**Exhibit 10.5**

 

**AMENDMENT OF LICENSE CONTRACT**

**FOR EXPLORATION AND EXPLOITATION**

**OF HYDROCARBONS ON BLOCK Z-1**

** **

**ENTERED BY PERUPETRO S.A.**

**WITH**

**BPZ ENERGY, INC., SUCURSAL PERU**

 

**FIRSTCLAUSE**

 

**1.****            ****BACKGROUND**

 

**1.1****         **On November 30, 2001,PERUPETRO S.A. (hereinafter Perupetro) entered into a License Contract forExploration and Exploitation of Hydrocarbons in Block Z-1 with Syntroleum PerúHoldings Limited, Sucursal del Perú, and with BPZ ENERGY INC., SUCURSAL PERU,which was approved by Supreme Decree N° 052-2001-EM, as mandated by Law, andmade a Public Deed on November 30, 2001 by its registration on the same date, madeby Dr. Cecilia Hidalgo Morán, a Notary Public of Lima, Perú.

 

**1.2****         **By means of SupremeDecree N° 045-2002-EM, dated October 23, 2002, approval was given to theModification of the License Contract for Exploration and Exploitation ofHydrocarbons in Block Z-1, which was also made a Public Deed on the same dateby registration made by Dr. Cecilia Hidalgo Morán, a Notary Public of Lima,Perú.

 

**1.3****         **Through SupremeDecree N° 003-2004-EM, dated February 12, 2004, approval was given to theModification and Transferal (or Assignment) of the Contractual Position in theLicense Contract for the Exploration and Exploitation of Hydrocarbons in BlockZ-1, made by Syntroleum Perú Holdings Limited, Sucursal del Perú, whichassigned all of its participation in the Contract, equivalent to ninety fivepercent (95%) of participation in the Contract, to Nuevo Perú, Ltd., Sucursaldel Perú. This Modification and Assignment of Contractual Position was made aPublic Deed on March 18, 2004 by Dr. Ricardo Fernandini Barreda, a NotaryPublic of Lima, Perú.

 

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**1.4****         **By means of a letterdated November 5, 2004, and in conformance with Clause Sixteen of the Contract,Nuevo Perú Ltd., Sucursal del Perú notified Perupetro of its decision to assignits Contractual Position in the Contract to BPZ Energy, Inc., Sucursal Perú.

 

**1.5****         **Plains Exploration& Production Company acquired through a merger ownership of Nuevo EnergyCompany, as agreed by Board of Directors Resolution of Plains Exploration &Production Company that took place on July 15, 2004.

 

**1.6****         **Perupetro, by meansof Certificate N° GGRL-CC-014-2004 dated November 24, 2004, has qualified BPZEnergy, Inc. to assume through the intervention of its Peruvian branch, BPZEnergy, Inc., Sucursal Perú, the ninety-five percent (95%) participation in theContract that has been assigned to them by Nuevo Perú, Ltd., Sucursal del Perú,thus finally obtaining one hundred percent (100%)  of participation in the Contract.

 

**1.7****         **The Parties carriedout negotiations with the purpose of modifying the Contract relative to theAssignment of Contractual Position, referred to in the preceding numbered paragraphs,and arriving at certain agreements, which are described in full in thefollowing paragraphs.

 

**SECOND CLAUSE**

 

**2.1****         **In accordance withClause Sixteen of the Contract, and through this document, Nuevo Perú, Ltd.,Sucursal del Perú has assigned its ninety-five percent (95%) participation inthe Contract to BPZ Energy, Inc., Sucursal Perú, and therefore the Contractorconsists of the following:

 

**BPZ Energy Inc., Sucursal Perú with****100%****participation.**

 

**2.2****         **The Assigned Party,in accordance with Clause 16, paragraph 16.3 of the Contract, awards all theguarantees and assumes all the rights, responsibilities and obligations derivedfrom the Contract.

 

**2.3****         **The Central Bank ofReserves of Perú has participated in the present Modification and Assignment ofContractual Position of the Contract,  tobecome aware of the assignment of participation and to ratify the existence ofthe guarantees awarded by the Government of Perú, which are indicated in theClause covering Financial Rights under the Contract, approved under the regulationsof Law N° 26221, Organic Law of Hydrocarbons.

