Non-Operator to be represented at
such inventory shall bind such Non-Operator to accept the inventory taken by
Operator. Operator shall in any event furnish each Non-Operator with a
reconciliation of overages and shortages. Inventory adjustments to the Joint
Account shall be made for overages and shortages. Any adjustment equivalent to
U.S. $10,000 or more shall be brought to the attention of the Operating
Committee.

 

6.2                               Special Inventories.

 

Whenever there is a sale or change of a Participating Interest in the Agreement,
a special inventory may be taken by the Operator provided the seller and/or
purchaser of such interest agrees to bear all of the expense thereof. In such
cases, both the seller and the purchaser shall be entitled to be represented and
shall be governed by the inventory so taken.

 

17

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Exhibit B                                             Contract Area

 

Block

 

Point

 

X

 

Y

 

Lat DD

 

Lon DD

 

Lat DMS

 

Lon DMS

 

B4

 

1

 

292473.252

 

965766.4371

 

8.732222439

 

-16.88638881

 

8°43’56”

 

-17°6’49”

 

B4

 

2

 

263884.7704

 

1002182.855

 

9.060000224

 

-17.1480554

 

9°3’36”

 

-18°51’7”

 

B4

 

3

 

364358.8658

 

1070831.57

 

9.68500024

 

-16.23638888

 

9°41’6”

 

-17°45’49”

 

B4

 

4

 

393242.8872

 

1035107.665

 

9.36277801

 

-15.97222222

 

9°21’46”

 

-16°1’40”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C3

 

1

 

477859.1555

 

1039610.818

 

9.404783867

 

-15.2016667

 

9°24’17”

 

-16°47’53”

 

C3

 

2

 

421603.7876

 

1000579.688

 

9.051111336

 

-15.71333333

 

9°3’4”

 

-16°17’12”

 

C3

 

3

 

393242.8872

 

1035107.665

 

9.36277801

 

-15.97222222

 

9°21’46”

 

-16°1’40”

 

C3

 

4

 

448139.2823

 

1072986.197

 

9.70638913

 

-15.47277778

 

9°42’23”

 

-16°31’37”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C4

 

1

 

421603.7876

 

1000579.688

 

9.051111336

 

-15.71333333

 

9°3’4”

 

-16°17’12”

 

C4

 

2

 

320143.8537

 

931320.5768

 

8.421944654

 

-16.63361107

 

8°25’19”

 

-17°21’59”

 

C4

 

3

 

292473.252

 

965766.4371

 

8.732222439

 

-16.88638881

 

8°43’56”

 

-17°6’49”

 

C4

 

4

 

393242.8872

 

1035107.665

 

9.36277801

 

-15.97222222

 

9°21’46”

 

-16°1’40”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D3

 

1

 

362005.8887

 

959896.6581

 

8.681758941

 

-16.25430027

 

8°40’54”

 

-17°44’44”

 

D3

 

2

 

479811.6813

 

1040954.248

 

9.416944678

 

-15.18388889

 

9°25’1”

 

-16°48’57”

 

D3

 

3

 

511872.847

 

1008243.728

 

9.121111338

 

-14.89194444

 

9°7’16”

 

-15°6’29”

 

D3

 

4

 

445976.8019

 

962610.9439

 

8.708055773

 

-15.49111111

 

8°42’29”

 

-16°30’3l”

 

D3

 

5

 

417751.1176

 

982681.7846

 

8.889166888

 

-15.74805556

 

8°53’21”

 

-16°15’7”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E3

 

1

 

543394.771

 

975662.5228

 

8.826219624

 

-14.60538289

 

8°49’34”

 

-15°23’40”

 

E3

 

2

 

485592.9622

 

935433.2024

 

8.462520415

 

-15.13088798

 

8°27’45”

 

-16°52’8”

 

E3

 

3

 

445976.8019

 

962610.9439

 

8.708055773

 

-15.49111111

 

8°42’29”

 

-16°30’31”

 

E3

 

4

 

511872.847

 

1008243.728

 

