Exhibit
10.5


 


	
  MINISTRY OF
  MINES, ENERGY,

  PETROLEUM AND HYDRAULIC RESOURCES

  	
  GABONESE REPUBLIC

  Union-Work-Justice

  
	
   

  	
   

  
	
  GENERAL
  DEPARTMENT OF HYDROCARBONS

  	
   

  



 


 


DIABA LICENSE (G4-223)


 


 


EXPLORATION AND


 


PRODUCTION SHARING CONTRACT


 


BETWEEN


 


THE GABONESE REPUBLIC


 


AND

TOTAL GABON


 

















 


GABONESE REPUBLIC


 


MINISTRY OF MINES, ENERGY,

PETROLEUM AND HYDRAULIC RESOURCES


 


GENERAL DEPARTMENT OF HYDROCARBONS


 


EXPLORATION AND


 


PRODUCTION SHARING CONTRACT


 


BETWEEN


 


THE GABONESE REPUBLIC


 


AND TOTAL GABON


 


DIABA LICENSE


 

















 


SYNOPSIS


 


	
  ARTICLES

  
	
   

  
	
  Definitions

  
	
  1

  	
  General
  provisions

  
	
  2

  	
  Technical
  Committee for the Follow-up of Oil Operations

  
	
  3

  	
  Exploration
  periods

  
	
  4

  	
  Work
  commitments during the exploration period

  
	
  5

  	
  Establishment
  and approval of the annual work programs and the corresponding budgets

  
	
  6

  	
  Waiver
  of rights

  
	
  7

  	
  Insufficiency
  of exploration works

  
	
  8

  	
  Obligations
  of contractor during exploration periods

  
	
  9

  	
  Rights
  related to exploration periods

  
	
  10

  	
  Ownership
  of the assets

  
	
  11

  	
  Activity
  reports during exploration periods

  
	
  12

  	
  Utilization
  of natural resources and land

  
	
  13

  	
  Use
  of the installations

  
	
  14

  	
  Protection
  of the environment

  
	
  15

  	
  Expiry
  of the Contract at the end of the periods of the exploration

  
	
  16

  	
  Discovery
  and obligation to exploit

  
	
  17

  	
  Request
  for Exclusive Exploitation Authorization and delimitation of the Exploitation
  Zones

  
	
  18

  	
  Term
  of the Exclusive Exploitation Authorization

  
	
  19

  	
  Participation
  of the State

  
	
  20

  	
  Program
  of development

  
	
  21

  	
  Obligations
  of Contractor during development and exploitation periods

  
	
  22

  	
  Rights
  of the Contractor attached to the Exclusive Exploitation Authorizations

  
	
  23

  	
  Obligation
  to market the production

  
	
  24

  	
  Recovery
  of Oil Costs

  
	
  25

  	
  Sharing
  of the production of Crude Oil

  
	
  26

  	
  Tax
  System

  
	
  27

  	
  Valorization
  of Crude petroleum

  
	
  28

  	
  Bonus

  
	
  29

  	
  Measuring
  and metering of hydrocarbons

  
	
  30

  	
  Natural
  gas

  
	
  31

  	
  Foreign
  currency control

  
	
  32

  	
  Exemption
  from the obligations elected to Equipment Vouchers and Investment
  Certificates

  
	
  33

  	
  Accounting
  method and monetary Unit used to keep the accounts

  
	
  34

  	
  Customs
  system and import and export documents

  
	
  35

  	
  Satisfaction
  of the needs of the internal market

  
	
  36

  	
  Export
  of hydrocarbons, transfer of property and rules of provision

  
	
  37

  	
  Protection
  of the rights

  
	
  38

  	
  Personnel

  
	
  39

  	
  Training
  of Gabonese others than those employed by Contractor

  
	
  40

  	
  Activity
  Reports in development and exploitation period

  
	
  41

  	
  Payments

  
	
  42

  	
  Transfer
  of interests

  
	
  43

  	
  Application
  of the Contract

  
	
  44

  	
  Unitization

  
	
  45

  	
  Sanctions
  and Forfeiture

  
	
  46

  	
  Operations
  on behalf of the State

  
	
  47

  	
  Joint
  liability and Guarantees

  



 


i

















 


	
  48

  	
  Force
  Majeur

  
	
  49

  	
  Examinations,
  Checks and Controls

  
	
  50

  	
  Governing
  law/arbitration

  
	
  51

  	
  Notifications

  
	
  52

  	
  Effective date

  



 


Appendix 1:  Delimited zone


Appendix 2:  Countable procedure


Appendix 3:  Particular provisions
applicable to Total Gabon


 


ii

















 


EXPLORATION

AND

PRODUCTION SHARING CONTRACT


 


BETWEEN


 


The Gabonese
State, represented by Mr. Richard Auguste ONOUVIET, Minister of Mines,
Energy, Petroleum and Hydraulic Resources.


 


Party of the first part,


 


AND


 


Total Gabon, a
corporation with Board of Directors with capital of 76,500,000 US Dollars
incorporated under the laws in force in the Gabonese Republic, headquartered at
Boulevard Houreq, P.O. Box 525, Port Gentil, represented by Mr. Jean
BIÉ, General Director duly authorized for this purpose,


 


Party of the second part.

[Signature]


 

















 


Whereas:


 


·                  That the State is the owner of the
natural resources of the soil and subsoil of its territory, and of the marine
zones under its sovereignty or which are part of its exclusive Economic Zone,


 


·                  The discovery of national resources
out of hydrocarbons and their evaluation contribute, to a significant extent,
to the implementation of the policy of economic and social development of the
country and the promotion of the well-being of its inhabitants,


 


·                  For this purpose, the research and
exploitation of national assets are considered public utility activities,


 


·                  Pursuant to law No. 15/62 of June 2,
1962 introducing the mining code in the Gabonese Republic, as amended by
subsequent texts, decree No. 981/PR of October 16, 1970, establishing
the conditions for the applications of the Mining Code and law No. 14/82
of January 24, 1983 regulating the activities of research and exploitation
of hydrocarbons, the State intends to carry out research, exploitation,
transport, storage and marketing of hydrocarbons,


 


·                  It is in the interest of the State
for the above operations to be carried out in strict compliance with adequate
methods and the speed compatible with prevailing practices in the hydrocarbons
industry, so as to reach the above objectives;


 


·                  The Contractor has sufficient
capital, technical and commercial competence, personnel, the entity
organization capacity necessary to carry out the operations specified below,
and it wishes to cooperate with the state by participating in the development
of the hydrocarbon industry to favor economic expansion of the country and the
social promotion of its inhabitants;


 


·                  The environment is part of the
national assets, which creates rights and obligations for the Gabonese Republic
and all the citizens; it is appropriate to systematically take into account the
preservation of these environmental operations and especially in the
exploitation of the natural resources of the Nation;


 


·                  In this vein, the Gabonese Republic
signed a certain number of commitments towards the International Community, as
they result in particular from its adhesion to the International Conventions of
Montego Bay, Abidjan, and London;


 


·                  The parties, in a concern for
harmonization of the development of the national oil resources with the
preservation of the Gabonese environment as a result of the oil exploitation
operations, which to define and set up the most appropriate means to allow and
guarantee the performance of the remediation of 
the oil site while reconciling the optimal exploitation of the deposits
with the preservation of the environment;


 


·                  It is in the interest of the Gabonese
State to carry out the oil operations, in particular, in case of discovery, the
execution of the remediation of the sites after the exploitation, respecting
the current methods in the international oil industry while systematically
taking into account the preservation of the environment;


 


·                  In light of the above, the Parties
came together in order to determine the economic conditions and terms
applicable to the performance of oil operations in the delimited zone and the
exploitation zone and to specify the conditions and modalities related to the
remediation of the sites after the exploitation;


 


It is
specified that, for the interpretation of the contract, the following
definitions are admitted:


 

















 


Calendar Year
means a period of twelve consecutive months starting on January 1 and
ending on the next December 31, according to the Gregorian calendar;


 


Contractual
Year means a period of twelve consecutive months starting on the effective date
or its anniversary date;


 


Exclusive
Exploration Authorization means the administrative act by which the State
authorizes Contractor to carry out in the delimited zone, exclusively, all work
and studies of prospecting, exploration, research and appreciation intended to
discover hydrocarbons;


 


Exclusive
Exploitation Authorization means the administrative act by which the State
authorizes Contractor to carry out exclusively all work of development
exploitation and production of deposits within an Exploitation Zone;


 


Barrel means
US barrels (barrel, i.e, 42 American gallons at a temperature of 60oF);


 


Budget means
the estimation of the expenses, item by item, related to the oil operations
included in the annual work programs;


 


RES Account
means the account opened and managed by a Trustee, as defined in Article 14.15
below, whose funds paid therein are exclusively allocated to pay expenses
related to the RES operations carried out in accordance with the RES Operation
Plan;


 


Condensate
means liquid hydrocarbons obtained by expansion of Natural Gas;


 


Contract means
this act and these appendices, which are an integral part thereof, as well as
any renewal, extension, substitution, or modification of the contract decided
upon by the Parties;


 


Contractor
means, as of the effective date, Total Gabon and the State for its share,
referred to in Article 19 as well as, subsequently, any public or private
artificial person to which an interest may be transferred afterwards, pursuant
to the provisions of Articles 19.4 or 42 below;


 


Oil Costs
means oil expenses actually incurred and paid by the Contractor to carry out
the operations, as well as the funds corresponding to the RES allocations
placed in the RES account, determined according to the contract and the
accounting procedure set forth in Appendix 2. These amounts are increased by
the Fixed Sum Increase. The Contractor has the right to recover the oil costs
so increased, under the conditions referred to in Articles 19 and 24.


 


Effective Date
means the enactment date of the decree approving this contract and instituting
and granting the exclusive exploration authorization referred to in Article 3.1
of the contract pursuant to Article 52 and subject to the provisions of Article 28.1.


 


US Dollars
means the Dollar of the United States of America;


 


State means
the Gabonese Republic, owner of the natural resources of the soil and subsoil
of its territory, of the marine zones under its sovereignty or that are part of
its exclusive economic zone. Depending on the case, it exercises the
prerogatives of public power arising from the functions related to its
sovereignty in the associations with enterprises or holdings or as a
shareholder, either through its administrations or through public service
agents or enterprises controlled by it. The State is indifferently referred to
as “the Departments Responsible for Hydrocarbons” or, in general, “the
Administration”;


 


Exploration
Drilling means any drilling intended to find a deposit or to determine its
extent and magnitude;


 


2

















 


Development
Drilling means any drilling intended to produce the hydrocarbons of the
deposit;


 


C.F.A. Franc
means the currency defined in title II of the monetary cooperation convention
between the member states of the Banque des Etats de l’Afrique Centrale
(B.E.A.C.) and the French Republic signed in Brazzaville on November 23,
1972;


 


Natural Gas
means methane, ethane, propane, butane and more generally all gases,
hydrocarbons, humid or dry, associated or not to liquid hydrocarbons;


 


Deposit means
the accumulation of hydrocarbons in the subsoil;


 


Heavy
Equipment means equipment whose value would exceed the amount of 500,000 US
Dollars;


 


Hydrocarbons
means Crude Petroleum, Condensate and Natural Gas;


 


Fixed Sum Increase means the following
percentages by which the oil costs are increased:


 


(i)             two and a half percent (2.5%) in the event
of marketable discovery of hydrocarbons made in the Delimited Zone at the water
depth between 200 meters and 2,000 meters,


 


(ii)          five percent (5%) in
case of marketable discovery of hydrocarbons made in the Delimited Zone at a
water depth of more than 2,000 meters.


 


Calendar Month
means the monthly period of the Gregorian calendar, which starts on the first
day of the month and ends on the 28th, 29th, 30th or 31st of the month as the case may be.


 


Operator means
the company duly entrusted by Contractor to conduct and carry out the oil
operations on its behalf under the responsibility of the latter; Operator in
charge of these operations under the contract is, as of the effective date,
Total Gabon and then any private artificial person which would replace Total
Gabon with the agreement of the State.


 


Oil Operations
means all operations of prospecting, exploration, development, production,
transport, storage of hydrocarbons, as well as RES Operations and more
generally, all other operations directly related to the above carried out as
part of the Contract with the exception of the refining and marketing
operations;


 


RES Operations
means all operations of any nature whatsoever as necessary to assure in the
Exploitation Zone, the remediation of the sites, i.e, assuring the safety and
final abandonment of the wells, complete or partial dismantling of the
installations and the immersion or elimination of the materials or waste
resulting from dismantling, which operations must be carried out according to the
rules of the art current in the oil industry at the time of their
performance for optimal protection of the environment;


 


Participation
of the State means the participation percentage held by it in the rights and
obligations of Contractor under the conditions specified in Article 19;


 


Party means
either the State or Contractor. Parties means collectively, the State and
Contractor;


 


Crude Oil
means crude mineral oil, condensate, asphalt, ozokerite and all types of
hydrocarbons and bitumen, solid or liquid, or obtained from Natural Gas by
condensation or extraction;


 


RES Operation
Plan means the plan established by Contractor for the Exploitation Zone
pursuant to Article 14.14 (2);


 


Official
Transfer Price or PCO means the official transfer price of crude oil as defined
in Article 27;


 


3

















 


Total
Available Production means the total production of hydrocarbons originating
from the exploitation of all deposits located within the Delimited Zone,
deducted from the metering zone degassing, dehydration, stabilization,
decantation, desalting and degassing (for Natural Gas), at the time it is sent
to the evacuation pipes, or, in the absence thereof, to the storage
installations, less the quantities:


 


1/              lost or burned during
production tests in the exploitation zone or in the production, collection, or
storage installations of said zone, provided Contractor respected the current
regulation and guidelines and recommendations of the Administration;


 


2/              re-injected in the
deposits of the Exploitation Zone;


 


3/              used to produce
drilling fluids for the needs of the Exploitation Zone;


 


4/              used for works
executed after drilling in the wells of the Exploitation Zone;


 


5/              consumed in the engines or turbines that
provide the energy used:


 


(i)                                     to operate the
pumping units necessary in the wells of the Exploitation Zone,


(ii)                                  to collect
hydrocarbons in the Exploitation Zone,


(iii)                               to
assure the operation of the drilling installations established in the
Exploitation Zone for its needs.


 


Net Production
means the total available production of hydrocarbons less the proportional
mining royalty;


 


Remaining
Production means the net production less the withdrawals of hydrocarbons made
by Contractor for the recovery of the Oil Costs;


 


Annual Work
Program means all oil operations contractor undertakes to carry out during a
calendar year in the Delimited Zone or in an Exploitation Zone and appearing in
a document which describes, item by item, these oil operations;


 


Departments
Responsible for Hydrocarbons means the administration in charge of implementing
the policy of the Gabonese Republic in matters of hydrocarbons;


 


Affiliated Company means the company or any
other enterprise:


 


·                  which controls one or several
enterprises making up Contractor,


·                  or which is controlled by one or
several enterprises making up Contractor;


·                  or which is controlled by and
enterprise that itself controls Contractor,


 


This control
means ownership, direct or indirect, of more than fifty percent of the capital
of the controlled company, giving to the enterprise holding the control, the
absolute majority of the voting rights;


 


Non-affiliated
Company or Third Party means a company or any other enterprise other than the
parties, which is not included in the previous definition;


 


Under-Delivery
means the situation in which one of the parties at a given moment has not yet
taken and disposed of the entire share of hydrocarbons to which it is entitled,
pursuant to the provisions of the Contract;


 


Over-Delivery
means the situation in which one of the parties at a given time has already
taken and disposed of a quantity of hydrocarbons higher than that to which it
is entitled, pursuant to the provisions of the Contract;


 


LIBOR Dollar
Rate means the annual interbank interest rate applicable for the US Dollar, as
published by the Financial Times or the Wall Street Journal.


 


4

















 


Trust means
the Anglo-Saxon law mechanism, which guarantees the security of the funds saved
in order to dispose of them, when time comes, to finance the RES Operations,
regardless of the successive operators. Since the Trust is to be allocated
exclusively for the RES Operations, it will be constituted for the Exploitation
Zone under the control of the Parties.


 


Trustee means
the institution in charge of managing, according to the provisions of the trust
instrument, the funds saved in order to carry out the RES operations. The
Trustee will be chosen among international institutions with rating at least
equal to AA “Standard & Poor’s” or equivalent.


 


Delimited Zone
means the area within the perimeter described in appendix 1;


 


Exploitation
Zone means the area located within the delimited zone in which the state grants
to contract or pursuant to current regulations and the Contract, and exclusive
exploitation authorization.


 


With these
recitals, it is agreed and established as follows:


 


5














 


ARTICLE 1


 


GENERAL PROVISIONS


 


1.1

The Contract constitutes an agreement for the exploration and sharing of the
production of hydrocarbons obtained from the Delimited Zone whose clauses are
governed by the laws and regulations in force in Gabon, subject to the
provisions of Article 43.1 of this Contract.


 


1.2

This Contract defines the rights and obligations of the Parties, governs their
mutual relations and establishes the rules and modalities for exploration,
exploitation and sharing of the production between them. It applies to the oil
operations to be carried out by Contractor in the Delimited Zone and the
Exploitation Zone, with the understanding that the substances and products
other than hydrocarbons are places outside its scope of application.


 


1.3

For all work necessary carried out as part of the oil operations, Contractor
must comply with the rules generally admitted in the hydrocarbon industry.


 


1.4

Contractor must provide all financial and technical means necessary for the
good performance of the oil operations. It has the right to resort to the
capital of the affiliated companies and, subject to obtaining written approval
of the Administration, to capital of Third Parties to finance the corresponding
investments. The administration must motivate its refusal of the approval. If
at the expiration of a term of twenty-one (21) days after sending the
request for approval, the Administration did not send objection to Contractor,
the financing of the investments by Third Parties is deemed to be approved.


 


Contractor
must transmit to the Departments Responsible for Hydrocarbons a certified true
copy of the agreement and loan contracts executed by it with Third Parties,
which must be executed under the condition precedent of obtaining the
aforementioned approval.


 


However, the
interest, credits, financial charges of all natures, as well as the possible
exchange losses related to such financing, regardless of its origin and
modalities, are charged to the oil costs being recovered, pursuant to Article 24
and the accounting procedure, in the case and according to the modalities and
restrictions indicated in Article III-3-9 of the Accounting Procedure.


 


1.5

Contractor will assume alone the financial risk related to the performance of
the oil operations, subject to the provisions of Article 19.


 


1.6

During the term of the Contract, the entire production result from the oil
operations will be shared between the parties according to the modalities and
principals defined in Articles 24, 25 and 26.


 


The entities
forming Contractor, including the possible assignees, pursuant to Articles 19
and 42 are considered to form a single entity. 
However, for the sharing or the total available production, each of the
companies making up Contractor is treated as a different company, and pays
taxes in its own behalf, without the joint liability between said companies.


 


1.7

The Operator, on behalf and under the responsibility of Contractor, will
communicate to the Administration all reports, information and data indicated
in current regulations and the Contract, as well as all contracts or 


 


6

















 


agreements between the companies making up
Contractor.  Contractor may designate
another operator at any time, provided it obtains prior approval from the
Administration.


 


1.8

As part of the implementation of the modalities for the performance of the
contract, the manager of the Departments Responsible for Hydrocarbons
intervenes in the name of the State. He makes all decisions, gives all consents
or authorizations necessary or useful for the performance of the oil
operations.


 


1.9

During the term of the contract may at any time and at its own expense, hire a
company or agency of its choice to manage the rights and obligations resulting
from the participation of the State. In this case, the State will obtain for
the term of the Contract, a confidentiality commitment from such company or
agency. In addition, the latter may not be chosen among Third Parties which are
oil companies competing with the other entities of Contractor.


 


1.10

The Operator must keep available to the Departments Responsible for
Hydrocarbons the statements of performance indicated in chapter VII of the
accounting procedure.


 


1.11

A hydrocarbon support fund is created, in order to foster oil research and
promotion in Gabon. This fund receives money according to the provisions in Article 21.7.  It is managed by the Departments Responsible
for Hydrocarbons.


 


7

















 


ARTICLE 2


 


TECHNICAL COMMITTEE FOR THE FOLLOW-UP OF OIL
OPERATIONS


 


2.1

Within one month after the effective date, a Technical Committee for the
Follow-up of Oil Operations is formed. It is made up of three representatives
of the State and three representatives of Contractor. The first are designated
among the executives of the Administration, especially among those of the
Departments Responsible for Hydrocarbons, and the State land, tax or customs
administrations. The president of the technical committee must be a
representative of the Departments Responsible for Hydrocarbons.


 


2.2

The Technical Committee for Follow-up of Oil Operations is an entity in charge
of examining, verifying and communicating its recommendations on:


 


·                  the programs of the work and budgets
indicated in Articles 5.1 and 20.1, before their presentations to the
Administration for approval,


·                  the tenders and the choice of
suppliers and subcontractors;


·                  the performance of exploration,
development and production work of the Deposits discovered,


·                  the requests for extension of the
exploration periods;


·                  the commercially exploitable
character of any discovery of hydrocarbons based on the report issued for this
purpose;


·                  the delimitation of the deposits of
hydrocarbons discovered and the configuration of the parameters contained in a
request for exclusive exploitation authorization from Contractor;


·                  annual production plans RES
operations plan referred to in Article 14.14 and its annual revisions;


·                  application of the preservations rules of
the deposits issued by the administration or, in the absence thereof, inspired
from generally admitted practices in the hydrocarbon industry;


·                  measures to prevent Pollution and to
enforce safety and hygiene rules in the workplace


·                  the choice between the acquisition
and rental by contractor of the heavy equipment and significant installations
pursuant to Article 10.3;


·                  conditions for the employment of
personnel pursuant to Article 38;


·                  measures to be taken by contractor
for the training of Gabonese citizens pursuant to the provisions of this
contract.


 


The Technical
Committee for Follow-up of Oil operations may entrust studies to ad hoc
sub-committees, as part of its functions.


 


2.3

The opinions, suggestions and recommendations of the Technical Committee for
the Follow-Up of Oil Operations are adopted by majority of votes, each member
having one vote and being able to receive only one voting power of attorney.


 


In the absence
of vote to the contrary, the Technical Committee for the Follow-Up of Oil
Operations is presumed to accept the proposal of Contractor.


 


The Technical
Committee for the Follow-Up of Oil Operations deliberates validly if at least
two-thirds of its members are present or represented, including the president
or, in case of impediment of the latter, his representative.


 


2.4

The Technical Committee for the Follow-Up of Oil Operations meets at least
twice a year. The meetings are held at the initiative of Contractor or of the
Administration, at the invitation of the President of the Technical Committee
for the Follow-Up of Oil Operations that is sent at least fifteen days before
the date


 


8

















 


of the
meeting. In the event of emergency, the members meet as soon as possible or
consult each other by any teletransmission means (email, fax or others),


 


Either one of
the parties may request the Technical Committee for the Follow-Up of Oil
Operations be called to an extraordinary meeting when it wishes to submit
particular issues to it.


 


The agenda is
proposed by the party that requested the meeting. The documents necessary
related to the agenda are prepared by Contractor or, if applicable, by the
Administration and communicated to the members of the Technical Committee with
copy to the General Director Responsible for Hydrocarbons at least fifteen days
before the date of the meeting. Contractor assures Secretariat of the Technical
Committee for the Follow-Up of Oil Operations and prepares the minutes of each
meeting.


 


2.5

The expenses cause by the activity of the Technical Committee for the Follow-Up
of Oil Operations, as well as those incurred by the administration for this
reason, are paid by Contractor and considered Oil Costs.


 


9

















 


ARTICLE 3


 


EXPLORATION PERIODS


 


3.1

Contractor is given an exclusive exploration authorization for the Delimited
Zone for a first contractual period of forty-two (42) calendar months. The
beginning of this first contractual period starts as of the effective date.


 


At the request
of the contractor, submitted at least forty-five days before the expiration of
the period, the latter is entitled to an extension of six calendar months to
allow the completion of the ongoing works. This extension is granted by
decision of the Departments Responsible for Hydrocarbons.


 


However,
Contractor must do its best to complete the work before the end of the
information period, under normal circumstances.


 


This first
period may be extended pursuant to Article 3.5.


 


3.2

If, during the first period, extended if applicable pursuant to Article 3.1
or extended pursuant to Article 3.5, Contractor met its obligations
resulting from the contract, especially concerning the work commitments defined
in Article 4, the exclusive exploration authorization is renewed at its
request for a second period of forty-two (42) calendar months for the entire
delimited zone.


 


The second
period may also be extended for the same reasons and under the
same conditions as those indicated in Article 3.1 and be the object of an
extension pursuant to Article 3.5.


 


Contractor
must submit its request for renewal for the second period at least thirty days
before the expiration of the first period, extended or prolonged if applicable.
The renewal is granted by decree of the Minister of Hydrocarbons.


 


3.3

If, during the second period, Contractor met its obligations arising from the
contract, especially concerning the work commitments defined in Article 4,
the exclusive exploration authorization is renewed at its request for a third
period of thirty-six (36) calendar months for the delimited zone.


 


Contractor
must submit its request for renewal for the third period at least thirty days
before the expiration of the prior period. The renewal is granted by decree of
the Minister of Hydrocarbons.


 


The third
period may also be prolonged at the request of Contractor for the same reasons
and under the same conditions as those indicated in Article 3.1 in order
to allow completing an ongoing drilling, and it may be the object of extension
under the conditions established in Article 3.5.


 


However,
Contractor must do its best to complete drilling operations before the
expiration of the ongoing period under normal circumstances.


 


3.4

At the expiration of the exclusive exploration authorization, Contractor must
release the entire delimited zone except for the exploitation zones or areas
for which it submitted the request for exclusive exploitation authorization,
which is pending.


 


3.5

Without prejudice to the application of Article 30.2 ii. below, at the
duly motivated request of Contractor


 


10

















 


for the needs
of the oil operations, each of these periods may be extended for the term
requested by the contractor, which terms cannot be less than one calendar month
or more than twelve calendar months at the maximum. This extension would give
rise to payment of a bonus in the amount established in Article 28.3.


 


11

















 


ARTICLE 4


 


WORK COMMITMENTS DURING THE EXPLORATION
PERIOD


 


4.1

During the first exploration period defined in Article 3.1, Contractor
must carry out the following works:


 


·                                          Commitment
to shoot two thousand kilometers (2,000 km) of 2D seismic,


·                                          Processing
and interpretation of 2D seismic data so acquired.


 


The estimated
cost of these works is five million (5,000,000 USD) US Dollars.


 


4.2

During the second exploration period defined in Article 3.2, Contractor
must carry out at least the following works:


 


·                                          Commitment
to shoot seven hundred km2 (700 km2) of 3D seismic,


·                                          Processing
and interpretation of 3D seismic data so acquired.


 


The estimated
cost of these works is five million (5,000,000 USD) US Dollars.


 


4.3

During the third exploration period defined in Article 3.3, Contractor is
obligated to carry out the drilling of one exploration well.


 


The estimated
cost of this drilling is fifteen million (15,000,000 USD) US Dollars.


