Exhibit 10.10


 


	
  NUMBER:5451

  	
   

  	
  KARDEX:86482

  
	
   

  	
   

  	
   

  
	
  DRAFT: 5219

  	
   

  	
   

  



 


LICENSE AGREEMENT FOR HYDROCARBON
EXPLORATION AND DEVELOPMENT IN BLOCK XXIII


 


BETWEEN


 


PERUPETRO S.A.


 


AND


 


BPZ EXPLORACION & PRODUCCION S.R.L.


 


WITH PARTICIPATION OF


 


BPZ ENERGY INC.


 


AND


 


THE CENTRAL RESERVE BANK OF PERU


 


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


OF 


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


 


THERE APPEARED BEFORE ME


 


PERUPETRO
S.A. WITH SINGLE TAX PAYER REGISTRATION No 20196785044, ADDRESS OF RECORD AT
AVENIDA LUIS ALDANA No 320, SAN BORJA, LIMA, REPRESENTED BY ITS GENERAL MANAGER
CARLOS EDGAR VIVES SUÁREZ, WHO
DECLARED BEING PERUVIAN, MARRIED, AN ENGINEER, IDENTIFIED WITH NATIONAL
IDENTITY DOCUMENT No 08725702, A VOTER, WITH POWER OF ATTORNEY REGISTERED UNDER
ENTRY C00039 OF ELECTRONIC DOCKET No 00259837, OF THE COMPANY REGISTRY OF LIMA,
AND PURSUANT TO BOARD OF DIRECTORS’ AGREEMENT No 118-2007 DATED SEPTEMBER 27,
2007 AND SUPREME DECREE No 062-2007-EM PUBLISHED ON THE 21ST OF NOVEMBER 2007,
SAME WHICH ARE INCLUDED IN THIS DEED.


 


AND:  


 


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


 


WITH THE PARTICIPATION
OF:  


 


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


 

















 


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


 


AND THE CENTRAL RESERVE BANK OF PERU, IDENTIFIED WITH SINGLE TAX
PAYER REGISTRATION No 20122476309, WITH ADDRESS OF RECORD AT JR. ANTONIO MIRO
QUESADA No 441, LIMA, REPRESENTED BY ITS GENERAL MANAGER, RENZO GUILLERMO ROSSINI MIÑAN, WHO SAID HE
WAS PERUVIAN, MARRIED, AN ECONOMIST, IDENTIFIED WITH NATIONAL IDENTITY DOCUMENT
No 08727483, A VOTER, APPOINTED BY BOARD OF DIRECTORS’ AGREEMENT NUMBER No 4059
AND CARLOS AUGUSTO BALLON AVALOS,
WHO DECLARED HE WAS PERUVIAN, MARRIED, AN ECONOMIST, IDENTIFIED WITH NATIONAL
IDENTITY DOCUMENT No 08757380, A VOTER, IN HIS POSITION AS INTERNATIONAL
OPERATIONS MANAGER APPOINTED BY BOARD OF DIRECTORS’ AGREEMENT No 3737, BOTH
DULY AUTHORIZED AS REPORTED IN THE LETTER FROM THE BANK’S GENERAL MANAGEMENT
OFFICE No 130-2007-BCRP, DATED OCTOBER 25, 2007, ATTACHED TO THIS PUBLIC DEED,
AND BOTH WITH ADDRESS OF RECORD AT JR. ANTONIO MIRO QUESADA No 441, LIMA. 


 


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


 


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


 


Please
register in your Public Deed Registry the license contract for the exploration
and development of hydrocarbons in Block 
XXIII, entered into by and between, on the one hand, PERUPETRO S.A., identified with RUC N° 20196785044, with
address of record at Avenida Luis Aldana N° 320, District of San Borja,
Province and Department of Lima, represented by its General Manager Carlos Edgar Vives Suárez, a Peruvian, identified with DNI
N° 08725702, with address of record at Av. Luis Aldana 320, San Borja, with
powers of attorney registered in Entry C00039 under Electronic Docket No
00259837 of the Company Registry of Lima, pursuant to provisions of the
PERUPETRO Board of Directors’ Agreement N° 118-2007 dated September 27,
2007, the text of which, Mr. Notary, you will attach hereto.  And, on the other hand, BPZ
EXPLORACIÓN & PRODUCCIÓN S.R.L., identified with RUC N°
20503238463, a company organized and existing pursuant to the laws of the
Republic of Peru, registered in Entry A00001 under Docket N° 11985400 of the
Company Registry of Lima and in Entry A0002 under Docket N° 11328132 of the
Operations Contractors Book of the Public Registry of Hydrocarbons, with
address of record at Calle Manuel de Falla N° 297, District of San Borja,
Province and Department of Lima, represented by its General Manager Luis Rafael Zoeger Núñez, a Peruvian, identified with DNI N°
08212579, authorized by power of attorney registered in Entry A00001 of Docket
N° 11985400 of the Company Registry of Lima; with the participation of BPZ ENERGY INC., with address of record at 580 West Lake
Park Boulevard, Suite 525, Texas 77079, United States of America, 


 

















 


represented
by Luis Rafael Zoeger Núñez, a Peruvian,
identified with DNI N° 08212579, authorized by power of attorney registered in
Entry A00001 under Docket N° 11992608 of the Book of Powers of Attorney Granted
by Established Companies or Affiliates Established Overseas, of the Company
Registry of Lima, and the Central Reserve Bank of
Perú, with address of record at Jr. Antonio Miro Quesada N° 441,
District of Cercado de Lima, Province and Department of Lima, represented by
its officials Renzo Rossini Miñán, a Peruvian,
identified with DNI N° 08727483, in his condition as General Manager appointed
by the Board of Directors’ Agreement N° 4059 dated October 14, 2004 and Carlos Augusto Ballón Avalos, a Peruvian, identified with
DNI N° 08757380, in his condition as Manager for International Operations,
appointed by Board of Directors’ Agreement N° 3737, dated May 21, 1998, both
authorized pursuant to the Bank’s General Management Office letter N°
130-2007-BCRP dated October 25, 2007, which you Mr. notary will
attach hereto, and by Supreme Decree N° 062-2007-EM, published on November 21,
2007, which approves and authorizes the signing of this Agreement under the
terms and conditions described in the following clauses.


 


LICENCE AGREEMENT FOR
HYDROCARBONS EXPLORATION AND DEVELOPMENT IN BLOCK XXIII


 


BETWEEN


 


PERUPETRO S.A.


 


AND


 


BPZ EXPLORACION &
PRODUCCION S.R.L.


 


	
  CONTENTS

  
	
   

  	
   

  	 

	
  CLAUSE
  INTRODUCTION

  	
  GENERAL

  	 

	
  CLAUSE
  1

  	
  DEFINITIONS

  	 

	
  CLAUSE
  2

  	
  OBJECT OF THE AGREEMENT

  	 

	
  CLAUSE
  3

  	
  TENURE, CONDITIONS AND GUARANTEE

  	 

	
  CLAUSE
  4

  	
  EXPLORATION

  	 

	
  CLAUSE
  5

  	
  DEVELOPMENT

  	 

	
  CLAUSE
  6

  	
  REPORTING AND STUDIES

  	 

	
  CLAUSE
  7

  	
  OVERSIGHT COMMITTEE

  	 

	
  CLAUSE
  8

  	
  ROYALTIES AND VALUATION

  	 

	
  CLAUSE
  9

  	
  TAXES

  	 

	
  CLAUSE 10

  	
  CUSTOMS DUTIES

  	 

	
  CLAUSE
  11

  	
  FINANCIAL RIGHTS

  	 

	
  CLAUSE
  12

  	
  LABOR

  	 

	
  CLAUSE
  13

  	
  ENVIRONMENT AND COMMUNITY
  RELATIONS

  	 

	
  CLAUSE
  14

  	
  HYDROCARBON CONSERVATION AND LOSS PREVENTION

  	 

	
  CLAUSE
  15

  	
  TRAINING AND TECHNOLOGY
  TRANSFER

  	 

	
  CLAUSE
  16

  	
  ASSIGNMENT AND PARTNERSHIPS

  	 

	
  CLAUSE
  17

  	
  ACT OF GOD AND FORCE MAJEURE

  	 

	
  CLAUSE
  18

  	
  ACCOUNTING

  	 

	
  CLAUSE
  19

  	
  SUNDRIES

  	 

	
  CLAUSE
  20

  	
  NOTIFICATIONS AND COMMUNICATIONS

  	 

	
  CLAUSE
  21

  	
  PERUVIAN LAW APPLIES AND CONFLICT RESOLUTION

  	 

	
  CLAUSE
  22

  	
  TERMINATION

  	 

	
  ANNEX
  “A”

  	
  DESCRIPTION OF AGREEMENT
  AREA

  	 

	
  ANNEX
  “B”

  	
  MAP OF AGREEMENT AREA

  	 




 

















 


	
  ANNEXES
  “C-1” to “C-4”

  	
  WARRANT BONDS FOR MINIMUM WORK PROGRAM

  
	
  ANNEX “D”

  	
  CORPORATE GUARANTEE

  
	
  ANNEX “E”

  	
  ACCOUNTING PROCEDURE

  
	
  ANNEX
  “F”

  	
  EXPLORATION WORK UNITS - TABLE OF
  EQUIVALENCE

  



 


LICENSE AGREEMENT FOR
HYDROCARBONS EXPLORATION AND DEVELOPMENT IN BLOCK XXIII


 


BETWEEN


 


PERUPETRO S.A.


 


AND


 


BPZ EXPLORACION &
PRODUCCION S.R.L.


 


PRELIMINARY CLAUSE.- GENERAL 


 


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


 


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


 


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


 


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


 


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


 


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


 


CLAUSE ONE.- DEFINITIONS 


 


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


 


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


 


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


 

















 


share capital of the same
shareholder or shareholders who own, directly or indirectly, fifty percent
(50%) or more of the voting share capital of PERUPETRO or the Contractor.