9.121111338

 

-14.89194444

 

9°7’16”

 

-15°6’29”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F2

 

1

 

545020.9194

 

976791.97

 

8.836419571

 

-14.59058424

 

8°50’11”

 

-15°24’33”

 

F2

 

2

 

590677.6844

 

1008503

 

9.122535991

 

-14.17476002

 

9°7’21”

 

-15°49’30”

 

F2

 

3

 

621595.4293

 

975064.4707

 

8.819390318

 

-13.8943308

 

8°49’9”

 

-14°6’20”

 

F2

 

4

 

575778.7491

 

943812.7659

 

8.537726732

 

-14.31143103

 

8°32’15”

 

-15°41’18”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F3

 

1

 

485592.9622

 

935433.2024

 

8.462520415

 

-15.13088798

 

8°27’45”

 

-16°52’8”

 

F3

 

2

 

545025.7175

 

976799.903

 

8.836491277

 

-14.59054053

 

8°50’11”

 

-15°24’34”

 

F3

 

3

 

575778.7491

 

943812.7659

 

8.537726732

 

-14.31143103

 

8°32’15”

 

-15°41’18”

 

F3

 

4

 

524510.7331

 

908849.046

 

8.222016382

 

-14.7774564

 

8°13’19”

 

-15°13’21”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G1

 

1

 

524510.7331

 

908849.046

 

8.222016382

 

-14.7774564

 

8°13’19”

 

-15°13’21”

 

G1

 

2

 

667560.2861

 

1006414.237

 

9.101389115

 

-13.4752778

 

9°6’5”

 

-14°31’28”

 

G1

 

3

 

676627.23

 

996997.5348

 

9.015893672

 

-13.39317283

 

9°0’57”

 

-14°36’24”

 

G1

 

4

 

536536.5386

 

900373.5965

 

8.145277981

 

-14.66833333

 

8°8’43”

 

-15°19’54”

 

 

[g276111ke35i001.jpg]

 

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

 

[g276111ke35i002.jpg]

 

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

 

Exhibit “D”
Material Documents

 

(i)                                     Letter Agreement with Offshore Seismic
Services Inc. and SCS Corporation dated February 14, 2003.

 

(ii)                                  Master Geophysical Data Acquisition
Agreement between Geophysical Service Incorporated and SCS Corporation dated
February 13, 2008, subject to the Release and Settlement Agreement and Amendment
to PSC dated May 20, 2010.

 

(iii)                               SCS Corporation and BOS Marine 2D Seismic
Data Acquisition Services Agreement dated September 30, 2009.

 

(iv)                              Operating Agreement between SCS Corporation
and Dana Petroleum E&P Ltd dated January 28, 2010.

 

(v)                                 SCS Corporation and PGS Geophysical AS
Agreement for the Supply of Marine Seismic Data Acquisition Services dated
June 11, 2010.

 

(vi)                              Master Service Agreement for Geophysical Data
Processing Services between SCS Corporation and PGS Data Processing Inc. dated
July 2, 2010.

 

(vii)                           Agreement for the Supply of Marine Seismic Data
Application and Processing Services dated September 20, 2011 between SCS
Corporation and CGG Veritas Services SA.

 

(viii)                        SCS Letter to Dana dated June 6, 2012, in relation
to Article 12.2(F) (I) of the JOA.

 

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

 

Exhibit “E”
Closing Documents

 

I                                           Form of Assignment

 

ASSIGNMENT AGREEMENT

 

THIS ASSIGNMENT AGREEMENT is dated the                 day of
                                   2012

 

BETWEEN:

 

(1)                                 SCS CORPORATION LTD., a company organized
and incorporated under the laws of the Cayman Islands (“Assignor”);

 

(2)                                 TULLOW GUINEA LTD, a company organized and
existing under the laws of England and Wales (the “Assignee”).