 


4.4

The drilling indicated above will be carried out until the depth or until the
geological formation designated by mutual agreement between Contractor and the
State before the expiration of the third exploration period defined in Article 3.3


 


Drilling is
stopped a lesser depth than initially planned if, having been executed
according to the rules of the rules generally admitted in the
hydrocarbon industry, the stoppage is justified by one of the following
reasons:


 


·                  The designated formation is found at
a lesser depth than the contractual depth; in this case, the Parties will
consult to examine whether continuing the drilling is of any interest for them;


·                  The basement is found at a lesser
depth than planned;


·                  The continuation of the drilling
presents a manifest danger due to the existence of abnormal layer pressure;


·                  Rock formations are found whose
hardness does not allow continuing drilling with the usual equipment;


·                  Oil formations are found, which
require for their protection in order to be crossed, the installation of tubes
that do not allow reaching the contractual depth.


 


The drilling
stopped for the above reasons will be reputed to have been done at the
contractual depth, provided the reasons invoked were communicated in time to
the Administration and considered justified by the latter.


 


4.5

With the exceptions indicated in the two previous paragraphs, Contractor must
carry out all works indicated for an exploration period considered, even if it
causes it to exceed the estimated amount for this period.


 


12

















 


In exchange,
if, for a given exploration period, Contractor meets its work commitment for an
amount lower than the amount estimated for this period, it is considered to
have met its obligations.


 


The works
exceeding the work commitment, undertaken tor a given exploration period will
be charged to the following period and deducted from the work commitment
indicated for said period provided they are of the same nature.


 


4.6

When the Administration finds the Contractor has not met its work commitment
for a given exploration period, it notifies the latter in writing. The
procedure indicated in Article 49.10 is then implemented mutatis mutandis,
as needed if contractor contests the amount of the indemnity referred to in Article 7.3
or if it deems that it met its work commitments hereunder; its obligations will
be then suspended until the Parties reach an agreement or until the arbitration
award is rendered.


 


13

















 


ARTICLE 5


 


ESTABLISHMENT AND APPROVAL OF THE ANNUAL WORK
PROGRAMS


AND THE CORRESPONDING BUDGETS


 


5.1

At the latest three (3) months after the Effective Date, Contractor
submits to the Administration, for approval, an Annual Work Program and the
corresponding Budget, for the entire Delimited Zone, specifying the Oil
Operations related to the period from the effective date to the following December 31.


 


At the latest
by October 31 of each Calendar Year, the Contractor submits to the
Administration, for  approval, an Annual
Work Program and the corresponding Budget, for the entire Delimited Zone,
specifying the Oil Operations it intends to carry out during the following
Calendar year.


 


The Annual
Work Program and the corresponding Budget, including the RES Operation Plan, if
any, must be examined by the Technical Committee for the Follow-up of Oil
Operations, pursuant to Article 2.2, before being submitted for the
approval of the Administration; the opinions, suggestions and recommendations
of the Technical Committee for the Follow-Up of Oil Operations must be
enclosed.


 


5.2

If the Administration considers that modifications in the Oil Operations
indicated in the Annual Work Program are necessary or useful, it must, within
thirty days of the receipt of the Program, inform Contractor in writing
indicating the modifications it requests, supported by the justifications it
deems appropriate. The Administration and Contractor then meet as quickly as
possible to examine the modifications requested and do their best to establish
by mutual consent the Annual Work Program and the corresponding Budget in their
final form.


 


In all events,
the parts of the Annual Work Program for which the Administration did not
request modifications are considered approved and must be carried out by
Contractor within the initially established terms.


 


If, at the
expiration of the term of thirty days indicated above, the Administration did
not send any requests for modifications to Contractor, the Annual Work Program
and the corresponding Budget are deemed approved.


 


5.3

If the knowledge obtained as the work is carried out or in light of particular
circumstances it is justified to make certain minor changes in the Oil
Operations indicated in Annual Work Program. Contractor may carry out the
corresponding modifications after obtaining the approval of the Departments
Responsible for Hydrocarbons, provided the basic objectives established are not
modified.


 


14

















 


ARTICLE 6


 


WAIVER OF RIGHTS


 


6.1

Contractor may waive its rights resulting from the Contract for all or part of
the Delimited Zone, subject to the application of the provisions in Article 7.


 


6.2

During the first exploration period defined in Article 3.1, the waiver can
concern only the entire Delimited Zone subject to the provisions in Article 6.5.


 


6.3

During the second exploration period defined in Article 3.2, the waiver
may concern all or part of the Delimited Zone.


 


6.4

Contractor must inform the Administration by letter of its decision to waive
its rights, possibly indicating the part of the Delimited Zone concerned by
this waiver. It becomes effective sixty days after receipt of the
aforementioned letter, unless the Administration agrees to have the waiver take
effect sooner. Within thirty days after the effective date of the waiver,
Contractor sends the Administration a detailed report accompanied by the
appropriate justifications on the work done by it in the Delimited Zone and the
corresponding expenses.


 


6.5

In the event of waiver, Contractor has the right to keep the Exploitation Zones
or the areas for which it submitted a request that is pending.


 


6.6

In the event of partial waiver, each area returned must be sufficiently large
to allow for oil operations, and simple in shape, bordered by earth, parallels
and meridians.


 


6.7

A partial waiver during the second exploration period does not have the effect
of reducing the work commitments of Contractor defined in Article 4.3; the
portion of the work not yet done on the effective date of any waiver is carried
over to the remaining part of the Delimited Zone.


 


15














 


ARTICLE 7




INSUFFICIENCY OF EXPLORATION WORKS


 


7.1

In the event of waiver of the entire Delimited Zone indicated in Articles 6.2
or 6.3, without meeting the work commitments defined in Article 4,
Contractor is obligated to pay to the State, within thirty days from the
effective date of the waiver and based on the indications of Article 6.4,
an indemnity corresponding to the cost estimated as of the effective date of
the waiver, of the work not done.


 


7.2

Within thirty days from the expiration of either exploration period defined in Article 3,
Contractor sends to the administration a detailed report accompanied by the
appropriate justifications on the work done by it in the Delimited Zone and the
corresponding expenses.


 


7.3

If, at the expiration of any of the exploration periods, Contractor has not met
its work commitments defined in Article 4, it is released from its
obligations, provided it pays to the State, within thirty days from the
expiration date of the period concerned, an indemnity corresponding to the
balance not completed of the work commitments of the period concerned,
represented by the difference between the estimated cost indicated in Article 4
and the amount of the work done.


 


7.4

In the event of delaying the payment of the indemnity payable to the State
pursuant to Article 7.1 and 7.3, the amounts owed as such bear interest
calculated as of the deadline for the payment of any of the indemnities to the
payment by Contractor, at $ LIBOR plus two points.


 


7.5

The indemnity mentioned in Article 7.3 is independent from any other
proceeding possibly pursued by the government for any other irregularity found.


 


16

















 


ARTICLE 8




OBLIGATIONS OF CONTRACTOR DURING EXPLORATION
PERIODS


 


8.1

Contractor provides all funds necessary to pay the expenses for the realization
of the oil operations defined in the Annual Work Program.


 


Contractor
carries out the oil operations, using either its own supplies, equipment and
materials, or supplies, equipment and materials acquired or leased for the
purpose, subject to Article 10.3.


 


8.2

Contractor is responsible for the performance of the Annual Work Programs. The
work is done under the best conditions of efficacy and cost; in general, the
contractor uses all appropriate means for the performance of the Annual Work
Programs taking into account the economic interests of the parties and using
the most appropriate techniques according to the rules of the art
generally admitted in the hydrocarbon industry.


 


8.3

Contractor promises to take all practical steps to:


 


a)                                      assure
the protection of the water layers:


 


·                                          found
during drilling, by good sedimentation, of the shaft lining in the wells,


 


·                                          during
the operations for abandonment of non-productive wells, by applying sediment plugs
in order to isolate the layers under pressure from the other levels of the
reservoirs and surface;


 


b)                                     carry
out the tests necessary to assess the value of the hydrocarbon indices obtained
during drilling, and the exploitable character of the deposits discovered.


 


8.4

Off shore, the work carried out and the installations built by Contractor as
part of the contract must, according to their nature and circumstances, be
made, placed, indicated, marked, equipped and kept so as to permanently leave,
under good safety conditions, free passage for navigation in the waters of the
Delimited Zone.


 


Without
prejudice to the above, in order to facilitate navigation, Contractor must
install sound or optical devices approved or required by the competent
authorities, and maintain them so as to meet the instructions of said
authorities.


 


8.5

During the construction and maintenance of the installations necessary to
conduct, the Oil Operations, Contractor must not cause any trouble within the
perimeter of a cemetery or a building used as a cultural place already existing
at the time of the work. It must not cause any trouble so as to interfere with
the normal use of a building without the prior consent of the occupants.
Contractor must pay the indemnities for damage or trouble caused by it to said
Parties.


 


8.6

Pursuant to the International Convention for the Prevention of Pollution of the
Sea by Hydrocarbons signed in London on May 12, 1954, its amendments and
the texts enacted to assure its implementation, Contractor promises to take all
precautions necessary to prevent any marine pollution.


 


17

















 


8.7

Under similar price, quality and delivery term conditions, Contractor promises,
concerning supply, work and service contracts to use Gabonese companies.


 


The contracts
whose amount may reach or exceed three million US dollars (US$ 3,000,000)
must be the object of a tender, unless otherwise established and accepted by
the Parties.


 


A copy of the
contracts referred to in the previous paragraph, awarded after a tender, will
be sent to the Administration within one month from its signing.


 


Contractor
informs the Departments Responsible for Hydrocarbons, at least fifteen days in
advance, of the date, time and place of examination of the bids. The person in
charge of these Departments, or their representative, may participate in the
examination of the bids and their study.


 


The
information made available to the participants in the examination and study of
the bids must be communicated, at the same time, to the Departments Responsible
for Hydrocarbons.


 


8.8

A list of all contracts executed by Contractor during each calendar quarter for
the performance of the oil operations is transmitted to the Administration
within fifteen days after the end of the quarter in question. For each
contract, the object and amount, as well as the name of the co-contracting
party are specified.


 


In addition to
the copy of the contracts mentioned in Article 8.7, Contractor will also
send the Administration a copy of any other contract the latter may request.


 


18

















 


ARTICLE 9



[MISSING FROM MASTER]


 


19

















 


ARTICLE 10



OWNERSHIP OF THE ASSETS


 


10.1

The real estate assets such as wells and buildings and their equipment, the
wharves, roads, bridges, canals, ports, docks, dams, jetties, water pipes,
channels, reservoirs, basins, railroads, land, construction, warehouses,
offices, plants, as well as the machines and equipment established permanently
in the Delimited Zone, purchased or built by Contractor after the Effective
Date, as well as the movables acquired or manufactured by it for the Oil
Operations, are property of the State.


 


Contractor
will have exclusive use, free of charge of these movables and real estate, as
part of the Contract. It may also use them to carry out other Oil Operations
governed by other contracts to which it is a party, against payment of a rental
calculated appropriately and approved by the Administration. The resulting
revenues are posted to the account of the Oil Costs and are deducted from them.
They are paid to the State if the Oil Costs still to be recovered correspond
only to operating expenses.


 


To cover these
goods, the Contractor takes out on behalf of the State, all insurance
necessary, as required by current regulations and according to generally
admitted practice. The insurance premiums paid for this purpose are included in
the Oil Costs. The indemnities received in the event of loss are posted to the
account of the Oil Costs and are deducted from them. They are paid back to the
State if the Oil Costs remaining to be recovered correspond only to operating
expenses, unless they are used to replace goods lost or destroyed or if they
correspond to the indemnity of a loss suffered by one or several entities
making up Contractor, such as for example operating losses.


 


10.2

The provisions in Article 10.1 do not apply to the goods belonging to said
parties, to an entity member of Contractor other than the State or the
Affiliated Companies rented by Contractor under a lease or simple rental.


 


10.3

Under equivalent conditions economic, Contractor undertakes to give priority to
the purchase of goods over the lease or rental.


 


Concerning
Heavy Equipment, before choosing whether to buy or rent, Contractor must obtain
the opinions, suggestions and recommendations of the Technical Committee for
the Follow-up of Oil Operations and submit its choice, duly motivated, to the
approval of the Administration. This choice becomes final only after the
approval is obtained.


 


When examining
the Annual Work Program and the corresponding Budget, the Administration
designates the Heavy Equipment appearing in it for which the Technical
Committee for the Follow-up of Oil Operations must be consulted and the
approval of the Administration must be required.


 


Contractor
must make available to the Ministry of Hydrocarbons the statements concerning
the fixed assets and investments indicated in the Accounting Procedure
according to the details and modalities in chapter VII of said procedure.


 


20

















 


ARTICLE 11


 


ACTIVITY REPORTS DURING EXPLORATION PERIODS


 


11.1

The state, through the Departments Responsible for Hydrocarbons, has all
original data related to the oil operations such as geological, geophysical,
petrophysical reports, drilling reports, startup reports, as well as all
technical accounting and financial information it deems useful to excise its
power of control.


 


11.2

As soon as it prepares or obtains them, Contractor will send to the manager of
the Departments Responsible for Hydrocarbons the following documents:


 


a)                                      a
copy of the study reports and geophysical interpretation reports, as well as a
complete collection, on stable transparent means, such as “Mylar,” seismic
profiles with maximum processing; a copy of the magnetic tapes is kept by
Contractor and made available to the manager of the Departments Responsible for
Hydrocarbons;


 


b)                                     a
copy of the ongoing daily borehole reports and a copy of the reports on
implementation and end of borehole for each drilling, as well as a complete
set, in reproducible form, of the boreholes recorded;


 


c)                                      a
copy of the test reports or production tests are made, as well as any study
related to the yield or production startup of a well;


 


d)                                     a
copy of the reports related to the analysis made on the boring sample.


 


A
representative part of the boring samples and cuttings taken from each well, as
well as some parts of fluids produced during production tests or trials, are
also provided within reasonable periods of time. The  boring samples and cuttings in possession of
Contractor at the end of the contract are delivered to the manager of the
Departments Responsible for Hydrocarbons.


 


11.3

During the second half of each month Contractor sends to the Departments
Responsible for Hydrocarbons a report on the oil operations carried out during
the previous month.


 


11.4

Contractor must inform the Departments Responsible for Hydrocarbons as soon as
possible of any discovery of mineral substances and make a report of all
findings and useful information related thereto.


 


11.5

(1) Except for the methods and technologies related to the know how of
Contractor, the State is the owner of all samples, original documents, reports
prepared or obtained by Contractor in connection with the Oil Operations, the
work in geophysical, petrophysical studies, synthesis studies drilling
digraphs, even if they are available to Contractor to conduct the Oil
Operations. Contractor may hold copies of the samples, documents and reports
for the needs of the oil operations.


 


(2) The
parties consider these documents, reports, work, studies and samples,
confidential and promise, each on its own behalf, in their name and in the name
of the service companies or design studies working on their behalf, not to
communicate them to Third Parties without prior written authorization from the
other parties.


 


This
obligation survives:


 


21

















 


(i)                                     for
the entities members of Contractor other than the State for a period of three
years after the end of the Contract;


(ii)                                  for
the State, at the End of the Contract.


 


Each entity
making a Contractor may, after informing the other entities in the
Administration, communicate the aforementioned confidential information and
data:


 


a)                                      to
any company interested in good faith in making a possible transfer or giving
assistance in the Oil Operations, after such company obtains from this company
a commitment to keep confidential such information and data and use them only
for the purposes of such transfer or assistance;


 


b)                                     to
any external professional consultants, participating in the oil operations,
after obtaining from them, a similar confidentiality commitment, provided
Contractor communicates to the Administration without delay, the name of the
consultants and the information and data disclosed to them;


 


c)                                      to
any bank or financial establishment from which Contractor seeks or obtains
financing, after obtaining a similar confidentiality commitment from these
entities;


 


d)                                     when
and to the extent required by the regulations of a recognized stock exchange;


 


e)                                      as
part of any judicial administrative or arbitration disputes;


 


(3) The
provisions of paragraph 11.5 (2) above also apply concerning this Contract
and these appendices and all operations related to its performance.


 


(4) With
the prior written agreement of the Administration, Contractor may exchange with
any interested party, the confidential data or information of this type against
other similar data or information.


 


22

















 


ARTICLE 12


 


UTILIZATION OF NATURAL RESOURCES AND LAND


 


12.1

Contractor has the possibility, if necessary, by paying the appropriate
royalties and subject to compliance with current regulations and the provisions
in Article 8.5, to collect and use the surface of the land, the woods, the
timber forests, the clay, sand, lime, gypsum, stones other than precious
stones, as well as other similar substances necessary for the oil operations.


 


Contractor
must reasonably use these materials to conduct the oil operations.


 


Contractor may
take and use the water necessary for the oil operations provided it does not
interfere with irrigation and navigation and that the land, houses or water
collection points are not deprived because of such use.


 


12.2

The State will make available to Contractor for the needs of the oil
operations, the land belonging to it as necessary for these operations.
Contractor may build and maintain on them, above and below the soil, the
necessary installations. It will refrain from requesting the use of land if it
does not really need it and that on which there are buildings used by the
services of the Administration. Contractor must indemnify the State for any
damage caused to the land by the construction, maintenance and use of its
installations.


 


The
Administration will authorize Contractor within the framework of the
regulations, to build, use and maintain telecommunications networks and
channels above or below the soil and along and within the limits of the land
that does not belong to the State, provided that the construction, maintenance
and use of these networks cause the least damage possible and that they are
compliant with the regulations.


 


12.3

If the oil operations require the occupancy and use of land belonging to
private persons, contractor must endeavor to reach with them an agreement
establishing an equitable indemnity in exchange for the deprivation of
possession suffered. In the event of this agreement, Contractor must notify the
Administration, which may:


 


·                  Either establish the indemnity
payable by Contractor if the occupancy of the land is for the short term. The
amount of this indemnity will then take into account the actual use of this
land by the owner at the time of occupancy.


 


·                  Or proceed with the expropriation of
this land according to current procedures if their occupancy is for the long
term or if after it, they will become improper for their original us. The
rights are acquired and registered in the name of the State; however,
Contractor has free use in order to conduct the Oil Operation throughout the
term of the Contract. The expenses, charges and indemnities resulting from the
expropriation procedure are paid by contractor.


 


12.4

All expenses actually incurred and paid by Contractor under this Article 12
or under Article 13 below, such as, without limitation, royalties,
indemnities, damages, compensations, expropriation costs and expenses related
to it are considered Oil Costs.


 


23

















 


ARTICLE 13


 


USE OF THE INSTALLATIONS


 


13.1

For the needs of the oil operations, Contractor may use, under common law
conditions, any railroad, tramway, road, airport, landing strip, canal, river,
bridge, body of water, and any telecommunications network, regardless of whether
it is property of the state or of private companies, against payment of the
royalties that may apply or which must be established by mutual consent, in
exchange for such use and the costs for their construction, setup, and
maintenance. Contractor may thus use, for the needs of the oil operations, any
transport means by land, sea, or air, provided it complies with the laws and
regulations governing their use.


 


13.2

The state may use, in exceptional cases, the transport means and communication
means set up by Contractor in the event of need resulting from national
catastrophes, cataclysms, internal or external dangers.  Contractor makes its means available to the
state upon requisition or simple request from the latter.


 


13.3

The state may build, exploit, and maintain on and under the land made available
to Contractor, or along the roads, railroads, airports, landing strips,
channels, bridges, protection dams against flood, police stations, military
installations, canalizations, telecommunications networks, being careful not to
endanger or significantly interfere with the oil operations, except in the
event of national need.


 


24

















 


ARTICLE 14


 


PROTECTION OF THE ENVIRONMENT


 


14.1

Since the oil operations have an impact on the environment, Contractor must
assure during its operations:


 


a)                                      the
preservation of the natural resources of Gabon and the protection of its
environment;


 


b)                                     the
use of techniques according to the rules of the art valid in the oil
industry intended to prevent or, at least limit, the damage likely to be caused
to the environment;


 


c)                                      application
of pollution prevention programs, waste treatment, preservation of the natural
resources and the restoration and rehabilitation of the land damaged by the oil
operations.


 


14.2

(1) Contractor must take all suitable and necessary actions to:


 


(a)                                  compensate
said parties for the damage suffered by them or for the damage caused to their
assets by the oil operations;


 


(b)                                 minimize
the damage to the environment within the delimited zone and the neighboring
zones.


 


(2) Contractor
does not assume any responsibility concerning the exploration wells drilled by
said parties before the effective date of the contract, such as the wells of
Ostrea Marine, Meboun Cormoran Marine and Meboun Cormoran Marine Quest.
Consequently, the state waives any remedy against Contractor or one of its
members, its assigns and their affiliates, directly or indirectly related to
these exploration wells, damage and losses resulting from them, and also holds
it harmless against any remedy of said parties of any nature whatsoever related
to the damage caused to the third parties by these wells. These provisions,
however, will not apply to the well or wells that are taken over by Contractor
in the framework of the oil operations.


 


14.3

If Contractor fails to respect the terms of paragraph (b) in Article 14.2
or violates any law on environmental protection and such noncompliance or
violation causes damage to the environment, Contractor must take all necessary
and reasonable measures to remedy such noncompliance or such violation and
their effects.


 


14.4

If the Departments Responsible for Hydrocarbons find that the works or
installations built by Contractor endanger or may endanger the persons or their
assets, cause pollution of the environment or endanger the fauna to such a
degree that the Departments Responsible for Hydrocarbons may deem unacceptable,
it will order Contractor to take all measures to remedy as soon as possible the
damage caused, and may even ask it to interrupt the oil operations in full or
in part until adequate measures are taken to repair the damage caused.


 


14.5

The measures to be taken by Contractor in order to comply with the terms of
paragraph (b) in Article 14.2 will be determined in agreement with
the Departments Responsible for Hydrocarbons at the beginning of the operations
or at the time of any change in the objectives or work methods. Contractor must
take into account the international standard rules and standards
applicable in such circumstances. Contractor must notify the Ministry in
writing of the measures finally selected and cause such measures to be reviewed
based on prevailing conditions from time to time.


 


25






 










 


14.6

For this purpose, Contractor must ask an agency or company internationally
recognized for its knowledge of environmental problems in order to carry out
two environmental impact studies in order to:


·                  determine the prevailing situation in connection with
the environment, the human beings, land and marine fauna within the Delimited
Zone and the surrounding zones at the time the studies are made.


·                  establish under what are the effects on the
environment, the human beings, the land and marine fauna within the Delimited
Zone because of the oil operations carried out as part of the Contract and
propose the measures and methods indicated in Article 14.5 likely to
minimize the damage caused to the environment and restore the sites within the
Delimited Zone.


 


14.7

The first study, which concerns the exploration work, must have two parts:


·                  one preliminary part that must be carried out before
any land seismic work,


·                  a second part which must deal with the drilling phase.


 


14.8

The second stage, which concerns development and exploration work must be
completed before the beginning of the production operations and must be
submitted to the Administration by Contractor at the same time as the
development plan.


 


14.9

The studies mentioned in Article 14.6 must contain instructions in matters
of environmental protection to be followed in order to minimize the damage
caused to the environment and especially deal with the following points:


 


	
  a)

  	
  selection of drilling sites

  
	
  b)

  	
  drilling mud and cuttings

  
	
  c)

  	
  cementation of the casings

  
	
  d)

  	
  protection of the water layers

  
	
  e)

  	
  eruption prevention plan

  
	
  f)

  	
  burning of torch gas during the phases of testing
  and completion of the oil wells

  
	
  g)

  	
  abandonment of the wells

  
	
  h)

  	
  dismantling of drilling equipment

  
	
  i)

  	
  storage and transport of fuels

  
	
  j)

  	
  utilization of explosives

  
	
  k)

  	
  encampment place

  
	
  l)

  	
  place for depositing liquid and solid waste

  
	
  m)

  	
  cultural and archeological sites

  
	
  n)

  	
  fauna and its habitat

  
	
  o)

  	
  noise control

  
	
  p)

  	
  places of worship

  



 


14.10

Contractor must make sure that:


 


	
  a)

  	
  the oil operations are carried out under acceptable
  conditions of environmental protection and according to the rules of the
  art and internationally admitted industrial practices,

  
	
   

  	
   

  
	
  b)

  	
  impact studies of the oil operations on the
  environment are made available to the employees of Contractor and its
  contractors in order to sensitize them to the methods and measures to be
  taken during oil operations,

  



 


26

















 


	
  c)

  	
  all contract executed between Contractor and its
  contractors and having to do with the oil operations takes into account the
  clauses related to environmental protection included in this Contract,

  
	
   

  	
   

  
	
  d)

  	
  all precautions must be made to prevent marine
  pollution by application of the international convention for the prevention
  of sea pollution by hydrocarbons signed on May 12, 1954, its amendments
  and the texts introduced for its implementation. The State may decide on any
  additional measure to assure the preservation of the marine area.

  



 


14.11

Before starting any drilling operation, Contractor must prepare and submit to
the Departments Responsible for Hydrocarbons a plan for the fight against
possible oil spills and fires.


 


14.12

In the case of:


a) an emergency or accident resulting from the oil
operations and affecting the environment, Contractor must immediately inform
the Departments Responsible for Hydrocarbons and introduce adequate measures
commonly admitted in the international oil industry


 


b) fire or oil spilled, Contractor must immediately
implement the emergency plan prepared by it and approved by the Departments
Responsible for Hydrocarbons.


 


14.13

If Contractor fails to respect one of the terms contained in Article 14,
the Departments Responsible for Hydrocarbons may take any action in order to
assure its application. In this case, Contractor will pay the costs of such
action, capital and interest calculated at the rate of $ LIBOR plus two (2) points.


 


14.14

(1) Subject to the provisions in Article 18.4 below, Contractor must
carry out the RES Operations at the expiration of the Contract or release
exploitation area.


 


These RES Operations must be carried out according to
the RES Operation Plan in accordance with the rules of the art and
generally practices in the international oil industry under the conditions and
by the modalities referred to below.


 


(2) Contractor will submit an RES Operation Plan
for the Exploitation Zone at the same time as the Development and Production
Plan referred to in Article 20.1,


 


This RES Operation Plan will include in particular:


·                                          description of the RES Operations,


·                                          estimate of the remaining reserves and
planned production profiles,


·                                          total estimated cost of RES Operations,


·                                          realization planning of RES Operations.


 


Each year, Contractor will make revisions in this RES
Operation Plan to take into account especially the evolution of technical and
financial parameters. In this case, the RES Operation Plan so revised will
become the new RES Operation Plan which will be taken into account for the
calculation of the RES allotments.


 


The RES Operation Plan and its annual revisions will
be approved by the Administration based on the opinion of the Technical
Committee for the Follow-Up of Oil Operations.


 


14.15

(1) In order to cover, when time comes, the expenses related to the RES
Operations, Contractor must, as of


 


27

















 


the start of production in a deposit, set up a Trust
and give a Trustee the management of the RES Account. The Trustee will be
chosen by mutual agreement of the Parties.


 


(2) As of its set-up, the RES account will be
funded annually by the revenue obtained from selling hydrocarbons allocated to
the constitution of the RES funds. The corresponding funds will be paid to the
Trustee by Operator acting on behalf of Contractor.