 

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**2.4****         **BPZ Energy, Inc.also participates in this Modification and Assignment of Contractual Position,with the purpose of providing the corporate guarantee, which is enclosed asAnnex “D” of the Contract, in accordance with the agreements that appear in thefollowing clauses:

 

**THIRD CLAUSE**

 

With the express purpose of appropriately reflecting the stipulationscontained in the preceding clauses, the Parties agreed to introduce thefollowing modifications to the License Contract, as indicated below:

 

**3.1****         **Tomodify paragraph 1.1, which will be expressed as follows:

 

**“1.1 Affiliate**

Any entity whose subscribed capital shares with voting rights are owneddirectly or indirectly, in a proportion equal to fifty percent (50%) or more byany of the Parties; or any entity or person that is the owner, directly orindirectly, of 50% or more of the subscribed capital shares with voting rightsof one of the Parties; or any entity whose subscribed capital shares withvoting rights is the property, directly or indirectly, of fifty percent (50%)or more of the same shareholder or shareholders that own, directly orindirectly, the fifty percent (50%) or more of the subscribed capital shareswith voting rights of any one of the Parties.”

 

**3.2****         **Tomodify paragraph 1.11, which will be expressed as follows:

 

**“1.11 Contractor**

The Contractor is BPZ Energy, Inc., Sucursal Perú, registered in thePublic Registry of Hydrocarbons under Registration N° 11328132 of the Book ofOperating Contractors. On the Signing Date, the participation in the Contractof the company that conforms the Contractor is the following:

 

**BPZ ENERGY, INC., SUCURSAL PERÚ = 100%”**

 

**3.3****         **To eliminateparagraph 1.42

 

**3.4****         **To add paragraph1.59, which will be expressed as follows:

 

“1.59 - Date of Assignment of Contractual Position**.**Itis the 3rd day of February 2005, when on that date Nuevo Perú Ltd.,Sucursal del Perú, assigned its ninety five percent (95%) participation in theContract to BPZ Energy, Inc., Sucursal Perú, whereby the Parties signed theAssignment of Contractual Position in the License Contract for the Explorationand Exploitation of Hydrocarbons in Block Z-1, which was approved by

 

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Supreme Decree N° 002-2005-EM issued on the 2nd day ofFebruary of the year 2005.”

 

**3.5****         **Tomodify paragraph 3.11, which will be expressed as follows:

 

“3.11 – BPZ Energy, Inc.,****participatesin the License Contract for the purpose of providing the corporate guaranty,which appears as part of the Contract in Annex “D”, which was delivered toPerupetro on the Date the Assignment of the Contractual Position was signed.

 

The corporate guaranty will be in place as long as the Contractor’sobligations are still pending. The stipulations of subparagraph 22.3.5 will beapplicable if any situation foreseen in such paragraph takes place, and theContractor does not comply with its obligation within a period of not more thanfifteen (15) Working Days.”

 

**3.6****         **Tomodify paragraph 6.7, which will be expressed as follows:

 

“6.7 – Any of the Parties may reveal information obtained from theOperations without the approval of the other Party, in the following cases:

 

(a)           Toan Affiliate;

(b)          Inconnection with obtaining financing, or insurance, but first signing aconfidentiality agreement;

(c)           Aslong as it is required by law, regulations, or resolution issued by competentauthority, including without limitation, the regulations or resolutions of governmentalauthorities, insurance organizations, or stock exchange entities, where theshares of the Party or its Affiliated companies are registered;

(d)          Toconsultants, accountants, auditors, financiers, professionals, possible buyersor assignees of the Parties, or of a participation in the License Contract, asmay become necessary in relation to the Operations, but previously obtaining anagreement of confidentiality.

 

In those cases where the Parties agree to communicate to third partiescertain information of confidential nature, or of private character, they mustdeclare and give express notice of the confidential character of suchinformation, with the purpose of avoiding that such information be divulged tothird parties.”

 

**3.7****         **Tomodify paragraph 9.1, which will be expressed as follows:

 

“9.1 – The Contractor is subject to the common taxation regimeprevailing in the Republic of Perú, which includes the ordinary Income Taxregime,

 

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as well as the specific norms that have been established for thatpurpose by Law N° 26221, Hydrocarbons Organic Law, which are prevailing at thetime of the Signing****Date.