 

NOW IT IS HEREBY AGREED as follows:

 

The Assignor declares that with effect from the date of this Assignment
Agreement and pursuant to the Ministry of Mines and Geology of the Republic of
Guinea’s authorization as evidenced by the issue of an Arrêté as referred to in
Clause 6 below, it hereby assigns to the Assignee a forty per cent (40%)
Participating Interest in the Hydrocarbons Production Sharing Contract for the
Contract Area, offshore, Guinea, entered into on 22 September 2006, (hereinafter
referred to as the “PSC”) as follows:

 

1.                                      The Assignor declares that, from the
date hereof (the “Effective Date”), it hereby transfers, assigns and conveys a
forty per cent (40%) Participating Interest in the PSC to the Assignee.

 

2.                                      The Assignee hereby accepts the
assignment granted above and agrees to be bound by all obligations and covenants
contained in the PSC and any modifications or additions, in writing, up to the
date of this Assignment Agreement.

 

3.                                      The Assignor and the Assignee confirm
that they have not received or made any payment for the assignment and that the
total consideration for the assignment is in the nature of work, expenditures or
fees performed, paid, incurred or reimbursed, by the Assignee with respect to
the PSC.

 

4.                                     The Assignor and the Assignee confirm
that the Assignee is financially and technically capable of fulfilling its
duties and obligations under the PSC.

 

5.                                      The Assignee shall jointly with the
other parties to the PSC be liable for all duties and obligations of the
Contractor under the PSC.

 

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

 

6.                                      This Assignment Agreement is subject to
and conditional upon the Ministry of Mines and Geology granting final approval
to the assignment and the execution by the parties hereto of this Assignment
Agreement

 

 

SCS CORPORATION LTD

 

TULLOW GUINEA LTD

 

 

 

By:

 

 

By:

 

 

 

 

Name:

 

 

Name:

 

 

 

 

Title:

 

 

Title:

 

 

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

 

II                                      Form of Novation and Amendment of JOA

 

DATED

20[12]

 

(1)                                 SCS CORPORATION LTD.

 

(2)                                 DANA PETROLEUM E&P LIMITED

 

- and -

 

(3)                                 TULLOW GUINEA LTD

 

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

 

NOVATION AND AMENDMENT AGREEMENT

 

- relating to -

 

the Operating Agreement for the Hydrocarbon Productive Sharing Contract,
offshore Guinea

 

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

 

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

 

JOINT OPERATING AGREEMENT
NOVATION AND AMENDMENT AGREEMENT

 

THIS AGREEMENT is made and entered into this         day of
               20[12]

 

BETWEEN:

 

(1)                                SCS CORPORATION LTD, a company organized and
existing under the laws of the Cayman Islands (“SCS”);

 

(2)                                DANA PETROLEUM E&P LIMITED, a company
organized and existing under the laws of England (“Dana”); and

 

(3)                                TULLOW GUINEA LTD, a company organized and
existing under the laws of England and Wales (“Tullow”),

 

SCS, Dana and Tullow are sometimes herein referred to collectively as the
“Parties” and individually as a “Party”.

 

RECITALS

 

A.                                    SCS and Dana are the current parties to a
Hydrocarbon Production Sharing Contract with the Republic of Guinea acting
through the Ministry of Mines and Geology of Guinea (the “Ministry”) dated 22
September 2006, as amended, in respect of a contract area  offshore Guinea (the
“PSC”).

 

B.                                    SCS and Dana are the current parties to a
Joint Operating Agreement dated 28 January 2010, (the “JOA”), which governs the
conduct of petroleum operations in relation to the PSC and provides for the
determination of the respective rights and obligations of the parties thereto.

 

C.                                    The Ministry, as evidenced by the issue of
an Arrêté has authorized SCS and Farmee to enter into an Assignment pursuant to
which SCS will assign a forty per cent (40%) Participating Interest in the PSC
and the JOA to Tullow (the “Assigned Interest”) and SCS wishes to be released
from and Tullow wishes to assume and perform the obligations and liabilities of
SCS arising under the PSC and the JOA in respect of the Assigned Interest and to
receive the benefits associated therewith, and the Parties have agreed to the
execution of this Agreement on the terms set out herein.