 


These allocations, whose amount and calculation and
payment modalities are stipulated in the Accounting Procedure enclosed in
Appendix 2, are included in the Oil Costs. 
The interest generated by the funds saved in the RES Account will be
added to these funds and will also bear interest until they are used for the
RES Operations.


 


(3) The Parties undertake to take all steps to
perform the obligations above with diligence and by granting speedily all
authorizations, administrative or others, which may be necessary for their
perfect performance.


 


(4) The modalities and conditions for the use of
the amounts deposited as indicated above are as follows:


 


·                                          If the expenses of the RES Operations
exceed the amount of the aforementioned funds, Contractor must find a solution
in order to carry out the RES Operations indicated in the RES plan and finance
the balance to the extent that the RES allocations proposed by Contractor have
not been refused by the State.


 


·                                          If, after the RES Operations and after
all expenses related to the RES Operations are paid, these expenses are lower
than the amount of the RES funds saved, the amount of these funds not used
according to their object will be:


 


·                                          shared between the State and Contractor
in the proportion indicated in Article 25.1 and depending on the
applicable portion before the start-up of the RES Operations if the entire RES
allocations were covered by Contractor pursuant to Article 24;


 


·                                          paid to Contractor up to the amount of
the non-recovered RES allocations, while the excess, if any, is shared between
the State and Contractor under the conditions indicated in the previous
paragraph.


 


The other modalities related to the RES Account are
detailed in the Accounting Procedure which constitutes Appendix 2.


 


14.16

In order to abandon a deposit at the normal expiration of the Exclusive
Exploitation Authorization, including its possible renewals, or in the case of
abandonment for duly justified reasons under Article 18.2, Contractor will
notify the Departments Responsible for Hydrocarbons about the RES Operation
Plan at least two (2) years before the end of the RES operations.


 


The start-up of this Plan may not be refused by the
Administration other than in the cases indicated in Article 18.4 (1) below.


 


28

















 


ARTICLE 15


 


EXPIRATION OF THE
CONTRACT AT THE END OF THE EXPLORATION.


 


If, during the exploration periods, Contractor did not
discover any hydrocarbon deposit presumed to be commercially exploitable, or
declared as such and giving right to obtain an Exclusive Exploitation
Authorization, the Contract is terminated at the expiration of said periods.


 


Contractor is not released from its contractual
obligations arising before the expiration of the Contract and not yet honored,
in full or in part, as of the date of said expiration. It remains obligated to
fulfill such obligations according to the regulations and contractual
provisions; the validity of the latter is extended for this purpose.


 


29

















 


ARTICLE 16


 


DISCOVERY AND
OBLIGATION TO EXPLOIT


 


16.1

Subject to the application of the provisions in Article 30, in the event
of discovery of hydrocarbons, Contractor must inform the Administration in
writing within ten days after the end of the tests that allow presuming the
existence of a Deposit.


 


16.2

The commercially exploitable character or presumed as such over the Deposit is
established by the parties, which meets for this purpose and enter their
agreement on this point in a document signed jointly.


 


16.3

For this purpose, Contractor must provide to the Administration all the
information that allows for a detailed examination of the data related the
Deposit discovered and giving an opinion with complete knowledge of the facts,
as to the commercially exploitable or non-exploitable character of the Deposit.
This information must be provided as it is obtained by Contractor.


 


16.4

Subject to meeting its commitments and obligations set forth in the Contract,
and especially in Article 16.3, a Deposit considered commercially
exploitable pursuant to the above, gives right to Contractor to an Exclusive
Exploitation Authorization; the area concerned will constitute the Exploitation
Zone, as of the effective date of this Exclusive Exploitation Authorization. It
will be limited, in project at soil level, to the presumed area of the Deposit,
determined on the basis of available geological and geophysical data.


 


The Exclusive Exploitation Authorization is granted by
decree of the Minister of Hydrocarbons at the request of Contractor made in the
forms and terms indicated in Article 17.1.


 


16.5

If Contractor makes several commercially exploitable discoveries in the
Delimited Zone, each of them will be the object of an Exclusive Exploitation
Authorization and will constitute a different Exploitation Zone. However, for
the needs of Articles 24, 25 and 26.1, c), the production of all Exploitation
Zones arising from the Delimited Zone is taken into account.


 


16.6

The quantities of hydrocarbons produced before a Deposit has been declared
commercially exploitable pursuant to Article 16.2 are measured according
to Article 29 and that included in the quantities subject to the
provisions of Articles 24 to 26, excluding those used for the needs of the oil
operations or lost, provided that, however, concerning the latter, Contractor
provides all useful explanations and justifications to the Administration.


 


30

















 


ARTICLE 17


 


REQUEST FOR
EXCLUSIVE EXPLOITATION AUTHORIZATION AND

DELIMITATION OF THE EXPLOITATION ZONES


 


17.1

To obtain an Exclusive Exploitation Authorization, Contractor must request it
from the Minister of Hydrocarbons.


 


This request, the enclosures attached to it as well as
the information provided will be written in French; they are dated and signed
by the applicant.


 


The request, the enclosed documents and information
are delivered in three copies, two to the manager of the Departments
Responsible for Hydrocarbons and the third to the Minister of Hydrocarbons.


 


The applicant must approve his identity and indicate
the elected domicile; if he acts in the capacity of proxy, he must prove his
identity domicile and powers of attorney.


 


The application submitted pursuant to this article
must provide, concerning the companies making up Contractor, information on
their legal form, headquarters, capital and last name, first name, names,
nationality, quality of title and domicile of the persons who participate under
the bylaws in the direction, management and administration of these companies
and having rights to corporate signature.


 


Any request made for a company must be accompanied by
the powers of attorney of the signatories of the request and certified through
copy of the bylaws of the company, the documents proving its incorporation in
the balance sheets of the last three fiscal years


 


The request must include:


·                  The project for delimitation of the Exploitation Zone
which must be strictly circumscribed, in projection at soil level to the
presumed area of the Deposit discovered;


·                  The backup documents (geological, geophysical
interpretations, boreholes, etc.) on which the determination of the area is
based;


·                  The provisional estimate of the recoverable reserves
and of the annual production of the Deposit;


·                  An excerpt of the map at 1/200,000, the reporting
peaks and limits of the zone concerned by the request;


·                  A detailed memorandum indicating the results of the
exploration were done in the Delimited Zone and giving the position, nature and
characteristics of the Deposit;


·                  A general exploitation program of the Deposit as well
as an estimate of the development and production investments;


·                  A provisional program for training and recruitment of
national workers.


 


17.2

Any subsequent modification of the legal form of the bylaws or of the capital
of the companies making up Contractor, any change in the persons referred in
the 5th paragraph in Article 17.1, must be immediately communicated to the
Minister of Hydrocarbons and the manager of the Departments Responsible for
Hydrocarbons. Each Company making up Contractor sends annually to the
Departments Responsible for Hydrocarbons the copy of the accounts and balance
sheets of the companies making it up, submitted for approval to their general
shareholders meetings, and all reports of their management and administration
presented for said purpose to these meetings.


 


17.3

Subject to Article 30, the right to obtain an Exclusive Exploitation
Authorization survives only if the


 


31

















 


request reaches the Administration within two months
after the signing date of the document indicated in Article 16.2 and, in
any event, at the latest two months after the final expiration date of the
Exclusive Exploration Authorization.


 


17.4

The request concerning renewals of the Exclusive Exploitation Authorization
indicated in Article 18.1, must be submitted at the latest 90 days before
the expiration date of the previous Exclusive Exploitation Authorization and in
the same forms as those indicated in Article 17.1.


 


17.5

lf, within the term of one year after the granting of an Exclusive Exploitation
Authorization it appears that the Deposit is larger than the Exploitation Zone,
the Minister of Hydrocarbons may grant to Contractor by decree, at the request
of the latter and as part of the same Exclusive Exploitation Authorization, an
additional area, so that the Deposit be totally covered, provided however, that
the area is included within the Delimited Zone. Contractor may not benefit from
such extension if the area considered has already been allocated to a third
party or is concerned by a pending request of a third party in this sense.


 


32

















 


ARTICLE 18


 


TERM OF THE
EXCLUSIVE EXPLOITATION AUTHORIZATION


 


18.1

Without prejudice to the specific provisions in Article 30 below, the
Exclusive Exploitation Authorization is granted to Contractor by decree of the
Minister of Hydrocarbons; it enters into effect as of the date of its issuance.
Its term is ten (10) years from the beginning date of production.


 


If, at the end of this term of ten years, the commercial
exploitation of the Exploitation Zone is still possible, the related Exclusive
Exploitation Authorization is renewed at the request of Contractor by decree of
the Minister of Hydrocarbons for a term of five (5) years provided that
the obligations and commitments indicated in the Contract have been.


 


The Exclusive Exploitation Authorization may be
renewed a second time for a term of five (5) years, under the same
conditions indicated above.


 


When a renewal is planned, and given the financial
results obtained by the Parties during the previous term, they may agree on new
provisions for Articles 24 through 26.


 


18.2

The Contractor may at any time waive an Exclusive Exploitation Authorization.
Contractor must inform the Administration in writing of its decision to waive,
and such waiver becomes effective sixty days after receipt of this information,
unless the Administration agrees for such waiver to take effect earlier. The
Exploitation Zone becomes free as of the effective date of the waiver.


 


18.3

The Contract ends on the expiration date of the last Exclusive Exploitation
Authorization or, if applicable, as of the effective date of the waiver
referred to above; however, the Parties are not released from their contractual
obligations arising before the expiration of the Contract and which are not
fully honored as of the date of said expiration or waiver. They are obligated
to meet them according to the regulations and to contractual provisions. The
validity of the Contract is extended for this purpose, especially for the
completion of the RES Operations.


 


The same holds true for the obligations of either one
of the Parties that remain after the expiration of the Contract, especially
those stipulated in Articles 11.5 (2), 14.2 (2), 18.4 (3), and 30.3.


 


18.4


(1)           Contractor will not be obligated to carry
out the RES Operations, at the expiration of the Contract mentioned in Article 18.3,
in the cases listed below, with limitation thereto:


(i)                       the exploitation of the Deposits in said
Exploitation Zone is continued by a third party or by the Administration alone
or together with a third party (hereinafter “the Successor”);


(ii)                      the Administration asks Contractor for
duly motivated reasons not to proceed with the RES Operations, for example the
conservation of the installations necessary for the exploitation of other
Exploitation Zones, with the specification that in this case the Administration
may not oppose the securing and final abandonment of the wells located in the
Exploitation Zone.


 


(2)           In cases referred to in paragraph (1) above,
the Parties agree as follows:


(i)                       Successor and Contractor will enter into
a transfer agreement specifying in particular the date of the transfer and
identification of the wells, or movables or real estate assets and
installations transferred—especially those identified in Article 10.1,
provided they are necessary to continue the exploitation and that their custody
is transferred to the Successor and


 


33

















 


(ii)                      Contractor will assume that even after
the expiration of the contract, the funds in the RES account are available to
any artificial person which will be in charge, when time comes, of the
performance of the RES Operations, especially by the Successor or by the
Administration.


 


(3)           In the cases referred to in Article 18.4
(1) the State waives any remedy against Contractor or one of its members,
its assigns and their Affiliates, in direct or indirect relation with the RES
Operations of which it dispensed Contractor from carrying out or the resulting
damages and also holds them harmless against all remedies of third parties of
any nature whatsoever in connection with the damage caused to the third parties
by the wells, movables or real estate and installations not abandoned by
Contractor at the request of the Administration.


 


34

















 


ARTICLE 19


 


PARTICIPATION OF
THE STATE


 


19.1


 


(1)                                  Under the conditions and with the
reservations expressed in this Article 19, the State participates
automatically with up to fifteen percent (15%) in the rights and obligations of
Contractor arising from the Contract, so that the distribution of the holdings
in Contractor will be as follows, as of the effective date:


 


	
  Total Gabon

  	
  eighty-five percent (85%)

  
	
  State

  	
  fifteen percent (15%)

  



 


(2)                                  As member of Contractor, the State does
not participate in exploration and appreciation expenses, as defined in
paragraphs a) and b) Article III-1-7 of the Accounting Procedure. Without
prejudice to the application to Total Gabon of the provisions in Appendix 3
hereof, these expenses will be paid by the other companies making up
Contractor; as of the start of production, they will be recovered as oil costs
under the conditions specified in Article 24 below, only by the companies
member of Contractor which finance them, while the rights to the corresponding
Oil Costs are allocated to all these companies.


 


(3)                                  Under the reservations set forth in Article 19.1
(2) above, the State participates, up to the participation of the State,
in the expenses related to the oil operations or planned in the Contract for
the Exploitation Zones; consequently, the State has the right to recover the
Oil Costs corresponding to these expenses in the amount of the participation of
the State.


 


The financing of the share of the expenses of the
State will be assured in the form of sharing by the other companies making up
Contractor, according to the principles established in Articles 19.1 to 19.4
below and in the modalities specified in the financing agreement signed at the
same time between the Parties.


 


(4)                                  For the application of Article 19.1 (3) and
with the reservations referred to in Article 19.1 (2), each entity member
of Contractor will pay, up to its participation mentioned in Article 19.1
(1), the charge of the expenses made for the oil operations or for the payments
required under the Contract, be it expenses which are or not part of the
recoverable Oil Costs and, in the case of expenses constituting Oil Costs,
whether or not such expenses were recovered as a consequence of the refusal,
objections, or delays of the Administration.


 


19.2


(1)                                  As of the start date of Production, the
State will reimburse to the other companies making up Contractor, in kind, its
share of the expenses related to the development studies carried out and paid
by these other companies before the granting date of the Exclusive Exploitation
Authorization, as well as its share of the sums corresponding to the calls for
funds made by Operator and advanced to the State by the other companies making
up Contractor for the expenses referred to in Article 19.1 (3) above,
according to the conditions specified in the financing agreement.


 


(2)                                  To assure the reimbursement of the
amounts advanced to the State by the other companies making up Contractor, including
the payment of interest referred to in Article 19.3 (2) below, the
State transfers to these companies a part of the net production of crude oil
obtained from the Delimited Zone to which it is entitled under the
participation of the State, up to the limit of seventy percent (70%) of said
Net Production.


 


35














 


If, during the calendar month in question,
this part is insufficient, the balance, if any, is added to the amount owed at
the end of the next month; however, this delay must not have the effect of
exceeding the limit of seventy percent mentioned above. Consequently, the total
possible balance of the subsequent calls for funds is payable only within the
above limit, while the surplus is carried forward and settled under the
conditions specified in the financing agreement.


 


For the needs of this article, the quantities
of hydrocarbons delivered in payment by the State within the limit established
in the previous paragraph, are valued at the Official Transfer Price.


 


On behalf of the other entities of
Contractor, the operator picks up this part of the production and allocates the
revenue obtained from the sale of the corresponding hydrocarbons to the
reimbursement of the advances and interests, whereby the corresponding sale is
exempt from all taxes, royalties, fees and dues.


 


(3)           The State will refrain
from granting any sureties, from encumbering or pledging in any manner the
participation of the State, or from using it to obtain a line credit for its
own benefit, concerning this part of the net production mentioned above 70%
and, in addition, it will refrain from picking up or causing any third party to
pick up the corresponding quantities of hydrocarbons.


 


19.3


(1)           As of the granting of
an Exclusive Exploitation Authorization, Contractor opens keeps updated a
“State Participation Account” to which it posts the advances made to the State,
the interest stipulated in Article 19.3 (2) below and the
reimbursements made with the revenue of the sales of hydrocarbons mentioned in Article 19.2
(2) above. The modalities of this State Participation Account are detailed
in the financing agreement.


 


(2)           The amounts owed by the
State as reimbursement of the share of the expenses referred to in this Article 19
will bear interest at the $ LIBOR plus two points. Such interest is calculated
prorata temporis as of the effective date of the advances granted to the State
for the State participation until their complete reimbursement. At the end of a
given calendar year, the interest matured and not paid will be added to the
accumulated amount of the advances not reimbursed and bear interest until the
date of their payment.


 


19.4


(1)           Subject to Article 19.4
(2), the State may at any time transfer to a company of its choice, all or part
of the State participation, if the good technical or financial reputation of
the third party, who is the potential buyer, is well established


 


In the event of transfer of the State
participation to a third party, the amounts owed by the State as they appear in
the debit of the advance account, are immediately reimbursed to the other
companies making up Contractor in the amount of the percentage of the State
participation transferred to such third party. In the event of partial
transfer, the third party transferee participates up to its participation
percentage, in the financing of the amounts advanced to the State by the
entities member of Contractor, in order to finance the State participation,
which is still owned by the State.


 


(2)           The other companies
making up Contractor have a preemptive right on the transfers by the State of
the State participation.  Consequently,
and before a transfer to a third party becomes effective, the State must
propose to the other companies making up Contractor to buy the State
participation under the same conditions as those agreed upon between the State
and the Third party buyer.


 


In the event of preemption by several
companies making up Contractor, the preempted participation will be distributed
between these entities in the proportion of the participation percentage held
by each of them in the rights and obligations of Contractor, unless otherwise
agreed upon between these entities.


 


36

















 


If none of the companies making up Contractor
exercises this preemptive right within a term of sixty (60) days after receipt
by Contractor of all the information indicated in the previous paragraph, it is
reputed to have waived exercising its preemptive right.


 


(3)           The rights and
obligations arising from the association agreement between the companies making
up Contractor in connection with any transfer made pursuant to this article or Article 42,
must not in any case limit the exercise by the State of its rights indicated
above, or increase its obligations related to the State participation or reduce
the scope and effects of such participation.


 


37

















 


ARTICLE 20



PROGRAM OF DEVELOPMENT


 


20.1


Without
prejudice to the specific provisions concerning Natural Gas and especially Article 30
below, within six months after the granting of an Exclusive Exploitation
Authorization, Contractor must present and submit for the approval of the
Administration a detailed development and production program, specifying in
particular:


 


·      Item by item, the equipment and work necessary
planned for the start of production, such as the number of development wells,
the number of platforms, pipelines, production installations, processing
storage and loading installations necessary,


·      The corresponding cost estimates;


·      The planned calendar for the performance of the
work, equipment and installations indicated above;


·      The estimated date of the start of production.


·      The estate of the recoverable reserves and annual
production.


·      The ongoing RES Operation Plan or at the end of
the exploitation, which will be reviewed annually under the conditions
specified in Article 14.14.


 


This
development and production program must have been examined by the Technical
Committee for the Follow-up of Oil Operations, pursuant to Article 2.2;
before being submitted to the Administration accompanied by the opinions,
suggestions and recommendations of the latter.


 


20.2


If the
Administration considers that modifications are necessary or useful in the
development and production program mentioned above, it must, within ninety days
after the receipt of the program, inform Contractor in Writing indicating the
modifications requested it, supported by the justifications deemed useful.


 


The
Administration and Contractor will meet as soon as possible to examine the
modifications requested and established by mutual consent, the program in its
final form. This program is considered approved as of the date of said
agreement.


 


In all events,
the parts of the program for which the Administration did not request
modifications are considered approved and must be carried out by Contractor
within the initially established terms.


 


If at the
expiration of the above term, the Administration has not sent to Contractor a
request for modifications, the program is considered approved.


 


38

















 


ARTICLE 21



OBLIGATIONS OF CONTRACTOR DURING DEVELOPMENT AND EXPLOITATION PERIODS


 


21.1


Unless
otherwise established in special provisions, Articles 5, 8, 10 and 11 of the
Contract are applicable “mutatis mutandis,” to the oil operations carried out
as part of the exclusive Exploitation Authorizations.


 


21.2


As of the
granting of an Exclusive Exploitation Authorization, Contractor undertakes to
proceed with diligence with the development drillings necessary, adopting a
space between them according to the art generally admitted in the hydrocarbon
industry and so as to allow for the best economic recovery for the Parties of
the hydrocarbons contained in the Deposit.


 


Barring
exceptional and duly justified circumstances, Contractor must start development
operations at the latest four months after the approval of the Administration
of the development and production program defined in Article 20.


 


21.3


Contractor
must observe, in its production operations, all rules of the art generally
admitted in the hydrocarbon industry so as to assure the best economic recovery
for the Parties of the hydrocarbons contained in the Deposit.


 


21.4


As soon as
technically possible, Contractor must carry out studies to set up an assisted
recovery program in the Deposit and use in useful time these recovery
techniques if likely to lead, under economic conditions satisfactory for the
Parties, to an improvement in the recovery rates of the hydrocarbons contained
in the Deposit.


 


21.5


Contractor
must give to the Administration all reports, studies, measurement results,
tests and trials as well as the documents to control the exploitation of the
Deposits in order to make sure that it takes place under good conditions,
especially in accordance with the above provisions.


 


In particular,
in each production well, it must carry out the following operations:


 


·      Record of the daily, monthly and annual
production of hydrocarbons;


·      Monthly control of the “gas oil ratio”;


·      Annual measurement of the pressure of the
reservoirs of a sample of wells judicially chosen and representing at least
half the wells of the Deposit.


 


Contractor
must apply all recommendations of the Administration in matters of preservation
of the Deposits and comply with current regulations in matters of pollution and
safety of the assets and persons.


 


21.6


Contractor
must produce annually the quantities of hydrocarbons from each Deposit
according to generally admitted international standards in the hydrocarbon
industry, especially by applying the rules for good preservation of the
Deposits which assure optimal recovery of the reserves of hydrocarbons under
normal economic conditions for the Parties.


 


21.7


Contractor
contributes to a hydrocarbon support fund created in order to assure the
progress of oil Research and Promotion. This contribution is established as
follows:


 


39

















 


a)             In exploration phase,
the annual contribution will be three hundred thousand ($300,000) US Dollars
per Calendar Year. This amount is paid to an account opened for this purpose by
the State. This contribution will be included in the Oil Costs.


 


b)            In production phase,
the annual contribution of Contractor to this hydrocarbon support fund will be
equal to:


 


(i)            Five hundred thousand ($500,000) US Dollars
per Calendar Year.  This contribution
will be included in the Oil Costs and


 


(ii)           an amount calculated based on the Net Crude
Oil Production at the rate of 0.05 US Dollars per barrel produced. This
contribution will not be included in the Oil Costs.


 


21.8


Contractor must contribute to
the Equipment of the General Department of Hydrocarbons.


 


This contribution is
established as follows:


 


(i)            In exploration phase, payment of an amount
of two hundred fifty (250,000) US Dollars per Calendar year;


(ii)           In exploitation phase, payment of an amount
of four hundred thousand (400,000) US Dollars per Calendar year;


 


The
contribution to the equipment of the Departments Responsible for Hydrocarbons
is included in oil costs.


 


21.9


The amounts
referred to in Article 21.7 a), 21.7 b) (i) and 21.8 above are paid
by Contractor for each Calendar Year in one or several installments, within a
term of seven (7) days after the request of the State until the amount of
the contribution concerned is reached for the Calendar Year in question. For
each incomplete calendar year, Contractor will pay to the Administration the
amounts indicated above prorata temporis.


 


21.10


During
development and exploitation period, Contractor must make available to the
representatives of the Departments Responsible for Hydrocarbons all means that
allow them to permanently follow-up the oil operations. This inspection will be
included in the Oil Costs.


 


40

















 


ARTICLE 22



RIGHTS OF CONTRACTOR RELATED TO EXCLUSIVE EXPLOITATION AUTHORIZATIONS


 


22.1


Barring
special provisions, Articles 9, 12, 13 and 14 of the Contract apply, “mutatis
mutandis,” to the oil operations carried out under the Exclusive Exploitation
Authorizations.


 


22.2


The Contractor
may, subject to compliance with current regulations, build, use, operate and
maintain all production storage and transport installations for hydrocarbons
necessary for the product, transport, delivery and loading of the products
extracted, subject to the provisions in Article 10.3.


 


22.3


If there is no
available and sufficient evacuation capacity, Contractor may build, under the
conditions set forth in regulations, a channel allowing for evacuation of the
project.  For this purpose, Contractor
delivers to the Administration, for approval, and before the work, plans
according to the layout established by it and the planned location of the
channel it intends to build.  All
channels crossing or traced along routes or roads (other than those used in oil
operations) are built so as not to interfere with traffic.  Transport conditions as well as the security
regulations of these constructions must comply with current regulations in the
matter.


 


22.4


Within the
limit of the available capacities and normal, non -discriminatory rates,
Contractor must allow third parties to use the infrastructures for hydrocarbon
transport, processing and storage made as part of the oil operations.


 


The rates,
conditions applied must be justified and submitted for the prior approval of
the Departments Responsible for Hydrocarbons. The rate is established so as to
allow recovering the exploitation expenses of the construction, including the
part of the cost of the installations at least equal to current or usual tax
amortization in Gabon, and calculated on the original acquisition value,
obtaining a reasonable profit margin representing the remuneration of the
capital invested to build such infrastructure.


 


41

















 


ARTICLE 23



OBLIGATION TO MARKET THE PRODUCTION


 


23.1


As soon as the
production of a hydrocarbon deposit becomes regular, Contractor must make his
best efforts, in accordance with generally admitted practices in the oil industry,
to obtain the best valorization of the products extracted, so that the
marketing conditions of the quantities allocated to it does not have a negative
impact on the prices of Gabonese hydrocarbons in the international market.


 


23.2


Contractor
must make its best efforts so that the prices obtained at the export of
Gabonese hydrocarbons are in accordance with those charged in the international
market at the time of the sale, for equivalent quality, quantities, freight and
payment terms.


 


42

















 


ARTICLE 24



RECOVERY OF OIL COSTS


 


24.1


Contractor is
entitled to recover the oil costs incurred by it within the delimited zone, by
withholding part of the net hydrocarbon production originating exclusively from
said zone. In any case, the recovery of oil costs may not take place by
withholding from the hydrocarbon production originated from deposits located
outside said delimited zone.


 


For the
application of the above paragraph, pursuant to Article 26.7 in the accounting
procedure, Contractor must have an oil cost account.


 


24.2


Contractor has
the right to recover oil costs from the beginning and as production progresses.


 


This right
gives contractor the right to make withholdings a part of the net production of
the delimited zone. These withholdings are made up to the amount of the oil
costs but may not exceed, for a given calendar year:


 


(i)            75% of the net production obtained during
said year, as long as the accumulated Net production is lower than one hundred fifty barrels (150,000,000
barrels),


(ii)           73% of the net production obtained during
said year, as long as the accumulated net production ranges between one hundred
fifty million barrels (150,000,000 barrels) and three hundred million barrels
(300,000,000 barrels),


(ii)           70% of the net production obtained during
said year, when the accumulated net production exceeds three hundred million
barrels (300,000,000 barrels).


 


The
hydrocarbons that are held by Contractor, pursuant to this article, are valued
for the purposes of accounting in the oil cost account referred to in Article 26.7,
at the official transfer price.


 


24.3


The total
recovery during the calendar year, expressed in quantity of hydrocarbons, may
not in any case exceed the percentage established in Article 24.2 of the
net production of said calendar year.


 


24.4


If, during the
calendar year, the net production of the delimited zone does not allow
Contractor to fully recover the oil costs pursuant to Articles 24.1 to 24.3,
the amount of the oil costs not recovered during that calendar year is carried
forward to the following calendar years until the total recover of the oil
costs, or at the end of the contract.


