**Exhibit 10.10**

 
| **NUMBER:5451** | ** ** | **KARDEX:86482** |
|-----------------|------------|------------------|
|            |       |             |
| **DRAFT: 5219** |       |             |

 

**LICENSE AGREEMENT FOR HYDROCARBONEXPLORATION 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 THETWENTY FIRST DAY OF NOVEMBER OF TWO THOUSAND SEVEN, I, RICARDO FERNANDINIBARREDA, 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

 

**PERUPETROS.A.** WITH SINGLE TAX PAYER REGISTRATION No 20196785044, ADDRESS OF RECORD ATAVENIDA LUIS ALDANA No 320, SAN BORJA, LIMA, REPRESENTED BY ITS GENERAL MANAGER**CARLOS EDGAR VIVES SUÁREZ**, WHODECLARED BEING PERUVIAN, MARRIED, AN ENGINEER, IDENTIFIED WITH NATIONALIDENTITY DOCUMENT No 08725702, A VOTER, WITH POWER OF ATTORNEY REGISTERED UNDERENTRY 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 ANDEXISTING PURSUANT TO THE LAWS OF THE REPUBLIC OF PERU, REGISTERED IN ENTRYA00001 OF DOCKET N° 11985400 OF THE COMPANY REGISTRY OF LIMA, AND IN ENTRYA00002 OF DOCKET N° 11328132 OF THE BOOK OF OPERATIONS CONTRACTORS IN THEPUBLIC HYDROCARBONS REGISTRY, WITH ADDRESS OF RECORD AT  CALLE MANUEL DE FALLA N° 297, DISTRICT OF SANBORJA, 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, AVOTER, AUTHORIZED BY POWER OF ATTORNEY REGISTERED UNDER ENTRY A00001 OF DOCKETN° 11985400 OF THE COMPANY REGISTRY OF THE REGISTRY OFFICE OF LIMA. 

 

WITH THE PARTICIPATIONOF:  

 

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

 

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BEING PERUVIAN, MARRIED, ANENGINEER, IDENTIFIED WITH NATIONAL IDENTITY DOCUMENT N° 08212579, A VOTER, AUTHORIZEDBY POWER OF ATTORNEY REGISTERED IN ENTRY A00001 OF DOCKET N° 11992608 OF THEBOOK OF POWERS OF ATTORNEY GRANTED BY ESTABLISHED COMPANIES OR AFFILIATESESTABLISHED OVERSEAS OF THE COMPANY REGISTRY OF LIMA.

 

AND**THE CENTRAL RESERVE BANK OF PERU**, IDENTIFIED WITH SINGLE TAXPAYER REGISTRATION No 20122476309, WITH ADDRESS OF RECORD AT JR. ANTONIO MIROQUESADA No 441, LIMA, REPRESENTED BY ITS GENERAL MANAGER, **RENZO GUILLERMO ROSSINI MIÑAN**, WHO SAID HEWAS PERUVIAN, MARRIED, AN ECONOMIST, IDENTIFIED WITH NATIONAL IDENTITY DOCUMENTNo 08727483, A VOTER, APPOINTED BY BOARD OF DIRECTORS’ AGREEMENT NUMBER No 4059AND **CARLOS AUGUSTO BALLON AVALOS**,WHO DECLARED HE WAS PERUVIAN, MARRIED, AN ECONOMIST, IDENTIFIED WITH NATIONALIDENTITY DOCUMENT No 08757380, A VOTER, IN HIS POSITION AS INTERNATIONALOPERATIONS MANAGER APPOINTED BY BOARD OF DIRECTORS’ AGREEMENT No 3737, BOTHDULY AUTHORIZED AS REPORTED IN THE LETTER FROM THE BANK’S GENERAL MANAGEMENTOFFICE 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 IVERIFIED THE IDENTIFICATION OF THE PERSONS APPEARING BEFORE ME AND THAT THEYACT IN THEIR FULL CAPACITY, WITH FREEDOM AND KNOWLEDGE OF THEIR ACTS, THAT THEYARE SKILLED IN THE SPANISH LANGUAGE AND THAT THEY HAVE DELIVERED TO ME A DULYSIGNED AND AUTHORIZED DRAFT CONTRACT, WHICH I FILED IN THE CORRESPONDINGDOSSIER TO REGISTER IT AS A PUBLIC DEED, AND WHICH READS AS FOLLOWS:**

 

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

 

Pleaseregister in your Public Deed Registry the license contract for the explorationand development of hydrocarbons in Block XXIII, entered into by and between, on the one hand, **PERUPETRO S.A.**, identified with RUC N° 20196785044, withaddress 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 DNIN° 08725702, with address of record at Av. Luis Aldana 320, San Borja, withpowers of attorney registered in Entry C00039 under Electronic Docket No00259837 of the Company Registry of Lima, pursuant to provisions of thePERUPETRO 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, **BPZEXPLORACIÓN & PRODUCCIÓN S.R.L.**, identified with RUC N°20503238463, a company organized and existing pursuant to the laws of theRepublic of Peru, registered in Entry A00001 under Docket N° 11985400 of theCompany Registry of Lima and in Entry A0002 under Docket N° 11328132 of theOperations Contractors Book of the Public Registry of Hydrocarbons, withaddress 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 DocketN° 11985400 of the Company Registry of Lima; with the participation of **BPZ ENERGY INC.**, with address of record at 580 West LakePark Boulevard, Suite 525, Texas 77079, United States of America, 

 

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

 

**LICENCE AGREEMENT FORHYDROCARBONS 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 |   |

 

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| 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 FORHYDROCARBONS EXPLORATION AND DEVELOPMENT IN BLOCK XXIII**

 

**BETWEEN**

 

**PERUPETRO S.A.**

 

**AND**

 

**BPZ EXPLORACION &PRODUCCION S.R.L.**

 

**PRELIMINARY CLAUSE.- GENERAL**

 

**I.**          With the participation ofPERUPETRO, pursuant to the powers grated by Law N° 26221 to sign the LicenseAgreement for Hydrocarbons Exploration and Development in Block XXIII.

 

**II**.         The “in situ” hydrocarbons area property of the State. The property rights over the extracted hydrocarbonsare transferred by PERUPETRO to the Contractor on the day of subscriptionpursuant to the provisions in the Agreement hereto and in Article 8o ofLaw N° 26221.

 

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

 

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

 

**IV.****                     **For all purposesrelated to and derived from this Agreement, the parties hereto agree that thenames of the clauses do not modify the interpretation of the Agreement’scontents. 

 

**V.****                         **All references tothe Agreement include its annexes; in case of discrepancy between the annexesand 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 servethe purpose of providing the meaning required by the terms used in theAgreement, and such meaning will be the only one accepted for purposes ofinterpreting and executing the Agreement, unless otherwise expressly providedby the Parties in writing.

 

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

 

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

 

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share capital of the sameshareholder 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 oftwelve (12) consecutive months in the Gregorian calendar, starting on aspecific date. 

 

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

 

Likewise, when the explorationresults warrant a new Agreement Area configuration, and at the request of theContractor, supported by a report addressed to PERUPETRO, including proposalsfor working in the new area, and after approval by PERUPETRO, the AgreementArea may be re-demarcated.  The changewill be approved pursuant to existing law. Under no circumstance shall the new demarcation increase the originalAgreement’s area.  

 

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

 

**1.4****      ****Barrel.** A capacity measurement unit for ControlledLiquid Hydrocarbons, equivalent to forty two (42) gallons of the United Statesof America at sixty degrees Fahrenheit (60° F), at sea level pressure, withoutwater, mud or other sediments (BS&W).

 

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

 

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

 

**1.7****      ****OversightCommittee.** A body createdby the Parties through which PERUPETRO oversees the compliance with and theexecution of the Agreement, and the membership and 

 

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attributions of which areestablished by clause seven.

 

**1.8****      ****TechnicalConciliation Committee.** Atransitory body created to give an opinion on the discrepancies that may emergeconnected to the Operations, same which will be organized pursuant to heading21.2 of the Agreement.

 

**1.9****      ****Condensates.**Liquid hydrocarbons created by the condensation of hydrocarbons isolatedfrom natural gas by applying pressure or temperature when the natural gasflowing from the reservoirs is produced, or resulting from one or morecompression stages of natural gas. They remain liquid at atmospheric temperatureand pressure.

 

**1.10****    ****ControlledCondensates. C**ondensates produced in the Agreement Area and measuredat a Production Control Point. 

 

**1.11****    ****Contractor. **BPZ EXPLORACION &PRODUCCION S.R.L., registered in the Hydrocarbons Public Registry under DocketNo 11328132, Entry A00002 of the Operations Contractors Book.

 

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

 

**1.13****    ****Development.** Any activity for the productionof hydrocarbons, including well drilling, completion and deepening, as well thedesign, construction and installation of equipment, tanks, storage tanks andother means and facilities, including the use of artificial production methodsand primary and improved recovery systems in the Agreement Area and outside ofit, as needed.

 

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

 

**1.14****    ****CommercialDiscovery. **The discovery ofhydrocarbons reserves that in the opinion of the Contractor warrant commercialdevelopment.

 

**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****    ****BusinessDay. **All days from Monday toFriday, excepting days declared totally or partially banking holidays, in thecity of Lima, by the competent authority.

 

**1.17****    ****Dollar orUS$.**Currency unit of the United States of America.

 

**1.18****    ****MainPipeline. **Main pipeline theContractor may build and operate and which, starting at the end of theTransportation and Storage Systems, drives hydrocarbons produced in theAgreement Area to a third party property pipeline, to a sale or exportationpoint, or to a production control point, notwithstanding, if required, theapproval provided under heading 2.3. This Main Pipeline may include the measurement points connected to thepipeline, the required storage and shipping 

 

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areas, smaller pipelines,pumping or compression stations, communications systems, access and maintenanceroads, and any other facilities that may be necessary and required fortransporting hydrocarbons in a continued and timely manner, including thedesign or construction, maintenance and equipment of all the previouslymentioned components.  Access will begranted to any main pipeline from the beginning of the fifth year starting onthe Date of Beginning of Commercial Extraction. 

 

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

 

**1.20****    ****Exploitation. **Development and/or Production.

 

**1.21****    ****Date ofBeginning of Commercial Extraction. **Date when thefirst measurement of hydrocarbons at a Production Control Point was made thustriggering the payment of the royalty. For purposes of this definition, the volume produced for testing orother purposes specifically accepted by the Parties will not be considered. 

 

**1.22****    ****SigningDate. **November 21, 2007, thedate when PERUPETRO and the Contractor signed the Agreement. 

 

**1.23****    ****EffectiveDate. **Date when the Contractor willstart the operations, to be determined within sixty (60) starting on theSigning Date.

 

**1.24****    ****Control. **The actions that pursuant tolegal regulations and technical standards are undertaken by OSINERGMIN(Organismo Supervisor de la Inversión en Energía y Minería – Supervising Bodyfor Investments in Energy and Mining) regarding the Exploration and Developmentcarried out by the Contractor.

 

**1.25****    ****NaturalGas. **A mix of hydrocarbons ingaseous state or dissolved with oil at initial reservoir conditions. Itincludes associated natural gas and non-associated natural gas. 

 

**1.26****    ****AssociatedNatural Gas. **Natural gasproduced together with the reservoir’s Liquid Hydrocarbons.

 

**1.27****    ****ControlledNatural Gas.**Natural gas produced in the Agreement Area andmeasured at a Production Control Point. 

 

**1.28****    ****Non-AssociatedNatural Gas. **Natural gas thatcomes from a reservoir where, under the initial conditions, no liquidhydrocarbons are present.

 

**1.29****    ****Hydrocarbons. **All organic, gas, liquid orsolid compounds, consisting principally of carbon and hydrogen. 

 

**1.30****    ****ControlledHydrocarbons. **Hydrocarbonsproduced in the Agreement Area and measured at a Production Control Point. 

 

**1.31****    ****LiquidHydrocarbons. **Oil, condensate,and generally, all hydrocarbons, which at atmosphere temperature and pressureconditions, are found in liquid state at the 

 

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measurement site, includinghydrocarbons found in liquid state at a temperature above atmospherictemperature.