 

IT IS AGREED as follows:

 

1.                                      Terms used in this Agreement which are
not defined herein but are defined in the JOA or the PSC shall have meanings as
set forth in the JOA or the PSC.

 

2.                                      “Assignment” shall mean the agreement
between SCS and Tullow providing for the assignment and transfer of the Assigned
Interest from SCS to Tullow.

 

3.                                      “Co-Venturer” shall mean Dana.

 

4.                                      “Effective Date” of this Agreement is
the date first above written.

 

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

 

4.                                      Article 3.2(A) of the JOA is hereby
amended to read as follows:

 

The Participating Interests of the Parties as of the Effective Date are:

 

SCS

37.00%

 

 

Dana

23.00%

 

 

Tullow

40.00%

 

5.                                      With effect from the Effective Date:-

 

(a)                                 SCS shall cease to have any right, interest
or benefit in, and shall be released from all of the liabilities and obligations
relating to, the Assigned Interest and Tullow shall assume the liabilities and
perform the obligations and be entitled to the rights, interests and benefits
attributable to the Assigned Interest as if Tullow had at all times been the
owner of the Assigned Interest.

 

(b)                                 Tullow undertakes and covenants with each
other Party to be bound by the terms of the PSC and the JOA in respect of the
Assigned Interest and to assume, observe, perform, discharge and be bound by all
the respective liabilities and obligations of SCS in place of SCS in respect of
the Assigned Interest, as if Tullow had at all times been the owner of the
Assigned Interest.

 

(c)                                  Each Party hereby releases and discharges
SCS from the liabilities and obligations (and any claims and demands in respect
thereof) assumed by Tullow pursuant to this Clause 6 hereof and each Party
accepts the assumption of such liabilities and obligations by Tullow in the
place of SCS, and Tullow hereby undertakes to indemnify and hold harmless each
Party in respect of any claims, proceedings, injury, loss, damage, costs
(including legal costs) or expense for which the Tullow would have been liable
but for the release and discharge referred to herein.

 

7.                                      The execution of this Agreement shall be
treated as constituting all actions, confirmations, consents, agreements and
undertakings required under the JOA of SCS or the Assignee in relation to the
assignment of the Assigned Interest.

 

8.                                      Dana confirms that it has waived any
rights under Article 12.2(F)(I) of the JOA in relation to the transfer and
assignment of the Assigned Interest.

 

.                                             This Agreement shall be treated as
constituting all actions, confirmations and undertakings required under the JOA
in respect of the matters referred to herein.

 

10.                               Subject as expressly provided in this
Agreement, all other provisions of the JOA shall remain in full force and effect
and binding on the Parties hereto.

 

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

 

11.                               This Agreement shall only become effective in
the event the Ministry has granted its final approval to the assignment of the
Assigned Interest.

 

12.                               This Agreement may be executed in counterparts
with the same effect as if all Parties had executed the same document, provided
that no Party shall be bound to this Agreement unless and until all Parties have
executed a counterpart.

 

13.                               Each reference in this Agreement (including
the Recitals) to the JOA or PSC shall be construed and have effect as a
reference to the same as it may have been so supplemented and/or amended and/or
novated prior to the date hereof.

 

14.                               The applicable law and dispute resolution
provisions of the JOA shall apply to this Agreement as if herein set out.

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorised representatives as of the date first set forth above.

 

 

 

SCS CORPORATION LTD.

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

DANA PETROLEUM E&P LIMITED

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

TULLOW GUINEA LTD

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

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

 

EXHIBIT F

 

PARENT COMPANY GUARANTEE

 

THIS DEED is made the              day of                                  2012

 

BETWEEN:

 

1.                                               Tullow Oil plc, a company
incorporated in England whose registered office is at 9 Chiswick Park, 566
Chiswick High Road, London, W4 5XT (the “Parent”).