 


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


 


1.3       Agreement
Area.  The area described in Annex “A”
hereto and appearing in Annex “B”, called BLOCK XXIII, located in the provinces
of Contralmirante Villar, Tumbes in the Tumbes Department, and Talara in Piura
Department, covering a surface area of ninety three thousand one hundred ninety
eight point nine hundred fifty six hectares (93,198.956 ha). The Agreement Area
will be redefined after excluding the areas released by the Contractor,
pursuant to the terms of the Agreement.


 


Likewise, when the exploration
results warrant a new Agreement Area configuration, and at the request of the
Contractor, supported by a report addressed to PERUPETRO, including proposals
for working in the new area, and after approval by PERUPETRO, the Agreement
Area may be re-demarcated.  The change
will be approved pursuant to existing law. 
Under no circumstance shall the new demarcation increase the original
Agreement’s area.  


 


Should any discrepancies arise
between Annex “B” and the description in Annex “A”, Annex “A” shall prevail. 


 


1.4       Barrel.  A capacity measurement unit for Controlled
Liquid Hydrocarbons, equivalent to forty two (42) gallons of the United States
of America at sixty degrees Fahrenheit (60° F), at sea level pressure, without
water, mud or other sediments (BS&W).


 


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


 


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


 


1.7       Oversight
Committee.  A body created
by the Parties through which PERUPETRO oversees the compliance with and the
execution of the Agreement, and the membership and 


 

















 


attributions of which are
established by clause seven.


 


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


 


1.9       Condensates.
Liquid hydrocarbons created by the condensation of hydrocarbons isolated
from natural gas by applying pressure or temperature when the natural gas
flowing from the reservoirs is produced, or resulting from one or more
compression stages of natural gas. They remain liquid at atmospheric temperature
and pressure.


 


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


 


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


 


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


 


1.13     Development.
 Any activity for the production
of hydrocarbons, including well drilling, completion and deepening, as well the
design, construction and installation of equipment, tanks, storage tanks and
other means and facilities, including the use of artificial production methods
and primary and improved recovery systems in the Agreement Area and outside of
it, as needed.


 


It includes the construction
of the transportation and storage systems, the facilities at the Production
Control Point, the main pipeline and, if appropriate, primary distillation plants
for the manufacturing of products to be used in the operations and facilities
of the processing plants for treating gas and natural gas.


 


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


 


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


 


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


 


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


 


1.18     Main
Pipeline.  Main pipeline the
Contractor may build and operate and which, starting at the end of the
Transportation and Storage Systems, drives hydrocarbons produced in the
Agreement Area to a third party property pipeline, to a sale or exportation
point, or to a production control point, notwithstanding, if required, the
approval provided under heading 2.3. 
This Main Pipeline may include the measurement points connected to the
pipeline, the required storage and shipping 


 

















 


areas, smaller pipelines,
pumping or compression stations, communications systems, access and maintenance
roads, and any other facilities that may be necessary and required for
transporting hydrocarbons in a continued and timely manner, including the
design or construction, maintenance and equipment of all the previously
mentioned components.  Access will be
granted to any main pipeline from the beginning of the fifth year starting on
the Date of Beginning of Commercial Extraction. 


 


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


 


1.20     Exploitation.  Development and/or Production.



 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


1.31     Liquid
Hydrocarbons.  Oil, condensate,
and generally, all hydrocarbons, which at atmosphere temperature and pressure
conditions, are found in liquid state at the 


 

















 


measurement site, including
hydrocarbons found in liquid state at a temperature above atmospheric
temperature.


 


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


 


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


 


1.34     LNG or
Liquid Natural Gas.  Liquid
hydrocarbons obtained from natural gas and made up by ethane, propane, butane
and other heavier hydrocarbons.


 


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


 


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


 


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


 


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


 


1.39     Parties. PERUPETRO and the
Contractor. 


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 

















 


measurement, and all types of
primary and improved recovery measures.


 


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


 


1.49     Reservoir.  Stratum or strata under the
surface which may be part of a deposit under production or which has (or have)
proven hydrocarbon production capacity, under a common pressure system
throughout their entire area. 


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


CLAUSE TWO.- PURPOSE OF THE
AGREEMENT. 


 


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


 


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


 


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


 


2.4       PERUPETRO will oversee
the Operations, pursuant to the law and the Agreement.


 

















 


OSINERGMIN will be charged with control initiatives, as mandated by law.


 


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


 


2.6       The Contractor will provide
and be responsible for all technical, economic and financial resources required
for executing the Operations. 


 


CLAUSE THREE.- TERM, CONDITIONS
AND GUARANTEE 


 


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


 


3.2       The exploration stage is
divided into four (4) periods: 


 


	
  Heading

  	
   

  	
  Period

  	
   

  	
  Duration

  
	
  3.2.1

  	
   

  	
  First
  period

  	
   

  	
  Eighteen
  (18) months starting on the effective date.

  
	
  3.2.2

  	
   

  	
  Second
  period

  	
   

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

  
	
  3.2.3

  	
   

  	
  Third period

  	
   

  	
  Twenty-Four (24) months
  starting at the end of the term mentioned under heading 3.2.2.

  
	
  3.2.4

  	
   

  	
  Fourth
  period

  	
   

  	
  Twenty-Four
  (24) months starting at the end of the term mentioned under heading 3.2.3.

  



 


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


 


3.4       If during any of
these stages as described under heading 3.2, the Contractor is prevented, by
properly grounded technical or economic reasons, from concluding the
corresponding minimum work program, such period may be extended for a maximum of
six (6) months, provided PERUPETRO’s approval has been requested at least
thirty (30) days before the end of the period


 

















 


underway, and the reasons supporting the request have been verified and
approved by PERUPETRO. If so, before the end of the period underway, the
Contractor will post a new warrant bond or will extend the life of the existing
one, to cover the new required period, pursuant to the conditions set forth
under heading 3.10. If the awarded extensions consume the time for the last
period of the exploration stage and the Contractor chooses to continue its
exploration work, the obligations for such period will be met during an
extension of the exploration stage to be agreed upon by the Parties, pursuant
to existing regulations. After the completion of the minimum work program for
the period underway and within the term established under heading 3.2, if the
extensions described in the preceding paragraph have been exhausted, as
required, and provided the work has been performed, including  drilling at least one exploration well, the
Contractor may ask PERUPETRO to grant an extraordinary period of six (6) months
to examine all the information and findings gathered until the end of the
period underway, and thus prepare a study that will lead to a decision whether
or not to proceed to the next period. 
The approvals described under this heading will be awarded at PERUPETRO’s
sole criterion.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 

















 


period for oil and another one
for Non-associated Natural Gas or Non-associated Natural Gas or Condensates for
the purposes described under those headings.


 


3.9       The withholding periods
described under headings 3.6 and 3.7 will provide an extension of the Agreement’s
term for period equal to the withholding period granted by PERUPETRO. The
withholding period will be granted in writing. For this purpose, the Contractor
will submit a request to PERUPETRO, enclosing the supporting documentation and
a schedule of activities to be performed. The exploration stage concludes at
the beginning of the withholding period. The development stage starts when a
commercial discovery statement for that period is made. The award of the
withholding periods described under headings 3.6 and 3.7 and their duration
will be determined by PERUPETRO at its sole criterion, without any prejudice to
or reduction of the obligation to undertake the minimum work programs for the
period of the exploration stage underway.


 


3.10     The Contractor shall guarantee
compliance with the minimum work program for each of the periods of the
exploration stage, pursuant to provisions under headings 3.2 and 4.6, by providing
a joint and several, unconditional, irrevocable and automatic warrant bond,
without the benefit of excussion to the executed automatically in Peru, issued
by a properly qualified entity of the Peruvian financial system, and with
address of record in Peru, that is acceptable to PERUPETRO.  At the request of PERUPETRO, the Contractor
will replace any warrant bond already posted, and shall post a new warrant bond
within the period of fifteen (15) Business Days after the day when PERUPETRO’s
request was received by the Contractor. 
The amount of the warrant bond for the minimum work period for each of
the periods of the exploration stage appears in Annexes “C-1” to “C-4”, and is
the result of multiplying the equivalent in dollars which for this purpose is
established in Annex “F”, by the number of Exploration Work Units corresponding
to each period, as described under heading 4.6. The warrant bonds will be
issued for each minimum work program in the way described in Annexes “C-1” to “C-4”,
as appropriate.  The warrant bonds for
the minimum work program in each of the periods of the exploration stage, as
provided for under heading 4.6, will be delivered to PERUPETRO before the
beginning of each period; otherwise subheading 22.3.3 shall apply. The warrant
bond corresponding to the minimum work program for the first stage will be
delivered at the Date of Signing.   The
warrant bonds, in case of extensions of the periods corresponding to the
exploration stage, will be replaced or extended by the Contractor before the
beginning of the corresponding extension; otherwise, the approval granted by
PERUPETRO for the extension requested by the Contractor will be null and void.
The warrant bond for the minimum work program of the exploration stage will
remain in full force and effect for a period exceeding by thirty (30) business
days the duration of the former’s life. 
If any of the warrant bonds provided by the Contractor expires during
the established term, the latter shall comply with


 

















 


delivering a new warrant bond or extending the existing one within
fifteen (15) days after the reception by the Contractor of  PERUPETRO’s notification. Otherwise,
subheading 22.3.3 shall apply.  When the
obligation guaranteed by each warrant bond is complied with, PERUPETRO will
immediately proceed to return to the issuer, through the Contractor, the
corresponding warrant bond. The execution of any warrant bond will have as a
consequence the termination of the Contractor’s obligations to perform the
minimum work program, notwithstanding the enforcement of the provisions included
in subheading 22.3.1.


 


3.11     BPZ ENERGY INC.
participates in this Agreement for purposes for providing the corporate
guarantee enclosed herewith as Annex “D”.


 


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


 


CLAUSE FOUR.- EXPLORATION 


 


4.1       The Contractor shall start
exploration activities of the Effective Date. 


 


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


 


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


 


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


 


b)      At the end of the fourth
period described in subheading 3.2.4, the Contractor


 

















 


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


 


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


 


d)                  If the Contractor decides not to continue the
exploration works described in paragraph c), or if such commitments are not
met, notwithstanding the enforcement of the corresponding contract-base
conditions, it will be allowed to keep only the deposits discovered and the
surrounding five (5) kilometers area to the limit of the Agreement Area.