 

**1.32****    ****ControlledLiquid Hydrocarbons. **Liquidhydrocarbons in the Agreement Area measured at a Production Control Point. 

 

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

 

**1.34****    ****LNG orLiquid Natural Gas. **Liquidhydrocarbons obtained from natural gas and made up by ethane, propane, butaneand other heavier hydrocarbons.

 

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

 

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

 

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

 

**1.38****    ****Operations. **All Exploration andDevelopment operations as well as all other activities subject matter to theAgreement or related to its execution. 

 

**1.39****    ****Parties.**PERUPETRO and theContractor. 

 

**1.40****    ****PERUPETRO. **PERUPETRO S.A., is theState-owned private law company under the Ministry of Energy and Mines createdby Law N° 26221.

 

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

 

**1.42****    ****ControlledOil. **Oil produced in the AgreementArea and measured at the Production Control Point. 

 

**1.43****    ****HeavyCrude. **Liquid hydrocarbons which,because of their density and viscosity, require using non-conventionalexploitation methods, and the transportation of which requires heating or otherprocedures, excluding mixing with oil produced in the same deposit, which wouldresult in light crude.

 

**1.44****    ****Confirmingwell. **A well drilled to confirmdiscovered reserves or to delimit a deposit’s area. 

 

**1.45****    ****Developmentwell. **A well drilled for theproduction of discovered hydrocarbons.

 

**1.46****    ****Exploratorywell. **A well drilled to discoverhydrocarbons reserves or to determine the stratigraphy of an exploration area. 

 

**1.47****    ****Production. **All activities performed in oroutside the Agreement Area, as required, for the extraction and handling ofhydrocarbons subject to the Agreement, including the operation and refurbishingof wells; the installation and operation of equipment, pipes, transportationand storage systems, Main Pipeline, hydrocarbon treatment and 

 

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measurement, and all types ofprimary and improved recovery measures.

 

**1.48****    ****ProductionControl Point. **The place(s) identifiedby the Contractor within the Agreement Area, or identified outside such areasthrough an agreement between the Parties, where the volume measurements and determinationof water and sediment contents and other measurements are performed tocalculate the volume and quality of the controlled hydrocarbons, pursuant tothe AGA, API and ASTM standards.

 

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

 

**1.50****    ****Transportationand Storage System. **The set of pipelines, pumping stations, storage tanks, riverinefacilities, delivery systems and roads, and other types of facilities and meansrequired and used for carrying hydrocarbons from the Agreement Area, where theywere produced, to the Production Control Point, the main pipeline or a thirdparty pipeline, including the design, construction, maintenance and equippingof all the above-mentioned elements.

 

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

 

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

 

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

 

**1.54****    ****ExplorationWork Unit (UTE**in Spanish**).**A measurementunit for the exploration activities accepted by the Parties and detailed in theminimum work programs, and which allows flexibility in executing thecommitments made. Its values are established as a function of the mostrepresentative work unit for each exploration activity (km2, km, m,etc.). 

 

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

 

**1.56****    ****Deposit. **Surface under which thereexist one or more reservoirs in production or with proven hydrocarbonproduction capacity.

 

**CLAUSE TWO.- PURPOSE OF THEAGREEMENT.**

 

**2.1**       PERUPETRO authorizes theContractor to perform the Operations, pursuant to Law N° 26221, the relevantregulations and the Agreement’s provisions for the shared objectives ofdiscovering and producing hydrocarbons in the Agreement Area. 

 

**2.2**       The Contractor will hold theownership rights to the hydrocarbons extracted in the Agreement Area, pursuantto paragraph II above. 

 

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

 

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

 

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

 

**2.5****      **PERUPETROrepresentatives will carry out the oversight at any****time**,**afterserving the corresponding notice, shall provide proper personal identification,and be authorized to perform such functions by PERUPETRO. The Contractor willprovide its cooperation within the scope of its Operations so that thoserepresentatives may perform their mission, which will be carried out so as notto interfere with the Operations.  Thecosts and expenses of PERUPETRO’s representatives will be paid by PERUPETRO. 

 

**2.6**       The Contractor will provideand be responsible for all technical, economic and financial resources requiredfor executing the Operations. 

 

**CLAUSE THREE.- TERM, CONDITIONSAND GUARANTEE**

 

**3.1**       The term for the hydrocarbons’exploration phase is seven (7) years which may be expanded as provided bythe Law. This term starts on the effective date, unless such period may be modifiedpursuant to other Agreement provisions. The term for the hydrocarbonsdevelopment phase is the period remaining after the exploration phase iscompleted until ending a period of thirty (30) years that starts on theeffective date, unless other Agreement provisions modify such term.  The term of the stage to developnon-associated natural gas and non-associated natural gas and condensates willbe the period remaining after the end of the exploration stage and until aperiod of forty   (40) years is completed,starting on the effective date, unless other Agreement provisions change thatterm. 

 

**3.2**       The exploration stage isdivided 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 theexploration****stage, the Contractor may beginthe subsequent period provided it notifies PERUPETRO thirty  (30) days in advance of the ending day forthe stage underway, or its intention to continue with the subsequent stage,provided      the Contractor has notincurred any of the reasons for termination set forth under heading22.3.1.  Termination for such reason(s) willresult in the execution of the corresponding warrant bond. 

 

**3.4****      **If during any ofthese stages as described under heading 3.2, the Contractor is prevented, byproperly grounded technical or economic reasons, from concluding thecorresponding minimum work program, such period may be extended for a maximum ofsix (6) months, provided PERUPETRO’s approval has been requested at leastthirty (30) days before the end of the period

 

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

 

**3.5**       The exploration phase maycontinue at the Contractor’s choice, after the Date of Beginning of Commercial Extractionuntil 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 forceuntil the expiration of the exploration stage, and the line amortization methoddescribed under heading 9.6 will be applied from the Date of Beginning ofCommercial Extraction, as mandated by Law.

 

**3.6**       If the Contractor makes one ormore hydrocarbon discoveries during any period of the exploration stage, whichmay not be rated as commercial only for reasons of transportation, it mayrequest a withholding period of up to five (5) years for the discovereddeposit or deposits while the appropriate production transportation isarranged.  The withholding right will besubject, at least, to meeting the following requisites: 

 

**a)**      The Contractor mustdemonstrate to PERUPETRO’s satisfaction that the volumes of hydrocarbons foundin the Agreement Area do not suffice to economically warrant the building ofthe main pipeline; 

 

**b)**      The combined discoveries inadjoining areas added to the Contractor’s discoveries are insufficient toeconomically warrant the building of a main pipeline; and,

 

**c)**      The Contractor shalldemonstrate, on economic grounds, that the discovery of hydrocarbons cannot becarried from the Agreement Area to another place for their marketing by nomeans of transportation whatsoever.

 

**3.7**       If the Contractor findsNon-associated Natural Gas or Non-associated Natural Gas or Condensates duringany period of the exploration stage, it may request a withholding period of upto ten (10) years for the deposit found, while a market is created.

 

**3.8**       If the Contractor finds oiland Non-associated Natural Gas or Non-associated Natural Gas or Condensatesduring any period of the exploration stage, and the cases described underheadings 3.6 and 3.7 occur, the Contractor may request a withholding

 

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

 

**3.9**       The withholding periodsdescribed under headings 3.6 and 3.7 will provide an extension of the Agreement’sterm for period equal to the withholding period granted by PERUPETRO. Thewithholding period will be granted in writing. For this purpose, the Contractorwill submit a request to PERUPETRO, enclosing the supporting documentation anda schedule of activities to be performed. The exploration stage concludes atthe beginning of the withholding period. The development stage starts when acommercial discovery statement for that period is made. The award of thewithholding periods described under headings 3.6 and 3.7 and their durationwill be determined by PERUPETRO at its sole criterion, without any prejudice toor reduction of the obligation to undertake the minimum work programs for theperiod of the exploration stage underway.

 

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

 

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delivering a new warrant bond or extending the existing one withinfifteen (15) days after the reception by the Contractor of  PERUPETRO’s notification. Otherwise,subheading 22.3.3 shall apply.  When theobligation guaranteed by each warrant bond is complied with, PERUPETRO willimmediately proceed to return to the issuer, through the Contractor, thecorresponding warrant bond. The execution of any warrant bond will have as aconsequence the termination of the Contractor’s obligations to perform theminimum work program, notwithstanding the enforcement of the provisions includedin subheading 22.3.1.

 

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

 

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

 

**CLAUSE FOUR.- EXPLORATION**

 

**4.1**       The Contractor shall startexploration activities of the Effective Date. 

 

**4.2**       The Contractor may releaseitself from the entire Agreement Area without any penalty by serving PERUPERTOnotice with advance not under thirty (30) days, provided the minimum workprogram for the corresponding period of the exploration stage underway has beenfulfilled. If the Contractor releases itself of the entire Agreement Area,abandons it or allows the term of the period underway to expire beforefulfilling the corresponding minimum work program, without any technical reasonapproved by PERUPETRO, the latter will execute the warrant bond,notwithstanding the enforcement of provisions included in subheading22.3.3.  The Contractor may release partsof the Agreement Area by serving notice to PERUPETRO at least thirty (30) daysin advance, without being subject to any penalty. However, this will not affector reduce its obligation to comply with the minimum work program for the periodof the exploration stage underway.  TheParties will certify and register the portions the Contractor releases throughthe Oversight Committee. The Contractor may continue using the surface of thereleased areas where it may have built facilities related to the Operations. 

 

**4.3**       During the execution of theContract, 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 insubheading 3.2.3 and at least thirty percent (30%) of the original Agreementarea at the end of the forth period described in subheading 3.2.4. 

 

**b)**      At the end of the fourthperiod described in subheading 3.2.4, the Contractor

 

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

 

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

 

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

 

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

 

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

 

**4.6****      **The minimum workprogram for each of the periods during the exploration stage includes thefollowing: 

 
| **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 followingshall be borne in mind. 

 

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

 

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

 

**b)**                  The Exploration Working Units mentioned underthis heading will be calculated pursuant to the table of equivalence attachedas Annex “F” hereto.

 

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

 

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

 

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

 

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

 

**4.8**       If the Contractor chooses tomake a commercial discovery statement, it will send such statement to PERUPETROand submit within one hundred eighty (180) days after such statement an InitialDevelopment Plan to make viable the hydrocarbon’s discovery development, samewhich shall include, among others, the following:  

 

**a)**      Physical and chemicalcharacteristics of the discovered hydrocarbon and percent associated productand impurities. 

 

**b)**      Estimated production profilesduring the life of the agreement for the deposit(s). 

 

**c)**      The estimated number ofdevelopment wells and their corresponding production capacity. 

 

**d)**      The Transportation and StorageSystems and the projected Production Control Points.  

 

**e)**      Planned Main Pipeline, ifappropriate.  

 

**f)**       Security measures.  

 

**g)**      Preliminary schedule for allactivities to be undertaken. 

 

**h)**      Estimated date when thecommercial extraction will begin. 

 

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

 

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

 

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

 

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

 

**4.11**     The development of discoveredhydrocarbons will take place pursuant to the work programs submitted by theContractor to PERUPETRO, and pursuant to provisions under heading 5.3. TheParties agree that, when appropriate and necessary, the terms for submittingthe “Initial Development Plan” or annual work plans, as appropriate, may beadjusted, extended or modified.  For thispurpose, the Contractor will submit the necessary proposals to PERUPETRO sothat such adjustments, extensions or modifications may be agreed upon.

 

**4.12**     The end of the explorationstage will not affect the terms and conditions for the procedures describedabove that may be underway at the time when such expiration date arrives.

 

**4.13**     Under exceptionalcircumstances that make it impossible to comply with the obligations and/orterms for the period of the minimum work program provided under headings 4.6and 3.2, respectively, and at request of the Contractor who will submit asupporting report, the obligations comprised in the minimum work program may bereplaced and the deadlines for same postponed provided PERUPETRO accepts andapproves the Contractor’s request. Under no circumstance whatsoever will suchreplacement modify the initial commitment in exploration work units for theexploration stage and in any way reduce the Contractor’s obligations.  The changes accepted and approved byPERUPETRO to the enforcement of the provisions of the preceding paragraph willlead to the revision of the amounts and terms of the existing warrant bonds forwhich purpose, if required, the Parties will recalculate the amounts of thewarrant bonds and the Contractor will comply with delivering a new warrant bondor extending the existing one until reaching the new prescribed deadline,pursuant to the requirements set forth under headings 3.4 and 3.10. Theexploration work units will also be recalculated for the new area included.