 

2.                                               SCS Corporation Ltd a company
incorporated under the laws of the Cayman Islands, and having its principal
place of business at 12012 Wickchester Lane, Suite 475, Houston, TX 77079, USA
(“Farmor”)

 

WHEREAS:

 

(A)                                        By a Farm-out Agreement dated 20
November 2012 and made between (1) Farmor  and (2) Tullow Guinea Limited
(hereinafter referred to as “Farmee”), a company established in England and
having its principal offices at 9 Chiswick Park, 566 Chiswick High Road, London,
England (the “Agreement”), whereupon the Farmor has agreed, subject to the terms
set out therein, to transfer certain interests to the Farmee as more fully
described in the Agreement.

 

(B)                                        As security for payment by the Farmee
under the Agreement of the Carried Costs (as such term is defined in the
Agreement) and, if and when applicable, the Additional Carried Costs (as such
term is defined in the Agreement) under the Agreement the Parent has agreed to
guarantee the due and proper performance of such payment obligations as set out
in this Deed.

 

NOW IT IS HEREBY AGREED as follows:

 

1.                                                  DEFINITIONS AND
INTERPRETATION

 

1.1                                        Words and expressions defined in the
Agreement shall, unless otherwise expressly provided herein or the context
otherwise requires, have the same meanings when used in this Deed, including the
Recitals.

 

1.2                                        In this Deed, “person” includes a
corporate entity and any body of persons, corporate or unincorporate and any
reference to the Farmee or Parent shall be construed so as to include its
successors, permitted assigns and permitted transferees, provided that
references to the Farmor shall be to the Farmor only and shall exclude
successors, assigns and transferees.

 

1.3                                        References to any agreement or
document include the same as amended, varied, supplemented or replaced from time
to time.

 

1.4                                        Clause, appendix and paragraph
headings shall not affect the interpretation of this Deed.

 

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

 

1.5                                        A person who is not a party to this
Deed may not enforce, or otherwise have the benefit of, any provision of this
Deed under the Contracts (Rights of Third Parties) Act 1999.

 

1.6                                        “LIBOR” means the one (1) month term,
London Interbank Offered Rate (LIBOR rate or, in the case of such rate ceasing
to be determined or being replaced, such replacement rate commonly referenced or
utilised in accordance with generally accepted market practice for the
determination of the London interbank offered rate for deposits in US dollars as
determined by the Parties, acting reasonably) for US dollar deposits, as
published in London by the Financial Times or, if not published, then by The
Wall Street Journal (or, if not published by either of such sources, as
published by such other reference source selected by the Parties, acting
reasonably), 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.

 

2.                                               GUARANTEE

 

2.1                                        In consideration of the Farmor
entering into the Agreement, the Parent hereby irrevocably and unconditionally
guarantees upon demand therefor and at any time and from time to time as a
continuing obligation the due and punctual payment to the Farmor (or on behalf
of the Farmor) by the Farmee of all amounts (whether actual or contingent
together with interest on such sum accrued both before and after the date of
demand until the date of payment) which the Farmee is or shall become obligated
to pay to Farmor pursuant to Clause 4.1(B) (the “Carried Costs”) and if
applicable Clause 4.l1(C) of the Agreement (the “Additional Carried Costs” and
together, the “Guaranteed Obligations”)

 

2.2                                        The Parent as a primary obligor and
as a separate and independent obligation to its obligations and liabilities
under Clause 2.1 agrees to indemnify the Farmor immediately on demand against
any cost, expense, loss or liability suffered or incurred by the Farmor as a
result of: (i) any failure of the Farmee to pay, perform or discharge any of 
the Guaranteed Obligations; or (ii) any Guaranteed Obligation being or becoming
unenforceable, invalid or illegal in whole or in part (for any reason and
whether or not known by any party or any other person).

 

2.3                                        Subject to Clause 8.1, in no event
shall the Parent’s liability for the Guaranteed Obligations exceed that of the
Farmee pursuant to Sections 4.1(B) or 4.1(C) of the Agreement (or the liability
the Farmee would have had if the Guaranteed Obligations had been fully
enforceable in accordance with their terms).