 


24.5


In the event
of discovery within the Delimited Zone of Deposits producing hydrocarbons of different
qualities, Oil Costs are recovered, taking into account each of the qualities,
proportionately to the total available production.


 


43

















 


ARTICLE 25


 


SHARING OF THE PRODUCTION OF CRUDE OIL


 


25.1


After Contractor
withholds part of the Net Production of Crude Oil in order to recover the Oil
Costs, pursuant to Article 24, the Remaining Production of Crude Oil it
shared between the State and Contractor according to the following modalities:


 


a)             When the daily
average of the Total Available Production of the Delimited Zone for a given
calendar month, is equal to or lower than seventy-five thousand (75,000)
Barrels, the Remaining Production is shared between:


 


	
  · the State:

  	
  fifty
  percent (50%) and

  
	
  ·
  Contractor:

  	
  fifty percent (50%).

  



 


b)            When the daily average
of the Total Available Production of the Delimited Zone for a given calendar
month is higher than seventy-five thousand (75,000) Barrels and lower than or
equal to one hundred and fifty thousand (150,000) Barrels, the additional
portion of the Remaining Production is shared between:


 


	
  · the State:

  	
  fifty-five
  percent (55%) and

  
	
  ·
  Contractor:

  	
  forty-five percent (45%).

  



 


c)             When the daily
average of the Total Available Production of the Delimited Zone for a given
calendar month is higher than one hundred fifty thousand (150,000) Barrels and
lower than or equal to two hundred and twenty-five thousand (225,000) Barrels,
the additional portion of the Remaining Production is shared between:


 


	
  · the State:

  	
  sixty
  percent (60%) and

  
	
  ·
  Contractor:

  	
  forty percent (40%).

  



 


d)            When the daily average
of the Total Available Production of the Delimited Zone for a given calendar
month is higher than two hundred twenty-five thousand (225,000) Barrels and
lower than or equal to three hundred thousand (300,000) Barrels, the additional
portion of the Remaining Production is shared between:


 


	
  · the State:

  	
  sixty-seven
  and one-half percent (67.5%)

  
	
  ·
  Contractor:

  	
  thirty-two and one-half percent (32.5%).

  



 


e)             When the daily
average of the Total Available Production of the Delimited Zone for a given
calendar month is higher than three hundred thousand (300,000) Barrels, the
additional portion of the Remaining Production is shared between:


 


	
  · the State:

  	
  seventy-five
  (75%)

  
	
  ·
  Contractor:

  	
  twenty-five (25%).

  



 


The entities
member of Contractor, unless otherwise agreed between them, share the remaining
Production of Contractor to the extent of their respective participations.


 


In the event
of discovery within the Delimited Zone of Crude Oil of different qualities, the
State and Contractor share separately each of the qualities of the Remaining
Production of Crude Oil, proportionately to the Total Available Production.


 


Contractor is
entitled to its share Crude Oil from the beginning and as production progresses.


 


44

















 


25.2


The State
withholds in kind its share of production defined in Article 25.1.


 


However, at
the request of the State, sent within ninety days prior to the scheduled date
for the pick-ups, Contractor is obligated to sell all or part of the quantities
of hydrocarbons allocated to it under the aforementioned Article and pay
the price. In this case, Contractor makes its best efforts to obtain in the
market a selling price at least equal to the Official Transfer Price. In this
operation, Contractor benefits from a selling commission whose amount is
established by mutual consent by reference to the usual commercial practices in
the matter.


 


If Contractor
does not succeed to obtain a selling price at least equal to the Official
Transfer Price, it informs the State indicating the best price proposed to it.
The State then communicates whether it accepts the selling price which the
latter may obtain or whether it prefers to receive the quantities concerned in
kind.


 


25.3


The payment of
the proceeds of the sales of production allocated to the State and marketed by
Contractor is paid in US Dollars within 90 days after the date of loading in a
bank account designated by the State.


 


45














 


ARTICLE 26


 


TAX SYSTEM


 


26.1

Concerning the oil operations carried out in the Delimited Zone, Contractor is
subject only to the following taxes, fees, dues, contributions and royalties:


 


a)             the contribution to
the hydrocarbon support fund as defined in Article 21.7 of the Contract;


 


b)            the bonuses indicated
in Article 28; these are paid in cash;


 


c)             a corporate tax which
is paid according to the modalities in Article 26.3;


 


d)            a mining royalty
proportional to the exploitation of hydrocarbons for Crude Oil, the rate of
which is established at


 


(i)            Four and a half
percent (4.5%) when the Daily Total Available Production is lower than or equal
to two hundred and twenty-five thousand (225,000) Barrels;


 


(ii)           Eight percent (8%) when
the Daily Total Available Production is higher than two hundred and twenty-five
thousand (225,000) Barrels and less than or equal to three hundred thousand
(300,000) Barrels;


 


(iii)          Eleven percent (11%)
when the Daily Total Available Production is higher than three hundred thousand
(300,000) Barrels.


 


The Total
Available Production subject to the proportional mining royalty is reduced by
the quantities:


 


1/-   lost or burned in production
tests in the Exploitation Zone or in production, collection or storage
installations of the zone, provided Contractor complies with current
regulations and the directives and recommendations of the Administration;


 


2/-   re-injected in the Deposits of
the Delimited Zone;


 


3/-   used to produce drilling fluids
for the needs of the Delimited Zone;


 


4/-   used in work done after
drilling in the wells of the deposits of the Delimited Zone;


 


5/-   consumed in engines or turbines
provided the energy used:


 


(i)            for the operation of
the pumping units necessary in the wells of the deposit of the Delimited Zone,


 


(ii)           to collect the
hydrocarbons in the Delimited Zone,


 


(iii)          to operate the drilling
and installations established in the Delimited Zone for its needs.


 


Subject to
Articles 26.1 d) 2/ and 26.1 d) 5/ the quantities, picked up or used upstream
from the point where the Total Available Production subject to the proportional
mining royalty is calculated, for the needs listed above, cannot be deducted
from the base amount of the proportional mining royalty other than with the
exceptional Authorization of the Administration, given at the justified request
of Contractor.


 


46

















 


The value at
the extraction place of a given quantity of hydrocarbons is equal to the F.O.B.
value in the shipping port or at the loading pier of the same quantity of Crude
Oil. To determine this FOB value, the price considered is the Official Transfer
Price.


 


Said royalty
is paid in kind or in cash, at the choice of the State. If the State wishes to
receive in kind, all or part of the royalty, it must notify Contractor in
writing at least (180) days in advance, specifying the exact quantity it wishes
to receive during the period in question.


 


In the absence
of such decision, payment is made in cash at the Office of the State Revenue
Collector. This royalty is paid monthly at the latest by the (28) day of the
month considered, based on the average monthly total available production of
the prior quarter period. The settlement will take place at the latest on January 28th of the following year for the previous
calendar year, based on the Total Available Production of said year and the
related official transfer price. At the beginning of production, and during the
period when the average monthly of total available production referred to above
cannot be determined, the amount of the royalty is calculated on the basis of
the total available production of each month’s considered, and is paid in the
same terms as above.


 


The
proportional mining royalty is not included in the Oil Costs.


 


e)             The annual area
royalty introduced by ordinance number 38/79 of December 23, 1979. This
royalty is paid in cash, in advance and by full calendar year, based on the
area at January 1 of each year. For the first year, the area royalty will
be calculated prorata temporis based on the area existing as of the effective
date. This royalty is not included in the Oil Costs.


 


f)             The fees and taxes
collected by the Customs administrations, as defined in Article 34.


 


26.2

The obligations under this Article 26 are assumed jointly by each entity
making up Contractor. Consequently, each of them is obligated towards the
states to discharge only its own tax obligations.


 


26.3

The corporate tax owed by each of the entities making up Contractor is paid
each year by the states to the competent tax authorities in the name and on
behalf of said entities making up Contractor.


 


The quantity
of crude oil received by the state pursuant to Arcticl 25.1 will be reputed at
least equivalent to the taxes owed for the oil operations. Under no
circumstances is it possible to claim from the entities making up Contractor
any payment for corporate tax.


 


26.4

Each entity member of Contractor will have, per calendar year, in accordance
with current regulations in Gabon, separate accounting of the oil operations to
establish in particular a “Characteristic Operating Balance.”


 


26.5

To allow determining the net profit of Contractor, the Characteristic Operating
Balance will be credited, in particular:


 


a)             with the gross
revenue of Contractor from the marketing of the quantity of crude oil allocated
to each, pursuant to Articles 24 and 25;


 


b)            with the revenue
(advantage in kind) consisting of the payment of the corporate tax by the state
in the name and on behalf of Contractor under Article 26.3;


 


47

















 


c)             with all other
revenue or proceeds related to the oil operations of the exploitation zone,
especially those originating from the sale of related substances and transport
of products for said parties in the national territory and its agencies, as
well as the financial proceeds of all nature, including those related to the
advances granted between entities members of Contractor.


 


26.6

The same Characteristic Operating Balance will be debited, pursuant to Article 24
and for all categories of expenses authorized by the applicable laws in Gabon,
from the oil costs of the year in question, as well as from the parts not yet
recovered from the previous years.


 


26.7

The account of the oil costs is intended to record, on the one hand, all oil
costs pursuant to the contract and accounting procedure incurred for the needs
of the oil operations as they progress and, on the other hand, the amounts
allocated to the recovery of the oil costs, as such recovery advances as well
as the costs, revenue, and proceeds of any nature are deducted from or reducing
the oil costs.


 


The accounting
procedure, which constitutes Appendix 2 of this contract, defines the nature of
the expenses constituting oil costs, those which have not recovered and the
limitations of the amount of expenses that may be posted to the account of the
oil costs. It established the obligations of Contractor in matters of procedure
and presentation of the accounting of the oil costs and specifies the reports,
accounts, statements, and information to be provided to the Administration.


 


In the event
of contradiction or disagreement between the accounting procedure and the
provisions of the contract, the latter will prevail.


 


26.8

The taxable profit of Contractor will be equal to the difference between the
amounts credited to the Characteristic Operating Balance and the amounts
recovered by application of the provisions in Articles 24 and 25. Then,
Contractor will not be subject to any payment to the state for taxes, with the
understanding that the Departments Responsible for Hydrocarbons will take over
and pay to the competent tax authorities the amount of said taxes in the name
and on behalf of Contractor.


 


26.9

Each entity member of Contractor will deliver to the state before April 30
of each calendar year the Characteristic Operating Balance defined in Articles
26.4, 26.5 and 26.6 related to the previous calendar year.


 


26.10

After examining the Characteristic Operating Balance defined in Articles 26.4,
26.5 and 26.6, the state will deliver to each entity member of Contractor
within sixty (60) days after the delivery of said Characteristic Operating
Balance the tax release and all other documents attested that said entity met
all its tax obligations as defined in this Article 26.1.


 


26.11

In addition to the hydrocarbon support fund, to the bonuses indicated in Article 28,
to the proportional mining royalty, to the area royalty, to the corporate tax
and the fees and taxes levied by the customs administration specified in Article 34
and except for the land contribution on built properties payable under common
law on dwelling properties, Contractor is exempt from all other taxes,
royalties, fees, and duties as part of this contract, whereby the conditions
under which Contractor is involved in are specified in Article 26.13
below.


 


48

















 


The provision
of services to Contractor by the affiliated companies which do not have
permanent professional installations in Gabon are exempt from the withholding at
source indicated in Article 159 of the General Tax Code or any other
regulation, code or law that may amend, succeed or replace such article.


 


The
distribution to shareholders or associates of the profits obtained by the
enterprises constituting Contractor under the oil operations or their
allocation are exempt from all taxes and withholding at source payable in
connection therewith.


 


26.12

Pursuant to Articles 26.1 and 26.11 above, Contractor will be exempt from
payment of all fixed mining fees, registration fees, and stamp fees as defined
in Gabonese legislation.


 


The above
exemptions do not apply to the fees and taxes payable in exchange for services
actually rendered by the public Gabonese administrations, authorities and
establishments. However, the rates collected in this case from Contractor, its
entrepreneurs, carriers and customers and its agents will remain reasonable for
the services rendered and according to the general rates charged for the same
services by said public administrations, authorities and establishments.


 


More
particularly, Contractor must pay existing local community and port taxes and
duties whose amount will not be, under any circumstances, discriminatory versus
those imposed on companies engaging in singular activities.


 


26.13

The suppliers, sub-contractors, service providers of Contractor and its
affiliated companies will be exempt from the turnover tax and from the tax on
transactions payable for sales made, work performed and services rendered under
the contract.


 


However, the
value of the tax introduced by law No. 1 of February 24, 1995,
specified by decree No. 000704/MFEBP/CAB/SG of July 19, 1995
establishing the status of exemption from valuated tax granted to research and
exploration oil companies is applied to Contractor and if appropriate, to the
entities constituting Contractor for the oil operations, according to the
following modalities:


 


1)     In exploration phase and
until the hydrocarbon production is done regularly and in quantities likely to
be marketed, all oil operations carried out by the entities constituting
Contractor, including accessory activities related to oil operations (such as,
in particular, the transport of crude inter-field gas sales, or sales or
transfers to said parties and self-deliveries) are placed outside the scope of
application of the valuated tax. The suppliers, sub-contractors, service
providers and affiliated companies bill Contractor with exemption from valuated
tax that may be levied in connection with sales made, services rendered and work
performed under the contract.


 


2)     In production phase, in other
words when the hydrocarbon production takes place regularly and in quantities
likely to be marketed, the following modalities will apply:


 


a)     The oil operations related to
the exploration and exploitation of hydrocarbons, including the accessory
activities related to the oil operations (such as, in particular, the transport
of crude, inter-field gas sales, or sales or transfers to said parties and
self-deliveries) are placed outside the scope of application of the valuated
tax. The suppliers, sub-contractors, service providers and affiliated companies
bill Contractor with exemption from valuated tax that may be levied in
connection with sales made, services rendered and work performed under the contract
subject to the provisions in paragraphs b), c) and d) below.


 


b)    The goods imported, services
rendered and work performed intended for the oil operations, purchase from
foreign suppliers not taxable in Gabon concerning income and revenue tax, regardless
of their nature, are exempt from valuated tax. This exemption applies whether
these


 


49

















 


operations are carried out directly, by Contractor itself or the
entities constituting Contractor, or through sub-contractors or agents at their
order and for their account.


 


c)     The goods, services and works
intended for the oil operations, acquired from suppliers, service providers or
subcontractors included in a list prepared jointly by Contractor and the
Administration, regardless of the nature of these goods, services and works,
are exempt from value added tax. The above list is updated annually by
Contractor and the Administration.


 


d)    The goods acquired, services
rendered and work performed by suppliers, service providers and subcontractors
who are Gabonese tax residents, are subject to value added tax at the rate in
force.


 


3)     The value added tax possibly
billed to Contractor and, if applicable, to the entities constituting
Contractor, and paid by them, will be recovered according to the following
modalities.


 


a)     The value added tax paid
during a given calendar month gives rise to a request for reimbursement which
must be lodged before the twentieth day of the following calendar month with
the special VAT revenue office opened at the General Department of Direct and
Indirect contributions. If errors or omissions are found in the request for
reimbursement, rectification requests may be lodged and settlements may be made
at any time, subject to the lapsed term indicated in the general code of direct
and indirect taxes.


 


b)    The aforementioned
reimbursement of value added tax must take place at the latest thirty business
days after the end of the calendar month during which the request for
reimbursement was received by the special VAT office. Settlements or
rectifications of errors or omissions found in a request for reimbursement may
not be made until after the expiration of the aforementioned reimbursement
term. If the verification procedure indicated in Article 49 is
implemented, the mechanisms and procedures set forth under this paragraph 3)
will not be suspended.


 


c)     If, for any reason, the value
added tax is not reimbursed within the term indicated in paragraph b) above,
the beneficiaries will have the right to deduct, as of the calendar month
following the expiration of the term, and without limitation of time, the
amount of the value added tax not reimbursed, plus late interest calculated as
indicated below, on all taxes, fees, duties and royalties owed for any reason,
both for all their activities in Gabon and against all receivables of the State
against said beneficiaries.


 


The charge of this amount of value added tax including the interest
billed, may also be made, if applicable, from the share of production allocated
to the State under the contract. The aforementioned late interest is owed,
until full reimbursement or integral offset of the amount of the value added
tax not reimbursed, as of the normal due date of the reimbursement. It is
calculated at $ LIBOR plus two points.


 


d)    Each entity making up
Contractor owes value added tax incurred as part of the oil operations pro
rated to its participation.


 


However, from
a practical viewpoint, the Operator will assure on behalf of Contractor the
payment of the value added tax billed by suppliers, as privileged contact of
the Administration.


 


The Operator
will request, on behalf of Contractor, the reimbursement of the value added tax
paid.


 


In the even of
non-reimbursement on the due date indicated in paragraph c) above, for any
reason whatsoever, the Operator may, at any time, re-bill the amount of the
value added tax not reimbursed, including late interest payable to each entity
making up contractor, pro rated to its participation. The charge referred to in
paragraph c) above of this amount of the value added tax including possible
late interest may be made under the conditions indicated above, either by the
operator on behalf of Contractor or by each entity making up Contractor acting
on their own name, pro rated to their participation.


 


50

















 


In the even
that, for any reason whatsoever, an entity making up Contractor cannot deduct
its share of the amount of the value added tax not reimbursed by the State,
including the late interest payable pursuant to paragraph c) above, it may
transfer its rights to the charge to any other entity making up Contractor and
which can make the charge.


 


c) If, for any
reason whatsoever, the provisions in paragraph 1), 2), and 3) above cannot be
enforced, in order to preserve the tax neutrality of the implementation of the
value added tax towards Contractor, the system indicated will be modified based
on the solutions recommended by Contractor, so that the latter and its entities
will not incur any additional burden versus the system applied prior to the
enactment of law No. 1/95 of February 24, 1995 mentioned above.


 


When, by
error, one of the enterprises making up Contractor was subjected to taxes,
fees, dues, withholdings or royalties of which it is exempt pursuant to this
article, it charges their amount to the share of production of the State under Article 25,
if the taxes are not returned to it one year after having lodged a claim in
this regard with the competent Administration. This charge is subject, in order
to establish its good grounds, to the prior written approval of the Minister of
Hydrocarbons.


 


The provisions
of this Article 26.13 concerning value added tax may apply to oil
suppliers and subcontractors appearing in the list referred to in Article 26.13
2) above, according to modalities to be defined with the Gabonese
administration concerned.


 


The exemptions
indicated in this Article 26.13 do not apply to the duties and fees
payable for services rendered by the Gabonese public administrations,
authorities and establishments used by Contractor. However, the rates apply to
it and to its entrepreneurs, carriers and customers, and its agents will remain
reasonable for the importance of the services rendered, and according to the
rates generally charged for the same services by said public establishments,
administrations and authorities.


 


More
particularly, Contractor will still pay local community and port taxes and
duties in force, but their rate must not be discriminatory against Contractor
versus that applied to enterprises engaging in similar activity.


 


26.14

The transfers of all nature made under this Contract between Contractor and the
affiliated Companies will be exempt from all fees and especially from
registration fees.


 


51

















 


ARTICLE 27


 


VALORIZATION OF CRUDE PETROLEUM


 


27.1

The quantities of Crude Oil,


 


·      picked up for the recovery of the Oil Costs,
pursuant to Article 24,


 


·      representing the proportional mining royalty
referred to in Article 26.1.d),


 


·      constituting the gross revenue of Contractor
referred to in Article 26.5 a),


 


·      representing the share of production of the State
and marketed at its request by Contractor pursuant to Article 25.2,


 


·      delivered as part of the contribution to meet the
needs of the internal market, pursuant to Article 35,


 


·      received as payment from the State pursuant to Article 19.2
(2);


 


are valued
applying the price defined by the Administration for Gabonese hydrocarbons
named “Prix de Cession Officiel”) (PCO). [Official Transfer Price]


 


27.2

The PCO is determined in US Dollars by the Technical Parity Commission, taking
into account the prices of the international market for hydrocarbons of similar
quality.


 


It is
calucualted F.O.B. each calendar quarter for the previous quarter, applying the
procedure defined in the Protocol of Agreement of December 30, 1991,
instituting the creation of the Technical Parity Commission of petroleum
prices. It is communicated to Contractor for application and possible settlement
before the end of the first month of the following calendar quarter.


 


If no PCO of
calendar quarter was communicated to Contractor, the PCO resulting from the
most recent notification will be applied temporarily.


 


27.3

If, for a given period, the PCO applied is higher than the market price for
sales to third parties of hydrocarbons originating form the Delimited Zone, the
difference is recovered by Contractor by posting it to the debit of the account
of the Oil Costs. If, inversely, the PCO is lower than the market price, the
difference is credited to the account of the Oil Costs.


 


27.4

The international market price referred to in Article 27.2 used for the
calculation of PCO is determined according to modalities to be defined by the
Parties; they will meet at the request of one of them periodically for this
purpose, based on the evolution of the international hydrocarbon market.


 


27.5


 


a)             in the event of
marketing of Natural Gas under a long-term sale Contract, the PCO will be the
price stipulated in that contract.


 


52

















 


b)            In the absence of a
long-term Contract, Natural Gas is valued applying the price accepted by the
Parties pursuant to Article 27-1, 2nd paragraph.


 


27.6

If the parties cannot reach an understanding as to the modalities to determine
the market price, or if they consider that the market price determined pursuant
to Article 27.5 does not reflect the reality of the market prices of
hydrocarbons produced in the Exploitation Zone, they may submit their dispute
to arbitration by the International Chamber of Commerce, pursuant to Article 50
of the contract.


 


53

















 


ARTICLE 28


 


BONUS


 


28.1

Contractor pays to the State the amount of five million five hundred thousand
US Dollars (5,500,000 USD) as of the signing Date of the Contract.


 


28.2

In addition, Contractor pays to the State the following amounts:


 


-a)   Fifteen million US Dollars
(15,000,000 USD) as of the beginning of commercial production of hydrocarbons
in the Delimited Zone;


 


-b)   Ten million US Dollars
(10,000,000 USD) when the Total Available Production accumulated in the
Delimited Zone reaches for the first time the level of one hundred million
Barrels (100,000,000 Barrels);


 


-c)   Fifteen million US Dollars
(15,000,000 USD) when the Total Available Production accumulated in the
Delimited Zone reaches for the first time the level of one hundred fifty
million Barrels (150,000,000 Barrels);


 


-d)   Twenty million US Dollars
(20,000,000 USD) when the Total Available Production accumulated in the
Delimited Zone reaches. for the first time the level of two hundred million
Barrels (200,000,000 Barrels);


 


-e)   Twenty-five million US Dollars
(25,000,000 USD) when the Total Available Production accumulated in the
Delimited Zone reaches for the first time the level of two hundred fifty
million Barrels (250,000,000 Barrels);


 


The amounts
referred to in this article are paid within thirty days following, for the
first, the start date of production, and for the others, the day when the
reference threshold is reached, as indicated respectively in paragraphs b) and
e) above.


 


28.3

Any extension of an exploration period as indicated in Article 3.5 above
will give rise to payment by Contractor of a bonus in an amount fixed at 83,333
US Dollars for an extension equal to one calendar month, i.e, a maximum amount
of one million US Dollars (1,000.000 USD) for each extension period of twelve
Calendar Months.


 


28.4

Any extension of the area of the Delimited Zone will give rise to payment of a
bonus. The bonus will be established by agreement of the parties.


 


28.5

The aforementioned payments may not, under any circumstances, be considered Oil
Costs.


 


54

















 


ARTICLE 29


 


MEASUREMENT AND METERING OF HYDROCARBONS


 


29.1

Contractor must measure and meter the hydrocarbons produced after extraction of
the water and foreign substances.


 


The point of
metering and measurement of the quantities of hydrocarbons is the point where
the instruments, devices and installations related thereto are installed, and
must be approved by the administration.


 


The competent
agents of the administration check these measurements and metering and control
the installations, instruments and devices used at least once a quarter. If
Contractor wishes to modify or change such installations, instruments and
devices, it must inform the administration at least fifteen business days in
advance, so as to allow its representatives to be present when the
modifications or changes are made.


 


The modifications
and changes affecting the points, instruments and devices referred to in
paragraph 2 above must be previously approved by the administration.


 


29.2

The quantities of hydrocarbons used in oil operations or lost must be entered
in a monthly explanatory detailed statement transmitted to the administration,
in order to be admitted for deduction.


 


29.3

If it is found that the installations, instruments and devices used by
Contractor lead to errors by default, such errors are considered committed from
the date the latest controls would have been made by the administration, and
the necessary rectifications are then made on this basis.


 


55














 


ARTICLE 30


 


NATURAL GAS


 


30.1


Contractor will have priority right to use freely and without charge,
in order to make “gas lift” or reinjection, the quantities of Natural Gas
needed by it to improve the recovery of the reserves of the Crude Oil from the
fields operated by it in the Delimited Zone.


 


To allow for this use, Contractor will provide to the Administration
all information for a detailed examination of the data of the deposit
discovered, as well as those explaining the needs of gas of the fields concerned.


 


If, for the same reasons, Contractor wishes to use certain quantities
of Natural Gas for the fields operated by it outside the Delimited Zone, it
must send a request in this sense to the State. If the State approves the
request, the Parties will meet to agree on the modalities of this use.


 


30.2


The Parties recognize that the contractual conditions necessary to
assure the marketing of a discovery of Natural Gas are directly related to the
types of development and outlets considered, which parameters are not known
today and, therefore, it is not possible to establish the applicable
contractual conditions in this Contract.


 


However, if, after making appropriate studies and after agreement with
the Administration, Contractor considers that a discovery of Natural Gas, after
meeting the priority needs described in Article 30.1 above, may give rise
to commercial exploitation, the Parties agree:


 


i.                  to
discuss as soon as possible to define the legal, financial and tax conditions
for the quick development of this discovery under satisfactory economic
conditions allowing Contractor to obtain a profit on its investment as
generally required for this type of project in the oil industry. To do so, the
Administration may allow Contractor specific conditions concerning especially
the recovery of the Oil Costs related to Natural Gas, production sharing and
tax modalities.


 


ii.               in
order to evaluate the marketability of a discovery of Natural Gas, Contractor
will receive at its request an extension of the ongoing exploration period for
the time necessary to carry out the evaluation work and for a joint evaluation
by the parties of the possible outlets for such discovery, both in the local
market and for export, as well as the means necessary for marketing, especially
concerning the incentives mentioned in paragraph (i) above. This
extension, which may not, however, exceed ten years, will be granted by the
Departments Responsible for Hydrocarbons free of charge, without application of
the provisions in Article 28.3 above.


 


iii.            if
Contractor does not declare the commercial nature of the discovery of natural
gas after this period, Contractor will be reputed to have waived these rights
on natural gas.


 


iv.           if
the parties decide that the discovery of natural gas is commercially
exploitable, an exclusive exploitation authorization for gas will be granted to
Contractor for the time necessary to exploit the deposit of natural gas, taking
into account the commitments assumed by Contractor with third parties, within
the limit of thirty years from the first sale corresponding to the commercial
production of this discovery.