 


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


 


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


 


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


 


	
  Heading

  	
   

  	
  Period

  	
   

  	
  Activity

  
	
  4.6.1

  	
   

  	
  First Period

  	
   

  	
  ·     615 UTEs.

  
	
  4.6.2

  	
   

  	
  Second Period

  	
   

  	
  ·     678 UTEs.

  
	
  4.6.3

  	
   

  	
  Third Period

  	
   

  	
  ·     455 UTEs.

  
	
  4.6.4

  	
   

  	
  Forth Period

  	
   

  	
  ·     263 UTEs.

  



 


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


 


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


 


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


 


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


 


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


 


d)                  Before the beginning of each period of the
exploration stage, the Contractor will


 

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


e)      Planned Main Pipeline, if
appropriate.  


 


f)       Security measures.  


 


g)      Preliminary schedule for all
activities to be undertaken. 


 


h)      Estimated date when the
commercial extraction will begin. 


 


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


 


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


 


4.10     If the Contractor issues a
announcement of commercial discovery, it will be obliged to start development
within one hundred and eighty (180) days after the expiration of the sixty (60)
days mentioned under heading 4.9 of the Agreement. The commercial


 
















 


discovery will not imply reducing or suspending the
obligations of the minimum work program for the period underway.  


 


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


 


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


 


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


 


CLAUSE FIVE.– DEVELOPMENT 


 


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


 


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


 


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


 

















 


	
  a)

  	
   

  	
  An annual work program and
  the detailed budget for revenues, costs, expenses and investments for the
  following calendar year.

  
	
   

  	
   

  	
   

  
	
  b)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  c)

  	
   

  	
  A work program and the
  corresponding revenues, costs, expenses and investments estimates for
  development and/or production, for the next five (5) calendar days.

  



 


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


 


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


 


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


 


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


 


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


 


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


 


5.9       When one or more deposits that
may be commercially developed extend continuously from the Agreement Area to
one or more other areas, the Contractor and the contractors who hold those
areas shall reach an agreement to prepare a single development plan or a common
development plan. If no such agreement is reached, the Ministry of Energy and
Mines may decide to submit the divergence to the Technical Conciliation
Committee


 

















 


mentioned in article 32o under
Law N° 26221, the decisions of which will be mandatory for the Parties.  Likewise, when one or more deposits subject
to commercial development extend continuously from the Agreement Area to
adjoining areas not allocated to a contractor or that may not be comprised in
negotiations, competitions, deeds or contractor selection, and there is no
limitation as regards environmental protection issues, after obtaining
PERUPETRO approval to the Contractor’s request, those adjoining areas may be
included in the Agreement Area.


 


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


 


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


 


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


 


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


 


CLAUSE SIX. – INFORMATION AND STUDIES 


 


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


 


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


 

















 


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


 


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


 


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


 


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


 


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


 


	
  a)

  	
   

  	
  When provided to an
  Affiliate;

  
	
   

  	
   

  	
   

  
	
  b)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  c)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  d)

  	
   

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

  



 


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


 


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


 

















 


CLAUSE SEVEN. – OVERSIGHT COMMITTEE 


 


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


 


7.2       The Oversight
Committee will enjoy the following attributions:


 


	
  a)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  b)

  	
   

  	
  To assess the execution of
  the minimum exploration work programs described under heading 4.6;

  
	
   

  	
   

  	
   

  
	
  c)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  d)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  e)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  f)

  	
   

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

  



 


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


 


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


 


CLAUSE EIGHT.– ROYALTIES AND VALUATION


 


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


 


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


 


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


 

















 


	
  a)

  	
   

  	
  Rate paid to third parties
  or the Estimated Rate, expressed in dollars per barrel or dollar per million
  Btu, as appropriate, for the necessary transportation and storage of the
  controlled hydrocarbons from the Production Control Point to the point of
  sale or transportation, including storage at that point; and,

  
	
   

  	
   

  	
   

  
	
  b)

  	
   

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

  



 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


8.2.7       Value of Controlled Condensates: The product of
multiplying the Controlled Condensates of a Valuation Period times the Basket
Price of Controlled Condensates for such period, from which price the cost of
transportation and 


 

















 


storage
if applicable, will have been subtracted.


 


8.2.8       Value of
Controlled Natural Gas Liquids: The product of multiplying
the Controlled Natural Gas Liquids for a Valuation Period times the basket
price of the Controlled Natural Gas Liquids for that period, price from which
the cost of Transportation and Storage, if applicable will have been
subtracted.


 


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


 


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


 


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


 


	
  Controlled Production

  MBCD

  	
   

  	
  Percent royalty (%)

  	
   

  
	
  < 5

  	
   

  	
  15.00

  	
   

  
	
  5 – 100

  	
   

  	
  15.00 –
  30.00

  	
   

  
	
  >100

  	
   

  	
  30.00

  	
   

  



 


MBDC:
Millions of Barrels per Calendar Day


 


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


 

















 


respective valuation period.


 


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


 


RRE                       =             15.00 %  +             VR


||





 


Where:


 


VR          :               Variable Royalty % t


FR t-1      :               R t-1  Factor


 


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


 


0%         £             Variable Royalty  £             20%


 


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


 


	
  X
  t-1:

  	
   

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

  
	
  Y
  t-1:

  	
   

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

  
	
  R
  t-1 Factor:

  	
   

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

  
	
  Period
  t-1:

  	
   

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

  



 


where:


 


Accumulated revenues:


 


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


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


 


	
  PFP

  	
   

  	
  Controlled
  Oil Production.

  
	
  PCP

  	
   

  	
  Oil
  Basket Price.

  
	
  CTAP

  	
   

  	
  Oil
  Transportation and Storage Cost.

  
	
  PFC

  	
   

  	
  Condensate
  Control Production.

  
	
  PCC

  	
   

  	
  Condensate
  Basket Price.

  
	
  CTAC

  	
   

  	
  Condensate
  Transportation and Storage Cost.

  
	
  PFG

  	
   

  	
  Natural
  Gas Controlled Production.

  
	
  PRG

  	
   

  	
  Natural
  Gas Realized Price.

  
	
  CTAG

  	
   

  	
  Natural
  Gas Transportation and Storage Cost.

  
	
  PFL

  	
   

  	
  Natural
  Gas Liquids Controlled Production.

  
	
  PCL

  	
   

  	
  Natural
  Gas Liquids Basket Price.

  
	
  CTAL

  	
   

  	
  Natural
  Gas Liquids Transportation and Storage Cost.

  
	
  OI

  	
   

  	
  Other
  incomes.

  



 


Accumulated expenses:


 


Acum    (Investment + Expenses +
Royalties + Other Incomes)


 


Annex E-Accounting Procedures
details the revenues and expenses and the times for the


 

















 


registration the Factor Rt-1,
component.


 


The calculation of the
variable royalty percentage will be made twice yearly, once in January, with
information about the revenues and expenses incurred from January to December of
the prior calendar year; and again in July with information from July of
the prior calendar year to June of the current calendar year.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 

















 


d)   Every six (6) months or before if any of the
Parties so requests, the Parties may review the basket established for
Controlled Oil valuation, and thus ensure that the previously listed conditions
continue to be met. If it is found that any of such conditions no longer
applies, the Parties may modify the basket within thirty (30) days after the
date when the basket review started. If that period expires and the Parties
have not reached an agreement about the new basket, the provisions set forth in
subheading 8.4.5 shall apply. If it is found that API (weighted average)
degree, sulphur content or other element used to measure the quality of
Controlled Oil has changed significantly compared to the quality of the basket
components (simple arithmetical average), the Parties will change the basket so
that it will reflect the quality of the Controlled Oil.


 


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


 


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


 


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


 


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


 


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


 


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


 


8.4.4       The price of Controlled
Natural Gas will be reflected by the Realized Price,


 

















 


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


 


8.4.5       If the Parties cannot agree on
any of the issues described in this heading, the provisions under heading 21.2
will apply.


 


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


 


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


 


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


 


CLAUSE NINE – TAXES


 


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


 

















 


regulating stability contracts
with the State under the protection of Sectorial Laws – Law N° 27343” as
applicable, and in the “Updated Law for Hydrocarbons  – Law N° 27377”.


 


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


 


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


 


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


 


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


 


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


 


CLAUSE TEN – CUSTOMS DUTIES


 


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


 


10.2     The Contractor may import on a
temporary basis, for a period of two (2) years, all the goods required for
its activities and have the corresponding import duties suspended, including
those requiring an express suspension statement. If an additional extension is
needed, the Contractor may request such extension from PERUPETRO for periods of
one (1) year and for a maximum two (2) such periods. PERUPETRO will
obtain the Directorial Resolution from the General Hydrocarbons Bureau. The
National Superintendent for Tax Administration will authorize the extension of
the temporary importation regime based on the mentioned documents. The
procedure, records and guarantees needed to enforce the temporary importation
regime


 

















 


will follow the rules set forth in the General Customs Law, as
amended and regulated.


 


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


 


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


 


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


 


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


 


CLAUSE ELEVEN.- FINANCIAL RIGHTS


 


11.1     State
Guarantee.


 


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


 


11.2     Exchange
Rate Regime


 


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


 


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


 

















 


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


 


c)      Right to maintain, control and
manage bank accounts in any currency, both locally and overseas, and to control
and freely use those accounts,  and to
freely maintain and dispose of abroad the funds deposited in those accounts
without any restriction whatsoever.


 


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


 


11.3     Foreign
Currency Availability and Conversion


 


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


 


11.4     Changes
to the exchange regime


 


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


 

















 


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


 


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


 


11.5     Enforcement
of Other Legal Provisions


 


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


 


11.6     Economic
Reporting


 


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


 


CLAUSE
TWELVE.- LABOR


 


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


 
















 


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


 


CLAUSE THIRTEEN.- ENVIRONMENTAL PROTECTION AND COMMUNITY RELATIONS 


 


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


 


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


 


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


 


CLAUSE FORTEEN – HYDROCARBON CONSERVATION
AND LOSS PREVENTION


 


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


 


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


 

















 


will be the amount the
Contractor shall pay for the royalty for the lost hydrocarbons, at the latest
on the second business day after such remedy was paid, notwithstanding
provisions under heading 13.1.