 

2.4                                        Any claim or demand made under this
Deed shall be made in writing and shall be accompanied by a statement setting
out in reasonable detail the calculation of such sums together with any
supporting documentation reasonably required to assess such claim or demand. 
The amount of monies which the Parent is at any time liable to pay to Farmor
under the Agreement for the purposes of this Deed shall be calculated in
accordance with the terms of the Agreement.  Otherwise the Parent will pay all
monies due from it under this Deed free and clear of and without deduction of,
or account of, any other right of set-off or counterclaim and without deduction
or withholding of or in respect of any tax.

 

3.                                               CONTINUING SECURITY

 

3.1                                        This Deed shall be a continuing
guarantee which shall be and continue in full force and effect irrespective of,
and neither the rights of Farmor nor the obligations of the Parent under this
Deed shall be discharged, impaired or otherwise affected by reason of, any act,
omission, matter or thing which, but for this provision, might operate to
reduce, release or prejudice any of the obligations or liabilities of the
Parent, whether in whole or in part,

 

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

 

under this Deed, including (but without limitation), and whether or not known to
the Parent, Farmor or any other person, by:

 

3.1.1                             any waiver, release, time or indulgence
granted to, or composition with, the Farmee or any other person; or

 

3.1.2                             any amendment of, or the making of any
supplement to, the Agreement; or

 

3.1.3          the taking, variation, compromise, renewal, enforcement,
realisation or release of, or refusal or neglect to take, perfect, release or
enforce, any rights or remedies against, or granted by, the Farmee or any other
person; or

 

3.1.4                             any incapacity, disability, or defect in
powers of the Farmee or any other person, or any irregular exercise thereof by,
or lack of authority of, any person purporting to act on behalf of the Farmee or
such other person; or

 

3.1.5                             any illegality, invalidity, avoidance or
unenforceability on any grounds whatsoever of, or of any obligations of the
Farmee or any other person under, the Agreement or any other document or
security supplemental or ancillary to the Agreement; or

 

3.1.6                             the death, liquidation, administration,
insolvency, amalgamation, reorganisation, striking off or dissolution or other
cessation of existence, or any change in the constitution, place of
incorporation, name or style, of the Farmor or the Farmee or any other person;

 

3.1.7                             any assignment by the Farmee of its rights and
obligations pursuant to the Agreement; or

 

3.1.8                             the existence of any claim, set-off, or other
rights which the Parent may have at any time against the Farmor or any other
person, or which the Farmor may have at any time against the Parent or the
Farmee.

 

4.                                               DISCHARGE TO BE CONDITIONAL

 

4.1                                        Any release, discharge or settlement
between the Parent and the Farmor shall be conditional upon no security,
disposition or payment to the Farmor by the Farmee, the Parent or any other
person in respect of the Guaranteed Obligations being void, set aside or ordered
to be refunded pursuant to any enactment or law in relation to bankruptcy,
liquidation or insolvency (or its equivalent in any relevant jurisdiction) or
for any reason whatever, and if any such security, disposition or payment is
avoided, set aside or ordered to be refunded the Farmor shall be entitled to
enforce this Deed as if such release, discharge or settlement had not occurred
and any such payment had not been made.

 

5.                                               ENFORCEMENT

 

5.1                                        The Farmor shall not be obliged
before taking steps to enforce this Deed:

 

5.1.1                             to take any legal  action or obtain judgement
in any court or any arbitral award against the Farmee or any other person;

 

5.1.2                             to make or file any claim in any bankruptcy or
liquidation (or its equivalent in any relevant jurisdiction) of the Farmee or of
any other person;

 

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

 

5.1.3                             to make, enforce or seek to enforce any claim
against the Farmee or any other person under any security or other document,
agreement or arrangement; or

 

5.1.4                             to enforce against and/or realise (or seek so
to do) any security that it may have in respect of all or any part of the
Guaranteed Obligations.