 

**CLAUSE FIVE.– DEVELOPMENT**

 

**5.1**       The development stage willstart on the next day after the end of the exploration stage provided duringthe exploration stage a commercial discovery statement was made. However, atthe Contractor’s choice the development stage may be started in advance andterminate the exploration stage at the day of beginning of commercialextraction. In case a withholding period has been granted, the developmentstage will start once the commercial discovery statement has been made.

 

**5.2**       The Contractor will undertake reasonable initiativesso that the Date of Beginning of Commercial Extraction will effectively be thedate established pursuant to headings 4.8 and 4.9.

 

**5.3**       At least sixty (60) daysbefore the ending of every calendar year, starting with the filing of theInitial Development Plan, the Contractor will submit to PERUPETRO, thefollowing:

 

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| **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 orchange such programs through the Oversight Committee.

 

**5.4**       For the execution of everywork program, the Contractor will deploy the equipment and/or methods that maybe necessary or appropriate to assess and follow up the operations.

 

**5.5**       The Contractor is obliged todevelop and undertake the economic recovery of hydrocarbon reserves in theAgreement Area, pursuant to the programs mentioned in this Clause Five, samewhich will be carried out following the technical and economical principlesgenerally accepted and in use by the international hydrocarbons industry.

 

**5.6****      **The Contractorhas the right to use in its operations the hydrocarbons produced in the AgreementArea at no cost, same which, however, will not be considered for purposes ofdetermining the royalties. Such hydrocarbons may be processed in primarydistillation plants belonging to the Contractor to be used exclusively for theoperations.   If the primary distillationplant is located outside the Agreement Area, the parties will determine thevolume of hydrocarbons to be processed at the plant and the volume of productsobtained to be used as fuel. The balance of such volumes will be considered forpurposes of determining the royalty.

 

**5.7**       The Contractor will have the right to recover theliquid hydrocarbons from any natural gas produced in the Agreement Area andextract them at any handling stage of such Natural Gas.  The liquids so separated will be consideredas condensates for purposes of determining the Contractor’s royalty, exceptingthat for economic or operational reasons their gathering may not be feasibleand they may be mixed with oil for controlling them together.

 

**5.8**       Natural gas not used by the Contractor in theoperations pursuant to heading 5.6 may be sold, reinjected into the reservoiror both by the Contractor. To the extent, the natural gas is not used, sold orreinjected, the Contractor may fire the gas, after obtaining the Ministry ofEnergy and Mines’ approval.

 

**5.9**       When one or more deposits thatmay be commercially developed extend continuously from the Agreement Area toone or more other areas, the Contractor and the contractors who hold thoseareas shall reach an agreement to prepare a single development plan or a commondevelopment plan. If no such agreement is reached, the Ministry of Energy andMines may decide to submit the divergence to the Technical ConciliationCommittee

 

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mentioned in article 32o underLaw N° 26221, the decisions of which will be mandatory for the Parties.  Likewise, when one or more deposits subjectto commercial development extend continuously from the Agreement Area toadjoining areas not allocated to a contractor or that may not be comprised innegotiations, competitions, deeds or contractor selection, and there is nolimitation as regards environmental protection issues, after obtainingPERUPETRO approval to the Contractor’s request, those adjoining areas may beincluded in the Agreement Area.

 

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

 

**5.11**     PERUPETRO may at any timeinspect and test the measurement equipment and devices used to determine thevolume and the quality of the controlled hydrocarbons.  The equipments and measurement instrumentswill be periodically calibrated in compliance with applicable standards.PERUPETRO representatives may be present.

 

**5.12****    **Before the Dateof Beginning of Commercial Extraction and the determination of the volume andquality of controlled hydrocarbons, the parties will agree on the correspondingmeasurement equipment and procedures.

 

**5.13****    **Heavy crudeproduced in the Agreement Area may be mixed with light crude produced outsidethe Agreement Area. Such light crude will me measured and controlled by theParties at a measurement point when entering the Agreement Area. The volume ofsuch hydrocarbons produced outside the Agreement Area will be subtracted fromthe volume controlled hydrocarbons produced in the Agreement Area for purposesof determining the royalties to be paid by the Contractor. 

 

**CLAUSE SIX. – INFORMATION AND STUDIES**

 

**6.1****      **The Contractorwill keep PERUPETRO timely and permanently informed about the Operations****and will providethe information as set forth****in thisclause, in the applicable regulations and in the form and format PERUPETRO willdetermine. Likewise, it will provide information about other natural resourcesor archaeological remains found or discovered during the execution of theoperations while the Contract is in force. Technical information, studies,process and non-process data, as well as the other findings that the Contractormay provide to PERUPETRO pursuant to this clause, will be of the best possiblequality available to the Contractor. If when obtaining the information andfindings, methods or systems were used that are of a proprietary nature, theContractor will not be obligated to disclose such methods or systems whenproviding the information.

 

**6.2**       The Contractor shall provide acopy of the geological, geophysical and reservoir studies related to thedeposits’ development prepared with technical information obtained for theAgreement Area. The Contractor will also provide any clarification that may berequired by PERUPETRO concerning such studies.

 

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

 

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

 

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

 

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

 

**6.7**       PERUPETRO or the Contractormay disclose the information obtained from the Operations without approval fromthe 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 todisclose certain confidential or reserved information to third parties, astatement about the confidential nature of such information will be made sothat such information will not disseminated by third parties.

 

**6.8**       PERUPETRO has the right topublish, or otherwise disclose, the geological, scientific and technical dataand reports referred to the areas released by the Contractor. For the areasunder operation, the right mentioned in the preceding paragraph may beexercised at the end the second year of having received such information orbefore, if the parties so agree.

 

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**CLAUSE SEVEN. – OVERSIGHT COMMITTEE**

 

**7.1**       The Oversight Committee willsit three (3) representatives of the Contractor or its subordinates andthree (3) members of PERUPETRO or its alternates. A representative ofPERUPETRO S.A. will chair the oversight Committee.  Such Oversight Committee will be installedand approve its regulation operations within sixty (60) days after the date ofsigning.

 

**7.2****      **The OversightCommittee 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 willsit whenever requested by the Parties and with the frequency established by itsown regulations. At least one representing member from each of the parties willbe required for the Oversight Committee to be considered in session. Each ofthe parties will bear the expenses of their respective members in the OversightCommittee.

 

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

 

**CLAUSE EIGHT.– ROYALTIES AND VALUATION**

 

**8.1**       The Contractor will pay theroyalty in cash based on the value of Controlled Hydrocarbons measured at oneor more Production Control Points, pursuant to provisions under headings 8.3,8.4 and 8.5.  In case of loss ofhydrocarbons, 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****      ****Transportationand storage costs:** the cost, in dollars per barrel or dollars per MMBtu,as appropriate including:

 

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| **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****      ****ValuationPeriod:** Fifteen days (fortnight) of a calendar month, in the understanding thefirst such fortnight is the period comprised between the first until thefifteenth day of a calendar month, and the second fortnight is the periodremaining 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****      ****Basketprice:** The price expressed in dollar per barrel representing the FOB value ata Peruvian export port, determined pursuant to heading 8.4.1 and subheading8.4.3 for Controlled Natural Gas.

 

**8.2.4****      ****Realized Price:** The price, expressed indollars per MMBtu, actually paid or to be paid by a buyer to the Contractor forthe Controlled Natural Gas and which should include all other componentsdirectly derived from the sale of natural gas and the volume actually deliveredof Controlled Natural Gas. For the calculation of the realized price, thefollowing will not be taken into consideration:

 

**a)**   Any payment resulting from thereconciliation of natural gas volumes contained in the corresponding purchasecontracts; and

 

**b)****  **The Impuesto General a lasVentas (Sales Tax), the Impuesto Selectivo al Consumo (Excise Tax), theImpuesto de Promoción Municipal (Municipal Tax) and/or any other tax levied onconsumption.

 

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

 

**8.2.6**       **Value ofControlled Oil:** The product of multiplying the Controlled Oil for avaluation period times the Basket Price Of Controlled Oil for such period, fromwhich the cost of transportation and storage if applicable, will be subtracted.

 

**8.2.7**       **Value of Controlled Condensates:** The product ofmultiplying the Controlled Condensates of a Valuation Period times the BasketPrice of Controlled Condensates for such period, from which price the cost oftransportation and 

 

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storageif applicable, will have been subtracted.

 

**8.2.8****      ****Value ofControlled Natural Gas Liquids:** The product of multiplyingthe Controlled Natural Gas Liquids for a Valuation Period times the basketprice of the Controlled Natural Gas Liquids for that period, price from whichthe cost of Transportation and Storage, if applicable will have beensubtracted.

 

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

 

**8.3**       The Contractor, when making acommercial discovery statement for hydrocarbons, will choose one of the twomethodologies described in subheadings 8.3.1 and 8.3.2, after which it will not be allowed to change themethodology during the life of the Agreement.

 

**8.3.1****      ****Scale ofProduction Method:** Pursuant to this methodology, a royalty percentagefor Controlled Liquid Hydrocarbons and Controlled Natural Gas Liquids will beestablished and another royalty percentage will be established for theControlled Natural Gas for each valuation period, according to the followingchart.

 
| **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 ofControlled Liquid Hydrocarbons and Controlled Natural Gas Liquids is equal toor lower than 5 MBDC, the 15% royalty will apply. When such average is equal toor higher than 100 MBDC, a 30% royalty will apply. When said average fallsbetween 5 MBDC and 100 MBDC, the royalty percentage to be applied will resultfrom applying a linear interpolation. The royalty paid by the Contractor forthe Controlled Liquid Hydrocarbons and the Controlled Natural Gas Liquids willbe the product of applying the royalty percentage obtained for suchhydrocarbons to the value of controlled oil, the value of the Controlled NaturalGas Liquids and the value of the Controlled Condensates, during thecorresponding Valuation Period.  Todetermine the average in barrels per day for Controlled Natural Gas, thefollowing equation will be used: barrels will be equivalent to the volume ofControlled Natural Gas in standard cubic feet divided by five thousand sixhundred twenty six (5,626) factor. The royalty the Contractor shall pay for theControlled Natural Gas will be the product of applying the royalty percentagecalculated for such hydrocarbon to the value of Controlled Natural Gas duringthe

 

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respective valuation period.

 

**8.3.2**       **Economic Result Method(RRE):** Pursuant to this method, the royalty percentage will be theproduct of adding the 15% fixed royalty percentage to the variable royaltypercentage 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 therange of:

 

0%         £             Variable Royalty  £             20%

 

Fornegative 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 Proceduresdetails the revenues and expenses and the times for the

 

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registration the Factor Rt-1,component.

 

The calculation of thevariable royalty percentage will be made twice yearly, once in January, withinformation about the revenues and expenses incurred from January to December ofthe prior calendar year; and again in July with information from July ofthe 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 dollarsper barrel or dollars per million Btu, and will be determined as follows:

 

**8.4.1**       To determine the Basket Priceof Controlled Oil the following procedure shall apply:

 

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

 

**b)**   Within thirty (30) days afterthe determination described in the previous paragraph, the Parties will choosean Oil Basket including a maximum of four (4) crudes with followingcharacteristics.

 

**1.**         Their qualityshall be similar to that of the oil to be measured at a Production ControlPoint;

 

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

 

**3.**         They will becompetitive in the market(s) where the oil to be measured at a ProductionControlled Point may be sold.

 

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

 

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

 

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

 

**f)**    The Basket Price used tocalculate the value of the Controlled Oil for the Valuation Period will bedetermined as follows:

 

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

 

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

 

**8.4.2****      **To determine the Basket Price of ControlledCondensates, the guidelines detailed in subheading 8.4.1 will apply, asappropriate. The Parties may agree to the adjustments needed so the basketprice will best reflect the value of the Controlled Condensates.