 


CLAUSE FIFTEEN.- TRAINING AND TECHNOLOGY TRANSFER


 


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


 


	
  Paragraph

  	
   

  	
   

  	
   

  	
  Annual

  Contribution

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (in US$)

  	
   

  
	
  a)

  	
   

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

  	
   

  	
  10,000.0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  b)

  	
   

  	
  After
  the Date Of Beginning Of Commercial Extraction.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Barrels
  per Day

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  From         
  0     to      500

  	
   

  	
  10,000.0

  	
   

  
	
   

  	
   

  	
  From      501     to      1,000

  	
   

  	
  15,000.0

  	
   

  
	
   

  	
   

  	
  From   
  1,001    to      1,500

  	
   

  	
  20,000.0

  	
   

  
	
   

  	
   

  	
  From    1,501    to      2,500

  	
   

  	
  30,000.0

  	
   

  
	
   

  	
   

  	
  From    2,501    to      5,000

  	
   

  	
  40,000.0

  	
   

  
	
   

  	
   

  	
  More
  than 5,000

  	
   

  	
  50,000.0

  	
   

  



 


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


 


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


 


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


 


15.4     The Contractor commits, during
the development stage and if possible during the exploration stage, to put in
place an internship program for university students that will provide
complementary training pursuant to their respective universities’ 


 

















 


requirements and existing law
in Peru but without creating any labor relationship between the Parties. In
addition, the Contractor will report such program to PERUPETRO.


 


CLAUSE SIXTEEN – CESSION AND ASSOCIATION 


 


16.1     If the Contractor enters into
an agreement to assign its contract position or to partner with a third party
within the Agreement, it will report such agreement to PERUPETRO. The letter
should include a request to evaluate the potential assignee or third party who
will attach the necessary complementary information for its qualification as an
oil company, pursuant to existing regulations. If PERUPETRO grants the requested
qualification, the assignment or association will be performed through an
amendment to the Agreement, pursuant to law.


 


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


 


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


 


CLAUSE SEVENTEEN - ACT OF GOD OR FORCE MAJEURE


 


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


 


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


 


17.3     The period during which the effect of the Act of God
or Force Majeure prevents compliance with 
Contract-based obligations will be added to the period foreseen to
comply with such obligations and, if appropriate, to the corresponding
Agreement and 


 

















 


the
life of the Agreement.  If the Act of God
or Force Majeure affects the execution of any of the minimum work programs
described under heading 4.6, the warrant bond posted to guarantee such program
will remain in full force and effect and will not be executed during the period
while PERUPETRO does not issue a statement about the cause invoked by the
Contractor, and if any discrepancy shall emerge about the existence of such cause
while the discrepancy is resolved. With that goal in mind, the Contractor will
extend or replace such warrant bond, as appropriate.  Likewise, as long as PERUPETRO does not make
a statement about the reason invoked by the Contractor or while the discrepancy
subsists about the existence of such cause, the period for executing the
minimum work program will be suspended. If PERUPETRO accepts the Act of God or
Force Majeure invoked by the Contractor, the latter will resume the execution
of the minimum work program as soon as the effect of the invoked cause ceases.


 


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


 


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


 


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


 


CLAUSE EIGHTEEN - ACCOUNTING


 


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


 


a)      The language and currency for
the accounting records;


 


b)      Applicable accounting principles
and practices;


 


c)      Accounts  structure and plan pursuant to requirements made by the
National Commission for the Supervision of Companies and Securities  (Comisión Nacional 


 

















 


Supervisora
de Empresas y Valores - CONASEV);


 


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


 


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


 


f)       Determining the
revenues and expenses accounts, as well as the detailed records needed for
computing the Rt-1 factor, and the detailed procedures described in
Annex “E” of the Agreement, as appropriate.


 


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


 


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


 


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


 


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


 

















 


agreement
and/or activity and, therefore, the report prepared by its independent auditors
shall also include the financial statements for each contract and/or activity.


 


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


 


C.-       SUNDRIES


 


19.1     If in one or more cases any of
the Parties fails to invoke or insist on compliance with any of the provisions
under the Agreement or to exercise any of the rights awarded under the
Agreement, such omission or failure to insist will not be construed as a waiver
of such provision or rights.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


19.7     The provisions under heading
19.6 will apply to all debts between Parties flowing from this Agreement or any
other agreement or transaction between the Parties. By written agreement
between the parties, a different provision may be introduced 


 

















 


concerning the payment of
interest. The provisions herein applicable will not in any way modify the legal
rights and resources available to the Parties to enforce the payment of amounts
due.


 


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


 


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


 


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


 


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


 


CLAUSE TWENTY - NOTIFICATIONS AND COMMUNICATIONS


 


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


 


PERUPETRO:


PERUPETRO S.A.


General Manager


Av. Luis Aldana
No 320


Lima 41 - Perú


Fax: 6171801


 


Contractor:


BPZ EXPLORACION &
PRODUCCION S.R.L.


General Manager


Manuel de Falla
N° 297


Lima 41 - Perú


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


Fax: (511) 225-3289 / 476-7686


 


Corporate Garantor:


BPZ ENERGY INC.


President


580 Westlake Park Blvd., Suite 525


Houston, Texas 77079


Tel: (281) 556-6200


Fax: (281) 556-6377


 

















 


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


 


CLAUSE TWENTY ONE.- PERUVIAN LAW
APPLIES. CONFLICT RESOLUTION


 


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


 


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


 


21.3     Arbitration
agreement. Any litigation, controversy, difference or complaint
resulting from or related to the Agreement, including its interpretation,
compliance, termination, effectiveness or validity, between the Contractor and
PERUPETRO, and which cannot be resolved by mutual agreement between the
Parties, will be resolved through international de jure arbitration pursuant to
article 68o of Law N° 26221. The Parties commit to do their best effort to
carry the arbitration proceeding to a successful end and execution. The arbitration
will be managed by the International Center for the Settlement of Investment
Related Disputes (hereafter ICSID) for all issues not foreseen by this
clause.  Arbitration will be organized
and evolve 


 

















 


pursuant to ICSID arbitration rules in
force at the Date of Signing. There will be three (3) arbitrators, the
Parties designating one each, and the third one being appointed by the
Party-designated arbitrators. In finding a solution to the litigation,
controversy, difference or complaint submitted to arbitration, the arbitrators
will enforce the domestic law of the Republic of Peru. Arbitration may take
place at the Permanent Arbitration Tribunal or at any other appropriate
institution, whether public or private, with which the Center has reached an agreement
for that purpose, or at any other venue approved by the Commission or Tribunal
after consultation with the Secretary General. During the arbitration, the
Parties will continue to perform their Contract-derived obligations to the
extent possible, including those subject matters to arbitration.
Notwithstanding the above, if the issue under arbitration concerns compliance
with Contract obligations guaranteed by the warrant bond described under
heading 3.10, the respective terms will be suspended momentarily and such
warrant bonds may not be executed but shall be kept current during the
arbitration proceeding. To that end, the Contractor shall extend or replace
such warrant bond as required. The decision will be mandatory to the Parties
and may not be appealed or in any other way challenged, excepting under the
provisions of the Convention for the Settlement for Disputes Relating to
Investments between States and Nationals from Other States, hereafter the
Convention.  The arbitration decision
issued under the Convention will be executed within the Peruvian territory,
pursuant to the regulations in force concerning the execution of court
decisions. The Parties waive their rights to filing diplomatic complaints.


 


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


 


CLAUSE TWENTY SECOND.- TERMINATION


 


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


 

















 


within
such period. The Agreement may be terminated before the expiration of the
Agreement’s life by express agreement between the Parties.


 


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


 


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


 


b)      In case of breach by any of
the Parties before the termination of any of the obligations set forth in the
Agreement, said breach will be cured by the offending Party, excepting
obligations which for their own nature are extinguished when the Agreement
itself is terminated.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 

















 


Agreement, after reporting to OSINERGMIN.


 


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


 


22.6     At the termination of the
Agreement, the Contractor will turn over to the State through PERUPETRO, as
ownership, unless the latter does not require them, with no charge or cost to
it, in good state of repair, maintenance and operation, taking account of
normal wear resulting from normal wear and tear, the properties, power
facilities, campsites, means of communication, pipelines and other production
goods and facilities owned by the Contractor that will allow continuing with
the development operations. In case of joint development of oil, non-associated
natural gas and/or non-associated natural gas condensates at the end of the term
established under heading  3.1 for the
oil development stage, the Contractor will deliver as property to the State,
through PERUPETRO, unless the latter does not require them, without any charge
or cost to the latter, in good state of conservation and operation and taking
into account the normal wear and tear produced by the use of all the goods and
facilities needed for developing oil that are not needed for developing
non-associated natural gas and/or 
non-associated natural gas and condensates.  The goods and facilities kept by the
Contractor for developing non-associated natural gas and/or non-associated
natural gas or condensates that were also used for developing oil, although
still owned by the Contractor, will be used for that development, for which
purpose the Parties will sign an agreement. If the Contractor has been using
the goods and facilities described in the first paragraph under this heading
and they are not related exclusively to the operations or its accessories, in
other words, they have also been used for operations in other areas under
contracts in force for the exploration and development of hydrocarbons in Peru,
the Contractor will continue to own and utilize such goods.


 


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


 
















 


ANNEX “A”


 


DESCRIPTION
OF BLOCK XXIII


 


LOCATION


 


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


 


REFERENCE POINT


 


Reference Point (R.P.) is the
Tumbes station located in the Tumbes District; Provinces of Tumbes in the
Tumbes Department.


 


DEPARTURE POINT


 


From the Reference Point
(R.P.) a distance of 3,304.608 m is measured to the South, then 12,214.150 m
West until reaching Point (1) which is the Departure Point (D.P.) of the
Block’s perimeter.