 


If, after the end of the period of thirty
year, the commercial exploitation of the exploitation zone is still possible,
the exclusive exploitation authorization of gas, may be renewed for the term
indicated in the previous paragraph and under the conditions indicated in Article 18.1
above, mutatis mutandis,


 


56

















 


30.3


If the discovery is not declared commercial, the state undertakes, in
case of subsequent projects for the development of the deposit by another
contractor, to give Contractor preferred right under identical conditions.
Contractor will have a term of six months to accept or refuse the competing
proposal as of the receipt of the file sent to it by the state. This file must
include the entire competing proposal as well as all data of all nature used in
the preparation of the offer. This preferred right will be forfeited by
Contractor ten years after the known commercial character of the discovery is
entered in a report signed by those parties.


 


30.4


Whenever necessary to establish an equivalence between the natural gas
and the crude oil, particularly for the application of the withdrawal
modalities of quantities of hydrocarbon for the recovery of oil costs here
defined in Article 24, sharing of the remaining production defined in Article 25
and to determine the amount of the bonuses defined in Article 28.2, it is
admitted that on hundred sixty-five cubic meters of natural gas are equal to
one barrel of crude oil. This equivalence must be specified by Mutual consent.


 


30.5


The associated not marketed quantities of natural gas, excluding those
used in the oil operations, must serve to improve the recovery rate of crude
oil by reinjection, as part of the implementation of assisted recovery methods
pursuant to Article 21.4. Torch burning must limited to a strict minimum.
Contractor must comply with current regulations and the recommendations of the
administration in the matter.


 


In addition, if the state wants to dispose of the associated natural
gas produced in the exploitation zone and not marketed or used by Contractor
under the condition defined above, the parties will establish by mutual consent
all additional technical measures that may be necessary to allow for the
delivery and use of this natural gas.


 


57

















 


ARTICLE 31


 


FOREIGN CURRENCY CONTROL


 


31.1


The contract is governed by the legislation and regulations in force in
matters of foreign exchange control.


 


31.2


No restriction will be made to the import by Contractor of the funds
intended for the performance of the oil operations.


 


31.3


Contractor will have the right to convert or keep freely its assets in
Gabon, in convertible currency and export, without discrimination, the funds
held by it in excess of its local needs.


 


31.4


In addition, Contractor is not obligated to import funds in order to
make matured payments which must be made abroad and required by the oil
operations or the revenues from exported sales in excess of its needs in Gabon.


 


31.5


Contractor will not be subject to any discriminatory practice,
including without limitation thereto, any discrimination based on exchange
rates.


 


58

















 


ARTICLE 32


 


EXEMPTION FROM THE OBLIGATIONS ELECTED TO EQUIPMENT VOUCHERS AND 


INVESTMENT CERTIFICATES


 


Given the magnitude of the investments that must be made by Contractor,
it is exempted for the term of the contract from the obligations related to
equipment vouchers and investment certificates indicated of respectively in
ordinances No 3/63 of January 24, 1963 and No. 36/67 of August 1,
1967.


 


59

















 


ARTICLE 33


 


ACCOUNTING METHOD AND MONETARY UNIT USED TO KEEP THE ACCOUNTS


 


33.1


The records and account books of Contractor are kept according to the
General Accounting Plan of Companies valid in Gabon and, concerning the oil
costs, in accordance with the Accounting Procedure, even when its provisions do
not appear in the contract. The originals of said records and account books. as
well as all backup documents, will be kept in Gabon and presented to the
administration upon simple request from the latter.


 


33.2


The records and account books related to the oil operations arc kept by
Contractor in French and in U.S. dollars. They are used to determine the gross
revenue, the operating expenses, the net results and to establish the
Characteristic Operating Balance referred to in Article 26.4 of each
entity making up Contractor, which entities remain responsible to keep their
own accounting books. These provisions are detailed in the Accounting Procedure
enclosed with this contract.


 


33.3


Whenever necessary to convert to U.S. dollars the expenses or revenue
expressed in another currency, the conversion rates used will, be determined
according to Chapter 1 of the Accounting Procedure.


 


Waiting to find out the arithmetic mean of the month in question,
Contractor uses, temporarily, the arithmetic mean of the previous month.


 


60

















 


ARTICLE 34


 


CUSTOMS SYSTEM AND IMPORT AND EXPORT DOCUMENTS


 


34.1


During the term of the Contract, Contractor benefits from the following
customs advantages:


 


a)             Under the conditions
set forth in the Customs Code, import under temporary admission (normal or
special as the case may be) by Contractor itself, by Third parties on its
behalf and by its subcontractors, of all materials, equipment, products,
machines, devices and tools necessary for the oil operations which are not
owned by the State under Article 10.1, subject to compliance with Article 10.3
and provided these goods are necessary, exclusively intended and actually
allocated to the oil operations, and intended to be re-exported after they are
used


 


b)            Pursuant to Article 241
paragraph (g) of the Customs Code of UDEAC, admission under exemption of
all taxes and import duties, of materials, elements, products, machines,
equipment and tools exclusively intended and actually allocated to the
prospecting and the petroleum exploration in the Delimited Zone, and appearing
in the list reproduced in Appendix II of Document No. 2/98-UDEAC-1508-CD-61
of July 21, 1998. This exemption applies to imports made directly by
Contractor itself, by Third parties on its behalf and its subcontractors,
subject to producing the final utilization certificate.


 


For the application of this rule, prospecting and exploration drilling
is considered to be any well, which has not produced 10,000 tons of Crude Oil.


 


c)             Under the same
conditions as above, admission at the reduced global rate of 5% of the fees and
duties levied on import of the materials, equipment, products; machines,
devices and tools which, while not included in the category of goods referred
to in paragraphs a and b above, are necessary, intended and allocated to the
production, storage, processing, transport, shipping and transformation of
hydrocarbons form the Exploitation Zone, provided they appear in’ an approved
development program.


 


The benefit of the reduced rate is granted by the General Director of
Customs and Indirect Taxation at the request of Contractor,


 


·                  upon production
of a general import program,


 


·                  or after
particular steps taken to be admitted for the reduced rate, by Contractor, at
least fifteen days before the arrival of the goods in question.


 


These requests must specify:


 


·                  the commercial
name of the goods and the tariff category under which they are placed.


 


·                  the quantities
and their FOB and CIF value.


 


d)            Personal and
household effects and objects imported by the foreign personnel of the
Contractor used in the activities included in the oil operations, for the
change of residence, are admitted under tax exemption under the conditions and
within the limits established by the Customs Code, especially under Article 241
paragraph g) of the Customs Code of UDEAC.


 


34.2


Contractor, third party importers on its behalf and its sub-contractors
undertake to make the imports necessary for the oil operations only to the
extent that the goods concerned are not available in Gabon and their similar
conditions of price, quality and delivery term.


 


61

















 


34.3


Subject to Article 34.7, goods other than those indicated in the
above provisions are subject to the fees and the taxes levied by the customs
administration according to common law.


 


34.4


Subject to complying with their customs obligations, as they arise from
Articles 34.1 to 34.3 and from the current regulations, Contractor, the third
party importers on it behalf and its sub-contractors may re-export, exempt of
all fees and duties, the goods imported under Article 34.1 a), provided
they are no longer necessary in the oil operations.


 


34.5


All imports. exports and re-exports made under the contract are subject
to the formalities required by the Customs Administration.


 


34.6


All of the operations of customs release carried out under the contract
are subject to the provisions of ordinance No. 20/87 of October 24,
1987, to the extent that it remains valid or applicable in practice.


 


34.7


The exports of hydrocarbons made hereunder will be exempt from all
taxes, royalties, fees and duties of any nature whatsoever.


 


62

















 


ARTICLE 35


 


SATISFACTION OF THE NEEDS OF THE INTERNAL MARKET


 


35.1


Contractor must contribute to meeting the needs of the internal market
by delivering to the State or to the agencies designated by it a quantity of
Crude Oil proportional to the share of production allocated to it pursuant to
Articles 24.2 and 25.1, out of the total production of Gabon, whereby the
quantity of Crude Oil delivered may not in any case exceed seven percent (7%)
of its share of production. The quantity to be delivered will be determined
before the end of each Calendar Year for the following Calendar Year based on
production estimates and the needs of the internal market for the Calendar Year
in question. The necessary adjustments will be made as soon as the final data
become known.


 


35.2


The transfer price by Contractor of the quantity of hydrocarbons
intended to meet the needs of the internal market is equal to the Official
Transfer Price with an abatement of fifteen percent (15%). It is payable in CFA
francs. The aforementioned abatement is charged to the Account of the Oil
Costs.


 


35.3


The Crude Oil transferred under this article is delivered by Contractor
to the place of use or consumption designated by the Administration, using the
transport means available and usual. In the event of unavailability of such
means Contractor will have the possibility to discharge its obligations  by using technical exchanges with other
companies.


 


35.4


The transfer of Crude Article under Article 35.1 is paid
within ninety days from the delivery date.


 


63

















 


ARTICLE 36


 


EXPORT OF HYDROCARBONS, TRANSFER OF PROPERTY AND RULES FOR AVAILABILITY


 


36.1


Subject to the respect of the regulation in force, Contractor its
customers and their carriers will have, throughout the term of the Contract,
the right to export, through the appropriate export point, the share of
hydrocarbons to which Contractor is entitled under the terms of the Contract,
less deliveries made for the contribution to the satisfaction of the needs of
the internal market referred to in Article 35.


 


36.2


In favor of Contractor, the transfer of property of the share of
hydrocarbons referred to above takes place at the time when it actually has
this share available. It is however held to contract, as soon as the production
is carried out, all insurance necessary to cover all defects, losses or damage
which may occur and affect the hydrocarbons.


 


For the needs of the accounting of the Oil Costs; the aforementioned
withholdings of hydrocarbons are supposed to take place at the end of each
calendar month for the quantities issued during said month, from the storage
installations to the evacuation channels or the loading installations for
export.


 


In the event of export by oil tanker, the transfer of property takes
place when crossing the connection point from the loading installations to the
ship.


 


The transfer of property of the quantities of hydrocarbon transferred
by Contractor for the contribution to the satisfaction of the needs of the
internal market is done CIF place of use, at the entrance of the storage
installations of the organizations which allocate these quantities.


 


36.3


The Administration indicates an expert company which it entrusts to
supervise, inspect and control the withdrawals of hydrocarbons and the
management of the loading terminal and its installations.


 


Expenses caused by these operations are reimbursed to the
Administration by Contractor, which includes them in the Oil Costs.


 


36.4


The State and Contractor will reach an agreement on the procedure of
withdrawal of their respective hydrocarbon shares, the situations of
over-withdrawal and under-withdrawal and the right of the parties to make the
withdrawal only when the quantities to be withdrawn are economically sufficient
to constitute to a cargo.


 


The Parties will periodically agree to stop the estimated program of
their withdrawals and will make their best efforts to have joint shipments, if
necessary, to avoid situations of over-withdrawal or under-withdrawal between
them.


 


As soon as a quantity of hydrocarbons available in stock at the point
of export is sufficient to ensure the loading of oil tankers, the first
shipment will be carried out on behalf of the State.


 


64

















 


ARTICLE 37


 


PROTECTION OF THE RIGHTS


 


37.1


Contractor will take all measures necessary to reach the objectives of
Contract, will compensate and indemnify suitably the Third parties for any
damage or loss that itself, its employees, its subcontractors and their
employees may cause to their person, their goods or their rights in connection
with the oil operations. It assumes the civil liability for any damage, loss or
defect suffered by Third parties resulting from its errors, faults or
negligence, and must pay for all repairs and damages that may be owed.


 


37.2


The State will take all measures necessary and possible to facilitate
the oil operations, the achievement of the objectives of the Contract and to
protect the goods and the rights of Contractor, its employees and agents on its
own territory and its sections.


 


37.3


At the request of Contractor and on justification from it, the
Administration may prohibit the construction of buildings for the use of
dwelling or professional use near dangerous installations due to the oil
operations and will take the necessary provisions to prohibit anchoring and
traffic next to immersed channels and to put an end to any obstacle to the use
of any installation necessary for the oil operations on ground or at sea.


 


65














 


ARTICLE 38


 


PERSONNEL


 


38.1


Contractor is
held, for the realization of the oil operations, to employ, as far as possible,
national labor in a minimum proportion of eighty percent of its total staff.
Specialized and qualified personnel may be hired out of Gabon if it is not
available in the country.


 


The personnel
must be replaced as Contractor recruits Gabonese personnel whom it promises to
train. Three years after the starting of production, Contractor will present to
the Administration a “Gabonization” program of the jobs with responsibilities
in the company. Contractor must inform the Departments Responsible for
Hydrocarbons of the jobs available and of the steps made to recruit Gabonese.


 


38.2


The competent
Administration delivers, in accordance with the regulations, the documents
necessary for the entry of foreign personnel in Gabon, such is visas, work and
stay permits. Contractor takes the steps necessary for this purpose.


 


At the request
of Contractor, the Administration can intervene to facilitate immigration
formalities with the competent departments, at the entrance and exit points of
the employees of Contractor, its contractors, subcontractors, agents, as well
as their family.


 


38.3


Since the
employees working in the oil operations are under the authority of Contractor
or its contractors, subcontractors and agents, in their capacity as employers,
their work, numbers of hours, wages and all other methods related to their
employment conditions are determined by the latter, according to labor and social
legislation in force.


 


38.4


Contractor
must, in dialog with the Administration, train and promote its Gabonese
employees. The Technical Committee for the Follow-up of Oil Operations is
informed of the methods and conditions for the application of this provision.


 


66

















 


ARTICLE 39


 


TRAINING OF
GABONESE OTHER THAN THOSE


EMPLOYED BY
THE CONTRACTOR


 


39.1


In addition to
the obligation indicated in Article 38, Contractor is obligated to
contribute to the training of other Gabonese indicate by the Administration, by
devoting to this training:


 


(i)             Three hundred
thousand US Dollars (300,000 USD) per Calendar year in exploration phase


 


(ii)          Five hundred thousand US
Dollars (500,000 USD) per Calendar year in exploitation phase


 


The
contributions defined in the paragraphs above are allocated:


 


·                                          partly
to the training of Gabonese in higher schools or universities of international
prestige; the training program is established by the Administration in charge
of hydrocarbons;


 


·                                          partly
to the training “on the job” of Gabonese on sites and in the main centers of
activities of Contractor: the conditions of this training are established
individually by mutual agreement;


 


·                                          partly
to the training, outside the structures of Contractor, in the form of
participation in seminars or transfers to other companies, of Gabonese
personnel chosen by the Administration.


 


The payment
and use terms of the amounts, indicated in this article are established by
mutual agreement between the Administration and Contractor, according to
national priorities.


 


At the
expiration of the Exclusive exploration Authorization or at the and of the
period of exploitation of the deposits of the Delimited Zone, Contractor will
pay to the Administration the amounts noted above, pro rata temporis.


 


39.2


The
contributions referred to in this article are included in the Oil Costs.


 


67

















 


ARTICLE 40


 


ACTIVITY
REPORTS IN DEVELOPMENT AND EXPLOITATION PERIOD


 


40.1


Except as
indicated in special provisions, the provisions of Article 11 of the
Contract concerning the documents and data referring to exploration work,
activity reports and other information, are applicable, “mutatis-mutandis,” to
development work, exploitation, transport and storage.


 


40.2


The activity
reports must include, moreover, a statement of the production carried out
during the previous month, as well as a statement of the quantities of
hydrocarbons sold, during this month, by Contractor, both on its own account
and if applicable, on benefit of the State, pursuant to the provisions of Article 25.2;
the statement of quantities sold indicates the references of the sale contract,
the name of the purchaser, the quantities sold, the unit price, the total
amount of the sale, the characteristics of the ‘hydrocarbons sold and the final
country of destination.


 


40.3


The activity
reports must also include:


 


a)              the information
concerning all development, production and of exploitation operations of the
Calendar year concerned, and the total quantities of hydrocarbons produced and
sold;


 


b)             the information
concerning all transport operations, as well as the location of the main
installations built by Contractor;


 


c)              a statement
mentioning the number of employees, their qualification, their nationality, the
total amount their wages, and the instruction given to them, as well as a
report on the services and medical equipment placed at their disposal;


 


40.4


Each company
constituting Contractor transmits, also to the Departments Responsible for
Hydrocarbons, at the latest by April 30 of each year, a copy of the
characteristic operating balance referred to in Article 26.4.


 


40.5


Contractor
informs the Minister of Hydrocarbons in writing, as soon as possible, of any
damage of any nature whatsoever, caused to the Deposits or production
installations. It takes all measures to remedy them and to make the necessary
repairs.


 


40.6


The provisions
of Article 11.5 apply mutatis mutandis
to any document or sample relating to the operations of development,
exploitation, transport and storage, and the Parties are subjected to the same
obligations.


 


68

















 


ARTICLE 41


 


PAYMENTS


 


The proceeds
of hydrocarbon sales carried out by one of the Parties on behalf  of the other must be paid within ninety (90)
days from the withdrawal date, except as otherwise agreed between the Parties
in order to take into account the particular marketing conditions.


 


Any other
payment to the State must be made on the due date, unless otherwise established
in the Contract.


 


69

















 


ARTICLE 42


 


TRANSFER OF
INTERESTS


 


42.1


Without
prejudice to the provisions of the Article 19 governing the Participation
of the State, each company constituting Contractor may transfer all or part of
its interests arising from the Contract to Third parties, if the good technical
and financial reputation of such parties is well established; then, the
transferees become jointly responsible with the other companies constituting
Contractor for the performance of the Contract. The rights and obligations of
the transferor related to the share of the interests so transferred are
completely transferred to the transferees.


 


However, the
State has a pre-emption right on the transfers referred to above under the
conditions and according to the procedures indicated below:


 


· this right may not
be implemented by the State in exploration period;


 


· before the
transfer becomes effective, the State must have refunded completely the amounts
owed to it for its share as they appear in the Sharing Account – State referred
to in Article 19;


 


· The State will
then be substituted to the Third party buyers under the same terms and
conditions, without application to this additional share subject to preemptive
right of the provisions related to the financing of its share, at they result
from Article 19 and from the financing agreement.


 


This
pre-emption right is granted intuitu personae to the State and is not
transferable.


 


42.2


Before a
transfer to Third parties becomes effective, the transferor must obtain the
approval of the Administration which will not be refused without valid reason.
For this purpose it is obligated to inform the latter in writing, specifying
the name, quality and nationality of the purchasers, all indications related to
their financial and technical capacities, to their legal status, as well as the
financial procedures and conditions of the planned transfer and to communicate
a certified true copy of the transfer contract, signed and executed under the
condition precedent of approval and non-exercise by the state of the
pre-emption right referred to in Article 42.1.


 


If the
Administration does not oppose in writing within thirty days following the date
of receipt of the aforementioned information and if the State does not exercise
the pre-emption right referred to in Article 42.1 within the same term of
30 days, the approval is deemed obtained.


 


42.3


If, because of
a partial transfer of its interests, the transferor obtains financial profit,
it is deducted from the Oil Costs. If the transfer concerns the entirety of its
interests, the transferor is subject, up to the amount of this financial profit
to corporate tax at common law rate.


 


For the
application of the preceding subparagraph: [signatures]


 


·                 There is
financial profit only in case that the transfer price is received in cash and
Contractor does not reinvest the transfer price in its oil operations carried
out in Gabon;


 


·                 The financial
profit is made up of the difference, if positive, between the transfer price
and the amount not revalued of the Oil Costs not yet recovered by transferor
and calculated, in the event of partial transfer, proportionally to the
percentage of interests transferred.


 


70

















 


Transferor
communicates to the Administration all information likely to make it possible
for the latter determine this profit.


 


When, in the
event of partial transfer, the price obtained is lower than the quota of the
Oil Costs not recovered related to the transferred participation, transferor
deducts in its accounting only the aforementioned quota of the Oil Costs; it
loses any right to recover the depreciation incurred.


 


Transferee
re-enters, in its accounting, either the Oil Costs not recovered by the transferor
related to the participation acquired, or the effective acquisition  price if lower than the Oil Costs not
recovered by transferor.


 


When, in the
event of transfer, the price paid is higher than the quota of the non-recovered
Oil Costs related to the participation purchased, the transferee re-enters in
its accounting the Oil Costs not recovered by the transferor related to the
participation acquired and may not, in any case, increase its oil costs by the
amount of the price paid, higher than these Oil Costs.


 


The transferee
may not, in any case, include in the Oil Costs the cost of the profit referred
to above which it will have paid to transferor and thus covered itself.


 


42.4


Each company
constituting Contractor may transfer, freely and at any time, all or part of
its interests arising from the Contract, to one or more Affiliated Companies or
other companies constituting Contractor. However, Transferor must inform the
Administration in writing. These transfers must not, in any case, be likely to cause
damage to the interests of the State, to obstruct the realization of the oil
operations or to reduce the technical and financial capabilities of Contractor.
If the Administration estimates that such is the case, it can oppose these
transfers.


 


The provisions
of Article 42.3 apply to the transfers carried out within the framework of
this article.


 


42.5


The transfers
carried out within the framework of this Article 42 must not, in any case,
be likely to damage the interests of the State, interfere with the realization
of the oil operations or reduce the technical and financial capabilities of
Contractor. If the Administration estimates that such is the case, it may
oppose these transfers and notify transferor under the conditions specified in
the second subparagraph of Article 42.2.


 


The transfers
made in violation of the provisions of this Article 42 are null and void.


 


71

















 


ARTICLE 43


 


APPLICATION OF
THE CONTRACT


 


43.1


Subject to the
provisions of the paragraph below and Article 43.4, the State guarantees
to Contractor, for the term of the Contract, the stability of the legal, tax
and customs, economic and financial conditions, such as these conditions result
from the Contract and the laws and regulations in force at the signing date.
These conditions may not be worsened, and the general and total equilibrium of
the Contract will not be affected in a notable and durable manner during its
term.


 


Contractor
will profit, at its request, of all provisions more favorable than those
resulting from the application of the provisions of Articles 26, 31 and 34 of
the Contract and which would result from laws and regulations enacted after the
Effective Date of this Contract.


 


43.2


The Parties
agree to cooperate in all possible ways in order to achieve the goals of the
Contract. The Administration will facilitate to Contractor the performance of
its activities by granting all permits, licenses, rights of access necessary,
making available to it all existing Facilities and appropriate services, so
that the Parties may obtain the best profit from an honest mutual cooperation.
However, Contractor must comply with the procedures and formalities of use and
contact the competent departments of the Administration to obtain the necessary
approvals and authorizations. It is obligated to inform the Departments
Responsible for Hydrocarbons of the steps, contacts or correspondences carried
out and maintained by it with the other departments of the Administration.


 


43.3


Any total or
partial nationalization or expropriation of the rights of Contractor gives rise
to fair and equitable compensation in accordance with internationally
recognized rules and principles.


 


43.4


Adjustments or
modifications of the Contact may be decided upon by mutual consent. In this
case, the terms and conditions at the Contract may be modified only in writing.


 


72

















 


ARTICLE 44


 


UNITIZATION


 


44.1


In the case of
a commercially exploitable hydrocarbon discovery which would extend beyond the
Delimited Zone, inside a perimeter held by another entity, the Administration
may send a written request to Contractor and to the aforementioned entity, to
invite them to develop and work jointly the discovery within the framework of a
mutually advantageous cooperation, in agreement with the rules and
practices in use in the oil industry. For this purpose, a common development
and production plan of the discovery must be proposed to the Administration by
the interested Parties within a time not exceeding 180 days.


 


44.2


In the absence
of presentation of the plan to the Administration within the time indicated
above, the Administration will ask an independent consultant acceptable to the
Parties to prepare such plan.


 


The Parties
will have a term of 60 days to examine and approve the development and
production plan prepared by the consultant and 90 days to start its
application.


 


The expenses
of preparation of the plan will be paid by Contractor the entity holding the
perimeter of the location of the hydrocarbons discovered.


 


If Contractor
refuses to apply the recommendations of the development and production plan
within the term defined above, it must waive its right to exploit the discovery
and consequently, release the zone concerned.


 


73

















 


ARTICLE 45


 


SANCTIONS AND
FORFEITURE


 


45.1


Contractor’s
violation of the provisions of the Contract may cause its cancellation by the
Administration if, after warning addressed to Contractor, in accordance with
the provisions of Article 49.10, asking it to put an end to the violation
and, if applicable, to make the corrections, adjustments el rectifications
required, the latter does not answer the request of the Administration. The
cancellation is pronounced by decree.


 


45.2


Without
prejudice to the penal sanctions set forth in regulations, the following
violations of the Contract cause its full cancellation, after warning which
remains without effect within the month following receipt:


 


a)             refusal to communicate to the
Administration, within the term granted, the information referred to in
Articles 5. 8.7, 11, 20.1, 21.1. 21.5, 26.9, 33, 40 and 49;


 


b)            absence of payment, within the term
granted, of bonuses and royalties, under the conditions and according to the
methods defined in Articles 26.1, b). 26. 1d) and 28, as well as the sums
referred to in Article 39.1;


 


c)             absence of payment, within the term
granted, of the proceeds of the sale of any quantity of hydrocarbons allocated
to the State for its share of production, when Contractor sells it pursuant to Article 25.2.


 


d)            non-delivery to the State of its
share of production in kind, pursuant to Article 25.2, or of the
proportional mining royalty pennant to Article 26.1d);


 


e)             suspension or restriction, without
legitimate reason, of the exploitation of the Deposits discovered in the
Delimited Zone.


 


For the
application of the provisions of the preceding paragraph, the modifications
related to economic factors, such as the variations affecting the international,
market of hydrocarbons, may not be claimed to constitute legitimate reason.


 


45.3


The decision
of the Administration to terminate the Contract, pursuant to the provisions of
Articles 45.1 and 45.2, is communicated in writing to Contractor; the latter forfeits
all its interests arising from the Contract and loses the right to recover its
Oil Costs.


 


However, if
Contractor intends to dispute the good grounds of the decision of the
Administration, the disagreement will then be settled by arbitration under the
conditions referred to in Article 50, being specified that no measure of
forfeiture may be pronounced by the Administration in accordance with Article 45.1
or 45.2 for the reason noted in Article 45.2 e) until the settlement of
the dispute. In this case, the duration of the Exclusive Exploitation
Authorization will be automatically prolonged for the duration of the
suspension.


 


45.4


The
cancellation of the Contract does not cause the release of the Parties from
their contractual obligations created before the cancellation of the Contract
and not yet honored at the date of cancellation.


 


74

















 


ARTICLE 46


 


OPERATIONS ON
BEHALF OF THE STATE


 


46.1


If, during the
exploration periods referred to in Article 3, the State wants, for a given
drilling, to examine and test geological levels deeper than those proposed by
Contractor or referred to in Article 4, it asks Contractor to continue the
aforementioned drilling until these targets, at the expenses and risk of the State.
For this purpose, the Administration sends to Contractor a written request
which must reach it, to the extent possible, before the beginning of drilling
or, failing this during it, but in any case after the beginning of the
operations of completion or abandonment of the well.


 


Said request
establishes the time beyond which Contractor is reputed to have refused.