 

**8.4.3**       To determine the Basket Pricefor Controlled Natural Gas Liquids, the procedure established in subheading8.4.1, will be followed, as applicable. The Parties may agree to certainnecessary adjustments so the Basket Price will reflect as best possible thevalue of Controlled Natural Gas Liquids.

 

**8.4.4**       The price of ControlledNatural Gas will be reflected by the Realized Price,

 

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

 

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

 

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

 

**8.6**       The amount of the royalty willbe calculated for each valuation period. The corresponding payment will be madein dollars, at the latest in the second business day after the end of thecorresponding fortnight, and PERUPETRO will issue the corresponding certificateon behalf of the Contractor  pursuant tolaw. The volume of Controlled Hydrocarbons for every fortnight will besupported by the control vouchers PERUPETRO will deliver to the Contractorafter duly signing them, as proof of conformance.

 

**8.7**       On the contrary, if theContractor fails to pay PERUPETRO the amount of royalties due, fully orpartially, within the deadline foreseen under heading 8.6, the Contractor willdeliver to PERUPETRO the hydrocarbons it owns and that were extracted from theAgreement Area in the amount needed to pay the amount due, as well as theexpenses incurred and interests accrued, pursuant to heading 19.6.

 

**CLAUSE NINE – TAXES**

 

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

 

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

 

**9.2**       Export of hydrocarbons fromthe Agreement Area made by the Contractor are tax exempted, including taxexemptions 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 mayrequire to perform the Operations, as required by law.

 

**9.5****      **Pursuant toprovisions under article 87 of the Tax Code, the Contractor may carry its booksin dollars and, consequently, the calculation of the basis for  tax payments under his responsibility as wellas the amounts of such taxes and their actual payment, will proceed pursuant toexisting laws.

 

**9.6**       The Contractor will enforcethe linear amortization method over a period of five (5) years starting onthe year of the Date for the Beginning of Commercial Extraction. This linearamortization will be applied to all exploration and development expenses and toall investments made by the Contractor starting on the Date of Signing of theContract until the Date of Beginning of Commercial Extraction. It is hereby setforth that the above mentioned amortization period may be extended, but underno circumstance beyond the term of the Agreement, if because of reasons relatedto prices or any other circumstance, agreed by the Parties, and after applyingthe linear amortization described in the previous paragraph, the Contractor’sfinancial statements yield a negative bottom line or a fiscal loss that, in theContractor’s view, it may not be set off for tax purposes pursuant to taxregulation in force. The extended amortization period will be reported inadvance to the National Superintendence for Tax Administration.

 

**CLAUSE TEN – CUSTOMS DUTIES**

 

**10.1**     The Contractor is authorizedto import on a final or temporary basis, and pursuant to legal provisions inforce, any good it may need for the economical and cost-effective and efficientexecution of the operations.

 

**10.2**     The Contractor may import on atemporary basis, for a period of two (2) years, all the goods required forits activities and have the corresponding import duties suspended, includingthose requiring an express suspension statement. If an additional extension isneeded, the Contractor may request such extension from PERUPETRO for periods ofone (1) year and for a maximum two (2) such periods. PERUPETRO willobtain the Directorial Resolution from the General Hydrocarbons Bureau. TheNational Superintendent for Tax Administration will authorize the extension ofthe temporary importation regime based on the mentioned documents. Theprocedure, records and guarantees needed to enforce the temporary importationregime

 

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

 

**10.3****    **The importation of goods and inputs required by theContractor during the exploration stage for exploration activities is exemptfrom all taxes, including exemptions requiring an express statement, providedthey are also comprised in the list of goods subject to such benefits, pursuantto provisions in Article 56o of Law N° 26221. The benefit will applyduring the entire exploration stage.

 

**10.4****    **The taxes leviedon the importation of goods and inputs required by the Contractor fordevelopment and exploration activities during the development stage will bepaid and borne by the importer.

 

**10.5****    **PERUPETRO mayinspect the goods imported on either a definitive or temporary basis asprovided for in this clause for the exploration activities during theexploration stage to certify whether those goods were imported exclusively forthe Operations.

 

**10.6**     The Contractor shallperiodically report to PERUPETRO the goods and inputs exempted from duties pursuantto provisions in article 56o of Law N° 26221. The Contractor may not exportback or use for other purposes the goods and inputs described in the previousparagraph without PERUPETRO’s authorization. After obtaining suchauthorization, the Contractor will pay the corresponding taxes, pursuant toarticle 57 under Law N° 26221.

 

**CLAUSE ELEVEN.- FINANCIAL RIGHTS**

 

**11.1****    ****StateGuarantee.**

 

The Central Reserve Bank ofPeru is Party to this Agreement, pursuant to provisions of Law No 26221 andLegislative Decree No 668, so as to provide the Contractor the State’sguarantees described in this clause and pursuant to the legal regulations inforce at the Date of Signing. The guarantees provided by this clause alsocomprise an eventual cession, pursuant to the provisions of the HydrocarbonsLaw and this Agreement.

 

**11.2****    ****ExchangeRate Regime**

 

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

 

**a)**      Free availability to theContractor of up to one hundred percent (100%) of the foreign currency earnedby its exports of Controlled Hydrocarbons, same which may be deposited directlyin its own bank accounts, locally or overseas.

 

----

 

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

 

**c)**      Right to maintain, control andmanage bank accounts in any currency, both locally and overseas, and to controland freely use those accounts,  and tofreely maintain and dispose of abroad the funds deposited in those accountswithout any restriction whatsoever.

 

**d)**      Notwithstanding the above, theContractor has the right to freely dispose of, distribute, send or withholdabroad without any restriction whatsoever its net annual profits calculatedpursuant to regulations in force.

 

**11.3****    ****ForeignCurrency Availability and Conversion**

 

It is hereby agreed that theContractor will convert currency through financial system entities establishedin Peru, as described in paragraph b) under heading 11.2. If the availabilityof foreign currency may not be totally or partially served by the abovementioned entities, the Central Reserve Bank of Peru guarantees that it willprovide the necessary foreign currency. For that purpose, the Contractor willaddress the Central Bank in writing and send a photocopy of the responseletters received from not less than three (3) financial system entitiesreporting their inability to serve, fully or partially, the Contractor’sforeign currency requirements.  Theletters from the financial system entities will remain valid for two businessdays after the date when they were sent. Before 11:00 a.m. of the Business Day after the above describeddocuments were submitted, the Central Bank will inform the Contractor on the exchangerate to be used for the required conversion, same which will remain in forceprovided the Contractor delivers the matching value in domestic currency forthe requested transaction on the same day. If, for any reason, the matching amount is not delivered by theContractor at the appointed time, the Central Reserve Bank of Peru will reporton the following Business Day, within the same time restriction, the exchangerate to be used for the conversion if undertaken on that same day.Notwithstanding the above, if the Central Reserve Bank of Peru timely certifiessaid availability cannot be provided fully or partially by the above mentionedentities, it may notify the Contractor to deliver to the Central Reserve Bankof Peru the domestic currency in the amount required to proceed to the currencyconversion.

 

**11.4****    ****Changesto the exchange regime**

 

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

 

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** **

**a)**      If a single official exchange rate was establishedat one single value for all currency transactions or foreign currency relatedtransactions, starting on the date of enforcement, the exchange rate will bethat provided for in this agreement.

 

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

 

**11.5****    ****Enforcementof Other Legal Provisions**

 

The guarantees provided by the Central Reserve Bank ofPeru to the Contractor will remain in force during the life of the Agreement.The Contractor will have the right to embrace, totally or partially, aspertinent, the new legal provisions regarding exchange rates or regulationsissued during the life of the Agreement, including those dealing with foreigncurrency exchange issues not addressed in this clause, provided they are eitherof a general nature or apply to the hydrocarbons industry. Embracing the newprovisions  or regulations will notaffect the guarantees described in this clause, nor the exercise of guaranteesdealing with aspects other than those included in the new provisions orregulations which the Contractor may have embraced.It is expressly agreed thatthe Contractor may, at any time, adopt the guarantees it decided to dismiss ona temporary basis and that returning to those guarantees does not create anyrights or duties to the Contractor concerning the period during which itdecided to adopt the new provisions or regulations described above.  In addition, it is hereby explained thatadopting such guarantees will not hamper those or any other guarantees, nor does it create any additional rights orduties to the Contractor. The Contractor’s adopting the new legal exchangeprovisions or regulations, as well as its decisions to return to the guaranteesit decided to dismiss temporarily, shall be reported in writing to both theCentral Reserve Bank of Peru and PERUPETRO. The provisions under this headingare established notwithstanding those in the first paragraph under heading11.4.

 

**11.6****    ****EconomicReporting**

 

The Contractor will send monthly reports to theCentral Reserve Bank of Peru  relatingits economic activity pursuant to article 74° of the Bank’s Organic law enactedby Decree Law N° 26123.

 

**CLAUSETWELVE.- LABOR**

 

**12.1**     The Parties agree that at the end of the fifth yearafter the Date of Beginning of Commercial Extraction, the Contractor will havereplaced Peruvian personnel of equivalent professional qualifications for allits current personnel. Exempted from the above are the foreign personnelfilling management positions and those needed to perform some specializedtechnical jobs, for the Operations.  TheContractor agrees to train and form the Peruvian personnel to undertakespecialized technical tasks so they may gradually substitute for the foreignpersonnel in performing such jobs.

 

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**12.2**     At the beginning of Operationsand the end of each calendar year, the Contractor will deliver to PERUPETRO astatistical chart of the personnel under its service who are performing theOperations, using the form PERUPETRO will deliver to the Contractor.

 

**CLAUSE THIRTEEN.- ENVIRONMENTAL PROTECTION AND COMMUNITY RELATIONS**

 

**13.1**     The Contractor commits tofollow the provisions under the “Environmental Protection Regulations forHydrocarbon Activities” enacted by Supreme Decree N° 015-2006-EM as amended, LawN° 28611, the General Environmental Law, as amended, and all otherenvironmental provisions in force, as applicable.

 

**13.2**     The Contractor will undertakethe operations in strict compliance with sustainable development, conservationand environmental protection guidelines, pursuant to the laws and regulationsconcerning environmental protection, Amazon indigenous and peasant communities,and international treaties ratified by the Peruvian State. In addition, it willrespect the culture, habits, principles and values of such  communities and will maintain harmoniousrelations with the Peruvian State and civil society.

 

**13.3**     The Contractor will use thebest available methods available from international industry practice, pursuantto environmental laws and regulations, for prevention and control ofenvironmental pollution from the Operations; in addition, it will perform theOperations pursuant to existing regulations on the preservation of biologicaldiversity, natural resources, and health and safety of its people and its ownworkers.

 

**CLAUSE FORTEEN – HYDROCARBON CONSERVATIONAND LOSS PREVENTION**

 

**14.1****    **The Contractorshall adopt all reasonable measures to prevent the loss or waste of thehydrocarbons on the surface or in the ground in any possible during theprospecting and development activities. 

 

**14.2****    **The Contractorwill immediately to PERUPETRO any report surface oil spills in or outside theAgreement Area, pursuant to legal provisions in force, indicating an estimatedspill volume and the actions taken to remediate the spill. PERUPETRO has theright to verify the spill volume and analyze the underlying causes.  In case of surface losses in or outside theAgreement Area before the Production Control Point caused by the Contractor’sserious negligence or fraud, the loss volume will be valued according to ClauseEight herein and included in the royalty calculations, notwithstandingprovisions under heading 13.1. In case of losses before the Production ControlPoint, occurring under circumstances other than those described in thepreceding paragraph and that result in remedy pay to the Contractor by thirdparties, the amount of the received compensation for the lost hydrocarbons,multiplied by the factor resulting from a division between amount of the royaltypaid for the Controlled Hydrocarbons at the Production Control Pointcorresponding to the lost hydrocarbons during the fortnight when the lossoccurred times the value of said Controlled Hydrocarbons calculated pursuant toheading  8.2  for the same fortnight 

 

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will be the amount theContractor shall pay for the royalty for the lost hydrocarbons, at the lateston the second business day after such remedy was paid, notwithstandingprovisions under heading 13.1.