 

The State, through the Ministry of Economy and Finance, guarantees theContractor the benefit of taxation stability for the entire life of the LicenseContract and therefore, the Contractor will be subject only to the taxationregime prevailing on the Signing Date, in accordance with the stipulationsestablished in the “Regulations for the Taxation Stability Guaranty and theTaxation Norms of Law N° 26221, Hydrocarbons Organic Law,” approved by SupremeDecree N° 32-95-EF, and by the “Law that regulates the Tax Stability Contractswith the State under the guidance of the Sectorial Laws – Law N° 27343”, as itmay be applicable, and by the “Law of Actualization of Hydrocarbons – Law N°27377”.

 

**3.8****         **Tomodify paragraph 9.2, which will be expressed as follows:

 

“9.2 –****The export of Hydrocarbonsproduced from the Contract Area that would be made by the Contractor are freeof all Taxation, including those taxes that require express mention.”

 

**3.9****         **Tomodify paragraph 9.5, which will be expressed as follows:

 

“9.5 – In accordance with the stipulations of Article 87 of the TaxCode, the Contractor is allowed to carry its accounting in US$ dollars, andtherefore, the determination of the income base for Taxation, which will be hisresponsibility, as well as the amount of such Taxes, and the payment of suchTaxes, will be done in accordance with the law.”

 

**3.10****       **Tomodify paragraph 9.6, which will be expressed as follows:

 

“9.6 – It is here specified that the Contractor will use the method ofstraight-line depreciation over a period of five (5) fiscal years, to becounted from the first fiscal year corresponding to the Date of InitialCommercial Extraction.

 

The above referred linear depreciation will be applicable to allExploration and Development costs and to all investments to be made by theContractor from the Signing Date of the Contract until the Date of Initial CommercialExtraction.

 

It is also stipulated that the term of the depreciation referred toabove will be extended, without in any case exceeding the term of the Contract,if because of differences in prices or because of any other factors on whichthe Parties have agreed, and after applying the linear depreciation

 

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referred to in the above paragraph, the financial statements of theContractor show a negative result or a fiscal loss, which in the judgment of theContractor has been projected, it will not be compensated for fiscal purposesin accordance with existing taxation norms. The extending of the depreciationperiod should be made known promptly to the National Taxation Superintendence.”

 

**3.11****       **Tomodify paragraph 16.1, which will be expressed as follows:

 

“16.1 – In case the Contractor arrives at an agreement to assign itscontractual position, or decides to associate with a third party in theContract, it should proceed to notify Perupetro in relation with suchagreement. The notification should be accompanied by a request for thequalification of the assignee or third party participant, and should be accompaniedby all necessary complementary information that may be required to qualify theassignee, or third party participant, as a petroleum company, in accordancewith the Law.

 

If Perupetro****awards thequalification as requested, the assignment will be made by means of amodification of the Contract, which will be made in accordance with the law”.

 

**3.12****       **Tomodify paragraph 16.3, which will be expressed as follows:

 

“16.3 – If the Contractor assigns its contractual position or becomesassociated with a third party, in accordance with this Contract, either theassignee or the third party, will have to provide all the required guarantees,and should assume all the rights, responsibilities and obligations of theassigner”.

 

**3.13****       **Toeliminate paragraph 16.4

 

**3.14****       **Toeliminate paragraph 16.5

 

**3.15****       **Tomodify paragraph 18.1, which will be expressed as follows:

 

“18.1 – The Contractor should maintain its accounting in accordancewith the principles and the accounting practices established and accepted inPerú. Furthermore, the Contractor must carry and maintain all the accountingbooks, detailed records, and necessary documentation that may be necessary toaccount for and to control all the activities that are executed in the countryand/or abroad in connection with the purpose of the Contract, as well as foradequate sustentation of its income, investments, costs, expenses and Taxationincurred in each fiscal year. On

 

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the other hand, within one hundred and twenty (120) Days, counted fromthe Signing Date, the Contractor should provide Perupetro with a copy in theSpanish language of the “Manual of Accounting Procedures”, which the Contractorhas decided to propose for the recording of its Operations. The “Manual ofAccounting Procedures” proposed for the recording of Contractor’s Operations,must contain among other items, the following:

 

(a)    Languageand currency to be used for recording information in the accounting books

(b)    Principlesand accounting practices to be utilized

(c)    Structureand Accounting Plans in agreement with the requirements of the NationalCommission In Charge of Supervising Enterprises and Valuables (Comisión NacionalSupervisora de Empresas y Valores, known as CONASEV)

(d)    Proceduresto identify the specific accounts corresponding to the Contract and also toother Hydrocarbon contracts, and to identify the related activities and also anyother activities.