 


If Contractor
refuses to carry out deepening work, the State may also hire, at its risk and
expense, a third-party company to deepen the well for its account and according
to conditions freely established by it.


 


46.2


Contractor may
decide, before the beginning of the operations of deepening of the well, to
take responsibility for the financing of these operations; in this case, the
corresponding expenses is included in the Oil Costs and any resulting
hydrocarbon discovery is considered to be made within the framework of the
Contract.


 


46.3


If the
deepening of a well, done at the expenses and exclusive risk of the State,
leads to a hydrocarbon discovery, the State alone has the right, at its
expense, risk and peril, to develop this discovery and dispose of the
hydrocarbons produced.


 


75














 


ARTICLE 47


 


JOINT LIABILITY AND
GUARANTEES


 


47.1


The clauses of the Contract are bonding for the
Parties, and for their respective successors and assigns. They constitute the
only agreement between them. No prior verbal or written promise or convention
of the Parties related to the object of the Contract may invoke to modify them
or give them a different interpretation.


 


The State guarantees that there is no other agreement
on the oil operations in the Delimited Zone having for object or effect to
grant to third parties rights coming in conflict with those granted to
Contractor hereunder.


 


47.2


The oil operations may be carried out, at the choice
of each company constituting Contractor, through a subsidiary company or a
branch registered in Gabon and created for this purpose.


 


76

















 


ARTICLE 48


 


FORCE MAJEURE


 


48.1


Force majeure means any unforeseeable, insurmountable
and irresistible event, not imputable to the Party which claims it, but to
circumstances beyond its control, such as flood, earthquake, accident, strike,
lockout, riot, delay in obtaining the right-of-way, impossibility or impediment
to get equipment or materials in the market, insurrection, civil unrest,
sabotage, act of war or conditions of war, compliance of Contractor with any
ordinance, law, payment, decision, obligation or any other causes beyond its
control, similar or different from that already quoted and which makes it
impossible to perform all or part of its contractual obligations.


 


48.2


Any delay or failure of a Party to perform the clauses
of the Contract and the resulting obligations will not be regarded as a
violation of the Contract if such delay or failure is due to a case of force
majeure as defined in 48.1. The duration of the resulting delay, plus the time
that may be necessary to remedy the damage caused because of - or during this
delay, is added, if necessary, to the time set forth in the Contract.


 


48.3


The force majeure can be invoked only for the
obligations whose performance became temporarily impossible.


 


48.4


In the event of occurrence of an event of force
majeure, the duration of the ongoing period of an Exclusive Exploration
Authorization or an Exclusive Exploitation Authorization, as the case may be,
will be automatically prolonged by a term equal to that of the force majeure.


 


77

















 


ARTICLE 49


 


EXAMINATIONS, CHECKS AND
CONTROLS


 


49.1


The Administration has general control capacity on all
oil operations; for this purpose, it has a right of communication of everything
directly or indirectly related to the oil operations.


 


The representatives of the Administration may inspect,
check and control all phases of the oil operations and, in particular, be
present during the well tests. For this purpose, Contractor must provide all
assistance necessary to the people designated by the Administration and
facilitate their interventions.


 


Following inspections, checks and controls of the oil
operations, the Administration may require Contractor to carry out any
operation that appears necessary to ensure the safety and hygiene on work
places, as well as optimal exploitation of the Deposits, in the interest of
both Parties.


 


49.2


The State, and the other entities constituting
Contractor may undertake, through experts of their choice or by their own
agents, all examinations, checks and controls of an accounting, financial,
legal or technical nature which they consider necessary or useful for their
information on the conduct and course of the activities of Contractor, on the
technical methods used by it and on the Oil Costs, as well as the exercise of
their right to examine, check and control these activities and the related Oil
Costs.


 


As part of the examinations, checks and controls
referred to above, Contractor may be asked, according to the procedure referred
to in Article 49.10, to make all adjustments, rectifications, corrections
and changes deemed necessary, useful or justified.


 


49.3


The examinations, verifications and controls indicated
above must be made within two years following the end of the exploration
periods referred to in Article 3 or, in phase of development and
production, for one given Calendar Year, within the same term of two years
following the end of said Calendar Year. Contractor receives front the
Administration communication of the conclusions and results of the
examinations, controls and checks carried out.


 


49.4


A certified true copy of the reports and conclusions
established after these examinations, checks and controls must be delivered to
the Administration when those are carried out by the enterprises constituting
Contractor. The Operator or the companies constituting Contractor are obligated
to inform the Administration of the actions taken concerning the conclusions
and recommendations of the reports drawn up following the examinations, checks
and controls carried out.


 


49.5


In the absence of examinations, checks and controls
within the time set forth in Article 49.3, 1st subparagraph, no adjustment
may be made afterwards. The accounting of The Oil Costs for a considered period
will be accepted at the end of the terms established in Article 49.3 for
the audit of the aforementioned period.


 


49.6


Notwithstanding the provisions above, the
Administration may, moreover, within its normal right of control and
repetition, as indicated in the regulations in force, carry out at any time
examinations, checks and controls through experts of his choice or its own
agents.


 


78

















 


49.7


For purposes of application of the provisions of this
article, Contractor gives to the Administration, at the latest on April 30
of each year, a detailed report of its activities in the preceding Calendar
Year. This report includes, in particular and in addition to technical data, a
detailed calculation of the Oil Costs related to that Calendar Year, presented
in accordance with the Accounting Procedure. The files of Contractor as well as
the registers, accounting and technical records and backup documents necessary
related thereto are made available to the interested Parties pursuant to the
above provisions, and presented at any request or requisition of the latter.


 


49.8


The expense incurred by the Administration at the time
of the examinations, checks and controls carried out pursuant to the provisions
of the articles above, are paid or, if necessary, refunded by Contractor and
included by the latter in the Oil Costs.


 


49.9


Subject to the prescription terms set forth in the
regulation in force and the Contract, and notwithstanding the provisions of
Article 49.2, the Administration may require, in writing, all information,
justifications and explanations, as well as all documents, records, studies and
accounting records, financial, legal and technical documents it deems necessary
or useful for its information on the control and course of the activities of
Contractor and on the Oil Cost as well as the exercise of its capacity to
examine, check and control these activities and the Oil Costs.


 


49.10


If, based on the elements and information it has or
obtains either from Contractor itself or from Third-parties, the Administration
considers that the accounting records, files, documents and accounts and the
Oil Costs contain errors, inaccuracies, insufficiencies or gaps, or that
Contractor committed a fault or irregularity in the performance of its
obligations, and that it is necessary to make corrections, adjustments,
rectifications or modifications, it sends written notice to it for this
purpose. Contractor then has a term of thirty (30) days from the date of
receipt of said notice to make the corrections, adjustments, rectifications or
modifications requested, or to present its observations, either in writing, or
by asking for a meeting to this end with the Administration. If Contractor
requests, it will be given by the Administration an additional time, as
requested, in order to make the corrections, adjustments, rectifications or
modifications requested by the Administration. The additional time requested
may not exceed ninety (90) days. The Administration notifies Contractor in
writing, within one hundred twenty (120) days, of its position on the
corrections, adjustments, rectifications or modifications requested and on the
explanations and justifications provided.


 


If at the end of the above procedure, a disagreement
persists between the Administration and Contractor, the disagreement is settled
by arbitration, in accordance with the provisions of Article 50. However,
for technical disputes, and prior to arbitration, the opinion of an expert
appointed by mutual agreement may be obtained. The terms indicated above are
then extended accordingly.


 


79

















 


ARTICLE 50


 


GOVERNING LAW/ARBITRATION


 


50.1


This Contract is governed and interpreted according to
Gabonese law completed by the general principles of international commercial
law.


 


50.2


All disagreements arising from this Contract or
related to it will be resolved definitively according to the Arbitration
regulation of the International Chamber of Commerce, by one or several
arbitrators appointed in accordance with said Regulation. The Parties will
maintain strict confidentiality concerning the arbitration proceedings.


 


50.3


The arbitration takes place in Paris (France). The language
used is the French language. The Parties will keep complete confidentiality
regarding the arbitration.


 


50.4


Each of the Parties pays the expenses and fees of its
arbitrator. The expenses and costs of the third arbitrator, as well as the
other expenses incurred for arbitration will be paid in equal proportions by
the two Parties.


 


50.5


The performance by the Parties of their obligations
resulting from the Contract other than those constituting the object of the
disagreement is not suspended during the course of the arbitration.


 


50.6


The Parties hereby waive claiming any immunity at the
time of any proceeding related to the execution of provisional or conservative
measures ordered by a third party pursuant to the above regulation, and any
arbitration award rendered by a tribunal constituted in accordance with this
Article 50, including any immunity concerning the summons, any immunity of
jurisdiction and any immunity of execution concerning their assets.


 


80

















 


ARTICLE 51


 


NOTIFICATIONS


 


51.1


The notifications and other communications made within
the framework of this Contract must, to be valid, be made in writing and
delivered in person to a qualified representative of the other Party, or sent
to the latter by registered mail, fax or other telecommunications means, all
expenses paid, to the following address:


 


For the Gabonese State:


 


Ministry of Mines, Energy, Petroleum and Hydraulic
Resources


P.O. Box: 874 or 576


Libreville, GABON


Fax: (241) 72 49 90


To the attention of the Minister of Mines, Energy,
Petroleum and Hydraulic Resources


 


With copy to:


General Department of Hydrocarbons


P.O. Box 2199


Libreville, GABON


Fax: (241) 74 80 78


To the attention of the General Manager of
Hydrocarbons.


 


For technical information and the practical methods of
performance of the contract, notifications will be sent to:


 


General Department of Hydrocarbons


P.O. Box 2199


Libreville, GABON


Fax: (241) 74 80 78


To the attention of the General Manager of
Hydrocarbons


 


For Contractor:


Total Gabon


Boulevard Hourcq


P.O. Box 525


Port Gentil, GABON


To the attention of the General Manager.


 


51.2


The notifications and other communications referred to
in the Contract are considered sent by a Party when they were delivered in
person to a competent representative of the other Party, at his elected
domicile in Gabon, sent by telegram, cable, telex, email, fax or other
telecommunications means, all expenses paid, or mailed and entrusted as
registered letters with the necessary postage, to the post offices of Gabon.
The notifications and other communications will be considered issued on the
date the recipient receives them.


 


81

















 


ARTICLE 52


 


EFFECTIVE DATE


 


The Contract binds the Parties as of its signing date
and is approved by Decree. With the reservation made in Article 28.1, it
enters into effect on the Effective Date.


 


The objective of the Parties is to obtain the
enactment of the aforementioned Decree approving this Contract and granting the
Exclusive Exploration Authorization as soon as possible after the signing of
the Contract. Consequently, the Parties undertake to make their best efforts to
obtain the enactment within thirty (30) days following the signing.


 


In witness whereof the Parties have signed the
Contract in ten (10) counterparts.


 


	
   

  	
  Libreville, DEC. 13, 2006

  
	
  For the Gabonese Republic.

  	
  For Total Gabon

  
	
  The Minister of Mines,
  Energy, Petroleum

  	
  General Director

  
	
  and Hydraulic Resources

  	
  [seal and signature]

  
	
  [seal and signature]

  	
  Jean B

  
	
   

  	
   

  
	
  Richard Auguste ONOUVIET

  	
   

  
	
   

  	
   

  
	
  Minister of State

  	
   

  
	
  Minister of Finance,
  Budget and Privatization

  	
   

  
	
  [signature]

  	
   

  
	
   

  	
   

  
	
  Paul TOUNGUI

  	
   

  



 


82

















 


APPENDIX 1: DELIMITED ZONE OF THE DIABA BLOCK


 


FLAT AREA


 


PEAK COORDINATES


 


Projection


Ellipsoid


Datum:


 


Update 7/5/2006


 


[see original for plan]


 














 


APPENDIX No. 2


 


ACCOUNTING
PROCEDURE


 

















 


SUMMARY


 


DEFINITIONS


CHAPTER I - GENERAL RULES AND PRINCIPLES


1-1/ General provisions


1-2/ Account structure and currencies


CHAPTER II - GENERAL ACCOUNTING


II-I/ Principles


II-2/ Balance sheet


II-3/ Expense accounts


II-4/ Profit and loss accounts


CHAPTER III - ACCOUNTING OF OIL COSTS


III-1/ General Rules and Principles — Classification and Grouping


III-2/ Analysis of expenses and charging methods


III-3/ Operating expenses


III-4/ Overhead


III-5/ Expenses not imputable to Oil Costs


III-6/ Elements deducted from Oil Costs


III-7/ Material, equipment and installations sold by Contractor


CHAPTER IV - INVENTORY RULES AND PROCEDURES


CHAPTER V - WORK PROGRAMS AND ANNUAL BUDGETS


V-1/ General Rules


V-2/ Presentation


CHAPTER VI - AUDITING OF ACCOUNTS


VI-l/ General provisions


CHAPTER VII - STATEMENTS OF ACHIEVEMENTS — SITUATIONS — REPORTS


VII-1/ Principles


VII-2/ Statement of exploration work


VII-3/ Statement of development and exploitation work


VII-4/ Statement of variations in fixed assets accounts and inventories
of material and consumables


VII-5/ Production statement of the month


VII-6/ Statement of estimated annual production


VII-7/ Statement of quantities of crude oil and natural gas transported
during the month


VII-8/ Statement of the pickups of the month


VII-9/ Statement of recovery of Oil Costs


VII-10/ Inventory of crude oil and natural gas


VII-11/ Statement of movables and immovables purchased, created, leased
or manufactured


VII-12/ Statement of payments to the RES account


VII-14/ Special provisions


CHAPTER VIII - COST OF USE OF THE INSTALLATIONS OWNED BY TOTAL GABON


VIII-1/ Definition


VIII-2/ Base for charging the cost of the use of the installations


VIII-3/ Determination of the value of the base of calculation of the
charge representing the cost of the use of the installations


VIII-4/ Annual revaluation


VIII-5/ Calculation of the annual charge o the cost of use of the
installations


VIII-6/ Posting of the charge of the cost of use of the installations


 

















 


DEFINITIONS


 


“Performance
Base”: principle of organization of the accounting based on the principle of
recording of the operations in accounting as of their performance, whether or
not such operations were billed, paid or collected.


 


“Cash Base”:
principle of organization of the syntheses and statements of the Oil Costs as
well as the methods of calculation of the Calls for Funds which is based on the
principle of taking into account the operations at the time of their payment or
actual collection.


 


CHAPTER I. -
GENERAL RULES AND PRINCIPLES


 


I- 1/ General provisions


 


This
accounting procedure constitutes an appendix to the Contract of which it is an
integral part. It reviews the main accounting rules and establishes the
specific rules and principles applicable to the accounting of the Oil
Costs, as well as accounting methods, rules and procedures Contractor must
follow, the reports, statements, declarations, documents, information and data
of a technical, accounting, financial or legal nature, periodic or not, which
must be provided to the Departments Responsible for Hydrocarbons.


 


The terms used
in this appendix have the same meaning as that given to them in the Contract,
unless the context clearly gives them a different meaning. The term
“Contractor” will be replaced by “Operator” in charge of the management of oil
operations or by the “members of Contractor” especially in case of obligations
assumed by them personally.


 


In case of
contradiction or divergence between this appendix and the stipulations of the
Contract, the latter prevail.


 


I-2/ Account structure and currencies


 


Contractor
keeps its accounting in French and in US Dollars.


 


The operations
carried out in currency other than the US Dollar are recorded temporarily on
the basis of the standard rates of exchange established by the company to be as
close as possible to the prevailing rates of exchange during the recording
period. Collections and disbursements are posted at the actual rate of exchange
at the time of the transaction.


 


The gaps found
between the initial record at the standard rate of exchange and the amount
resulting from the application of the effective rate of exchange in force at
the time of the payment or collection are posted to the same accounts as those
used for the initial record so as to emphasize, for each of said accounts, the
capital losses suffered and the capital gains obtained because of the
fluctuations of the rates of exchange compared to the US Dollar.


 


When
Contractor carries out in Gabon other activities at the same time with the oil
operations, its accounting must be organized so as to make it possible to
determine, follow and distinguish, with the necessary precision, the accounting
and financial elements related to the oil operations. The achievements related
to the oil operations will be materialized in specific accounts open in a
special chapter of the accounting books of Contractor. The corresponding
accounts and budgets are kept on a Performance Basis. The syntheses and
follow-up statements of the Oil Costs are prepared on a Cash Basis.


 


All accounting
records, accounts, balance sheets, books and statements, as well as the
original supporting documents, contracts, invoices and other documents, are
kept in Gabon and must be presented at any request of the Departments
Responsible for Hydrocarbons within the framework of chapter VI-1 related to
the auditing of the accounts.


 

















 


All reports,
statements and documents the company must provide to the Departments
Responsible for Hydrocarbons, either under the regulations in force or pursuant
to the Contract, must include all data, information and indications such
competent departments wish to obtain. Said reports, statements and documents
must be in accordance with the models established, if any, by the Departments
Responsible for Hydrocarbons.


 

















 


CHAPTER II -
GENERAL ACCOUNTING


 


II-1/ Principles


 


The general
accounting recording the activities of the companies constituting Contractor,
carried out under the Contract must be in conformity with the rules, principles
and methods of the General Corporate Accounting Plan in force (OHADA Accounting
Plan).


 


However, said
companies may apply the rules of the Professional Accounting Plan and
Guide of Hydrocarbon Research and Exploitation Companies as well as the
accounting techniques they usually employ, provided neither of them are
contrary to the regulations and the General Accounting Plan referred to above.


 


II-2/ Balance sheet


 


The general
accounting must accurately reflect the equity situation of the company, both
under assets and liabilities, and allow for preparing a sufficiently detailed
annual balance sheet for the competent administrations to be able to follow the
evolution of each element of assets and liabilities and appreciate the
financial situation of the company, as well as its rights and obligations
towards the State, Third Parties and the Affiliated Companies.


 


The balance
sheet must emphasize, for each category of operations, the result of said
operations. It consists of the difference between the values of the net assets
allocated to the cut off and opening of the calendar Year, less the additional
contributions corresponding to goods or cash newly allocated to said
operations, plus the withdrawals corresponding to the company’s removal of
goods or cash previously allocated thereto.


 


Net asset
means the surplus of the values of assets over the total liabilities consisting
of the receivables of Third Parties and Affiliated companies and amortization
and provisions authorized and justified.


 


The goods
belonging to the State, pursuant to the provisions of Article 10 of the
Contract, are posted to appropriate accounts allowing for the clear emphasis of
their legal status and their value of acquisition, construction or manufacture.


 


Each company
constituting Contractor is responsible to keep its own accounting records and
must respect its legal and tax obligations on the matter.


 


II-3/ Expense accounts


 


II-3-1-            The
items that may be debited from the Charges and Loss Accounts by nature are all
charges, losses and expenses, whether actually paid or simply due, related to
the Calendar year concerned, provided they are justified and required by the
needs of the oil operations and they are payable by Contractor, except for
those whose deduction is not authorized by the regulations in force or the provisions
of the Contract.


 


II-3-2-            Amortization
must be calculated in accordance with the tax rules in force. The
provisions for depreciation, if any, must be calculated on the value of origin
of the assets to which they refer and appear distinctly in the balance sheet.
They must be duly justified and authorized and appear in a detailed table which
allows controlling their correctness. Concerning, more particularly, the
receivables, provisions may be constituted only for those established by
Contractor to be irrecoverable or of a doubtful character, excluding provisions
intended to cover the general risk of bad debts.


 


These provisions relate to receivables whose payment could not be
obtained by Contractor, in spite of seriously attempts with the debtors concerned,
and whose collection is considered seriously) compromised.


 

















 


11-3-3-        Provisions
for charges, if justified, can be made in order to deal with losses or
tax-deductible charges, clearly specified as to their nature and object, made
probable by ongoing events, provided they were actually included in the records
of the fiscal year during which they were made, and provided they are
reproduced in a detailed statement of the provisions enclosed with the tax
return.


 


The provisions made in order to cover risks or possible losses are not
allowed as a deduction.


 


The provisions which become without object are credited to the
appropriate Proceeds and Profit accounts by nature. The provisions which, in
full or in part, are used for a purpose other than their intended use, during a
subsequent fiscal year, are re-credited to the appropriate Proceeds and Profit
accounts by nature of said fiscal year.


 


II-3-4-            Charges
payable and proceeds receivable, i.e., the debts and receivables that are
unquestionable but not yet invoiced, paid or collected, are also taken into
account; they are calculated on the basis of the available estimate elements.
The company must do its best so that any record of this nature is regularized
as soon as possible by the accounting of the charge or the corresponding real
proceeds.


 


II-4/ Profit and loss accounts


 


The proceeds
of any nature, whether actually collected or simply acquired by the company,
must be credited to the Proceeds and Profit accounts by nature.


 

















 


CHAPTER III -
ACCOUNTING OF OIL COSTS


 


III-1/ General
Rules and Principles -Classification and Grouping


 


III-1-1-        In
parallel to the accounting required by regulations, and according to the same rules principles
as those referred to in 1-2 above, Contractor must permanently keep an especially
reserved accounting organized for the recording of the Oil Costs and
emphasizing the detail of the expenses actually paid by it and giving right to
recovery pursuant to the provisions of the Contract and this appendix, the
recovered Oil Costs, along with the assignment of the production for this
purpose, or the collection, in the event of recovery in cash, as well as the
sums deducted from or reducing the Oil Costs.


 


Oil Costs will be charged to the Oil Costs Account as of the Effective
Date.

The Operator prepares the statements and synthesis of Oil Costs according to
the “cash base” principle. As such, it is appropriate to specify that all
expenses charged to the Oil Costs coming from the analytical distribution of
indirect or common expenses famous are reputed to be paid as of the day of
their posting to the Oil Costs Account.


 


III-1-2-        The
accounting of the Oil Costs must make it possible to emphasize, quarterly:


 


·                  the total amount of the Oil Costs
paid. by Contractor since the Effective Date;


·                  the total amount of the recovered Oil
Costs;


·                  sums reducing the Oil Costs and the
nature of the operations to which these sums refer;


·                  the amount of the Oil Costs remaining
to be recovered.


 


III-1-3-        The
accounting of the Oil Costs records, under debit, all expenses actually paid
related directly, pursuant to the Contract and to the provisions of this
appendix, to the oil operations, and considered imputable to the Oil Costs as
well as the RES allocations paid to the RES account.


 


This expenses
actually paid must, at the same time:


 


·                  be really payable by Contractor.


·                  be necessary for the good realization
of the oil operations.


·                  be justified and supported by backup
documents allowing for effective control by the Departments Responsible for
Hydrocarbons.


 


III-1-4-        The
accounting of the Oil Costs records, under credit, the amount of the Oil Costs
recovered, as this recovery is operated, as well as, progressively with their
collection, the receipts and proceeds of any nature deducted from or reducing
the Oil Costs.


 


III-1-5-        The
originals of the contracts, invoices and all other backup documents referring
to the Oil Costs must be held available to the Departments Responsible for
Hydrocarbons under the provisions of chapter VI-I related to the auditing of
the accounts.


 


III-1-6-        The Oil Costs will be
recovered in the following order of types of expenses:


 


·                  Exploitation


·                  RES allocations paid to the RES
account


·                  Development


·                  Exploration and appreciation


 


Contractor is
entitled to recover its Oil Costs as of the start of production.


 

















 


III-1-7-        The
accounting of the Oil Costs must be sincere and exact; it is organized and the
accounts held and presented so as to be easily grouped and show the related Oil
Costs related, particular, to expenses:


 


·                  of exploration,


·                  of appreciation,


·                  related to RES allocations paid to
the RES Account in accordance with Article 14.15 (2) of the Contract,


·                  of development,


·                  of production of Crude Oil,


·                  of production of Natural gas,


·                  of evacuation and storage of
hydrocarbons,


·                  related to similar, additional or
accessory activities, distinguishing each of them.


 


a)                                      Exploration
expenses means: payments of any nature related to the operations of geology,
geophysics, drilling, well equipment and production tests (as well as all
related operations) intended to discover hydrocarbons:


 


b)                                     Appreciation
expenses means: payments of any nature related to the operations of geology,
geophysics, drilling, well equipment and production tests intended to determine
if the Deposit discovered is commercially exploitable and to determine the
limits thereof:


 


c)                                      Development
expense means: payments of any nature such as; drilling, well equipment and
production tests, installation of platforms and channels and all other
operations carried out for production, transport, processing and storage of
hydrocarbons in the loading terminal; including costs related to the study and
preparation of the development program;


 


d)                                     Exploitation
or production expenses means: payments of any nature related to the study,
control and completion of the work referring directly or indirectly to the
exploitation and maintenance of production, processing, storage and transport
installations for hydrocarbons;


 


e)                                      RES
allocations mean: sums paid to the RES account in accordance with: Article 14.15
of the contract.


 


III-1-8-        For
each activity above, the accounting of the Oil Costs must make it possible to
show the expenses;


 


a)                                      related
to tangible fixed assets, in particular those referring to acquisition,
creation, construction or realization:


 


·                  of land,


·                  buildings (workshops; offices,
stores, residences, laboratories, etc),


·                  loading and storage installations,


·                  access roads and general
infrastructure work,


·                  transport means for hydrocarbons
(evacuation pipes, tanker ships, etc).


·                  general equipment,


·                  specific equipment and installations,


·                  freight vehicles and civil
engineering machinery,


·                  material and tools (of which the
normal useful life is over one year),


·                  productive drillings,


·                  other tangible fixed assets;


 


b)                                     related
to intangible fixed assets, in particular those referring to:


 

















 


·                  geology and geophysics field work,
laboratory, studies, reprocessing, etc.).


·                  exploration drilling.


·                  other intangible fixed assets;


 


c)                                      related
to consumable materials and matters.


 


d)                                     operating
expenses. These are expenses of any nature, except for the overhead mentioned
below, not taken into account in III-1-8 a) to c) above and related directly to
the study, performance and execution of the oil operations;


 


e)                                      non-operational
expenses or overhead. These are expenses paid by Contractor, related to the Oil
operations and to the guidance and administrative management of said
operations.


 


III-I-9-          In
addition, the accounting of the Oil Costs must emphasize, for each category of
expenses enumerated or defined in III-1-8 of a) to d) above, the payments made
to:


 


·                  Operator, for the goods and services
provided by it;


·                  companies constituting Contractor,
for the goods and services provided by them;


·                  Affiliated Companies;


·                  Third parties.


 


III-1-10      1)
The RES Account, in US Dollars, referred to in Article 14.15 of the
Contract will be credited by bank transfer each year by Contractor the first
business day of the year following the anniversary date of the startup of
production, with an annual allocation calculated under the conditions below.


 


2) The annual allocation will be calculated annually by Contractor so
that the entire present and future allocations deposited to the RES Account as
well as capitalized interest are equal to the estimated amount of the RES Operations
to be carried out, according to the RES Operations Plan.


 


The formula of the annual allocation of RES Costs will be established
as follows:


 





 


Where:


 


D: is the annual allocation payable to the RES Account in anticipation
of the costs of RES Operation.


 


T: is the sum of RES Costs in current currency of the year in which the
RES Operations will be done by Contractor. 
This sum includes overhead as defined in Article 11 of this
appendix.