 

**CLAUSE FIFTEEN.- TRAINING AND TECHNOLOGY TRANSFER**

 

**15.1****    **Pursuant toarticle 29o of Law N° 26221, the Contractor commits to make available toPERUPETRO, 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 madeon the Date of Signing in an amount that will be determined by multiplying theannual contribution corresponding to paragraph a) above plus the fractionresulting from dividing the number of days before finishing the calendar yearunderway plus three hundred sixty five (365). The annual training contributionunder paragraph b) will correspond to the segment of average daily productionof Controlled Hydrocarbons for the prior calendar year. This contribution willbe determined by dividing the total volume of Controlled Hydrocarbons of suchyear by the corresponding number of days. To determine the Barrels/Day in caseof controlled natural gas production, the following equation will be used:Barrels will be equivalent to the volume of natural gas expressed in standardcubic feet divided by the five thousand six hundred twenty six (5,626) value.The payments described in this heading, excepting the first payment, will bemade in January each year. Payments may be effected by bank transferfollowing PERUPETRO’s instructions in this regard.

 

**15.2**     The Contractor will fulfillall the obligations stated by heading 15.1 by making a deposit for the accountPERUPETRO shall indicate. PERUPETRO will deliver the Contractor a communicationshowing conformance of payment within five (5) Business Days afterreceiving the contribution.

 

**15.3**     Training programs organized bythe Contractor for its own personnel, both in Peru and overseas, will bereported to PERUPETRO.

 

**15.4**     The Contractor commits, duringthe development stage and if possible during the exploration stage, to put inplace an internship program for university students that will providecomplementary training pursuant to their respective universities’ 

 

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requirements and existing lawin Peru but without creating any labor relationship between the Parties. Inaddition, the Contractor will report such program to PERUPETRO.

 

**CLAUSE SIXTEEN – CESSION AND ASSOCIATION**

 

**16.1**     If the Contractor enters intoan agreement to assign its contract position or to partner with a third partywithin the Agreement, it will report such agreement to PERUPETRO. The lettershould include a request to evaluate the potential assignee or third party whowill attach the necessary complementary information for its qualification as anoil company, pursuant to existing regulations. If PERUPETRO grants the requestedqualification, the assignment or association will be performed through anamendment to the Agreement, pursuant to law.

 

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

 

**16.3**     The assignee or third partywill 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 beimputed failure to execute an obligation or for its partial, late or defectivecompliance with same during the period while such Party is affected by an Actof God or Force Majeure, provided it accredits such cause prevented it fromcomplying.

 

**17.2**     The Party affected by the Actof God or Force Majeure will report it in writing within five (5) daysafter such event takes place to the other Party and will document the way inwhich such event prevents it from complying with the correspondingobligation.   The other Party will replyin writing accepting or rejecting such explanation within fifteen (15) daysafter receiving the above letter. Failure to respond by the notified Party within the term foreseen willbe 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 orForce Majeure, the obligated party will make its best effort to carry it out soas to accomplish the objectives expressed jointly by the Parties in theAgreement and the Parties will continue to undertake their Contract-basedobligations affected in anyway by such event. The Party affected by the Act ofGod or Force Majeure will resume its obligations and contract-based conditionswithin 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 wascured. The harmless Party will cooperate with the affected party in its effort.In cases of strike, stoppages or similar events, neither of the partieswill be allowed to impose the other a solution against its will.

 

**17.3**     The period during which the effect of the Act of Godor Force Majeure prevents compliance with Contract-based obligations will be added to the period foreseen tocomply with such obligations and, if appropriate, to the correspondingAgreement and 

 

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thelife of the Agreement.  If the Act of Godor Force Majeure affects the execution of any of the minimum work programsdescribed under heading 4.6, the warrant bond posted to guarantee such programwill remain in full force and effect and will not be executed during the periodwhile PERUPETRO does not issue a statement about the cause invoked by theContractor, and if any discrepancy shall emerge about the existence of such causewhile the discrepancy is resolved. With that goal in mind, the Contractor willextend or replace such warrant bond, as appropriate.  Likewise, as long as PERUPETRO does not makea statement about the reason invoked by the Contractor or while the discrepancysubsists about the existence of such cause, the period for executing theminimum work program will be suspended. If PERUPETRO accepts the Act of God orForce Majeure invoked by the Contractor, the latter will resume the executionof the minimum work program as soon as the effect of the invoked cause ceases.

 

**17.4****    **PERUPETRO willmake every necessary effort to obtain the assistance or cooperation of thecorresponding document authorities so that the necessary measures will be takento ensure the continued and safe implementation and operations of theactivities foreseen in the Agreement.  Itis hereby agreed that when any of the Parties, at its sole criterion,considered its personnel or its subcontractors’ personnel cannot operate withinthe agreement area under appropriate conditions to guarantee their physicalintegrity, invoking such situation as an Act of God or Force Majeure, will notbe challenged by the other party.

 

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

 

**17.6**     The provisions in this clause17 do not apply to the obligations to pay money.

 

**CLAUSE EIGHTEEN - ACCOUNTING**

 

**18.1**     The Contractor will keep itsaccounting records following the accounting principles and practicesestablished and accepted in Peru. In addition, it will keep and maintain allits books, detailed records and documents as may be required to account for andoversee its activities in Peru and abroad, as related to the purpose of theAgreement, 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 toPERUPETRO a copy in Spanish of the Manual of Accounting Procedures it proposesto record its operations. The “Manual of Accounting Procedures” shall include,among others, the following:

 

**a)**      The language and currency forthe accounting records;

** **

**b)**      Applicable accounting principlesand practices;

** **

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

 

----

 

Supervisorade Empresas y Valores - CONASEV);

** **

**d)****     **Mechanisms toidentify the accounts corresponding to the agreement and other hydrocarbonsagreements, their related activities and other activities;

** **

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

** **

**f)****      **Determining therevenues and expenses accounts, as well as the detailed records needed forcomputing the Rt-1 factor, and the detailed procedures described inAnnex “E” of the Agreement, as appropriate.

 

**18.2**     If the “Manual of Accounting Procedures” includes theitems described in paragraph f) above, within thirty (30) days after havingreceive it, PERUPETRO will inform the Contractor of the approved accountingprocedures to calculate Rt-1 factor described in that paragraph oralternatively, the suggestions it proposes to improve and/or expand suchprocedure. Failure by PERUPETRO to provide such comment within theabovementioned period will be construed as the granting of the approval to theprocedure described in paragraph f) under heading 18.1 in every respect. Withinthe same period of thirty (30) days after receiving the “Manual of AccountingProcedures”, PERUPETRO may make suggestions or remarks to improve, expand ordelete one or several of the accounting procedures proposed in the Manual.  All changes concerning the accountingprocedures for the approved Rt-1 factor will be previously proposedto PERUPETRO for approval, following for that objective the procedureestablished in the first paragraph under this heading.

 

**18.3**     The Contractor’s accountingbooks, financial statements and supporting documents will be made available toauthorized PERUPETRO representatives for verification in the Contractor’soffices at its address of record, after having been served appropriate notice.

 

**18.4**     The Contractor will keep arecord of all its movable and immovable properties used in connection with theAgreement’s Operations pursuant to the accounting regulations in force in Peruand international oil industry generally accepted accounting practices. PERUPETROmay request the Contractor all the information about its properties whenever itdeems appropriate. Likewise, PERUPETRO may request the Contractor to furnishits schedule of physical inventory-taking of the goods used in its Operations,segregated by type of property, whether belonging to the Contractor or thirdparties, 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) daysafter its issuance, a copy of its independent auditors’ report concerning theContractor’s financial statement for the prior economic year. If the Contractorhas signed more than one agreement with PERUPETRO or carries out activitiesother that those foreseen in the Agreement, it will carry separate accountingto prepare independent financial statement for each 

 

----

 

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

 

**18.6****    **The Contractorwill send PERUPETRO, at the latter’s request, the information included in itsannual Income Tax Statement, filed with the National Superintendence of TaxAdministration or its successor.

 

**C.-****      ****SUNDRIES**

 

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

 

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

 

**19.3****    **The Contractorhas the right to freely enter and leave the Agreement Area.

 

**19.4****    **Pursuant tolegislation in force, the Contractor will have the right to utilize in theOperations, the water, wood, gravel and other construction materials foundwithin the Agreement Area with due respect for third parties rights asappropriate.

 

**19.5**     The license to use technicalinformation concerning the Agreement Area, and other areas, which theContractor may wish to purchase from PERUPETRO, will be granted pursuant toPERUPETRO’S policy for Managing Exploration and Development TechnicalInformation for which purpose the Parties will sign a Letter of Agreement.

 

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

 

**a)**      For debts payable denominatedin domestic currency, the applicable rate will be the active rate in domesticcurrency (TAMN) for loans with tenure up to three hundred sixty (360) days aspublished by the Superintendence for Banking and Insurance Companies or itssuccessor, and applied over the period elapsed between the due date and theactual payment date; and,

 

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

 

**19.7**     The provisions under heading19.6 will apply to all debts between Parties flowing from this Agreement or anyother agreement or transaction between the Parties. By written agreementbetween the parties, a different provision may be introduced 

 

----

 

concerning the payment ofinterest. The provisions herein applicable will not in any way modify the legalrights and resources available to the Parties to enforce the payment of amountsdue.

 

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

 

**19.9**     Through the Ministry ofDefense and Ministry of Internal Affaire the State will give the Contractorwithin the Operations and to the extent possible all necessary securitymeasures. 

 

**19.****10**** **The Contractor will hold PERUPETRO and the State free,and indemnify them, as appropriate, from any claim, legal action or othercharges, and encumbrances from third parties that may result from theOperations and the relations the Contractor may enter in connection with theAgreement and which may flow from any contractual or extra-contractualrelationship, excepting those originating by actions of PERUPETRO itself or theState.

 

**19.****11**** **The Contractor will freely dispose of the hydrocarbonsto which it is entitled pursuant to the Agreement.

 

**CLAUSE TWENTY - NOTIFICATIONS AND COMMUNICATIONS**

 

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

 

**PERUPETRO:**

PERUPETRO S.A.

General Manager

Av. Luis AldanaNo 320

Lima 41 - Perú

Fax: 6171801

** **

**Contractor:**

BPZ EXPLORACION &PRODUCCION S.R.L.

General Manager

Manuel de FallaN° 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 theright to modify the address or the number of facsimile for purposes of sendingnotifications and communications by means of a notice sent to the other Partyat least five (5) Business Days before the change takes place.  Provisions included in the first paragraphunder this heading apply also to the corporate guarantor.

 

**CLAUSE TWENTY ONE.- PERUVIAN LAWAPPLIES. CONFLICT RESOLUTION**

 

**21.1****    ****PeruvianLaw applies. **This Agreementhas been negotiated, drafted and signed pursuant to legal regulations in forcein Peru and its contents, execution and derived consequences will be governedby the internal laws and regulations in force in the Republic of Peru.

 

**21.2****    ****TechnicalConciliation Committee. **The TechnicalConciliation Committee will convene within fifteen (15) Business Days after ithas been convoked by any of the Parties and will sit three (3) qualifiedmembers with expertise in the topic to be addressed. Each of the Parties willchoose one (1) member and the third member will be appointed by thosemembers already designated by the Parties. If either of the Parties fails todesignate its representative within the foreseen period or if the designatedmembers fail to agree on the third member within the foreseen period or if theTechnical Conciliation Committee fails to issue an opinion within the foreseenperiod, either of the Parties may submit the discrepancy for resolutionpursuant to provisions under heading 21.3 under this Agreement. Within sixty(60) days starting on the Date of Signing, The Parties will agree on theprocedure to be followed by this Committee. The Technical ConciliationCommittee’s resolutions must be issued within thirty (30) days after itsinauguration and will be mandatory until a final arbitration decision, if suchprocedure is invoked, is issued. Notwithstanding compliance with the decisionissued by the Technical Conciliation Committee any of the Parties may haverecourse to arbitration pursuant to heading 21.3 within sixty (60) days afterthe date when the above-mentioned decision was notified and received.