 

6.                                               REPRESENTATIONS AND WARRANTIES

 

6.1                                        The Parent hereby represents and
warrants to the Farmor that:

 

6.1.1                             It has received a copy of the Agreement and is
familiar with and has approved its terms and conditions;

 

6.1.2                             the Parent is a company incorporated under the
laws of England and possesses the capacity to sue and be sued in its own name
and has the power to carry on its business and to own its property and other
assets;

 

6.1.3                             the Parent has and will have power to execute,
deliver and perform its obligations under this Deed and to carry out the
transactions contemplated hereby, and all necessary corporate and other action
has been taken to authorise the execution, delivery and performance of the same;

 

6.1.4                             the obligations of the Parent under this Deed
constitute its legal, valid and binding obligations and are in full force and
effect and enforceable in accordance with their terms;

 

6.1.5                             the execution, delivery and performance by the
Parent of this Deed does not and will not:

 

(a)                                 contravene any applicable law or regulation
or any order of any competent governmental or other official authority, body or
agency or any judgement;

 

(b)                                 conflict with, or result in any breach of
any of the terms of, or constitute a default under, any agreement or other
instrument to which the Parent is a party or any licence or other authorisation
to which the Parent is subject or by which the Parent or any of its property is
bound;

 

(c)                                  contravene or conflict with the provisions
of the Parent’s Memorandum and Articles of Association or equivalent
constitutional documents under its jurisdiction of incorporation;

 

6.1.6                             no winding-up, dissolution, insolvency or
administrative proceedings are in effect or taking place, pending, or to the
Parent’s knowledge, threatened against the Parent or any of its assets.

 

7.                                               CONTINUING AND ADDITIONAL
SECURITY

 

7.1                                        This Deed is a continuing security
and shall remain in full force and effect until all the Guaranteed Obligations
have been discharged or satisfied in full, notwithstanding the administration,
liquidation, insolvency, bankruptcy, striking-off or other incapacity of the
Farmee or any other person, or any change in the constitution, the articles of
association or by-laws of the Farmee or of the Parent or of any other person or
in the name or style of any of them or any settlement of account or other matter
whatsoever; provided that the Parent

 

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

 

may request Farmor to grant a release from this Deed prior to its termination if
the Farmee assigns all of its rights and obligations under and in accordance
with the Agreement, to a third party and such third party, is of financial
standing acceptable to the Farmor (in its sole judgement) and, if required by
the Farmor, procures that an Affiliate acceptable to the Farmor (in its sole
judgement) enters into a guarantee with the Farmee in the same form ‘mutatis
mutandis’ as this Deed.

 

7.2                                        This Deed is in addition to and shall
not merge with or otherwise prejudice or affect or be prejudiced by any other
right, remedy, guarantee, indemnity or security and may be enforced without
first having recourse to the same or any other bill, note, mortgage, charge,
pledge or lien now or hereafter held by or available to the Farmor.

 

8.                                               PAYMENT AND DEFAULT INTEREST

 

8.1                                        Where, in this Deed, any date is
specified as being, or is required to be, the due date for payment and payment
is not made on that date, interest shall be paid on the amount outstanding on a
daily basis (after as well as before any judgement) from the start of the due
date to the end of the day preceding the date of actual payment at the rate of
two percent (2%) plus LIBOR, compounded monthly

 

9.                                               ASSIGNMENTS AND TRANSFERS

 

9.1                                        This Deed shall be binding upon the
Parent and its successors and permitted assigns and shall inure to the benefit
of the Farmor only.

 

9.2                                        Neither Party may assign or transfer
all or any of its rights, benefits or obligations under this Deed without the
prior written consent of the other Party

 

10.                                        MISCELLANEOUS

 

10.1                                 No delay or omission by the Farmor to
exercise any right, power or remedy vested in it under this Deed or by law shall
impair such right, power or remedy, or be construed as a waiver of, or as an
acquiescence in, any default by the Parent.  If the Farmor on any occasion
agrees to waive any such right, power or remedy, such waiver shall not in any
way preclude or impair any further exercise thereof or the exercise of any other
right, power or remedy.