 


C: accumulation of the annual allocations already paid to the RES
Account and of the sum of past capitalized interests, before the payment of the
corresponding annual allocation.


 


E: is the average rate of US $ LIBOR 12 months calculated over a period
of 12 months ending 20 banking business days before the effective date of the
payment.


 


N: is the number of years of economic production remaining for the
Exploitation Zone according to the criteria of the Operator.


 


3) The RES Account must be followed up by the trustee in accordance
with the stipulations Trust act and the Contract:


 

















 


Contractor promises to fund the RES Account as long as the sum of the
allocations made, including capitalized interest, remains lower than the total
estimated amount of the RES Operations.


 


4) At the end of RES Operations and after all expenses are paid, the
possible balance of the RES Account will be divided between the State and
Contractor under the conditions referred to in Article 14.15 (4) of
the Contract.


 


If the amounts paid into the RES Account prove to be insufficient to
finance all RES Operations, the provisions of Article 14.15 (4) will
apply.


 


III-2/
Analysis of expenses and charging methods


 


III-2-1-        The
charging principles and the usual analytical methods of Contractor in matters
of distribution and payback must be applied homogeneously, equitably, and
without discrimination to all its activities. Such principles may be
communicated to the Departments Responsible for Hydrocarbons at their request.

Contractor will inform the Departments Responsible for Hydrocarbons about any
significant modification it may make in its principles and methods.


 


III-2-2-        The
tangible assets built, manufactured, created or realized by Contractor within
the framework of the oil operations and actually assigned to these operations,
as well as their current maintenance, are posted to the cost of Construction,
manufacture, creation or realization.


 


III-2-3-        Consumable equipment,
materials and matters required by the oil operations and other than those
mentioned above, are:


 


a) either acquired for immediate use subject to transport delays and,
if necessary, temporary storage by Contractor (without, however, being
assimilated to its own stocks). This equipment, materials and consumable
matters acquired by Contractor are valued, in order to be charged to the Oil
Cost, at their price delivered on-site (price delivered Gabon). The price
delivered Gabon includes the following elements, charged according to
Contractor’s analytical methods:


 


·                  purchase price after rebates and
reductions,


·                  transport expenses, insurance,
transit, handling and customs (and other taxes and dues) from the warehouse of
the seller to that of Contractor or to the place of use, as the case may be,


·                  and, when necessary, operating
expense of the warehouse of Contractor including the amortization of the
buildings calculated according to the rules stipulated in the paragraph
III-2-3-3-b of this article, the cost of management of the warehouse, expenses
for local supply services and, if applicable, outside of Gabon.


 


b) or provided
by Contractor from its own stocks.


 


·                  The new equipment and materials, as
well as consumable matters, provided by Contractor from its own stocks are
valued, for charging, at the last average weighted cost, calculated in
accordance with the provisions of III-2-3-a- and increased by a reasonable
margin representing the financial expenditure required, for Contractor, to
maintain a minimum backup inventory in its warehouses. This margin is equal to
$ LIBOR as defined in the Contract. This financial charge which gives right to
verification in accordance with the provisions of chapter VI of this appendix
is invoiced quarterly by Contractor and is the subject of a report enclosed
with the quarterly accounting statements.


 














 


·                  The
amortizable materials and equipment already used provided by Contractor from
its own stocks or those of its other activities, including those of the
Affiliated Companies, are valued, in order to be charged to Oil Cost, according
to the scale below:


 


·                  New
material (State “A”): New material never before used: 100% (hundred percent) of
the net cost.


·                  Material
in good condition (State “B”): Second-hand equipment in good condition and
still usable for its initial destination without repair 75% (seventy-five
percent) of the net cost of the new material as defined above.


·                  Other
used material (State “C”): Material still usable for its initial destination,
but only after repair and refurbishing: 50% (fifty percent) of the net cost of
new Material such as defined above.


·                  Material
in bad condition (State “D”): Material unusable for its initial destination,
but which is usable for other services: 23% (twenty-five percent) of the net
cost of new material such as defined above.


·                  Scrap
and rejects (State “E”); Materials out of use and irreparable: current price of
scrap.


 


III-2-3-1- Operator does not
guarantee the quality of the new material referred to above beyond what is done
by the manufacturer or retailer of the material concerned. In the event of
defective new material, Contractor strives to obtain refunding or compensation
from the manufacturer or retailer, however, the corresponding credit is posted
to the accounts only with the refund or compensation are received;


 


III-2-3-2- In case of defect of
the second-hand material indicated above, Contractor credits the account of the
Oil Costs for the sums actually collected in compensation.


 


III-2-3-3- Use of the
materials, equipment and installations belonging to Contractor.


 


The materials,
equipment and installations belonging to Contractor and used temporary for the
needs of the oil operations are charged to the Oil Costs for a rent covering:


 


a)              maintenance and
repairs,


 


b)             a share, proportional
to the time of use for oil operations, depreciation calculated by application
to the historical cost (original cost not revalued), at a rate at most equal to
that envisaged in the tax rule in force, in particular under the corporate
agreements applied in Gabon for oil activities.


 


c)              a quota of the
handling and storage costs calculated in proportion to the value of the exits
of goods recorded.


 


d)             transport and
operation expenses and all other expenses not already charged elsewhere.


 


e)              all reasonable
margin determined in accordance with the practices usually applied for categories
of materials, equipment and installations of comparable nature. The
determination of this margin is described in chapter VIII. This charge gives
right to verification in accordance with the provisions of chapter VI of this
appendix.


 


The price invoiced
excludes any charge inherent in the surcharges due in particular to abnormal or
occasional immobilization of the equipment installations as part of the
activities of Contractor other than the oil operations.


 


In any event,
the costs charged to the Oil Costs for the use of this equipment and
installations should not exceed those which would be normally practiced in
Gabon by other companies for 


 

















 


goods of
comparable nature and quality, nor be reflected in a charge in cascade of
expenses and margins.


 


Contractor
will keep a detailed statement of the materials, equipment and installations
owned by it and assigned to the oil operations, indicating the description and
the identification number of each unit, the related repair and the dates on
which each unit was allocated and then withdrawn from the oil operations. This
statement must reach the Departments Responsible for Hydrocarbons at the latest
by March 1 of each year.


 


III-2-3-4- Tangible assets, as
well as the equipment, materials and consumable matters purchased from Third
Parties, for the needs for the oil operations, become assets of the State as
soon as their title is transferred, which occurs at the moment of acquisition
when there are directly charged to the Oil Costs.


 


Equipment,
materials and consumable matters provided by Contractor become assets of the
State when they are delivered in situ or at the time of the exit from the stock
of the operator to be charged to the accounts of the Oil Costs.


 


III-3/ Operating expenses


 


III-3-1            The expenses of this
nature are charged to the Oil Costs at the cost incurred by Contractor for the
respective services or charges, as this price arises from its accounts and as
determined pursuant to the provisions of this appendix. These expenses include,
in particular;


 


III-3-2            Taxes, fees and duties
established and paid in Gabon under the terms of the regulation in force and
the provisions of the Contract and directly related to the oil operations.


 


The
proportional mining royalty. the area royalty, the Corporation tax or any other
tax having the character of an income tax, the payments made to the hydrocarbon
support fund and bonuses referred to respectively, in Articles 21.7 (b) (ii) and
28 of the Contract, as well as the taxes, fees, duties and royalties whose recovery
is excluded under a provision of the contract are not ascribable to the Oil
Cost.


 


The taxes paid
abroad for the operation of a permanent establishment of Contractor are
ascribable to the Oil Cost when the activity of such permanent establishment is
carried on exclusively for the profit of Contractor’s oil operations in Gabon.


 


III-3-3                Expenses for
personnel and personnel environment


 


III-3-3-1      Principles.

Insofar as they correspond to actual work and services and they are not
excessive in view of the importance of the responsibilities fulfilled, of the
work carried out and usual practices, these expenses cover all payments made at
the time of the use and environment of the personnel working in Gabon and hired
to conduct and execute the oil operations or for their supervision. Such
personnel include the people recruited locally by Contractor and those made
available to it by the Affiliated Companies, the other Parties or Third
Parties.


 


These expenses
are also deductible when they are attached to a permanent establishment of
Contractor abroad when the activity of this permanent establishment is carried
out exclusively for the benefit of Contractor’s oil operations in Gabon.


 


III-3-3-2
Elements.

The environment and personnel costs include, on the one hand, all sums paid or
refunded for the personnel indicated above, under legal and regulatory texts,
collective bargaining agreements, employment contracts and the regulation of
Contractor and, on the other hand, the expenses paid for the environment of such
personnel:


 

















 


a) wages and
salary for activity or vacation, overtime, premiums and other allowances;


 


b) related
employers’ charges resulting from legal and regulatory texts, collective
bargaining agreements and employment condition;


 


c) expenses
paid for the environment of the personnel; those represent, in particular:


 


·                  expenses
for medical care and hospital, Social Security and all other social expenses of
Contractor,


·                  expenses
for transport of the employees, their family and their personal effects, when
the payment of this expenses by the employer is stated in the employment
contract,


·                  expenses
for personnel housing, including the related services, when the payment of this
expenses by the employer is stated in the employment contract (water, gas,
electricity, telephone),


·                  indemnities
paid at the time of the installation and departure of the employees,


·                  expenses
related to administrative staff rendering the following services: management
and recruitment of local personnel, management of expatriate personnel,
vocational training, maintenance and operation of offices and housing, when
these expenses are not included in overhead or under other headings,


·                  expenses
for renting offices or their cost of occupancy, expenses for collective
administrative services (secretarial, furniture, office supplies, telephones,
etc).


 


III-3-3-3-
Charging conditions.

Personnel costs correspond:


 


·                  either
to direct expenses to the corresponding account of the Costs Oil,


·                  or
to indirect or common expenses charged to the Oil Costs Account based on cost
accounting data and determined by the accounting methods of Contractor, as far
as possible but not exclusively in proportion to the time dedicated to the oil
operations,


 


III-3-4-        The expenses for Services
provided by Third Parties, the companies constituting Contractor and the
Affiliated Companies include in particular:


 


III-3-4-1- Services rendered by
Third Parties, including by the Parties, are charged at their cost for
Contractor i.e., at the price billed by the suppliers, including all fees,
taxes and incidental charges; the cost is decreased by all reductions,
discounts, rebates and cuts obtained by Contractor, either directly or
indirectly.


 


III-3-4-2- Technical aid
provided to Contractor by its Affiliated Companies: it consists of services an
assistance rendered for the oil operations by the departments and services of
these Affiliated Companies which carry out the following activities:


 


·                  Geology,
Geophysics,


·                  Engineering,


·                  Drilling
and production,


·                  Deposits
and study of the reservoirs,


·                  Economic
surveys,


·                  Technical
contracts,


·                  Laboratories,


·                  Purchases
and transit (except expenses Included in those referred to under III-2-2
above),


·                  Drawing,


 

















 


·                  Certain
administrative and legal activities related to well defined or occasional
studies or work and which are neither part of current and regular activities,
nor of the juridical activity referred to in III-3-8 below.


 


The technical
aid is mainly the object of service contracts executed between contractor and
its Affiliated Companies.


 


The expenses
for technical aid provided by the Affiliated Companies are charged at the cost
of the Affiliated Company which provides this assistance. This cost includes,
in particular, the expenses for personnel, materials and consumables used,
expenses for repair and maintenance, insurance, taxes, a quota of the
amortization of the general investments calculated at the original acquisition
or construction value of the related assets and all other expenses caused by
these services not already charged elsewhere.


 


The price
excludes, on the other hand, any charge inherent in the surcharges owed, in
particular, to an immobilization or abnormal or use related to the economic
situation of the materials, installations and equipment at the Affiliated
Company.


 


In any case,
the expenses related to these services may not exceed those which would be
normally required, for similar services, by independent technical service
companies and laboratories. They should not result in a charge in cascade of
expenses and margins.


 


Moreover, all
these services, including synthesis studies, must be backed up by reports
presented on simple request from the Departments Responsible for Hydrocarbons.
They must be covered by written orders placed by Contractor, and then by
detailed billing.


 


III-3-4-3  When Contractor uses, for the
oil operations, material, equipment or installations which are the exclusive
property of a company constituting Contractor, it charges the corresponding
cost to the Oil Costs, proportionately to the time of use, determined according
to its usual methods, and according to the principles defined in chapter VIII
of this accounting procedure. This charge includes, in particular:


 


·                  A
quota of the annual depreciation calculated on the original “price delivered
Gabon” defined in III-2 above.


 


·                  A
quota of cost of implementation, insurance, servicing, financing and periodic
inspections.


 


·                  Storage
costs: handling and storage costs (personnel costs and operating expenses of
the services) are charged to the Oil Costs proportionately to the value of the
exits of goods recorded.


 


·                  Transport
expenses

Expenses for transport of personnel, material or equipment intended and
allocated to the oil operations and which are not already covered by the
paragraphs above or which are not integrated in the cost are charged to the Oil
Costs.


 


III-3-5-            Damage and losses
affecting the common goods

All expenses necessary for the repair and refurbishing of the goods after
damage or losses resulting from fires, floods, storms, theft, accidents or any
other causes, are charged according to the principles defined  in this appendix.


 


The sums
recovered from the insurance companies for such damage and losses are credited
to the accounts of the Oil Cost.


 

















 


III-3-6-
Maintenance expenses

Maintenance expenses (current and major maintenance) of the material, equipment
and installations assigned to the oil operations are charged to the Oil Costs
at cost.


 


III-3-7-1 Insurance premiums and
expenses related to claim settlement are charged to the Oil Costs:


 


a) premiums
and expenses related to compulsory and contractual insurance taken to cover the
Hydrocarbons extracted, the people and assets assigned to the oil operations or
to cover Contractor’s civil liability with regard to Third Parties within the
framework of said operations;


 


b) expenses
incurred by Contractor at the time of a disaster which has occurred within the
framework of the oil operations, those incurred to pay for all losses, claims,
damage and other incidental expenses, not covered by the insurance taken;


 


c) expenses
paid for losses, claims, damage or judicial actions, not covered by an
insurance and for which Contractor is not obligated to take insurance. 

The sums recovered from insurance companies under policies and guarantees are
posted in accordance with Chapter III-6-2 g) below;


 


III-3-8            Legal expenses

The expenses related to proceedings, investigation and arbitration other than
those referred to in Article 50. of the Contract, and the settlement of
disputes and claims (requests for refunding or compensation), which occur at
the time of the oil operations or which are necessary to protect or recover the
goods, including, in particular, lawyers or experts’ fees, legal expenses,
expenses for investigation or obtaining evidence, as well as the sums paid as
settlement or final liquidation of any litigation or claim are charged to Oil
Costs.


 


When such
services are carried out by the personnel of Contractor, a remuneration
corresponding to the time and costs actually incurred, is included in the Oil
Costs. The prices thus charged may not be higher than the sums that would have
been paid to Third Parties for identical or similar services.


 


III-3-9-        Interest, currency
differences and financial expenses


 


Interest,
currency differences and financial expenses paid to the creditors of Contractor
are posted at their real amounts, insofar as the loans and debts to which they
refer are required by the oil operations.


 


However, the
expenses of this nature are not imputable to recoverable Oil Costs pursuant to
this Chapter and Article 24 of the Contract in the following cases:


 


·                  generally,
when the loans and debts to which they refer are not required by the financing
needs of the oil operations;


 


·                  when
they refer to the loans and debts of Contractor possibly contracted for the
financing of research and exploration operations;


 


·                  when
they refer, up to the due amount, to the share of the loans and debts exceeding
sixty. percent of the amount of the development and production expenses;


 


The interest
paid to shareholders, Affiliated Companies and members of Contractor for the
sums lent or advanced by them; are allowed under the same conditions as above,
but, moreover, within the maximum limit of those calculated at $ LIBOR plus two
points (Libor + 2).


 


III-3-10-
Exchange losses

Exchange losses related to the loans and debts of Contractor are charged to Oil
Costs. However, exchange 


 

















 


losses related
to the loans and debts for which the recovery of the interest, exchange
differences and charges is excluded under the terms of paragraph III-3-9 above
are excluded from the Oil Costs and therefore cannot give right to recovery.


 


Moreover,
Contractor may not be guaranteed against exchange rate risks or loss of profit
related to the origin of the invested stockholders’ equity and its
self-financing, and any losses possibly suffered for this reason may not, in
any case, be regarded as Oil Costs; consequently they may not be posted to the
Oil Costs Account or give right to recovery. The same holds :true for premiums
and expenses of insurance policies taken by Contractor to cover such risks.


 


Exchange
losses incurred and directly related to the receivables related to the oil
operations and processed directly in foreign currency are also imputable to Oil
Costs;


 


III-3-11- The payments arising
from expenses incurred for controls and audits operated by the Departments
Responsible for Hydrocarbons, in accordance with the provisions of the
Contract, are included in Oil Costs.


 


III-3-12- The payments related
to other expenses, including the expenses paid to Third Parties for the
transport of Hydrocarbons and the constitution of the funds referred to in Article 14
of the Contract, are included in the Oil Costs. These are all the payments made
or losses incurred, related to or required by the correct performance of the
oil operations and whose charge to Oil Cost is not excluded by the provisions
of the Contract. or this appendix, provided that they are not similar to
charges for which the Departments Responsible for Hydrocarbons exclude the
deduction and provided that such expenses were approved by the latter. In
addition, except as otherwise set forth in the law, Contractor tray, if it
wishes, make contributions of an economic, social, cultural and sports nature,
with the imperative exclusion of political financing. These contributions will
be debited from the Oil Costs Account.


 


Equally, all expenses
considered recoverable in the Contract are charged to Oil Costs.


 


III-4/
Overhead


 


These expenses
relate to Oil Costs not taken into account elsewhere. They concern:


 


III-4-1 The
expenses paid outside Gabon.


 


They cover the
cost of the services of supervision and administration received from the
Affiliated Companies within the framework of a service contract, when these
services are not included in the assistance defined in the Article III-3-1-2
above.


 


They must
correspond to services actually required by the needs of the oil operations and
to real services carried out abroad by Contractor or the Affiliated Companies.
They include part of the salaries and wages paid to the personnel residing
abroad, as well as part of the administration overhead of the central services
located abroad.


 


Within the
framework of the general assistance, these costs are such that it is difficult
to identify them or to associate them with a specific project, but they are
necessary for the control and for the benefit of the oil operations.


 


The charges
under this paragraph are not auditable by the other members of Contractor
according to chapter VII of the Accounting Procedure, except for checking the
correct application of the rates and the base of calculation.


 


They should
not result in a charge in cascade of expenses and margins.


 

















 


Their amounts
must he justified by accounting records and by copies of the reports on
services and work done; any contractual distribution Must be supported by
justifying explanations, as well as rules used for this purpose.


 


The amount of
such overhead charged to oil operations is capped at:
 ·
seven percent (7%) up to 1,700,000 US Dollars per annum,


·
five percent,(5%) beyond 1,700,000 US Dollars per annum.


 


These
percentages apply to expenses, not including overhead, imputable to Oil Costs
for the Calendar Year in question.


 


III-4-2
Expenses paid inside Gabon


 


These expenses
cover the payments related to the following activities and services:


 


·                                          General
Management and general secretariat;


 


·                                          Information
and communications,


 


·                                          General
administration (legal services, insurances, taxation, data processing),


 


·                                          Accounting
and, budget,


 


·                                          Internal
audit.


 


They must
correspond to services actually required by the needs of the oil operations and
correspond to services really carried out in Gabon by Contractor or the
Affiliated Companies. They should not result in a charge in cascade of expenses
and margins.


 


Their amounts
are either real amounts in case of direct expenses, or mounts resulting from
distributions in case of indirect expenses. In the latter case, the
distribution rules must be clearly defined and the amounts justified by
cost accounting.


 


During the
year, Contractor charges these overhead costs an a provisional basis at the
average rate resulting from the application of the rates of the previous year
to the Oil Costs (except overhead and funds assigned to RES Account), as they
result from the approved Budgets of the current year. The regularization takes
place at the closing of the accounts of the year considered.


 


III-5/
Expenses not chargeable to Oil Costs


 


The payments
made for expenses, charges or costs not directly attributable to oil
operations, those which may not be deducted or charged wider the provisions of
the Contract or this appendix, or those which are not required by the needs of
said oil operations, are not taken into account and therefore may not be
recovered.


 


These are in
particular, payments made for:


 


a)              expenses for capital
increases;


b)             marketing expenses;


c)              expenses related to
the period prior to the Effective Date;


d)             expenses of external
audit paid by Contractor within the framework of the particular relations
between the companies constituting. Contractor;


 

















 


e)              hydrocarbon support
and bonuses referred to respectively in Articles 21.7-b) (ii) and 28 of
the Contract;


f)                expenses paid for
meetings, studies and work completed within the framework of the association
binding the companies constituting Contractor and intended for the correct
control of the oil operations;


g)             interest, exchange
differences and charges referred to in paragraph III-3-9 of this accounting
procedure;


h)             exchange losses
possibly incurred under the conditions mentioned in paragraph III-3-10 of this
accounting procedure;


i)                 exchange losses
which constitute loss of profit resulting from risks originally related to
stockholders’ equity and self-financing.


 


III-6/
Elements deducted from Oil Costs


 


The following
are deducted from Oil Costs. in particular:


 


III-6-1 The
product of Hydrocarbons allocated to Contractor pursuant to the provisions of Article 24
of the Contrast multiplied by the related Mail Transfer price as defined in Article 27
of said Contract.


 


III-6-2

All other receipts, incomes, proceeds and profits related, additional or
incidental, directly or indirectly related to oil operations, whose casts were
included in the Oil Costs, in particular those originating from:


a)              sale of related
substances;


b)             transport and storage
of products belonging to Third Parties in the installations used for oil
operations:


c)              financial profit
possibly obtained from the partial transfer of their interests by entities members
of Contractor other than the State, pursuant to Article 42 of the
Contract, in accordance with the principle and methods of calculation in Article 423
of the Contract


d)             receivables, Loans
and advances granted:


e)              securities and
financial investments;


f)                exchange earnings
obtained on the receivables and debts of Contractor according to the same terms
and with the same limitations defined in this procedure as for exchange losses;


g)             reimbursements by the
insurers;


h)             settlement or
liquidation payment;


i)                 transfers or
rental of assets, subject to the provisions of Article 10 of the Contract;


j)                 provision of
services;


k)              reductions,
discounts and rebates obtained, if they were not deducted from the cost of the
goods to which they refer.


 


III-7/ Material, equipment and installations
sold by Contractor.


 


III-7-1 The
materials, equipment, installations and consumables unused or unusable are
withdrawn from oil operations to be either downgraded or regarded as “scrap and
rejects,” or repurchased by Contractor for its own needs, or sold to Third
Parties or Affiliated Companies.


 


III-7-2 In the
event of transfer to enterprises constituting Contractor or their Affiliated
Companies, the prices are determined in accordance with the provisions of Article III-2-3-b
of this appendix, or, of higher than those resulting from the application of
said Article, agreed upon between the Parties, when the use of the good
concerned in the Oil Operations was temporary and does not justify the
reductions in price established in the aforementioned Article, the good is
evaluated so as to deduct from Oil Costs a net charge corresponding to the
value of the service rendered.


 


III-7-3 The
sale to Third Parties of materials, equipment, installations and consumables
are made by Contractor at the best possible price. All refunds or compensations
granted to a purchaser for a defective 


 

















 


material are
debited from the Oil Costs Account to the extent and at the time when they are
actually paid by Contractor.


 


III-7-4 In
case of goods owned by the State under the terms of Article 10.1 of the
Contract, the sales or withdrawals indicated above must receive the prior
approval of the Departments Responsible for Hydrocarbons before being carried
out.


 


III-7-5 When
the proceeds of these sales must be paid to the State. pursuant to the
provisions of Article 10.1 oldie Contract or the above paragraph, the
payment must take place within thirty days following the date of the collection
of the price by Contractor.


 


III-7-6 When a
good is used for the benefit of a Third Party or Contractor for operations not
covered by the Contract, the corresponding royalties are calculated at rates
which, except in case of agreement of the Departments Responsible for
Hydrocarbons, cannot be calculate on a basis lower than cost.


 

















 


CHAPTER IV - INVENTORY RULES AND PROCEDURES


 


Contractor
will keep permanent inventory, in quantities and values, of all movable and
immovable property, in particular stocks of materials and consumables, whose
acquisition or realization costs were included in Oil Costs. Contractor will
proceed, at; reasonable intervals, but at least once a year, to draw up
physical inventories, according to the usual accounting practices or following
methods established by the Parties, in order to check the inventories resulting
from the accounting records and make adjustments and corrections, if necessary.


 


A written
notification will be sent by Contractor at least ninety days before the
beginning of any inventory, to the Departments Responsible for Hydrocarbons, so
that the latter may be represented during the aforementioned operation.


 


The
conciliation of the physical inventory with the book inventory, as it results
from the accounts, will be made by Contractor. A statement showing the
differences, upwards or downwards, will be provided to the Departments
Responsible for Hydrocarbons.


 


Contractor
will make the adjustments necessary in the accounts as of the end of the
inventories


 














 


CHAPTER V - WORK PROGRAMS AND ANNUAL BUDGETS


 


V- l/ General Rules


 


For each
Calendar Year, Contractor must submit to the examination of the Technical
Committee for the Follow-up of Oil Operations and to the approval of the
Departments Responsible for Hydrocarbons, a work program, as well as the
corresponding Budget under the conditions set forth in the Contract.


 


These Work Programs and the corresponding
Budgets, which will be, if necessary, explained and commented on by Contractor,
will include in particular:


 


·                                          a
detailed estimated statement of costs, by nature of the operations defined
below.


·                                          a figured
statement of investments, by broad categories,


·                                          an
estimate of the productions, by Deposit.


 


V-2/ Presentation


 


The Work
Programs and the corresponding Budgets are structured into budgetary headings,
The structure, submitted for opinion to the Technical Committee for the
Follow-up of Oil Operations, is submitted to the approval of the Departments
Responsible for Hydrocarbons which may require modifications. It is established
so that each budgetary heading corresponds to a group of analytical accounts of
Contractor related to the oil operations considered.


 


The budgetary
headings are itemized, on the one hand, by Deposit, and on the other hand, by
nature of operations: exploration, appreciation, development, exploitation,
transport, storage, major maintenance, others.


 


The budgetary
documents and work Programs will also indicate, the achievements and closing
forecasts of the current year, and will include explanations on the significant
gaps between forecasts and achievements, by budgetary heading. Variations of
more than ten percent or an amount equal to or higher than 5 million USD are
considered significant.


 


V-31 Follow-up and controls


 


V-3-1- Within
forty-five (45) days following the end of each of the first three quarters of
the Calendar Year and within seventy-five days following, the end of the fourth
quarter, Contractor forwards to the other members of Contractor a statement of
the achievements of the previous quarter indicating the quota of each of them
in these achievements.


 


V-3-2- Within
the first forty-five (45) days of the Calendar Year, Contractor forwards to the
other members of Contractor the list of the accounts constituting each
budgetary heading, with update each quarter, if necessary, so as to allow for
the reconstitution of the achievements related to the budgetary headings of the
approved annual Budgets.