 

**21.3****    ****Arbitrationagreement.**Any litigation, controversy, difference or complaintresulting from or related to the Agreement, including its interpretation,compliance, termination, effectiveness or validity, between the Contractor andPERUPETRO, and which cannot be resolved by mutual agreement between theParties, will be resolved through international de jure arbitration pursuant toarticle 68o of Law N° 26221. The Parties commit to do their best effort tocarry the arbitration proceeding to a successful end and execution. The arbitrationwill be managed by the International Center for the Settlement of InvestmentRelated Disputes (hereafter ICSID) for all issues not foreseen by thisclause.  Arbitration will be organizedand evolve 

 

----

 

pursuant to ICSID arbitration rules inforce at the Date of Signing. There will be three (3) arbitrators, theParties designating one each, and the third one being appointed by theParty-designated arbitrators. In finding a solution to the litigation,controversy, difference or complaint submitted to arbitration, the arbitratorswill enforce the domestic law of the Republic of Peru. Arbitration may takeplace at the Permanent Arbitration Tribunal or at any other appropriateinstitution, whether public or private, with which the Center has reached an agreementfor that purpose, or at any other venue approved by the Commission or Tribunalafter consultation with the Secretary General. During the arbitration, theParties will continue to perform their Contract-derived obligations to theextent possible, including those subject matters to arbitration.Notwithstanding the above, if the issue under arbitration concerns compliancewith Contract obligations guaranteed by the warrant bond described underheading 3.10, the respective terms will be suspended momentarily and suchwarrant bonds may not be executed but shall be kept current during thearbitration proceeding. To that end, the Contractor shall extend or replacesuch warrant bond as required. The decision will be mandatory to the Partiesand may not be appealed or in any other way challenged, excepting under theprovisions of the Convention for the Settlement for Disputes Relating toInvestments between States and Nationals from Other States, hereafter theConvention.  The arbitration decisionissued under the Convention will be executed within the Peruvian territory,pursuant to the regulations in force concerning the execution of courtdecisions. The Parties waive their rights to filing diplomatic complaints.

 

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

 

**CLAUSE TWENTY SECOND.- TERMINATION**

 

**22.1****    **Agreement termination will be governed by its ownprovision, complemented by regulations under Law N° 26221; and for whatever maynot be foreseen in that law, by Civil Code provisions. Excepting those casesforeseen under heading 22.3, when one of the Parties fails to honor any of itsobligations pursuant to the Agreement for causes other than an Act of God orForce Majure or other non-imputable causes, the other Party may notify theformer party about that breach and its intent to terminate the Agreement withinsixty days, unless the other non-complying party cures the above-mentionedbreach or demonstrates to the other Party proper cure is underway, within thatperiod. If the notified party challenges or rejects such breach, the party mayrefer the issue to arbitration pursuant to clause twenty one herein withinthirty (30) days after notification was served. If so, the sixty (60) dayperiod will be suspended until the arbitration decision is notified to theParty, and the agreement will be terminated, if after confirming the breach,the defending Party fails to provide cure or to demonstrate before the otherparty such cure is underway, 

 

----

 

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

 

**22.2****    **At thetermination of the Agreement, all the parties’ rights and obligations shallsees as specified in the Agreements while due consideration will be given tothe following:

 

**a)**      The rights and obligations ofthe parties flowing from this Agreement before such termination will behonored, including, inter alia,  theContractor’s rights to the extracted hydrocarbons and the guarantees set forthin the Agreement;   and,

** **

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

 

**22.3**     The Agreement will be resolvedde jure and without further procedure in the following cases:

 

**22.3.1**        If the Contractor fails toexecute the minimum work program of any period during the exploration stageafter having enjoyed the postponements provided for under heading 3.4, ifapplicable, 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 theexploration stage or the withholding period, whatever happens last, noannouncement of commercial discovery is made.

 

**22.3.3**        In the cases specified underheadings 3.10, 4.2 and 17.5.

 

**22.3.4**        If the Contractor is declaredinsolvent, dissolved, liquidated or bankrupt, and the Contractor fails to servenotice as described under heading 16.1 within fifteen (15) days, identifyingthe third party that will take its position in the Agreement.

 

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

 

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

 

**22.4**     Pursuant to provisions underarticle 87 of Law N° 26221, in case of breach by the Contractor of theprovisions concerning environmental issues, OSINERGMIN will impose the correspondingsanctions and the Ministry of Energy and Mines may terminate the 

 

----

 

Agreement, after reporting to OSINERGMIN.

 

**22.5**     If the Contractor, or theentity that provides the guarantee described under heading 3.11, requestsprotection against its creditors, PERUPETRO may terminate the Agreement if itconsiders its rights under the Agreement are not properly protected.

 

**22.6**     At the termination of theAgreement, the Contractor will turn over to the State through PERUPETRO, asownership, unless the latter does not require them, with no charge or cost toit, in good state of repair, maintenance and operation, taking account ofnormal wear resulting from normal wear and tear, the properties, powerfacilities, campsites, means of communication, pipelines and other productiongoods and facilities owned by the Contractor that will allow continuing withthe development operations. In case of joint development of oil, non-associatednatural gas and/or non-associated natural gas condensates at the end of the termestablished under heading  3.1 for theoil development stage, the Contractor will deliver as property to the State,through PERUPETRO, unless the latter does not require them, without any chargeor cost to the latter, in good state of conservation and operation and takinginto account the normal wear and tear produced by the use of all the goods andfacilities needed for developing oil that are not needed for developingnon-associated natural gas and/or non-associated natural gas and condensates.  The goods and facilities kept by theContractor for developing non-associated natural gas and/or non-associatednatural gas or condensates that were also used for developing oil, althoughstill owned by the Contractor, will be used for that development, for whichpurpose the Parties will sign an agreement. If the Contractor has been usingthe goods and facilities described in the first paragraph under this headingand they are not related exclusively to the operations or its accessories, inother words, they have also been used for operations in other areas undercontracts 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 provisionsunder heading 22.6, during the last year of life of the Agreement, theContractor will provide PERUPETRO all the facilities and will assist it inwhatever may be necessary without interfering with the Operations, so PERUPETROcan carry out all the acts and enter into all agreements that would allow anordered and uninterrupted transition of the Operations underway at the date oftermination of the Agreement.

 

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**ANNEX “A”**

 

**DESCRIPTIONOF BLOCK XXIII**

 

**LOCATION**

 

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

 

**REFERENCE POINT**

 

Reference Point (R.P.) is theTumbes station located in the Tumbes District; Provinces of Tumbes in theTumbes 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 mWest until reaching Point (1) which is the Departure Point (D.P.) of theBlock’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 mare measured South West in a straight line with Azimuth 254°03’16”57 untilreaching Point (22).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

----

 

until reaching Point (6).

 

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

 

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

 

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

 

From Point (4) we continue North East along the shoreline for abut15,940.380 meters until reaching Point (1) or Departure Point (D.P.)closing the Block’s perimeter.

 

**Borders**

 

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

 

**PLOT DEFINITION**

 

Plot1 surrounded by corner points 1, 3 and 2

 

Plot2 surrounded by corner points 2, 2, 12 and 11

 

Plot3 surrounded by corner points 6, 12, 16, 15 and 14

 

Plot4 surrounded by corner points 2,11,17,16,13,5 y 4; 7,8,10 and 9

 

Plot5 surrounded by corner points 11,12,18,19 and 17

 

Plot6 surrounded by corner points 14,15,22,21 and 20

 

Plot7 surrounded by corner points 15,16,17,19 and 22

 

Plot8 surrounded by corner points 20,21,24 and 23

 

Plot9 surrounded by corner points 21,22 and 24

 

Plot10 surrounded by corner points 25,28,27 and 26

 

Plot 11 surrounded by cornerpoints 23,24,29,28 and 25

 

Plot12 surrounded by corner points 26,27,32,31 and 30

 

Plot13 surrounded by corner points 27,28,29,33 and 32

 

Plot14 surrounded by corner points 31,32,37 and 36

 

Plot15 surrounded by corner points 32,33,38 and 37

 

Plot16 surrounded by corner points 34,35,39,43 and 42

 

Plot17 surrounded by corner points 35,36,37,40 and 39

 

Plot18 surrounded by corner points 37,38,41 and 40

 

Plot19 surrounded by corner points 42,43,46,45 and 44

 

Plot20 surrounded by corner points 39,40,48,47,46 and 43

 

Plot21 surrounded by corner points 40,41,50,49 and 48

 

Plot22 surrounded by corner points 47,48,49 and 52

 

Plot23 surrounded by corner points 49,50,51 and 52

 

----

 

**LIST OFBLOCK 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 |

 

**InternalLimits 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 |

** **

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**LIST OF PLOT CORNERCOORDINATES**

 
| **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 |

 

----

 

**SURFACEAREAS**(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 SpheroidInternational Universal Transversal Mercator (U.T.M.) Projection System, Zone17 (Central Meridian 81o00’00”).

 

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

 

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

 

#### **ANNEX“B”**

#### ** **

**MAP OF THEAGREEMENT AREA BLOCK XXIII**

 

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

 

----

 

**ANNEX C-1**

 

**WARRANTBOND FOR THE FIRST PERIOD OF THE MINIMUM WORK PROGRAM**

 

**WARRANT BOND No**

Lima,

Gentlemen,

PERUPETRO S.A.

 

Gentlemen:

 

Hereby, we (name of financialsystem entity) constitute ourselves as joint and several guarantors of BPZEXPLORACION & PRODUCCION S.R.L.(hereafter the Contractor) beforePERUPETRO S.A. (hereafter PERUPETRO) for the amount three million seventy fivethousand and 00/100 Dollars (US$ 3,075,000.00) to guarantee the performance ofthe Contractor’s obligations under the minimum work program for the firstperiod of the exploration stage, as described in Clause Four  of the License Agreement for the Explorationand 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 payPERUPETRO the amount of three million seventy five thousand and 00/100 dollars(US$ 3’075,000.00) as per a request of payment.

 

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

 

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

 

3.    Alldelays on our side to honor this warrant bond on your behalf will accrueinterest equivalent to the foreign currency active rate (Tasa Activa en MonedaExtranjera – TAMEX, or its successor, paid by financial system institutions andpublished by the Superintendence of Banking and Insurance applicable during theperiod of delay. The 

 

----

 

interest will be calculatedstarting on the date when the notarized letter sent by PERUPETRO to (financialsystem entity) was received. After the expiration or cancellation date, nocomplaint will be admitted concerning this warrant bond and (financial systementity) and the Contractor will be released from all responsibility orobligation concerning this warrant bond.

 

 

Sincerely,

 

 

(Financial system entity)

 

**ANNEX C-2**

 

**WARRANTBOND FOR THE SECOND PERIOD OF THE MINIMUM WORK PROGRAM**

 

**WARRANT BOND No**

Lima,

Messrs.

PERUPETRO S.A.

 

Gentlemen,

 

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

 

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

 

1.    Thisguarantee is joint and several, without benefit of excussion, irrevocable,unconditional and to be executed automatically and paid on demand within itstenure, at presentation of a notarized letter addressed by PERUPETRO to(financial system entity) requesting the payment of three million three hundredninety and and 00/100 Dollars (US$ 3,390,000.00) declaring the Contractor hasfailed to comply in full or partially with the obligation mentioned above, andinclosing with that letter, as only support and justification, a certified copyof the notarized letter addressed by PERUPETRO to the Contractor demanding itscompliance with the abovementioned obligation and notifying it of its intentionto execute the warrant bond; said notarized letter sent by PERUPETRO to theContractor will have been delivered to the latter at least twenty (20) calendardays before the date when PERUPETRO files the corresponding payment claim to(financial system 

 

----

 

entity).

 

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

 

3.    All delayson our side to honor this warrant bond on your behalf will accrue interestequivalent to the foreign currency active rate (Tasa Activa en MonedaExtranjera – TAMEX), or its successor, paid by financial system institutionsand published by the Superintendence of Banking and Insurance applicable duringthe period of delay. The interest will be calculated starting on the date whenthe notarized letter sent by PERUPETRO to (financial system entity) wasreceived. After the expiration or cancellation date, no complaint will beadmitted concerning this warrant bond and (financial system entity) and theContractor will be released from all responsibility or obligation concerningthis warrant bond.