 


BLOCK CONFIGURATION


 


From Point (1) or (P.P.)
17,271.900 m South are measured in a straight line with Azimuth 180°00’00”
until reaching Point (18).


 


From Point (18) 18,200.274 m
are measured South West in a straight line with Azimuth 254°03’16”57 until
reaching Point (22).


 


From Point (22) 14,142.135 m
are measured South West in a straight line with Azimuth 225°00’00” until
reaching Point (24).


 


From Point (25) 29,939.029 m
are measured South in a straight line with Azimuth 180°00’00” until reaching
Point (51).


 


From Point (51) 8,737.273 m
are measured South West in a straight line with Azimuth 247°52’09”08 until
reaching Point (52).


 


From Point (52) 17,256.042 m
are measured North West in a straight line with Azimuth 295°24’27”78 until
reaching Point (45).


 


From Point (45) 1,460.724 m
are measured Northwest in a straight line with Azimuth 295°24’27”79 until
reaching Point (44).


 


From Point (44) 3,468.545 m are
measured North West in a straight line with Azimuth 303°20’00”20 until reaching
Point (42).


 


From Point (42) we continue
North East along the shoreline for about 6,393.320 meters until reaching Point
(34).


 


From Point (34) 9,663.674 m
are measured East in a straight line with Azimuth 90°00’00” until reaching
Point (36).


 


From Point (36) 5,000.050 m
are measured North in a straight line with Azimuth 360°00’00” until reaching
Point (31).


 


From Point (31) 7,513.055 m
are measured West in a straight line with Azimuth 270°00’00” until reaching
Point (30).


 


From Point (30) we continue
North East along the shoreline for about 51,100.190 metros 


 

















 


until reaching Point (6).


 


From Point (6) 3,719.490
m are measured South East in a straight line with Azimuth 145°11’35”14 until
reaching Point (13).


 


From Point (13) 5,521.095 m
are measured North East in a straight line with Azimuth 51°59’18”56 until
reaching Point (5).


 


From Point (5) 2,122.423 m are measured North West in a straight
line with Azimuth 325°14’32”75 until reaching Point (4).


 


From Point (4) we continue North East along the shoreline for abut
15,940.380 meters until reaching Point (1) or Departure Point (D.P.)
closing the Block’s perimeter.


 


Borders


 


West and North with Blocks Z-1
and XX; East with Block XIX and free areas; South with Blocks V, X and XXV, and
free areas.


 


PLOT DEFINITION


 


Plot
1 surrounded by corner points 1, 3 and 2


 


Plot
2 surrounded by corner points 2, 2, 12 and 11


 


Plot
3 surrounded by corner points 6, 12, 16, 15 and 14


 


Plot
4 surrounded by corner points 2,11,17,16,13,5 y 4; 7,8,10 and 9


 


Plot
5 surrounded by corner points 11,12,18,19 and 17


 


Plot
6 surrounded by corner points 14,15,22,21 and 20


 


Plot
7 surrounded by corner points 15,16,17,19 and 22


 


Plot
8 surrounded by corner points 20,21,24 and 23


 


Plot
9 surrounded by corner points 21,22 and 24


 


Plot
10 surrounded by corner points 25,28,27 and 26


 


Plot 11 surrounded by corner
points 23,24,29,28 and 25


 


Plot
12 surrounded by corner points 26,27,32,31 and 30


 


Plot
13 surrounded by corner points 27,28,29,33 and 32


 


Plot
14 surrounded by corner points 31,32,37 and 36


 


Plot
15 surrounded by corner points 32,33,38 and 37


 


Plot
16 surrounded by corner points 34,35,39,43 and 42


 


Plot
17 surrounded by corner points 35,36,37,40 and 39


 


Plot
18 surrounded by corner points 37,38,41 and 40


 


Plot
19 surrounded by corner points 42,43,46,45 and 44


 


Plot
20 surrounded by corner points 39,40,48,47,46 and 43


 


Plot
21 surrounded by corner points 40,41,50,49 and 48


 


Plot
22 surrounded by corner points 47,48,49 and 52


 


Plot
23 surrounded by corner points 49,50,51 and 52


 

















 


LIST OF
BLOCK CORNER COORDINATES


 


	
   

  	
   

  	
  GEOGRAPHIC COORDINATES

  	
   

  	
  U.T.M. FLAT COORDINATE

  
	
  Point

  	
   

  	
  South Latitude

  	
   

  	
  West Latitude

  	
   

  	
  Meters North

  	
   

  	
  Meters East

  
	
  East. Tumbes

  	
   

  	
  03°32’59”322

  	
   

  	
  80°25’45”757

  	
   

  	
  9’607,610.298

  	
   

  	
  563,378.600

  
	
  1 (P.P.)

  	
   

  	
  03°34’47”167

  	
   

  	
  80°32’21”582

  	
   

  	
  9’604,305.690

  	
   

  	
  551,164.450

  
	
  18

  	
   

  	
  03°44’09”671

  	
   

  	
  80°32’21”294

  	
   

  	
  9’587,033.790

  	
   

  	
  551,164.450

  
	
  22

  	
   

  	
  03°46’52”759

  	
   

  	
  80°41’48”566

  	
   

  	
  9’582,033.790

  	
   

  	
  533,664.450

  
	
  24

  	
   

  	
  03°52’18”538

  	
   

  	
  80°47’12”693

  	
   

  	
  9’572,033.790

  	
   

  	
  523,664.450

  
	
  51

  	
   

  	
  04°08’33”596

  	
   

  	
  80°47’12”440

  	
   

  	
  9’542,094.761

  	
   

  	
  523,664.450

  
	
  52

  	
   

  	
  04°10’20”855

  	
   

  	
  80°51’34”937

  	
   

  	
  9’538,803.234

  	
   

  	
  515,570.885

  
	
  45

  	
   

  	
  04°06’19”770

  	
   

  	
  81°00’00”522

  	
   

  	
  9’546,207.056

  	
   

  	
  499,983.890

  
	
  44

  	
   

  	
  04°05’59”370

  	
   

  	
  81°00’43”316

  	
   

  	
  9’546,833.790

  	
   

  	
  498,664.450

  
	
  42

  	
   

  	
  04°04’57”292

  	
   

  	
  81°02’17”303

  	
   

  	
  9’548,739.790

  	
   

  	
  495,766.524

  
	
  34

  	
   

  	
  04°02’02”711

  	
   

  	
  80°00’23”156

  	
   

  	
  9’554,099.970

  	
   

  	
  499,285.996

  
	
  36

  	
   

  	
  04°02’02”696

  	
   

  	
  80°55’09”754

  	
   

  	
  9’554,099.970

  	
   

  	
  508,949.670

  
	
  31

  	
   

  	
  03°59’19”853

  	
   

  	
  80°55’09”770

  	
   

  	
  9’559,100.020

  	
   

  	
  508,949.670

  
	
  30

  	
   

  	
  03°59’19”867

  	
   

  	
  80°59’13”412

  	
   

  	
  9’559,100.020

  	
   

  	
  501,436.615

  
	
  6

  	
   

  	
  03°40’55”420

  	
   

  	
  80°41’22”204

  	
   

  	
  9’593,005.541

  	
   

  	
  534,481.448

  
	
  13

  	
   

  	
  03°42’34”858

  	
   

  	
  80°40’13”341

  	
   

  	
  9’589,951.540

  	
   

  	
  536,604.580

  
	
  5

  	
   

  	
  03°40’44”071

  	
   

  	
  80°37’52”369

  	
   

  	
  9’593,351.540

  	
   

  	
  540,954.580

  
	
  4

  	
   

  	
  03°39’47”298

  	
   

  	
  80°38’31”616

  	
   

  	
  9’595,095.263

  	
   

  	
  539,744.575

  



 


Internal
Limits Coordinates


 


	
  7

  	
   

  	
  03°41’12”438

  	
   

  	
  80°38’16”815

  	
   

  	
  9’592,480.840

  	
   

  	
  540,200.110

  
	
  8

  	
   

  	
  03°41’12”422

  	
   

  	
  80°37’37”914

  	
   

  	
  9’592,480.840

  	
   

  	
  541,400.120

  
	
  10

  	
   

  	
  03°41’54”760

  	
   

  	
  80°37’37”896

  	
   

  	
  9’591,180.830

  	
   

  	
  541,400.120

  
	
  9

  	
   

  	
  03°41’54”777

  	
   

  	
  80°38’16”798

  	
   

  	
  9’591,180.830

  	
   

  	
  540,200.110

  



 

















 


LIST OF PLOT CORNER
COORDINATES


 


	
  POINT

  	
   

  	
  U.T.M. FLAT COORDINATES

  
	
  1

  	
   

  	
  9’604,305.690 m N

  	
   

  	
  551,164.450 m E

  
	
  2

  	
   

  	
  9’595,909.937 m N

  	
   

  	
  542,164.450 m E

  
	
  3

  	
   

  	
  9’595,909.937 m N

  	
   

  	
  551,164.450 m E

  
	
  4

  	
   

  	
  9’595,095.263 m N

  	
   

  	
  539,744.575 m E

  
	
  5

  	
   

  	
  9’593,351.540 m N

  	
   

  	
  540,954.580 m E

  
	
  6

  	
   

  	
  9’593,005.541 m N

  	
   

  	
  534,481.448 m E

  
	
  7

  	
   

  	
  9’592,480.840
  m N

  	
   

  	
  540,200.110
  m E

  
	
  8

  	
   

  	
  9’592,480.840
  m N

  	
   

  	
  541,400.120
  m E

  
	
  9

  	
   

  	
  9’591,180.830
  m N

  	
   

  	
  540,200.110
  m E

  
	
  10

  	
   

  	
  9’591,180.830
  m N

  	
   

  	
  541,400.120
  m E

  
	
  11

  	
   

  	
  9’590,493.936 m N

  	
   

  	
  542,164.450 m E

  
	
  12

  	
   

  	
  9’590,493.936 m N

  	
   

  	
  551,164.450 m E

  
	
  13

  	
   