(e)    Proceduresto identify and record income, investments, costs and ordinary expenses thatmay be common to the Contract, and to other Hydrocarbon contracts, or torelated activities and/or to other activities.

(f)     Definitionand identification of the specific accounts for income and expenses, and thedetailed records required for the calculation of the “Rt-1 Factor”,as well as for the detailed procedures described in the Annex “E” of theContract, if that is the case”.

 

**3.16****       **Tomodify paragraph 18.5, which will be expressed as follows:

 

“18.5 – The Contractor must submit a copy to Perupetro, within thirty(30) Days of having received the report from its external auditors related withthe financial statements of the Contractor corresponding to the prior fiscalyear. In the case that the Contractor has signed with Perupetro more than onecontract, or it is conducting activities different to those of the Contract, itis obligated to carry separate accounts with the purpose of being able toformulate financial statements for each contract and/or activity, andtherefore, the report prepared by its auditors must include the financialstatements for each contract and/or activity”.

 

**3.17****       **Tomodify paragraph 18.6, which will be expressed as follows:

 

“18.6 – The Contractor must submit to the National Superintendence ofTaxation Administration (Superintendencia Nacional de AdministraciónTributaria, also known as SUNAT), or to the institution that may be its substitute,a copy of all the documentation that must be submitted

 

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together with the sworn declaration of Income Tax returns, which shouldbe submitted to Perupetro within fifteen (15) Days, after having been presentedto SUNAT”.

 

**3.18****       **Toeliminate paragraph 18.7

 

**3.19****       **Tomodify paragraph 20.1, which will be expressed as follows:

 

“20.1 – Any notification or communication relative to the Contract,will be considered to have been truly sent by any of the Parties, if it is inwriting and delivered by messenger, or received by means of certified mail, orby facsimile, or by any other means that the Parties may have agreed on, andshould be addressed to the addressee during a Working Day and addressed to oneof the following addresses:

 

To Perupetro:

Perupetro S.A.

Gerencia General

Av. Luis Aldana N° 320

San Borja, Lima 41, Peru

Fax: 51-1-617-1801

 

To Contractor:

BPZ Energy Inc., Sucursal Perú

Gerencia General

Ave. Canaval y Moreyra N° 425 – Of. 81

San Isidro, Lima 27, Peru

Fax: 51-1-421-9759

 

To Corporate Guarantor

BPZ Energy, Inc.

Manuel Pablo Zúñiga-Pflücker

President

11999 Katy Freeway, Suite 560

Houston, Texas, 77079, USA

Fax: 281-556-6377

 

**3.20****       **Tomodify sub-paragraph 22.3.4, which will be expressed as follows:

 

“22.3.4 – In the case where the Contractor has been declared insolvent,or in a condition of dissolution, or liquidation, or default, and a third partyduly qualified by Perupetro does not take over the participation of theContractor in the License Contract to replace the company that has beendissolved, liquidated or defaulted within a period of fifteen (15) Working Days”.

 

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**3.21****       **Tomodify paragraph 22.3.5, which will be expressed as follows:

 

“22.3.5 – In case the corporate guarantee, referred to in paragraph3.11, is no longer valid, or in case the entity that provided the corporateguarantee, referred to in paragraph 3.11, has been declared in a situation ofinsolvency, dissolution, liquidation or default, and such guarantee has notbeen assumed by a third party accepted by Perupetro”.

 

**3.22****       **Tomodify sub- paragraph 22.6, which will be expressed as follows:

 

“22.6 –At the end of the License Contract, the Contractor shall provideownership to the State, through Perupetro, (unless not required, but withoutany cost or any other charges to the State, in good operating condition, withgood maintenance and functioning well, but taking into consideration the normaltear and ware caused by their utilization), all buildings, energyinstallations, communication systems, pipelines, housing for workers, and allother assets and installations used for production operations formerly owned bythe Contractor, which will be used to continue Operations.