 

 

Sincerely,

 

 

(Financial system entity)

 

**ANNEX C-3**

 

**WARRANTBOND FOR THE THIRD PERIOD OF THE MINIMUM WORK PROGRAM**

 

**WARRANT BOND No**

Lima,

Messrs.

PERUPETRO S.A.

 

Gentlemen,

 

Hereby, we (entity offinancial system) constitute ourselves as joint and several guarantors of BPZEXPLORACION & PRODUCCION S.R.L.(hereafter the Contractor) beforePERUPETRO S.A. (hereafter PERUPETRO) for the amount of two million two hundredseventy five thousand and 00/100 Dollars (US$ 2,275,000.00) to guarantee theperformance of the Contractor’s obligations under the minimum work program forthe first period of the exploration phase, as described in Clause Four  of the License Agreement for the Explorationand 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 payPERUPETRO the amount of two million two hundred seventy five thousand and00/100 Dollars (US$ 2,275,000.00).

 

----

 

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

 

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

 

3.    All delayson our side to honor this warrant bond on your behalf will accrue interestequivalent to the foreign currency active rate (Tasa Activa en MonedaExtranjera – TAMEX), or its successor, paid by financial system institutionsand published by the Superintendence of Banking and Insurance applicable duringthe period of delay or its successor. The interest will be calculated startingon the date when the notarized letter sent by PERUPETRO to (financial systementity) was received. After the expiration or cancellation date, no complaintwill be admitted concerning this warrant bond and (financial system entity) andthe contractor will be released from all responsibility or obligationconcerning this warrant bond.

 

 

Sincerely,

 

 

(Financial system entity)

 

----

 

**ANNEX C-4**

 

**WARRANTBOND FOR THE FOURTH PERIOD OF THE MINIMUM WORK PROGRAM**

 

**WARRANT BOND No**

Lima,

Messrs.

PERUPETRO S.A.

 

Gentlemen,

 

Hereby, we (entity offinancial system) constitute ourselves as joint and several guarantors of BPZEXPLORACION & PRODUCCION S.R.L.(hereafter the Contractor) beforePERUPETRO S.A. (hereafter PERUPETRO) for the amount one million three hundredfifteen thousand and 00/100 Dollars (US$ 1,315,000.00) to guarantee theperformance of the Contractor’s obligations under the minimum work program forthe first period of the exploration phase, as described in Clause Four  of the License Agreement for the Explorationand 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 payPERUPETRO the amount of one million three hundred fifteen thousand and 00/100Dollars (US$ 1,315,000.00)when required.

 

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

 

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

 

3.    All delayson our side to honor this warrant bond on your behalf will accrue interestequivalent to the foreign currency active rate (Tasa Activa en MonedaExtranjera – TAMEX), or its successor, paid by financial system institutionsand published by the Superintendence of Banking and Insurance applicable duringthe period of delay. The interest will be calculated starting on the date whenthe notarized letter sent by PERUPETRO to (financial system entity) wasreceived. After the expiration or cancellation date, no complaint will beadmitted concerning this warrant bond and (financial system entity) and theContractor will be released from all responsibility or obligation concerningthis 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 ENERGYINC., pursuant to Section 3.11 of the License Agreement for theExploration and Development of Hydrocarbons in Block XXIII to be signed byPERUPETRO S.A. (“PERUPETRO”) and BPZ EXPLORACION & PRODUCCION S.R.L.,provides a joint and several guarantee before PERUPETRO on behalf of BPZEXPLORACION & PRODUCCION S.R.L. that the latter will honor all itsobligations pursuant to the minimum work program described under heading 4.6 ofthe 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 besubmitted by BPZ EXPLORACIÓN Y PRODUCCIÓN S.R.L. with PERUPETRO pursuant toheading 5.3 under the Agreement.

 

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

 

Yours,

Corporate Guarantor

Legally AuthorizedRepresentative.

 

----

 

**ANNEX E**

 

**ACCOUNTING PROCEDURE**

 

**1.****                                     ****GENERALPROVISIONS**

 

**OBJECTIVE**

** **

Theobjective of this annex is to establish the accounting regulations andprocedures that will allow determining the revenues, investments, expenses andoperating costs of the Contractor for purposes of calculating Factor Rt-1 mentioned inClause 8 under the Agreement.

 

**DEFINITIONS**

** **

Thewords used in this annex have been defined in Clause One to the Agreement andwill have the meaning given to them in that clause. The accounting termsincluded in this annex will have the meaning given to them in the accountingregulations and practices accepted in Peru and in the international petroleumindustry.

 

**ACCOUNTINGPRINCIPLES**

** **

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 inthe international petroleum industry, and pursuant to provisions in thisaccounting procedure.

 

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

 

**2.****             ****ACCOUNTING REGISTRIES, INSPECTION AND ADJUSTMENTS**

 

**ACCOUNTSYSTEM**

** **

Forpurposes of determining factor Rt-1, the Contractor will carry aspecial accounting system to register, in dollars, the revenues earned and theexpenses made, as related to the Agreement’s operations. This system willcomprise two main accounts: the factor Rt-1 revenues account and thefactor Rt-1 expenses account.

 

**EXCHANGERATE**

** **

Theaccounts carried out in domestic currency at the selling exchange rate in forceon the day when the disbursement was made or the revenue was earned. Thetransactions made in dollars and the evaluation of output will be recordedpursuant to provisions under 3.3 of this annex.

 

**SUPPORTINGDOCUMENTATION**

** **

Thecontractor will keep in its file the original supporting documents for thecharges made against the account for factor Rt-1

 

----

 

**FACTOR R****t-1****ACCOUNTSTATEMENT**

 

Duringthe exploration stage, the Contractor will send, within thirty days after theend of each period, a detailed monthly statement of the revenues and expensesaccounts for factor Rt**-1,**corresponding tothat period.If the contractor chose to use the method described under heading 8.3.2 tocalculate the royalty, it will submit to PERUPETRO, within thirty (30) daysafter the date of statement of commercial discovery, a detailed monthlystatement of the factor****R**t-1**revenues andexpenses accounts for the period running between the last statement submitteduntil the previous year’s month of July or December, as appropriate.

 

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

 

a)Factor Rt-1 Revenue Account Statement.

 

TheMonthly Revenue Account Statement includes evaluation of the controlledproduction for the reporting semester. Additionally, it will include a detailedand classified record of all transactions for which the Contractor has earnedrevenues, including the date when the revenue was actually earned as well as asummary description of the transaction, number of the accounting voucher,amount in dollars or in domestic currency and in dollars, if the revenue wasearned in domestic currency, and the corresponding exchange rate.

 

b)Factor Rt-1 Expenses Account Statement

 

Themonthly expenses account statement will detail and classify all thetransactions for which the Contractor has made disbursements, including thedates when such disbursement was actually made, as well as a summarydescription of the transaction, number of the accounting voucher, amount indollars or in domestic currency and in dollars if the disbursement was made indomestic currency, and the corresponding exchange rate.

 

**ACCOUNTINGINSPECTION AND ADJUSTMENTS**

** **

a)The accounting ledgers and the original supporting****documentsfor the transactions described in each account statement will be madeavailable, during business hours, to the authorized PERUPETRO representativesfor their inspection, when they so require.

 

Theinspection of the accounting books and the supporting documentation will beperformed pursuant to generally accepted auditing principles, including samplingprinciples, as required.

 

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

 

----

 

monthsstarting on the date when they were filed with PERUPETRO. The Contractor willprovide a documented response to PERUPETRO’s remarks within three (3) monthsafter receiving PERUPETRO’s remarks. PERUPETRO’s remarks will be deemed asaccepted if the Contractor fails to meet the abovementioned deadline.

 

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

 

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

 

**3.****             ****FACTOR R****t-1****REVENUESAND EXPENSES ACCOUNT**

 

**REVENUES**

** **

Revenueswill 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                                                                                                                                                                                   |

** **

----

 

expensesaccount.

 

**EXPENSES**

 

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

 

a)     Workers.

 

Wagesand benefits granted to the contractor’s workers who are deployed at the operationson a permanent or temporary basis. For this purpose, the contractor shall makeavailable to PERUPETRO S.A., at the latter’s request, the company’s payroll andhiring policy.

 

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

 

Ifthe contractor undertakes activities other than those comprised in theagreement, the cost of temporary or part time personnel deployed at theoperations will be charged against the expense account pursuant to provisionsunder paragraph h) of this section 3.2.

 

b)    Affiliate’s Services

 

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

 

c)     Materials and Equipment

 

Materialsand equipment bought by the contractor will be recorded in the factor Rt-1 expenses accountpursuant to the provisions below:

 

·     Materials and equipment(Condition A):

 

ConditionA new materials and equipment are those that may be used without anyrefurbishing and will be registered at the price appearing in the commercialinvoice plus generally accepted accounting costs, including additionalimportation costs, if applicable.

 

·     Used materials and equipment(Condition B):

 

ConditionB used materials and equipment are those which, although not new, may be usedwithout any refurbishing and will be posted at seventy five percent (75%) ofthe price quoted for new materials and equipment on the date of purchase, or atthe purchasing price appearing in the corresponding commercial invoice,whichever is lower.

 

·     Materials and Equipment(Condition C):

 

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

 

----

 

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

 

d)             Freight andTransportation Costs:

 

Travelexpenses for the contractor’s personnel and their relatives, as well astransportation cost for personal items and household appliances will berecognized pursuant to the company’s internal policy.

 

Whentransporting equipment, materials and supplies for the operations, thecontractor will avoid paying “false freight”. If so, recognition of suchdisbursements will be subject to PERUPETRO’s explicit approval in writing.

 

e)              Insurance:

 

Premiumsand net insurance costs placed totally or partially with the contractor’saffiliates will be recognized only to the extent they are charged competitivelycompared with insurance companies not related to the contractor.

 

Thepayments made for hedging contracts shall not be included.

 

f)                Taxes:

 

Onlytaxes paid relating to activities performed in connection with the agreementwill be recognized.

 

g)             ResearchExpenses:

 

Researchexpenses for developing new equipment, materials, procedures and techniques tobe used in the search, development and production of hydrocarbons, as well asother improvements, will be recognized after receiving written approval fromPERUPETRO.

 

h)             ProportionalAllocation of General Expenses:

 

Ifthe contractor performs other activities in addition to those foreseen in theagreement or has signed with PERUPETRO more than one agreement, the cost forthe technical and administrative personnel, administrative office maintenanceexpenses, warehouse operation expenses and cost, as well as other indirectexpenses and cost will be charged against the factor Rt-1 expense accounton a proportional basis pursuant to a policy previously proposed by thecontractor and accepted by PERUPETRO.

 

**TIME OFREGISTRATION**

 

**a)****             **Earnings from the valuation of the controlledhydrocarbons production for a given calendar month will be posted as revenuesfor 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 revenuesaccount at the time when they were actually earned.

 

----

** **

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

 

**4.****             ****NON RECOGNIZED REVENUES AND EXPENSES**

 

**NONRECOGNIZED REVENUES**

 

Forpurposes of calculating factor Rt-1, the following revenues willnot be recognized:

 

a)              Financialrevenues, generally.

 

b)             Revenues earnedfor services rendered or sales of goods owned by the contractor made before thedate of signing of the agreement.

 

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

 

**NONRECOGNIZED EXPENSES**

 

Forpurposes of calculating factor Rt-1, the disbursements made forthe following items will not be recognized as expenses:

 

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

 

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

 

c)              Financialexpenses, generally.

 

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

 

e)              Assetdepreciation and amortization.

 

f)                Amounts paid forbreach of agreement obligations, as well as fines, penalties and indemnitiesmandates by authorities, including those resulting from lawsuits.

 

g)             Fines, chargesand adjustments derived from failure to timely pay taxes in force in thecountry.

 

h)             Income taxapplicable 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 pursuantto the Income Tax Law.

 

j)                 Donations, ingeneral, excepting those previously approved by PERUPETRO.

 

k)              Advertisingexpenses, excepting those previously approved by PERUPETRO.

 

l)                 Hydrocarbontransportation and marketing costs and expenses beyond the production controlpoint.

 

m)           Investments onfacilities for the transportation and storage of hydrocarbons produced withinthe agreement area beyond the production control point.

 

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

 

----

 

**5.****             ****REVISIONS OF ACCOUNTING PROCEDURE**

 

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

 

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**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 ofvaluation of the warrant bonds described under heading 3.10, the followingequivalence shall apply: 1 UTE = US$ 5,000.

 

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

 

Limaon the 21st day of November of 2007

 

BYAND FOR PERUPETRO MR. CARLOS EDGAR VIVES SUÁREZ

 

BYAND FOR BPZ EXPLORACIÓN & PRODUCCIÓN S.R.L. MR. LUIS RAFAEL ZOEGERNÚÑEZ

 

BYAND FOR BPZ ENERGY MR. LUIS RAFAEL ZOEGER NÚÑEZ

 

BYAND FOR BANCO CENTRAL DE RESERVA DEL PERU, MESSERS. RENZO GUILLERMO ROSSINIMIÑAN AND CARLOS AUGUSTO BALLON AVALOS

 

THISDRAFT AGREEMENT WAS AUTHORIZED BY MR. ERNESTO CORDOVA V., ESQUIRE, REGISTEREDIN THE LIMA BAR ASSOCIATION UNDER MEMBER NUMBER 21982.

 

**INSERTNUMBER ONE**

 

**INSERTNUMBER TWO**

 

PERUPETROAGREEMENT

 

**TRANSCRIPTION**

 

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

 

APPROVALOF DRAFT AGREEMENT FOR LICENSING THE EXPLORATION AND DEVELOPMENT OFHYDROCARBONS IN BLOCK XXIII.

 

BOARDOF DIRECTORS AGREEMENT Noo 118-2007

 

SanBorja, September 27th 2007

 

Havingread Memorandum No. CONT-GFCN-1853-2007 dated September 24th,2007, requesting the approval of the draft agreement to license the Explorationand 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 ClassifyCompanies interested in negotiating the Draft License Agreement to Prospect andDevelop 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 ofProposals to Classify Companies Interested in similar areas or in common areaslocated on the Coast – Block XXIII.  TheMinutes mention that as a result of the evaluation, BPZ Energy INC rankedfirst.

 

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

 

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

 

PERUPETRO S.A. and BPZEXPLORACIÓN & PRODUCCIÓN S.R.L. Working Commissions have reached anagreement on the Draft License Contract for Prospecting and DevelopingHydrocarbons 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 intoaccount the minimum work program submitted in the winning proposal of theabove-mentioned Company Classification process, the Draft License Agreement forProspecting and Developing Hydrocarbons in Block XXIII meets all the provisionsunder the Single Conformed Text of Law No. 26221, Organic HydrocarbonsLaw, enacted by Supreme Decree No. 042-2005-EM, and the regulations thereunder, same which is sent to the General Management Department to comply withthe required formalities prescribed by regulations in force.

 

Article 11 under theSingle Conformed Text of Law No. 26221, Organic Hydrocarbons Law, enactedby Supreme Decree No. 042-2005-EM establishes that Agreements will beapproved by Supreme Decree signed by the Ministers of Economy and Finance, andEnergy and Mines, within sixty (60) days of the Contracting Entity havingstarted the formalities to get the corresponding approval from the Ministry ofEnergy and Mines.

 

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Pursuantto article 44 of PERUPETRO S.A. corporate by laws, the Board of Directorsunanimously hereby

 

AGREES:

 

1.          To approve theDraft Agreement for Licensing the Exploration and Development of Hydrocarbonsin 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 theabovementioned agreement, both of which documents are attached to this agreementand are an integral part of same.

 

2.          To send theMinister of Energy and Mines the draft Supreme Decree and Licensing Agreementdescribed in paragraph 1 above for their corresponding approval by SupremeDecree, 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.          AuthorizePERUPETRO S.A.’s general manager to sign the agreement mentioned in paragraph 1above once the corresponding Supreme Decree has been enacted.

 

4.          To exempt theminutes of this Agreement from reading and approval.

 

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

 

InSan 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

 

**INSERTNUMBER THREE: TRANSCRIPT**

 

SUNARP

REGISTRATIONAREA No IX LIMA AREA

LIMAREGISTRATION AREA

DOCKETNo 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 publishedon 09/10/2006 in the El Peruano Official Gazette, it was decided.- 1. To accept the resignation of Dr. JOSEABRAMOVITZ DELMAR from its position as member of the Board. 2. To appoint, asfrom this date, Mr. ALBERTO QUIMPER HERRERA as member of the Board onbehalf of the Ministry of Energy and Mines. 3. To confirm Engineer GUSTAVOADOLFO NAVARRO VALDIVIA as member of the Board on behalf of the Ministry ofEnergy and Mines.

 

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

 

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WILFREDO SALINAS RUIZ – CORNEJO to its position asmember of the board. 2. To appoint, as from this date, MR. JOSE ABRAMOVITZDELMAR, as member of the Board on behalf of the Ministry of Economy andFinance. 3. To ratify Engineer LUIS ENRIQUE ORTIGAS CUNEO as member of theBoard, 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. CARLOSEDGAR VIVES SUAREZ (D.N.I. N° 08725702) as General Manager as from on the02/13/2007. 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 ContractManager 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) asInformation Technology and Budget Division Head as from the day following thisagreement. 6. To appoint Engineer PEDRO MANUEL ARCE CHIRINOS to Head the HumanResources and Personnel Development Division. Board of Directors’ Minutes BookNo7, notarized on 01/03/2007 before the Notary by and for Lima Dr. RicardoFernandini Barreda, ESQ. under entry N° 54684 on folios 281 to 327. Asappearing on the certified copy dated 03/01/2007 issued by the same notarypublic in the city of LIMA. This title was submitted on 03/01/2007 at 03:48:51PM under docket

 

N° 2007-00118351 in Logbook (0485).

 

Fee: S/. 224 recorded under vouchers Number00014319-07 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 letterNo GGRL-CONT-1 924-2007 about the clause dealing with the financial rights forthe Draft Agreement for Licensing the Exploration and Development ofHydrocarbons in Block XXII entered into with BPZ EXPLORACIÓN Y PRODUCCIÓNS.R.L. The CENTRAL RESERVE BANK OF PERU has approved the text of clause 11 ofthe Draft Agreement sent to us with your letter, after noticing 

 

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

 

Inaddition, for signing the Clause on Financial Rights included in thatagreement, the undersigned, in my position as General Manager, and Mr. Carlos Ballón Avalos, InternationalOperations Manager, and in case of impediment by either of us, Mr. ManuelMonteagudo 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 DIRECTORMEETING DATED JANUARY 27, 1994, DESCRIBING THE POWERS AWARDED TO THE GENERALMANAGER (063-A) MINUTES No 3534. RELEVANT SECTION:

 

CENTRALRESERVE BANK OF PERU.

 

GENERALSECRETARIAT.

 

HUMBERTOPEIRANO PORTOCARRERO, SECRETARY GENERAL OF THE CENTRAL RESERVE BANK OF PERU, ASPER THE POWERS INVESTED UPON HIM BY ARTICLE 31 OF THIS ORGANIZATIONS ORGANICLAW, HEREBY CERTIFIES THAT IN MINUTES NUMBER 3534 OF THE BOARD OF DIRECTORS MEETINGHELD 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 ANAGREEMENT WAS REACHED AS FOLLOWS:

 

POWERS OF THE GENERAL MANAGER (063-A)

 

THE BOARD OF DIRECTORS AGREED:

 

1- TO GRANT THE GENERAL MANAGER THE FOLLOWINGPOWERS:

 

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

 

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

 

**INSERT NUMBER SIX: TRANSCRIPT**

 

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

 

CENTRALRESERVE BANK OF PERU.

 

GENERALSECRETARIAT.

 

HUMBERTOPEIRANO PORTOCARRERO, SECRETARY GENERAL OF THE CENTRAL RESERVE BANK OF PERU, ASPER THE POWERS INVESTED UPON HIM BY ARTICLE 31 OF THIS ORGANIZATION’S ORGANICLAW, HEREBY CERTIFIES THAT IN MINUTES NUMBER 3737 OF THE BOARD OF DIRECTORSMEETING 

 

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

 

APPOINTMENT OF SENIOR OFFICIALS (ORAL)

 

THE BOARD OF DIRECTORS AGREED:

 

1.    TO APPOINT MR. JUAN ANTONIORAMIREZ ANDUEZA AS MANAGER FOR CREDITS AND FINANCIAL REGULATIONS IN REPLACEMENTOF MISS MARIA ISABEL VALERA LOZA WHO WILL FILL THE POSITION AS ADVISORS TO THEGENERAL MANAGER.

 

2.    TO PROMOTE MR. CARLOS BALLONAVALOS TO THE RANK OF MANAGER AND APPOINT HIM AS INTERNATIONAL OPERATIONSMANAGER.

 

LIMA,JUNE 3, 1998

 

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

 

**INSERT NUMBERSEVEN**

 

CENTRALRESERVE BANK OF PERU

 

GENERALSECRETARIAT

 

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

 

Inaddition, I hereby certify that Mr. Manuel Monteagudo Valdez previouslyfilled the position of head of the Legal Office until December 31, 2005and that pursuant to the previous agreement, as from January 1, 2005, hewill be acting as Juridical Manager.

 

InLima, on August 9, 2006

 

SignedDEHERA BRUCE MITRANI

 

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**INSERTNUMBER EIGHT**

 

CENTRALRESERVE BANK OF PERU

 

GENERALSECRETARIAT

 

DEHERABRUCE MITRANI, Secretary General of the Central Reserve Bank of Peru, actingunder the powers invested upon her by Article 31 of the OrganizationsOrganic Law, hereby certifies that in Minutes No 4059 corresponding to the Boardof Directors meeting held on 14th October 2004, attended byBoard Members Javier Silva Ruete (Chairman), Kurt Burneo Farfán, Luís CarranzaUgarte, Oscar Dancourt Masías and Daniel Schdlowsky Rosenberg an agreement wasreached as follows:

 

· APPOINTMENT OF GENERALMANAGER (ORAL)

 

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

 

InLima on December 22nd, 2004

 

Illegible Signature

 

**C O N C L U S I O N:**

 

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

 

**PARTICIPANTS:MANUEL MONTEAGUDO VALDEZ, PERUVUIAN, MARRIED, LAWYER, IDENTIFIED WITH NATIONALIDENTITY DOCUMENT No 10275927, VOTER, JURIDICAL MANAGER APPOINTED BY BOARD OFDIRECTORS AGREEMENT No 4128 WHO REPRESENTS THE CENTRAL RESERVE BANK OF PERUAUTHORIZED BY GENERAL MANAGEMENT DEPARTMENT LETTER No 130-2007-BCRP DATEDOCTOBER 25, 2007, ATTACHED HERETO AND WHO SIGNS THE MINUTES AND THE PUBLICDEED, BY VIRTUE OF WHICH THE PRESSENCE OF MR. CARLOS AUGUSTO BALLON AVALOS INTHIS ACT SHALL NOT BE RECORDED IN THESE PRESENTS, THE MINUTES AND FINAL SIGNINGOF THE DRAFT AGREEMENT ENCLOSED HEREWITH, IN WITNESS WHEREOF**

 

 

**By and for PERUPETRO**

 

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**CARLOS EDGAR VIVES SUÁREZ**

 

**SIGNED ON:**

 

**By and for BPZEXPLORACIÓN & PRODUCCIÓN S.R.L.**

 

 

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**LUISRAFAEL ZOEGER NÚÑEZ**

 

**SIGNEDON:**

 

**By andfor BPZ ENERGY INC**

 

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**LUISRAFAEL ZOEGER NÚÑEZ**

 

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** **

**SIGNEDON:**

 

**By and for BANCO CENTRAL DERESERVA DEL PERU**

 
| ** **                              | ** ** | ** **                              |
|-----------------------------------------|------------|-----------------------------------------|
| **RENZO GUILLERMO ROSSINI MIÑAN**  | ** ** | **ARLOS AUGUSTO BALLON AVALOS**         |
| **    SIGNED  ON:** | ** ** | **    SIGNED  ON:** |

 

 

**END OFSIGNATURES:**

 

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