  	
  9’589,951.540 m N

  	
   

  	
  536,604.580 m E

  
	
  14

  	
   

  	
  9’587,033.789 m N

  	
   

  	
  525,611.930 m E

  
	
  15

  	
   

  	
  9’587,033.790 m N

  	
   

  	
  533,664.450 m E

  
	
  16

  	
   

  	
  9’587,033.789 m N

  	
   

  	
  536,604.580 m E

  
	
  17

  	
   

  	
  9’587,033.789 m N

  	
   

  	
  542,164.450 m E

  
	
  18

  	
   

  	
  9’587,033.790 m N

  	
   

  	
  551,164.450 m E

  
	
  19

  	
   

  	
  9’584,462.361 m N

  	
   

  	
  542,164.450 m E

  
	
  20

  	
   

  	
  9’582,033.790 m N

  	
   

  	
  521,800.395 m E

  
	
  21

  	
   

  	
  9’582,033.790 m N

  	
   

  	
  523,664.450 m E

  
	
  22

  	
   

  	
  9’582,033.790 m N

  	
   

  	
  533,664.450 m E

  
	
  23

  	
   

  	
  9’572,033.790 m N

  	
   

  	
  518,758.195 m E

  
	
  24

  	
   

  	
  9’572,033.790 m N

  	
   

  	
  523,664.450 m E

  
	
  25

  	
   

  	
  9’570,394.450 m N

  	
   

  	
  516,664.450 m E

  
	
  26

  	
   

  	
  9’564,100.020 m N

  	
   

  	
  506,372.355 m E

  
	
  27

  	
   

  	
  9’564,100.020 m N

  	
   

  	
  513,664.450 m E

  
	
  28

  	
   

  	
  9’564,100.020 m N

  	
   

  	
  516,664.450 m E

  
	
  29

  	
   

  	
  9’564,100.020 m N

  	
   

  	
  523,664.450 m E

  
	
  30

  	
   

  	
  9’559,100.020 m N

  	
   

  	
  501,436.615 m E

  
	
  31

  	
   

  	
  9’559,100.020 m N

  	
   

  	
  508,949.670 m E

  
	
  32

  	
   

  	
  9’559,100.020 m N

  	
   

  	
  513,664.450 m E

  
	
  33

  	
   

  	
  9’559,100.020 m N

  	
   

  	
  523,664.450 m E

  
	
  34

  	
   

  	
  9’554,099.970 m N

  	
   

  	
  499,285.996 m E

  
	
  35

  	
   

  	
  9’554,099.970 m N

  	
   

  	
  503,664.450 m E

  
	
  36

  	
   

  	
  9’554,099.970 m N

  	
   

  	
  508,949.670 m E

  
	
  37

  	
   

  	
  9’554,099.970 m N

  	
   

  	
  513,664.450 m E

  
	
  38

  	
   

  	
  9’554,099.970 m N

  	
   

  	
  523,664.450 m E

  
	
  39

  	
   

  	
  9’549,099.970 m N

  	
   

  	
  503,664.450 m E

  
	
  40

  	
   

  	
  9’549,099.970 m N

  	
   

  	
  513,664.450 m E

  
	
  41

  	
   

  	
  9’549,099.970 m N

  	
   

  	
  523,664.450 m E

  
	
  42

  	
   

  	
  9’548,739.790 m N

  	
   

  	
  495,766.524 m E

  
	
  43

  	
   

  	
  9’548,739.790 m N

  	
   

  	
  503,664.450 m E

  
	
  44

  	
   

  	
  9’546,833.790 m N

  	
   

  	
  498,664.450 m E

  
	
  45

  	
   

  	
  9’546,207.056 m N

  	
   

  	
  499,983.890 m E

  
	
  46

  	
   

  	
  9’544,458.791 m N

  	
   

  	
  503,664.450 m E

  
	
  47

  	
   

  	
  9’544,099.970 m N

  	
   

  	
  504,419.861 m E

  
	
  48

  	
   

  	
  9’544,099.970 m N

  	
   

  	
  513,664.450 m E

  
	
  49

  	
   

  	
  9’544,099.970 m N

  	
   

  	
  515,570.885 m E

  
	
  50

  	
   

  	
  9’544,099.970 m N

  	
   

  	
  523,664.450 m E

  
	
  51

  	
   

  	
  9’542,094.761 m N

  	
   

  	
  523,664.450 m E

  
	
  52

  	
   

  	
  9’538,803.234 m N

  	
   

  	
  515,570.885 m E

  



 

















 


SURFACE
AREAS (Areas by Plots)


 


	
  Plot

  	
   

  	
  Area

  
	
  1

  	
   

  	
  3,178.155 he

  
	
  2

  	
   

  	
  4,874.401 he

  
	
  3

  	
   

  	
  3,779.309 he

  
	
  4

  	
   

  	
  2,974.064 he

  
	
  5

  	
   

  	
  4,271.275 he

  
	
  6

  	
   

  	
  5,247.080 he

  
	
  7

  	
   

  	
  3,217.857 he

  
	
  8

  	
   

  	
  3,732.735 he

  
	
  9

  	
   

  	
  5,000.000 he

  
	
  10

  	
   

  	
  3,190.048 he

  
	
  11

  	
   

  	
  5,388.365 he

  
	
  12

  	
   

  	
  5,006.942 he

  
	
  13

  	
   

  	
  5,000.000 he

  
	
  14

  	
   

  	
  2,357.413 he

  
	
  15

  	
   

  	
  5,000.050 he

  
	
  16

  	
   

  	
  3,263.753 he

  
	
  17

  	
   

  	
  5,000.000 he

  
	
  18

  	
   

  	
  5,000.000 he

  
	
  19

  	
   

  	
  1,822.922 he

  
	
  20

  	
   

  	
  4,986.447 he

  
	
  21

  	
   

  	
  5,000.000 he

  
	
  22

  	
   

  	
  2,953.202 he

  
	
  23

  	
   

  	
  2,954.938 he

  
	
  Total

  	
   

  	
  93,198.956 he

  



 


	
  05 regular plots 5,000.000 ha each

  	
   

  	
  25,000.000 he

  
	
  18 irregular Plots, various surface areas

  	
   

  	
  68,198.956 he

  
	
  TOTAL 23 LOTS

  	
   

  	
  93,198.956 he

  



 


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


 


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


 


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


 


ANNEX
“B”


 


MAP OF THE
AGREEMENT AREA BLOCK XXIII


 


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


 

















 


ANNEX C-1


 


WARRANT
BOND FOR THE FIRST PERIOD OF THE MINIMUM WORK PROGRAM


 


WARRANT BOND No


Lima,


Gentlemen,


PERUPETRO S.A.


 


Gentlemen:


 


Hereby, we (name of financial
system entity) constitute ourselves as joint and several guarantors of BPZ
EXPLORACION & PRODUCCION S.R.L.(hereafter the Contractor) before
PERUPETRO S.A. (hereafter PERUPETRO) for the amount three million seventy five
thousand and 00/100 Dollars (US$ 3,075,000.00) to guarantee the performance of
the Contractor’s obligations under the minimum work program for the first
period of the exploration stage, as described in Clause Four  of the License Agreement for the Exploration
and Development of Hydrocarbons in Block XXIII, signed with PERUPETRO
(hereafter the Agreement).


 


The obligation assumed by
(name of financial system entity) under this warrant bond is limited to pay
PERUPETRO the amount of three million seventy five thousand and 00/100 dollars
(US$ 3’075,000.00) as per a request of payment.


 


1.    This
guarantee is joint and several, without benefit of excussion, irrevocable,
unconditional and to be executed automatically and paid on demand within its
tenure, at  presentation of a notarized
letter addressed by PERUPETRO to 
(financial system entity) requesting the payment of three million
seventy five thousand and 00/100 dollars (US$ 3’075,000.00) and declaring the
Contractor has failed to comply fully or partially with the obligation
mentioned above, and enclosing with that letter, as only support and
justification, a certified copy of the notarized letter addressed by PERUPETRO
to the Contractor demanding its compliance with the abovementioned obligation
and notifying it of PERUPETRO’s intention to execute the warrant bond; said
notarized letter sent by PERUPETRO to the Contractor will have been delivered
to the latter at least twenty (20) calendar days before the date when PERUPETRO
files the corresponding payment claim to (financial system entity).


 


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


 


3.    All
delays on our side to honor this warrant bond on your behalf will accrue
interest equivalent to the foreign currency active rate (Tasa Activa en Moneda
Extranjera – TAMEX, or its successor, paid by financial system institutions and
published by the Superintendence of Banking and Insurance applicable during the
period of delay. The 


 

















 


interest will be calculated
starting on the date when the notarized letter sent by PERUPETRO to (financial
system entity) was received. After the expiration or cancellation date, no
complaint will be admitted concerning this warrant bond and (financial system
entity) and the Contractor will be released from all responsibility or
obligation concerning this warrant bond.


 


 


Sincerely,


 


 


(Financial system entity)


 


ANNEX C-2


 


WARRANT
BOND FOR THE SECOND PERIOD OF THE MINIMUM WORK PROGRAM


 


WARRANT BOND No


Lima,


Messrs.


PERUPETRO S.A.


 


Gentlemen,


 


Hereby, we (entity of
financial system) constitute ourselves as joint and several guarantors of BPZ
EXPLORACION & PRODUCCION S.R.L.(hereafter the Contractor) before
PERUPETRO S.A. for the amount of three million three hundred ninety and 00/100
Dollars (US$ 3,390,000.00) to guarantee the performance of the Contractor’s
obligations under the minimum work program for the second period of the
exploration phase, as described in Clause Four 
of the License Agreement for the Exploration and Development of
Hydrocarbons in Block XXIII, signed with PERUPETRO (hereafter the Agreement).


 


The obligation assumed by (name
of financial system entity) under this warrant bond is limited to pay PERUPETRO
the amount of three million three hundred ninety and 00/100 Dollars (US$
3,390,000.00) when required.