 

In case there is joint Exploitation of Crude Oil and Non-AssociatedNatural Gas, and/or Non-Associated Natural Gas and Condensate at the end of theterm established by paragraph 3.1 for the Exploitation Phase of Crude Oil, theContractor will provide ownership to the State**,**through Perupetro, (unless not required, but without any cost or any othercharges to the State, in good operating conditions, with good maintenance andfunctioning well, but taking into consideration the normal tear and ware causedby their utilization), all the assets and installations particularlyappropriate for the Exploitation of Crude Oil, which are not necessary to carryout operations for the Exploitation of Non-Associated Natural Gas, and/orNon-Associated Natural Gas and Condensate.

 

The assets and installations that the Contractor retains for theExploitation of Non-Associated Natural Gas and/or Non-Associated Natural Gasand Condensate, which have also been utilized in the Exploitation of Crude Oil,which will continue to be considered as property of the Contractor, will beutilized on both types of Exploitation and for this purpose an agreement shouldbe entered by the Parties.

 

In case the Contractor has been using the assets and installationsdescribed in the first paragraph of this section, but if they are not

 

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accessory or connected exclusively for their use in the Operationsunder this Contract, which means that they have also been used in operations inother areas under existing contracts for Exploration and Exploitation in Peru,the Contractor will continue to own such assets and continue the use of suchassets.

 

**3.23****       **Tomodify Annex “D”, which will be expressed as follows:

 

**Annex “D”**

**Corporate Guarantee**

 

To:          Perupetro S.A.

Avenida Luis Aldana 320

Lima 41, Perú

 

By this document BPZ Energy, Inc., in accordance with paragraph 3.11 ofthe License Contract for the Exploration & Exploitation of Hydrocarbons in BlockZ-1, to be signed by PeruPetro S.A.  (“Perupetro”)and BPZ Energy, Inc., Sucursal Perú (“Contratista”), guarantees jointly andseverally before Perupetro the compliance by BPZ Energy, Inc., Sucursal Perú ofall the obligations that this entity has assumed in the minimum work programdescribed in paragraph 4.6 of the Contract, as well as the execution by theContractor of each one of the yearly Exploitation programs, as they may bereadjusted or changed, which the Contractor will present to Perupetro incompliance with paragraph 5.3 of the Contract.

 

This guarantee will be in place as long as the obligations of theContractor derived from the Contract are enforceable. To comply with theeffects of this guarantee, BPZ Energy, Inc. agrees to submit to the Laws of theRepublic of Perú, expressly renounces to any diplomatic claim and submitsitself to the arbitration process to resolve differences established in Clause21 of the Contract.

 

Signed by: Manuel Pablo Zúñiga-Pflücker – President

 

**FOURTH CLAUSE**

 

**4.1****         **Onthe date of signing the Public Deed, which the present Contract has originated,BPZ Energy, Inc. has delivered to Perupetro the corporate guarantee throughwhich it has assumed the jointly and severally responsibility for thecompliance of all obligations derived from the Contract, in accordance with thetext of Annex “D”.

 

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The corporate guarantee delivered by BPZ Energy, Inc. substitutes theguarantee awarded by this enterprise on the Signing Date of the Contract.

 

**4.2****         **Similarly,on the date of signing the Public Deed originated by this document, theContractor has complied with the substitution of the bank guaranteecorresponding to the first period of the Exploration Phase, in a manner toreflect in such guarantee the conformation of the Contractor.

 

We respectfully request the Notary Public to include all that isnecessary in accordance with the Law and to notify, as is mandatory, the PublicRegistry of Hydrocarbons for its registration.

 

Lima, the 3rd day of February, 2005

 

Signed on behalf of Perupetro by Mr. José Eduardo Chávez-Cáceres

 

Signed on behalf of Nuevo Perú, Ltd., Sucursal del Perú by Mr. GermánJosé Martín Barrios Fernández-Concha

 

Signed on behalf of BPZ Energy, Inc., Sucursal Perú by Mr. RafaelZöeger-Núñez

 

Signed on behalf of Plains Exploration & Production Company

 

(Formerly Nuevo Energy Company), by Mr. Germán José Martín BarriosFernández-Concha

 

Signed on behalf of BPZ Energy, Inc. by Mr. Rafael Zöeger-Núñez

 

Signed on behalf of the Central Bank of Reserves of Perú by Messrs.Renzo Guillermo Rossini Miñan and Carlos Augusto Ballón Avalos

 

This Public Deed was authorized by Doctor Germán José Martín BarriosFernández-Concha, Lawyer, with registration in the Register of the LawyersCollege of Lima under N° 20390

 

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