 


V-I-3 In support of the above information,
Contractor encloses the following appendices:


 


a)              an extract of the
Log corresponding to the accounts of the Oil Costs and indicating the charges
made during the quarter concerned and the accrued figures since the beginning
of the fiscal year;


b)             a statement of the
current account of each member of Contractor emphasizing the evolution of its
situation on the books of Contractor and specifying, for each quarter:


 


·                                          the
balance as of the end of the previous quarter.


·                                          payments
made by the members during the quarter.


·                                          debit
and credit notes issued by Contractor during the quarter.


·                                          balance
at the end of the quarter.


 

















 


CHAPTER VI - AUDITING OF ACCOUNTS


 


VI-1/General Provisions


 


The
Departments Responsible for Hydrocarbons can exercise the audit right set forth
in the Contract, either through their own agents, or via an international
independent firm of its choice.


 


For this
purpose, the Departments Responsible for Hydrocarbons and Contractor keep
mutually informed about the periods which are appropriate for them to conduct
these audits, and the dates on which they will take place are established, as
much as possible, by mutual agreement, within the limit of the time limits
referred to in accordance with Article 49.3 of the Contract.


 


The sections
of Contractor’s cost accounting which record expenses relating both to the Oil
Operations and other activities not arising from the Contract, may be audited
directly, at the choice of the Departments Responsible for Hydrocarbons,
through its own agents, or through the firm it uses, or through the auditors of
Contractor required to certify that the provisions of the Contract and this
appendix are well applied and that the accounting and financial procedures of
Contractor are correctly followed and applied without discrimination and in an
equitable way to the various operations concerned.


 


The overhead
out of Gabon cited in paragraph III-4-1, as well as the expenses for general
assistance including the technical assistance referred to in III-3-4-2 billed
by the Affiliated Companies to the companies constituting Contractor, will be
audited by the international firm hired to certify the accounts of the
companies concerned. This firm will certify that the expenses charged to the
Oil Operations were determined in an equitable and nondiscriminatory manner and
were billed so as not to cause either a loss or a gain for said parent
companies.


 


During an
audit, at their initiative or the request of Contractor, the Departments
Responsible for Hydrocarbons can audit again the accounts of Contractor in
connection with corrections, adjustments and rectifications on the topics on
which a dispute persists; the accounts concerned remain open to audit until it
is conducted and the disagreement resolved.


 


After the
procedure referred to in Article 49.10 of the Contract, Contractor has a
term of two months from the date of receipt of the notification referred to in
the penultimate subparagraph of said Article, either to make corrections,
adjustments and rectifications following the audit, or to file for the
arbitration referred win Article 50 of the Contract.


 

















 


CHAPTER VII - STATEMENTS OF ACHIEVEMENTS - SITUATIONS - REPORTS


 


VII-1/Principles.


 


In addition to
the statements and information referred to elsewhere, Contractor will send the
Departments Responsible for Hydrocarbons, under the conditions, forms and terms
indicated below, the detail of the operations and work completed, as recorded
in the accounts, documents, records and statements held or prepared by it and
concerning the Oil Operations.


 


VII-2/Statement of exploration work.


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest by the
25th of the first month of each calendar quarter.


 


It will
indicate, in particular, for the preceding calendar quarter, the detail and the
nature of exploration work completed in the Delimited Zone and the related
expenses, distinguishing, in particular, the work concerning:


 


·                                          geology,
by distinguishing field geology and office and laboratory geology:


·                                          geophysics,
by category of jobs (seismic, magnetometry, gravimetry, interpretation, etc.)
and by team;


·                                          structural
test drillings, by well;


·                                          appreciation
drillings, by well


·                                          access
paths, water well and other work related to the drilling site;


·                                          other
exploration work.


 


VII-3/ Statement of development and exploitation
work.


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest by the 25th of the first month of each calendar quarter.


 


It will
indicate, in particular, for the preceding calendar quarter, the detail and the
nature of the development work, exploitation or RES Operations carried out in
the  Exploitation Zone and the expenses
referring to it, while distinguishing, in particular, work concerning: development
drillings, by Deposit and by well;


 


·                                          development
drillings, by Deposit and by well;


·                                          specific
production installations;


·                                          production
drillings, by Deposit and by well;


·                                          installations
and transport means of Crude Oil and Natural Gas, by Deposit;


·                                          storage
installations of Crude Oil and Natural Gas, by Deposit after primary treatment.


 


VII-4/ Statement of variations in fixed
assets accounts and inventories of material and consumables


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest the by
25th of the first month of each calendar quarter.


 


It will
indicate, in particular, for the preceding calendar quarter, the acquisitions
and creations of fixed assets, materials and consumables necessary for the Oil
Operations, by Deposit and by main categories, as well as the divestments
(transfers, tosses, destructions, scraping) of these assets.


 

















 


VII-5/Production
statement of the month.


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest the by
15th of each month.


 


It will
indicate, by Deposit, the quantities of Crude Oil and Natural Gas actually
produced during the previous month and the share of this production allocated
to each Party pursuant to the provisions of the Contract.


 


VII-6/Statement
of estimated annual production.


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest on November 30
of each year.


 


It will
present a detailed annual production plan, by Deposit and by month, the
quantities of Crude Oil and Natural Gas whose production is planned for the
following Calendar Year. As needed. Contractor will send rectifying statements.


 


VII-7/Statement
of quantities of crude oil and natural gas transported during the month.


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest the by
15th of each month.


 


It will
indicate, by Deposit, the quantities of Crude Oil and by Natural gas
transported during the prior month between the Deposit and the export or
delivery point, as well as the identification of the pipelines used and the
price of transport paid when transport is carried out by Third Parties. In
addition, the statement will indicate the distribution of the products thus
transported between the Parties.


 


VII-8/
Statement of the pickups of the month.


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest the by
15th of each month.


 


It will
indicate the quantities of Crude Oil and Natural Gas actually picked up for
export or delivery by each Party or delivered to it, during the previous month,
pursuant to the provisions of the Contract.


 


Moreover, each
company constituting Contractor will send to the Departments Responsible for
Hydrocarbons, within the same term and for its own account, a statement of
quantities of Crude Oil and Natural Gas which it picked up for export or
delivery, giving all indications related to each pick up or delivery operation
(purchaser, ship, price, final destination, etc.)


 


VII-9/
Statement of recovery of Oil Costs.


 


This statement
must reach the Departments Responsible for Hydrocarbons at the latest 45 days
following each calendar quarter.


 


It will present, for the previous quarter,
the detail of the Oil Costs Account making it possible, in particular, to
emphasize:


 


·                                          the
Oil Costs remaining to recover at the end of the previous quarter;


·                                          the
Oil. Costs related to the activities of the quarter;


·                                          the
Oil Casts recovered during the quarter with indication, in quantities and
value, of the production allocated for this purpose;


·                                          the
sums reducing or deducted from the Oil Costs during the quarter;


 

















 


·                                          the
Oil Costs remaining to recover at the end of the quarter.


 


VII-10/
Inventory of crude oil algid natural gas


 


This statement
must reach the Departments Responsible for Hydroc. :di-bons gibe latest by the
15 of-e month. It will indicate, for the previous month and by storage site:


 


·                                          stocks
at the beginning of the month;


·                                          stock
entries during the month;


·                                          stock
exits during the month;


·                                          theoretical
stocks at the end of the month;


·                                          stocks
measured at the end of the month;


·                                          explanation
of the possible variations.


 


VII-11/
Statement of movables and immovables purchased, created, leased or
manufactured.


 


Contractor will keep, day by day, a detailed statement of all the movable
property and real assets, created, rented or manufactured for the needs for the
Oil Operations, distinguishing those which are state-owned property under the
provisions of Article 10.1 of the Contract and the others.


 


This statement contains the description and the identification of each
good, the expenses referring to it, the cost and date of acquisition, creation
or manufacture, and, if necessary, the date it was removed from the assignment
to the Oil Operations (exit) and the fate reserved to it in the latter case.


 


The statement
referred to above is imperatively transmitted to the Departments Responsible
for Hydrocarbons and General Exploration and Exploitation of Hydrocarbons
before March 1 of each year for the preceding Calendar Year.


 


VII-12/Statement
of payments to the RES account


 


After the
start of production of a Deposit and at the latest 75 days after the en a
calendar year, Contractor will prepare and transmit to the Departments
Responsible for Hydrocarbons a statement of payments made by each entity
constituting Contractor to the RES Account as well as the itemization of the
amounts paid:


 


· estimate of the
cost of abandonment work


· interests
capitalized for the calendar year


 


VII-13/Statement
of payments of taxes and dues.


 


At the latest by the 15th of the first month
of each calendar quarter, Contractor will prepare and transmit to the
Departments Responsible for Hydrocarbons a statement of the payments of taxes,
fees and dues of any nature paid by it during the preceding calendar quarter,
indicating with precision the nature of the taxes, fees and dues concerned
(proportional mining royalty, customs dunes, etc), the nature of the payment
(installments, balances, regularizations, etc.) the date and amount of the
payment, indication of the tax collector in charge of recovery, as well as all
other useful indications.


 


The provisions
of this paragraph do not apply to the corporation tax since, according to Article 26
of the Contract, this tax is paid by the State in the name and on behalf of Contractor.


 


VII-14/Special
provisions


 


The statements, situations and information
referred to in chapters I to VII above will be prepared and presented on forms
printed and issued by the Departments Responsible for Hydrocarbons, except for
the Characteristic Operating Balance defined in Article 26.5 of the
Contract.


 


The
Departments Responsible for Hydrocarbons may, if needed, require Contractor to
provide them all other statements, situations and information which they deem
useful.


 

















 


CHAPTER VIII - COST OF USE OF THE INSTALLATIONS OWNED BY TOTAL GABON


 


VIII-1
Definition


 


The “Cost of
Use of the Installations” for Total Gabon is intended to cause any Activity
Zone benefiting from the existence and use of fixed assets property of Total
Gabon and other; except those related to the evacuation, storage and loading of
Hydrocarbons, to pay a user cost approved the Parties.


 


VIII-2/ Base
for charging the cost of the use of the installations


 


The base
amount or “base of calculation” of the charge of the “Cost of use of the
Installations” consists of the fixed assets and installations which are also
used in all activities carried out by Total Gabon. These are, in particular,
offices, dwelling houses, warehouses, workshops, transport equipment, capital
goods and various installations located in Port-Gentil and Libreville.


 


VIII-3/
Determination of the value of the base of calculation of the charge
representing the cost of the use of the installations


 


The fixed assets and the capital goods
acquired by Total Gabon before January 1, 1987 have their purchase value
revaluated to compensate for the effect of inflation, on the one, hand, and to
allocate a use value to them, on the other hand.


 


This revaluation applies to the historical
cost since the year following the startup date of the fixed asset or good
concerned. It is calculated by applying to historical value the “industrial
risk” index published quarterly by the monthly bulletin of INSEE.


 


The starting value of the “Base of
Calculation” of the representative charge of the “Cost of use of the
Installations” is equal to the sum of the revaluated cost of the fixed assets
and capital goods incorporated in the base of calculation as at January 1,
1987.


 


Any new fixed
asset or any new capital goods are incorporated in the “Base of calculation” in
the fiscal year following the startup year. Any fixed asset or capital goods
divested from assets is removed from the “base of calculation” in the fiscal
year following the year of its divestment.


 


VIII-4/ Annual
revaluation


 


The value of
the “Base of Calculation” is revalued annually by adding the new acquisitions
and deducting possible withdrawals, which occur during the prior year by
applying the aforementioned “Industrial risk” index to the “Base of
Calculation.”


 


VIII-5/ Calculation of the annual charge of
the cost of use of the installations


 


The annual
charge for a given fiscal year is equal to the addition of the values resulting
from the calculation of the following three elements:


 


ELEMENT 1 =
Base of Calculation made up of fixed assets of construction, buildings and
others x 5%


 


Plus

ELEMENT 2 = Base of Calculation made up of all other fixed assets and capital
goods x 1/7


 


Plus

ELEMENT 3 = Global Base of Calculation x ($ LIBOR + 2) / 2


 


The global
“Base of Calculation” for a given fiscal year is defined as the sum of the
“Base of Calculation” made up of fixed assets of constructions, buildings,
etc., and of the “base of calculation” made up of all other fixed assets and
capital goods.


 

















 


VIII-6/ Posting of the charge of the cost of
use of the installations


 


This charge
represents earnings for the Operator, which is the sole owner of the
installations used; it constitutes a charge for the beneficiaries who use these
installations.


 


This charge is
posted to the activity accounts of the beneficiaries according to the
Operator’s accounting methods.


 


The credit and
debit movements of this charge related to the “Cost of use of the
Installations” are taken into account for the calculation of the overhead.


 

















 


APPENDIX 3

SPECIAL PROVISIONS APPLICABLE TO TOTAL GABON


 


Total Gabon
benefits from Amendment 19 dated May 27, 1991 to its Corporate Agreement
which will apply to the Contract from the date it is signed until its
expiration, under tile .conditions set forth in the Amendment.


 


The provisions
of the aforementioned Amendment 19 benefit Total Gabon intuitu personae and may
not, under any circumstances, be transferred to Third Parties or to the
entities members of Contractors other than the Affiliated Companies of Total
Gabon when carrying out the transfers referred to in Article 42 of the
Contract.


 














 


FINANCING AGREEMENT


 


BETWEEN


 


THE GABONESE STATE


 


AND


 


Total Gabon


 


DIABA LICENSE


 

















 


This agreement
is executed pursuant to article 19 of the Contract for exploration and
production sharing signed on December 13, 2006 between the Gabonese
Republic and Total Gabon for the Diaba license.


 


DEFINITIONS


 


The
definitions appearing in the Contract are used in this agreement with the same
meaning.


 


For the
application of the provisions of this agreement, the entities members of
Contractor will be identified as follows:


 


·                                          The “Beneficiary”
means the Gabonese Republic, taken in its capacity as Contractor for its
Participation referred to in article 19 of the Contract, identified as “Share
of the State”;


 


·                                          The “Oil
Company” means, at the Effective Date of the Contract, Total Gabon, and later
on any legal entity to which an interest may be transferred thereafter pursuant
to articles 19.4 or 42 below;


 


·                                          The “Operator”
means the Oil Company acting as Operator on behalf of Contractor, i.e. at the
date of signing of the Contract, Total Gabon;


 


·                                          The “Sharing
Account — State” means the account referred to in article II of this agreement;


 


·                                          The “Share of
Dedicated Production” means the Share of the Net Production of Crude Oil
defined in article 19.2 (2) of the Contract.


 


·                                          “Call for
funds” means the document by which the Operator requests from the Beneficiary
the funds corresponding to its quota of the expenditure referred to in article
19.1 of the Contract.


 


In the event
of divergence between the provisions of the Contract or the Accounting
Procedure and this financing agreement, the provisions of the Contract prevail.


 


ARTICLE I -
OBJECT


 


This agreement
has the aim of defining the methods according to which the Oil Company will
ensure the financing of the share of the expenditure attributing to the
Beneficiary, under the conditions envisaged in article 19 of the Contract.


 

















 


ARTICLE II
– SHARING ACCOUNT - STATE


 


Pursuant to
article 19.3 of the Contract, the Operator will open on its books an account
named “Sharing Account — State” in which will be recorded:


 


(1)         to debit, the amounts
owed by the Beneficiary:


 


(i)             for the advances made
by the Oil Company for the payments of the calls for funds sent by the Operator
to the Beneficiary or for the reimbursement of the development studies.


 


(ii)          for the interest
stipulated in article 19.3 (2) of the Contract according to the methods
specified in article V — interest of this agreement.


 


(2) to
credit, payments coming from the sale of the Share of the Dedicated Production
valued in US dollars on the basis of the PCO of the month of the sale.


 


ARTICLE
III - PAYMENT TERMS OF THE CALLS FOR FUNDS


 


The Operator
sends to the Beneficiary monthly calls for funds established on a Cash Basis,
according to the methods specified below:


 


3.1


 


(1)           Monthly, the Operator asks the
Beneficiary to provide, in proportion to the Share of the State, the financing
necessary for the Oil Operations of the Calendar Month N+1, according to the
procedure below:


 


Before the
20th of each Calendar Month, the Operator sends by fax and confirms by detailed
letter to the Beneficiary a Call for Funds corresponding to its share in the
aforementioned financing. The amount of the Call for funds corresponds to the
amount of the expenses payable or of the products to be collected for the Month
N+1.


 


The Calls for
funds are calculated in US Dollar and are paid in this currency, but they may
be paid in any other usual currency with the agreement of the Beneficiary.


 


The Calls for
funds must be honored, at the latest within ten business days (10) following
the receipt by the Beneficiary of the fax mentioned above. It is advisable to
understand by business day a business day in Gabon.


 


The
Beneficiary may notify the Oil Company, 5 business days at the latest after
receipt of the call for funds, its intention to pay the aforementioned call. In
the absence of this notification by the Beneficiary for any call for funds or
in the absence of payment of the call for funds concerned within said term, the
corresponding funds will be paid by the Oil Company on behalf of the
Beneficiary and constitute advances as at the due date of said calls for funds.


 


(2) The
calls for funds are presented by category of activity and budgetary heading
according to a plan in line with that of the approved budgets.


 

















 


[START OF RIDER]


 


The Call for
funds gives indicatively the expenditure estimates of the Calendar months N+2
and N+3. They specify for each budgetary heading the accumulation of
achievements posted since the beginning of the financial year.


 


The Calls for
funds take into account the insufficiencies or surpluses related to the
settlements of the preceding Calls for Funds. The Operator will endeavor to
reduce to a minimum these insufficiencies or surpluses of the Calls for funds.


 


(3) The
Operator can make exceptional Calls for Funds to cover the payments made by it
or to be made due to unforeseen and serious circumstances presenting an
emergency character.


 


For any
unforeseen expenditure (including an unforeseeable increase of at least 20% of
a budgetary heading), the operator may issue a Call for funds which must be
honored within ten day (10) business after receipt by the Beneficiary.


 


The payments
of these Calls for funds are carried out by the Beneficiary under the same
conditions as those envisaged in article 3.1 (1) ABOVE.


 


3.2


 


The operator
will send the Beneficiary the following information:


 


a) For the
period of development


 


For the period
of development, i.e. starting from the attribution of the Exclusive
Exploitation Authorization until production start-up, the Operator sends
quarterly to the Beneficiary a summary of the Sharing Account — State
including:


 


(i)                                     monthly
calls for funds of the calendar Year related to developments investments.


(ii)                                  the
amount of the interest calculated according to article V below.


(iii)                               the
balance of the Sharing Account — State of the preceding Calendar Year.


(iv)                              a
statement of expenditures related to the development studies of the
Exploitation Zone assumed by the oil Company before the granting of the Exclusive
Exploitation Authorization.


 


The summary is
entitled “Development Balance”.


 


b) From
production start-up


 


(i)        In the month following the
decision to start up production, the Operator sends to the Beneficiary the
statement of the Development Balance on this date.


 


(ii)     The Operator then sends
quarterly to the Beneficiary a summary of the Sharing Account — State
including:


 

















 


(i)                                     monthly
calls for funds of the Calendar year related to development investments after
production start-up.


(ii)                                  monthly
calls for funds of the calendar year related to the operating costs.


(iii)                               monthly
calls for funds of the calendar year related to the constitution of RES
allocations paid to the RES Account referred to in article 14 of the Contract
and the Accounting Procedure.


(iv)                              the
amount of the interest calculated according to article V below.


(v)                                 the
balance of the Sharing Account — State of the preceding Calendar Year.


 


ARTICLE IV
– REIMBURSEMENT OF THE ADVANCES BY THE BENEFICIARY


 


As from the
date of production start-up, the Beneficiary reimburses to the Oil Company,
through the share of Dedicated Production, the amounts posted to the debit of
the Sharing Account — State, according to a quarterly schedule established by
mutual agreement between the Oil Company and the Beneficiary on the basis of
the multi-annual production prospects, of the investment program still to e
carried out, of the RES operating costs and equipments as presented in the
request for allocation of the Exploitation Zone.


 


The
reimbursement schedule (hereinafter “the Schedule”) must be established so that
development work is refunded at the latest five years after the date of
production start-up. consequently, if it appears that at the expiration of this
time, the work cannot be refunded in full:


 


(i)                                     the
Oil company may not invoke against the Beneficiary the provisions of article
VII below regarding the early payment and


(ii)                                  the
Parties will meet to agree on the methods of establishment of the schedule in
order to make the reimbursement as quickly as possible.


 


The schedule
will be revised at the beginning of each Calendar Year depending on the
adjustment of production data and work programs.


 


a)  Payment terms


 


The Share of
Dedicated Production is calculated in accordance with the methods in Article VI
and according to the schedule referred to in article IX of this agreement. This
Share of Dedicated Production is taken each end of quarter by the Operator on
behalf of the Oil Company.


 


b)  Charge date of the reimbursement


 


The Share of
Dedicated Production is valued at the Official Delivery Price of the month in
which it is made available. The reimbursement is posted to the credit of the
Sharing Account · State ninety (90) days after the Share of Dedicated
Production is made available.


 


c)  Allocation of the reimbursements


 


The payments
thus received are allocated, net of bank charges, by the Operator, in the
following order:


 


(i)                                     to
the payment of the interest outstanding on these dates.


(ii)                                  to
the reimbursement of the expenditure related to the development studies paid by
the Oil Company before the granting of the Exclusive Exploitation Authorization
and to the reimbursement of the advances related to development investments
paid since the allocation of the Exploitation Zone.


(iii)                               to
the reimbursement of the advances related to the operating costs.


(iv)                              to
the reimbursement of RES equipments paid to the RES Account.


 

















 


The Operator
sends quarterly to the Beneficiary a statement of the sharing Account — State
detailing the operations carried out in the past quarter.


 


ARTICLE V
- INTEREST


 


·             In accordance with
article 19.3 (2) of the contract, the advances paid and not refunded bear
interest at the rate $ LIBOR plus two (2) points; the interest is
calculated prorate temporis from the availability
date of the funds reputed to be (i) the due date of the calls for funds or
(ii) the date the expenditure referred to in article 3.2 a) (iv) above
is posted to the Sharing Account — State, until complete reimbursement.


 


·             Interest is
calculated on a banking basis, i.e. on the basis of the exact number of days
lapsed, divided by 360.


 


·             At the end a given
calendar year, the outstanding unpaid interest is added to the cumulated amount
of the advances and this bears interest until the date of payment.


 


ARTICLE VI
- FEES, TAXES AND DUES


 


All operations
under this agreement are exempt from fees, taxes, dues, royalties of any nature
whatsoever, subject, with regard to the interest charged by the Oil company in
accordance with Article V above, to the application of the provisions of
article 26.5 c) of the Contract.


 


ARTICLE
VII - FORCED PREPAYMENT


 


If the
Beneficiary does not respect one of its obligations under the terms of this
agreement or of the Contract and if it does not remedy this default within
thirty (30) days following receipt of the warning sent by the Oil company by
fax confirmed by letter with acknowledgement of receipt, this Agreement may be
terminated, at the initiative of the Oil company, without formality or court
decision, and the amounts owed are completely refunded within six (6) month
from the aforementioned warning.


 


ARTICLE
VIII - TRANSFER OF RIGHTS


 


(a)    in the event of transfer by
the Beneficiary to a Third Party of all or part of the Share of the State, the
provisions of the article 19.4 of the Contract will apply


 


(b)    in the event of transfer of
participations between entities members of the Oil Company:


 


Each Oil Company takes part in the financing
of the advances granted to the Beneficiary under the conditions referred to in
this agreement, in the proportion of the sharing percentage compared to the
entire share of the Oil Companies.


 


ARTICLE IX
- PRACTICAL METHODS OF CALCULATION ON THE DEDICATED PRODUCTION SHARE


 


At the
beginning of the 1st quarter of
Calendar year N, the operator calculates the estimated Share of the Dedicated
Production for the aforementioned year on the basis:


 


·             of the annual
production and work forecast as approved by the Parties after obtaining the
opinion of the Technical committee for Follow-up of the Oil Operations under the
contract during the meeting at the end of the year N-1;


·             of the balance of the
Oil costs remaining to recover at December 31 of the Calendar year N-1;


·             of the oil price
corresponding to the budgetary assumptions retained by the Operator;


 

















 


At the beginning
of the 2nd,
3rd and 4th quarters of the Calendar year N, the Operator
establishes the Share of the Dedicated Production during the past quarter
concerned, on the basis:


 


·             of the real
production obtained between the beginning of the Calendar year N and the end of
this quarter.


·             of the weighted
average of the quantities of the Official Transfer Price (PCO) calculated
between the beginning of the year N and the end of said quarter.


·             of the balance of the
Oil Costs at the end of said quarter.


 


On the same
date, the calculation of the estimated share of Dedicated Production is updated
according to:


 


·             production forecasts
of the Calendar year N which take account the production already obtained
during the past quarter or quarters and the crude oil remaining to be produced
by the end of the year N according to the data submitted to the Technical
Committee for Follow-up of the Oil Operations;


·             possible revision of
the work and budget programs as approved by the Parties under the contract.


·             the scenario of the
price of the Crude Oil taking into account the weighted average of PCO
quantities as calculated between the beginning of the year N and the end of
said quarter and the possible revision of the prices of Crude Oil for the
future quarter(s) corresponding to the price selected by Total Gabon for
the quarterly revision of its monthly oil tax accounts paid for the year N
under its Establishment Agreement.


 


The estimated
share of the Dedicated Production for the quarter concerned is calculated by
the difference between the annual estimate and the accumulated achievements.


 


At the
beginning of the year N+1, the Operator adjusts the Share of Dedicated
Production of the year N, based on:


 


·             real production of
the year N.


·             weighted average of
the PCO quantities defined during the year N.


·             Oil costs recovered
at the end of the year N.


 


ARTICLE X –
EXPIRATION OF THE AGREEMENT


 


This agreement
ends:


 


(i)                                     on
the expiration date of the Agreement;

on the date all amounts owed by the Beneficiary were reimbursed or on the
expiration date of the Agreement


 


(ii)                                  on
the date the Beneficiary no longer holds the Share of the State under the
conditions set forth in article 19.4 of the Agreement.


 


	
   

  	
  Made
  in Libreville, on Dec. 13, 2006

  
	
   

  	
   

  
	
  For
  the Gabonese Republic

  	
  For
  Total Gabon.

  
	
   

  	
   

  
	
  The
  Minister of Mines, Energy, Petroleum and Hydraulic Resources 

  	
  General
  Manager

  [signature] 

  
	
  [signature]

  	
   

  
	
   

  	
  [stamp]

  
	
  Richard
  Auguste ONOUVIET

  	
  TOTAL
  GABON

  
	
  Minster
  of State

  	
  [illegible]

  
	
  Minister
  of Finance, Economy,

  	
  LIBREVILLE

  
	
  Budget
  and Privatization

  	
   

  
	
   

  	
  Jean
  BIE

  
	
  [signature]

  	
   

  
	
  Paul
  TOUNGUI

  	
   

  
	
   

  	
   

  
	
  [illegible stamp]