 


1.    This
guarantee is joint and several, without benefit of excussion, irrevocable,
unconditional and to be executed automatically and paid on demand within its
tenure, at presentation of a notarized letter addressed by PERUPETRO to
(financial system entity) requesting the payment of three million three hundred
ninety and and 00/100 Dollars (US$ 3,390,000.00) declaring the Contractor has
failed to comply in full or partially with the obligation mentioned above, and
inclosing with that letter, as only support and justification, a certified copy
of the notarized letter addressed by PERUPETRO to the Contractor demanding its
compliance with the abovementioned obligation and notifying it of its intention
to execute the warrant bond; said notarized letter sent by PERUPETRO to the
Contractor will have been delivered to the latter at least twenty (20) calendar
days before the date when PERUPETRO files the corresponding payment claim to
(financial system 


 

















 


entity).


 


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


 


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


 


 


Sincerely,


 


 


(Financial system entity)


 


ANNEX C-3


 


WARRANT
BOND FOR THE THIRD PERIOD OF THE MINIMUM WORK PROGRAM


 


WARRANT BOND No


Lima,


Messrs.


PERUPETRO S.A.


 


Gentlemen,


 


Hereby, we (entity of
financial system) constitute ourselves as joint and several guarantors of BPZ
EXPLORACION & PRODUCCION S.R.L.(hereafter the Contractor) before
PERUPETRO S.A. (hereafter PERUPETRO) for the amount of two million two hundred
seventy five thousand and 00/100 Dollars (US$ 2,275,000.00) to guarantee the
performance of the Contractor’s obligations under the minimum work program for
the first period of the exploration phase, as described in Clause Four  of the License Agreement for the Exploration
and Development of Hydrocarbons in Block XXIII, signed with PERUPETRO
(hereafter the Agreement).


 


The obligation assumed by
(name of financial system entity) under this warrant bond is limited to pay
PERUPETRO the amount of two million two hundred seventy five thousand and
00/100 Dollars (US$ 2,275,000.00).


 

















 


1.    This
guarantee is joint and several, without benefit of excussion, irrevocable,
unconditional and to be executed automatically and paid in demand within its
tenure, by submission of a notarized letter addressed by PERUPETRO to
(financial system entity) requesting the payment of two million two hundred
seventy five thousand and 00/100 Dollars (US$ 2’275,000.00) declaring the
Contractor has failed to comply in full or partially with the obligation
mentioned above, and enclosing with that letter, as only support and
justification, a certified copy of the notarized letter addressed by PERUPETRO
to the Contractor demanding its compliance with the abovementioned obligation
and notifying it of its intention to execute the warrant bond; said notarized
letter sent by PERUPETRO to the Contractor will have been delivered to the
latter at least twenty (20) calendar days before the date when PERUPETRO files
the corresponding payment claim to (financial system entity).


 


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


 


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


 


 


Sincerely,


 


 


(Financial system entity)


 

















 


ANNEX C-4


 


WARRANT
BOND FOR THE FOURTH PERIOD OF THE MINIMUM WORK PROGRAM


 


WARRANT BOND No


Lima,


Messrs.


PERUPETRO S.A.


 


Gentlemen,


 


Hereby, we (entity of
financial system) constitute ourselves as joint and several guarantors of BPZ
EXPLORACION & PRODUCCION S.R.L.(hereafter the Contractor) before
PERUPETRO S.A. (hereafter PERUPETRO) for the amount one million three hundred
fifteen thousand and 00/100 Dollars (US$ 1,315,000.00) to guarantee the
performance of the Contractor’s obligations under the minimum work program for
the first period of the exploration phase, as described in Clause Four  of the License Agreement for the Exploration
and Development of Hydrocarbons in Block XXIII, signed with PERUPETRO
(hereafter the Agreement).


 


The obligation assumed by
(Name of Financial system entity) under this warrant bond is limited to pay
PERUPETRO the amount of one million three hundred fifteen thousand and 00/100
Dollars (US$ 1,315,000.00)when required.


 


1.    This
guarantee is joint and several, without benefit of excussion, irrevocable,
unconditional and to be executed automatically and paid in demand within its
tenure, by submission of a notarized letter addressed by PERUPETRO to
(financial system entity) requesting the payment of one million three hundred
fifteen thousand and 00/100 Dollars (US$ 1,315,000.00)declaring the Contractor
has failed to comply in full or partially with the obligation mentioned above,
and enclosing with that letter, as only support and justification, a certified
copy of the notarized letter addressed by PERUPETRO to the Contractor demanding
its compliance with the abovementioned obligation and notifying it of its
intention to execute the warrant bond; said notarized letter sent by PERUPETRO
to the Contractor will have been delivered to the latter at least twenty (20)
calendar days before the date when PERUPETRO files the corresponding payment
claim to (financial system entity).


 


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


 


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


 


 


Sincerely,


 


 


(Financial system entity)


 

















 


ANNEX D


 


CORPORATE GUARANTEE


 


Messrs.


PERUPETRO S.A.


Av. Luis Aldana 320


Lima 41


PERU


 


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


 


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


 


Yours,


Corporate Guarantor


Legally Authorized
Representative.


 

















 


ANNEX E


 


ACCOUNTING PROCEDURE


 


1.                                      GENERAL
PROVISIONS


 


OBJECTIVE


 


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


 


DEFINITIONS


 


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


 


ACCOUNTING
PRINCIPLES


 


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


 


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


 


2.              ACCOUNTING REGISTRIES, INSPECTION AND ADJUSTMENTS


 


ACCOUNT
SYSTEM


 


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


 


EXCHANGE
RATE


 


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


 


SUPPORTING
DOCUMENTATION


 


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


 

















 


FACTOR Rt-1 ACCOUNT
STATEMENT


 


During
the exploration stage, the Contractor will send, within thirty days after the
end of each period, a detailed monthly statement of the revenues and expenses
accounts for factor Rt-1, corresponding to
that period.

If the contractor chose to use the method described under heading 8.3.2 to
calculate the royalty, it will submit to PERUPETRO, within thirty (30) days
after the date of statement of commercial discovery, a detailed monthly
statement of the factor  Rt-1 revenues and
expenses accounts for the period running between the last statement submitted
until the previous year’s month of July or December, as appropriate.


 


Subsequently,
the Contractor will send PERUPETRO, within fifteen (15) days after the end of
the month of January and July of every calendar year, a detailed
monthly statement of the factor Rt-1 revenues and expenses accounts for the prior
half-year.


 


a)
Factor Rt-1 Revenue Account Statement.


 


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


 


b)
Factor Rt-1 Expenses Account Statement


 


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


 


ACCOUNTING
INSPECTION AND ADJUSTMENTS


 


a)
The accounting ledgers and the original supporting  documents
for the transactions described in each account statement will be made
available, during business hours, to the authorized PERUPETRO representatives
for their inspection, when they so require.


 


The
inspection of the accounting books and the supporting documentation will be
performed pursuant to generally accepted auditing principles, including sampling
principles, as required.


 


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


 
















 


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


 


c)
All discrepancies derived from an accounting inspection must be resolved by the
parties within a maximum period of three (3) months starting on the date
when PERUPETRO received the Contractor’s response. At the expiration of such
deadline, the discrepancy will be submitted to the Oversight Committee to
proceed as set forth under heading 7.4 of the agreement. If the discrepancy
persists, the parties may agree to have it reviewed by an independent auditing
firm acceptable to PERUPETRO, or to proceed pursuant to provisions under
heading 21.3 of the agreement. The arbitration decision or the independent
auditor’s position will be considered as final.


 


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


 


3.              FACTOR Rt-1 REVENUES
AND EXPENSES ACCOUNT


 


REVENUES


 


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


 


	
  a)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  b)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  c)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  d)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  e)

  	
   

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

  
	
   

  	
   

  	
   

  
	
  f)

  	
   

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

  



 

















 


expenses
account.


 


EXPENSES


 


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


 


a)     Workers.


 


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


 


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


 


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


 


b)    Affiliate’s Services


 


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


 


c)     Materials and Equipment


 


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


 


·     Materials and equipment
(Condition A):


 


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


 


·     Used materials and equipment
(Condition B):


 


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


 


·     Materials and Equipment
(Condition C):


 


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


 

















 


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


 


d)             Freight and
Transportation Costs:


 


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


 


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


 


e)              Insurance:


 


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


 


The
payments made for hedging contracts shall not be included.


 


f)                Taxes:


 


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


 


g)             Research
Expenses:


 


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


 


h)             Proportional
Allocation of General Expenses:


 


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


 


TIME OF
REGISTRATION


 


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


 


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


 

















 


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


 


4.              NON RECOGNIZED REVENUES AND EXPENSES


 


NON
RECOGNIZED REVENUES


 


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


 


a)              Financial
revenues, generally.


 


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


 


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


 


NON
RECOGNIZED EXPENSES


 


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


 


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


 


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


 


c)              Financial
expenses, generally.


 


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


 


e)              Asset
depreciation and amortization.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 

















 


5.              REVISIONS OF ACCOUNTING PROCEDURE


 


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


 

















 


ANNEX F


 


EXPLORATION WORK UNITS (UTE, IN SPANISH)


 


TABLE OF EQUIVALENCE


 


	
  Activity

  	
   

  	
  UTE

  
	
  Seismic 2D – Km

  	
   

  	
  0.50

  
	
  Seismic 3D – Km2

  	
   

  	
  1.30

  
	
  Reprocessing 2D - Km

  	
   

  	
  0.02

  
	
  Gravimetrics – Km

  	
   

  	
  0.02

  
	
  Magnetometrics – Km

  	
   

  	
  0.02

  
	
  Studies per period

  	
   

  	
  20.00

  
	
  Wells:
  Depth – m

  	
   

  	
   

  
	
     0
  – 1,000

  	
   

  	
  0.045 x m

  
	
  1,001
  – 2,000

  	
   

  	
  0.050 x m

  
	
  2,001
  – 3,000

  	
   

  	
  0.055 x m

  
	
  3,001
  – 4,000

  	
   

  	
  0.065 x m

  
	
  4,001
  and beyond

  	
   

  	
  0.075 x m

  



 


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


 

















 


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


 


Lima
on the 21st day of November of 2007


 


BY
AND FOR PERUPETRO MR. CARLOS EDGAR VIVES SUÁREZ


 


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


 


BY
AND FOR BPZ ENERGY MR. LUIS RAFAEL ZOEGER NÚÑEZ


 


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


 


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


 


INSERT
NUMBER ONE


 


INSERT
NUMBER TWO


 


PERUPETRO
AGREEMENT


 


TRANSCRIPTION


 


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


 


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


 


BOARD
OF DIRECTORS AGREEMENT Noo 118-2007


 


San
Borja, September 27th 2007


 


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


 


Whereas,


 


By virtue of Memorandum No. PRYP-GF-090-2006,
dated May 11, 2006, an Evaluation Commission was appointed to Classify
Companies interested in negotiating the Draft License Agreement to Prospect and
Develop Hydrocarbons in Block XXIII;


 


Through Memorandum No. PRYP-GFPE-029-2006,
dated Jun 16, 2006, the Evaluation 
Commission sent the General Management Department  the Minutes of the Consolidated Evaluation of
Proposals to Classify Companies Interested in similar areas or in common areas
located on the Coast – Block XXIII.  The
Minutes mention that as a result of the evaluation, BPZ Energy INC ranked
first.