 

10.2                                 Any waiver by the Farmor of any provision
of this Deed, and any consent or approval given by the Farmor, shall only be
effective if given in writing and then only strictly for the purpose and upon
the terms for which it is given. No waiver shall constitute a continuing waiver
unless expressly provided.

 

10.3                                 This Deed may not be amended or varied
orally but only in writing executed by each of the parties hereto.

 

10.4                                 The rights, powers and remedies of the
Farmor contained in this Deed are cumulative and not exclusive of each other nor
of any other rights, powers or remedies conferred by law, and may be exercised
from time to time and as often as the Farmor may think fit.

 

10.5                                 If at any time one or more of the
provisions of this Deed is or becomes invalid, illegal or unenforceable in any
respect under any law by which it may be governed or affected, the validity,
legality and enforceability of the remaining provisions shall not be in any way
affected or impaired as a result.

 

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10.6                                 This Deed may be executed in any number of
counterparts and all such counterparts taken together shall be deemed to
constitute but one and the same instrument.

 

10.7                                 The Parent shall, upon demand sign,
perfect, do, execute and register all such further assurances, documents, acts
and things as the Farmor may reasonably require for the purpose of more
effectually accomplishing or perfecting the transaction or security contemplated
by this Deed.

 

10.8                                 The terms of the Agreement relating to
confidentiality shall apply, mutatis mutandis, to this Deed.

 

11.                                        NOTICES

 

11.1                                 The terms of the Agreement relating to the
provision of notices shall apply, mutatis mutandis, to this Deed and the Parent
agrees that it can be notified at the same address as the Farmee.

 

12.                                       APPLICABLE LAW AND JURISDICTION

 

12.1                                 This Deed shall be governed by the laws of
England and Wales and the parties hereto agree to the exclusive jurisdiction of
the ordinary courts of England to resolve any disputes arising hereunder.

 

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AS WITNESS the parties hereto have entered into this Deed the day and year first
before written.

 

 

SIGNED and DELIVERED as

)

a Deed for and on behalf

)

of Tullow Oil plc

)

by

)

its

)

in the presence of:

)

 

 

 

 

SIGNED and DELIVERED as

)

a Deed for and on behalf

)

of SCS Corporation Ltd.

)

by

)

its

)

in the presence of:

)

 

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Exhibit “G”

Pending Litigation

 

On June 21, 2012, SCS, filed suit against AGR following unsuccessful
negotiations to address the cost overruns associated with the Sabu-1 well
drilled off the coast of the Republic of Guinea. The suit was filed in London,
England in the High Court of Justice, Queen’s Bench Division, Technology and
Construction Court.  SCS is seeking to recover damages and other relief from AGR
for claims of mismanagement of the drilling of the Sabu-1 well and various
breaches of contract that resulted in the cost overruns. Among other things, the
lawsuit alleges that AGR mismanaged the selection, reconditioning and crew
staffing for the Jasper Explorer drilling rig used to drill the Sabu-1 well,
mismanaged other subcontractor relationships, failed to seek cost relief from
its subcontractors, and failed to return to SCS inventory purchased by SCS but
not used in the drilling of Sabu-1 well. On October 1, 2012, AGR filed a defense
denying SCS’s allegations and asserting a counterclaim for $22,157,000.2
million, which AGR alleges to be the outstanding amount owed on the Sabu-1
drilling project, and seeking other unspecified damages and relief, including
damages for loss of management time and associated expenses, a full indemnity
for a claim brought by Jasper against AGR, and interest on any damages awarded. 
SCS will next file a reply to AGR’s defense and respond to AGR’s counterclaim by
December 1, 2012.  The AGR counterclaim exceeds the balance we have accrued as
of September 30, 2012 by approximately $9.5 million on a gross basis or $7.3
million based on our 77% share. We dispute the claims which make up this
additional $9.5 million and we have excluded them from cost incurred to date.
Payment of any remaining accrued drilling costs is pending resolution of this
dispute.

 

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