 


Article 15 under the
Single Conformed Text of Law No. 26221, Organic Hydrocarbons Law, enacted
by Supreme Decree No. 042-2005-EM establishes that to sign Agreements 


 

















 


under that Law foreign
companies must open a branch or company pursuant to the General Company Act,
establish their address of record in the national capital, and appoint a
Peruvian representative.


 


PERUPETRO S.A. and BPZ
EXPLORACIÓN & PRODUCCIÓN S.R.L. Working Commissions have reached an
agreement on the Draft License Contract for Prospecting and Developing
Hydrocarbons in Block XXIII.


 


In Technical and Legal Report No. GFCN-1833-2007,
PERUPETRO’s Working Commission reaches the conclusion that from the legal,
contractual, economic and geological viewpoints under review, and taking into
account the minimum work program submitted in the winning proposal of the
above-mentioned Company Classification process, the Draft License Agreement for
Prospecting and Developing Hydrocarbons in Block XXIII meets all the provisions
under the Single Conformed Text of Law No. 26221, Organic Hydrocarbons
Law, enacted by Supreme Decree No. 042-2005-EM, and the regulations there
under, same which is sent to the General Management Department to comply with
the required formalities prescribed by regulations in force.


 


Article 11 under the
Single Conformed Text of Law No. 26221, Organic Hydrocarbons Law, enacted
by Supreme Decree No. 042-2005-EM establishes that Agreements will be
approved by Supreme Decree signed by the Ministers of Economy and Finance, and
Energy and Mines, within sixty (60) days of the Contracting Entity having
started the formalities to get the corresponding approval from the Ministry of
Energy and Mines.


 

















 


Pursuant
to article 44 of PERUPETRO S.A. corporate by laws, the Board of Directors
unanimously hereby


 


AGREES:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


SIGNED:
ISABEL TAFUR MARIN, SECRETARY GENERAL


 


INSERT
NUMBER THREE: TRANSCRIPT


 


SUNARP


REGISTRATION
AREA No IX LIMA AREA


LIMA
REGISTRATION AREA


DOCKET
No 00259837


CORPORATIONS REGISTRY


PERUPETRO S.A.


COMPANY REGISTRY


ITEM: APPOINTMENT OF PROXIES


C00039


 


·  By Ministry Decision N° 435-2006-MEM/DM dated 09/08/2006 published
on 09/10/2006 in the El Peruano Official Gazette, it was decided.- 1. To accept the resignation of Dr. JOSE
ABRAMOVITZ DELMAR from its position as member of the Board. 2. To appoint, as
from this date, Mr. ALBERTO QUIMPER HERRERA as member of the Board on
behalf of the Ministry of Energy and Mines. 3. To confirm Engineer GUSTAVO
ADOLFO NAVARRO VALDIVIA as member of the Board on behalf of the Ministry of
Energy and Mines.


 


· By Ministry Decision N° 536-2006-EF/10 dated 09/20/2006 published
on 09/28/2006 in the El Peruano official Gazette, it was decided.- 1. To accept
the resignation of MR.  


 

















 


WILFREDO SALINAS RUIZ – CORNEJO to its position as
member of the board. 2. To appoint, as from this date, MR. JOSE ABRAMOVITZ
DELMAR, as member of the Board on behalf of the Ministry of Economy and
Finance. 3. To ratify Engineer LUIS ENRIQUE ORTIGAS CUNEO as member of the
Board, on behalf of the Ministry of Ministry of Economy and Finance.


 


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


 


N° 2007-00118351 in Logbook (0485).


 


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


 


SIGNATURES: TOMAS HUMBERTO CERDAN LIMAY


 


PUBLIC REGISTRAR ORLC


 


INSERT NUMBER FOUR: TRANSCRIPT


 


CENTRAL RESERVE BANK OF PERU


GENERAL MANAGER’S OFFICE


LETTER NUMBER No. 130-2007-BCRP


Lima, October 25th, 2007


Mr.


Ronald Egúsquiza S.


General Manager


PERUPETRO S.A.


 


I am pleased to address you concerning your letter
No GGRL-CONT-1 924-2007 about the clause dealing with the financial rights for
the Draft Agreement for Licensing the Exploration and Development of
Hydrocarbons in Block XXII entered into with BPZ EXPLORACIÓN Y PRODUCCIÓN
S.R.L. The CENTRAL RESERVE BANK OF PERU has approved the text of clause 11 of
the Draft Agreement sent to us with your letter, after noticing 


 

















 


this
text is similar to the model approved by our board on November 18th,
1993 for licensing contracts to be signed with companies.


 


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


 


Yours sincerely,


Renzo Rossini Miñan, General Manager


PERUPETRO S.A. stamp


 


INSERT NUMBER FIVE: TRANSCRIPT


 


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


 


CENTRAL
RESERVE BANK OF PERU.


 


GENERAL
SECRETARIAT.


 


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


 


POWERS OF THE GENERAL MANAGER (063-A)


 


THE BOARD OF DIRECTORS AGREED:


 


1- TO GRANT THE GENERAL MANAGER THE FOLLOWING
POWERS:


 


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


 


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


 


INSERT NUMBER SIX: TRANSCRIPT


 


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


 


CENTRAL
RESERVE BANK OF PERU.


 


GENERAL
SECRETARIAT.


 


HUMBERTO
PEIRANO PORTOCARRERO, SECRETARY GENERAL OF THE CENTRAL RESERVE BANK OF PERU, AS
PER THE POWERS INVESTED UPON HIM BY ARTICLE 31 OF THIS ORGANIZATION’S ORGANIC
LAW, HEREBY CERTIFIES THAT IN MINUTES NUMBER 3737 OF THE BOARD OF DIRECTORS
MEETING 


 

















 


PERFORMED
ON MAY 21, 1998, ATTENDED BY BOARD MEMBERS SEÑORES GERMAN SUAREZ CHAVEZ
(CHAIRMAN), MARIO TOVAR VELARDE, ALBERTO BENAVIDES DE LA QUINTANA, JORGE BACA
CAMPODONICO, GUILLERMO CASTAÑEDA MUNGI AND GIANFRANCO CASTAGNOLA ZUÑIGA AN
AGREEMENT WAS REACHED AS FOLLOWS:


 


APPOINTMENT OF SENIOR OFFICIALS (ORAL)


 


THE BOARD OF DIRECTORS AGREED:


 


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


 


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


 


LIMA,
JUNE 3, 1998


 


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


 


INSERT NUMBER
SEVEN


 


CENTRAL
RESERVE BANK OF PERU


 


GENERAL
SECRETARIAT


 


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


 


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


 


In
Lima, on August 9, 2006


 


Signed
DEHERA BRUCE MITRANI


 

















 


INSERT
NUMBER EIGHT


 


CENTRAL
RESERVE BANK OF PERU


 


GENERAL
SECRETARIAT


 


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


 


· APPOINTMENT OF GENERAL
MANAGER (ORAL)


 


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


 


In
Lima on December 22nd, 2004


 


Illegible Signature


 


C O N C L U S I O N:


 


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


 


PARTICIPANTS:
MANUEL MONTEAGUDO VALDEZ, PERUVUIAN, MARRIED, LAWYER, IDENTIFIED WITH NATIONAL
IDENTITY DOCUMENT No 10275927, VOTER, JURIDICAL MANAGER APPOINTED BY BOARD OF
DIRECTORS AGREEMENT No 4128 WHO REPRESENTS THE CENTRAL RESERVE BANK OF PERU
AUTHORIZED BY GENERAL MANAGEMENT DEPARTMENT LETTER No 130-2007-BCRP DATED
OCTOBER 25, 2007, ATTACHED HERETO AND WHO SIGNS THE MINUTES AND THE PUBLIC
DEED, BY VIRTUE OF WHICH THE PRESSENCE OF MR. CARLOS AUGUSTO BALLON AVALOS IN
THIS ACT SHALL NOT BE RECORDED IN THESE PRESENTS, THE MINUTES AND FINAL SIGNING
OF THE DRAFT AGREEMENT ENCLOSED HEREWITH, IN WITNESS WHEREOF


 


 


By and for PERUPETRO


 






 


CARLOS EDGAR VIVES SUÁREZ


 


SIGNED ON:


 


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


 


 






 


LUIS
RAFAEL ZOEGER NÚÑEZ


 


SIGNED
ON:


 


By and
for BPZ ENERGY INC


 






 


LUIS
RAFAEL ZOEGER NÚÑEZ


 

















 


SIGNED
ON:


 


By and for BANCO CENTRAL DE
RESERVA DEL PERU


 


	
   

  	
   

  	
   

  
	
  RENZO GUILLERMO ROSSINI MIÑAN

  	
   

  	
  ARLOS AUGUSTO BALLON AVALOS

  
	
      SIGNED
  ON:

  	
   

  	
      SIGNED
  ON:

  



 


 


END OF
SIGNATURES: