sjdocs-7222062v1final_ep232e.htm - Generated by SEC Publisher for SEC Filing



EP 232 Final Earning
Agreement


(Amending and Restating the Original EP 232 Earning
Agreement)


 


 


 


 


 


 


Paltar Petroleum Limited (ACN 149 987 459) 


 


 


Nation Energy (Australia) Pty Ltd (ACN 606
533 046)


 


 















 

Contents





1.            Defined terms.................................................................................................................. 2


2.            Initial Consideration......................................................................................................... 2


3.         Farm-in and Operator....................................................................................................... 2


4.         Operating
Committee....................................................................................................... 9


5.            Work Programs and Budgets.......................................................................................... 11


6.            Production Licences....................................................................................................... 13


7.            Default........................................................................................................................... 14


8.            Relinquishments and renewals....................................................................................... 16


9.            Transfer of interest or rights........................................................................................... 16


10.         Withdrawal from Agreement..................................................................................................... 17


11.         Relationship of Parties and Tax...................................................................................... 18


12.         Confidential Information............................................................................................... 20


13.         Force majeure................................................................................................................ 21


14.         Notices........................................................................................................................... 22


15.         Applicable law and arbitration....................................................................................... 23


16.         Term.............................................................................................................................. 23


17.         General provisions......................................................................................................... 24


18.         Definitions..................................................................................................................... 26


  


Schedule 1:  Royalties


Schedule 2:  Work Program and Budget for
Permit Years 3 and 4


Annex 1:      Accounting Procedure    












 

 


EP 232 Final Earning Agreement 


(Amending and
Restating the Original EP 232 Earning Agreement)


Dated 31 May 2016


Parties


Paltar Petroleum Limited (ACN 149 987
459) of Level 10, 32 Martin Place, Sydney, 


New South Wales 2000 (Paltar)


and


Nation Energy (Australia) Pty Ltd (ACN
606 533 046) of RPO Box 60610, Granville Park,


Vancouver,
British Columbia V6H 4B9 (Nation) 


Background


A.               
Paltar owns the Permit.


B.                
The Parties entered into the EP 232 Earning
Agreement dated 30 August 2015 (as amended by a Master Amendment dated 17
December 2015 and a Second Master Amendment dated 8 February 2016, the
“Original Earning Agreement”) allowing Paltar to earn interests in the Permit
and any Production Licenses that might be earned covering certain Blocks in EP
232. The cash consideration and share consideration required by this Original
Earning Agreement have not yet been paid to Paltar, but the Parties wish to
ratify and confirm the Original Earning Agreement; enlarge the time allowed for
payment and delivery of the consideration; and, as more fully explained in the
following recital, amend, enlarge, restate and replace the Original Earning
Agreement.  


C.                
Paltar and Nation Energy Inc., a Wyoming
corporation (“Nation Wyoming”) which owns all the outstanding stock of Nation,
entered into an Option dated 30 August 2015 (as amended on 12 February 2016,
the “Option”) affording Nation Wyoming the right to purchase EP 232 and certain
other assets of Paltar.  Nation Wyoming has decided to release and terminate the
Option, and wishes instead for Nation to amend the Original Earning Agreement so
that it covers the entire Permit Area. By this Agreement, the Parties set forth
their binding agreement concerning the Cash Consideration and Share
Consideration, the costs of Operations to be borne by Nation, and the interests
that may be earned by Nation in the Permit and any Production Licences issued
to Paltar in the Permit Area.


Operative provisions


The Parties
hereby ratify and amend the Original Earning Agreement, expand it to cover the Permit
Area, and restate and replace it as follows:









 





2


 





1.               
Defined terms





Clause 18 of this Agreement sets out and explains
the defined terms, or refers to the definitions of the terms, and the rules of
interpretation that apply.




2.               
Initial Consideration 





2.1             
Cash Consideration


Upon execution of this Agreement, Nation will execute and deliver to
Paltar its promissory note in the original principal amount of A$24,322,501,
with payment guaranteed by Nation Wyoming.  The principal amount reflects the
total cash consideration due under a total of seven earning agreements (six
granted by Paltar and one by a Paltar subsidiary, Officer Petroleum Pty Ltd) of
even date; the portion of the principal amount allocated to this Agreement (the
“Cash Consideration”) is A$769,143.  The allocated amount comprises A$769,143
previously promised and accounted for as consideration for the Original Earning
Agreement, with no additional cash consideration for the new rights being
granted in the remaining Blocks in the Permit Area.


2.2             
Share Consideration


Within seven
days after delivery to Nation Wyoming of Paltar’s
audited financial statements for the three most recent fiscal years, together
with such additional fiscal period financial statements as may be required for
reporting by Nation Wyoming under applicable regulations of the United States Securities and Exchange Commission, Nation
Wyoming will issue 900 million of its common shares to Paltar, subject to the
same restrictions on the transfer of such shares as set forth in the third
restated letter agreement dated 30 August 2015, as subsequently amended.  Such
shares reflect the total share consideration due under all seven earning
agreements referred to in clause 2.1; the portion allocated to this Agreement
(the “Share Consideration”) is 128,571,430 shares.  The allocated portion
comprises 85,714,285 shares previously promised and accounted for as
consideration for the Original Earning Agreement and 42,857,145 shares as
consideration for the new rights being granted in the remaining Blocks in the
Permit Area.


2.3             
Non-Refundable Consideration for Earning Rights


The Cash Consideration and Share
Consideration are non-refundable consideration for the right given Nation
hereunder to earn interests in any Production Licences that may be granted to
Paltar covering any of the Permit Area.  




3.               
Farm-in and Operator





3.1             
Nation Interest 


On Nation
spending at least the Earning Amount in Expenditure on or for the benefit of
the Permit Area before the end of the Earning Period (Earning Date),
Nation, on giving notice to Paltar verifying the amount of Expenditure Nation
has incurred: 


(a)               
acquires a beneficial interest, to the extent of
the Nation interest, in the Permit Area; and 


 



 





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(b)              
will have the right to be transferred the Nation
Interest in the Permit Area, in such manner and on such terms as do not
materially increase the obligations owed the Government in respect of the area
then covered by the Permit; and  


3.2             
Joint Venture Operating Agreement


On or as soon
as practicable after the Earning Date the parties shall enter into an
exploration joint venture operating agreement in respect of the Permit Area on
terms customary for such an agreement in the Australian petroleum industry  and
under which: 


(a)               
Paltar holds the Paltar Interest and Nation
holds the Nation Interest in the Permit Area;


(b)              
Paltar is the operator of the joint venture; 


(c)               
Nation shall
contribute 100% of the actual Work Program Expenses
under the joint venture operating agreement; 


(d)              
Nation shall not be permitted to withdraw from
the joint venture operating agreement until the end of the fifth Permit Year; 


(e)               
the terms set out in clause 6.1 to 6.3
(inclusive) of this Agreement will be incorporated;  


(f)               
the terms of the Option in favour of Nation set
out clauses 5.3 to 5.7 (inclusive) will be incorporated and, in the event that
the Option is exercised by Nation with respect to a Production Licence, then
the Production Licence will not form part of the joint venture property under
the joint venture operating agreement from the date of exercise of the Option,
and 


(g)               
upon entry into the joint venture operating
agreement, the remaining effective clauses of this Agreement will immediately
terminate with respect to the Permit Area, subject to any and all accrued
rights and liabilities of the parties.


3.3             
Designation of Operator  


Paltar
is hereby designated as Operator, and agrees to act as such in accordance with
this Agreement. 


3.4             
Rights and Duties of Operator


(a)               
Paltar shall have all of the rights, functions
and duties of Operator under this Agreement and will have exclusive charge of
and shall conduct all Operations on the Permit Area under the overall direction
of the Operating Committee.  Paltar may employ independent contractors and
agents, including Related Bodies Corporate of
Paltar, in such Operations.


(b)              
Paltar warrants
and represents to Nation that the Permit and Paltar’s interest in the Permit is in good
standing and is not subject to any breach, default or other circumstance that
will or may result in the Permit being surrendered or
cancelled or becoming subject to any Encumbrance. Paltar shall: 


 



 





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(i)                
without limiting clause 5.1(c) and subject to
applicable Government requirements, ensure that each Work Program and Budget
consists of work to be performed on or for the benefit of the Permit Area; 


(ii)              
not grant, create or allow the grant or
creation of any Encumbrance over Paltar’s interest in the Permit without the
prior written consent of Nation; 


(iii)            
not sell, transfer, assign or otherwise dispose
of Paltar’s interest in the Permit or part with possession of the Permit
without the prior written consent of Nation; 


(iv)            
immediately notify Nation of any act, event,
circumstance, correspondence, notice or other information (in any form and from
whatever source) that may cause, or is relevant to, Paltar’s interest in the
Permit becoming the subject of an Encumbrance or being surrendered or
cancelled; and  


(v)              
take all steps as are necessary or appropriate to ensure that the
application for, grant and transfer or issue of a Production Licence to Nation
occurs as soon as practicable following a decision by Nation under clause
6.1(b).   


(c)               
In the conduct of Operations, Paltar shall:


(i)                
perform Operations in accordance with the
provisions of the Permit, the Laws, this Agreement and the decisions of the
Operating Committee;


(ii)              
conduct all Operations in a diligent, safe and
efficient manner in accordance with good and prudent oil field practices and
field conservation principles generally followed by the international petroleum
industry under similar circumstances;


(iii)            
prepare and submit to the Operating Committee
the proposed Work Programs and Budgets as provided in clause 5;


(iv)            
acquire all permits, consents, approvals,
surface or other rights that may be required for the conduct of Operations;


(v)              
permit Nation’s representatives to have at all
reasonable times and at their own risk and expense reasonable access to the
Operations with the right to observe all such Operations;


(vi)            
pay to the Government within the periods and in
the manner prescribed by the Laws, all periodic payments, taxes, fees and other
amounts pertaining to Operations, but excluding any taxes measured by the
incomes of the Parties;


(vii)          
carry out the obligations of Paltar pursuant to
the Permit, including, but not limited to, preparing and furnishing such
reports, records and information as may be required pursuant to the Petroleum
Act;


(viii)        
have, in accordance with the decisions of the
Operating Committee, the exclusive right and obligation to represent the Parties
in all dealings with the Government with respect to matters arising under
Operations;


 



 





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(ix)            
act as the Parties’ representative in respect
of Native Title Rights and aboriginal heritage issues, negotiate and enter into
agreements with the parties to Native Title Claims, and in all other respects
deal with issues of this kind as and when they arise, including the recognition
of Native Title Rights and the settlement of Native Title Claims;


(x)              
in case of an emergency (including a
significant fire, explosion, petroleum release, or sabotage; incident involving loss of life, serious injury to an employee, contractor,
or third party, or serious property damage; strikes and riots; or evacuations
of Paltar personnel): (i) take all necessary and proper measures for the
protection of life, health, the environment and property; and (ii) as soon as
reasonably practicable, notify Nation of the details of such emergency and any
measures it has taken or plans to take in response; and 


(xi)            
do all other acts and things that are
reasonably necessary or desirable to fulfil its functions or are incidental to
the above powers and duties.


3.5             
Paltar Personnel


(a)               
Paltar shall engage or retain such employees,
contractors, consultants and agents as are reasonably necessary to conduct
Operations. 


(b)              
Subject to the Laws and this Agreement, Paltar
will determine the number of employees, contractors, consultants and agents,
the selection of such persons, their hours of work, and the compensation to be
paid to all such persons in connection with Operations.


3.6             
Information Supplied by Paltar


(a)               
Paltar shall provide Nation with the following
data and reports from the Operations:


(i)                
copies of all logs or surveys;


(ii)              
daily drilling reports;


(iii)            
copies of all tests and core data and analysis
reports;


(iv)            
final well report;


(v)              
copies of the final geological and geophysical
maps, seismic sections and shot point location maps and reports;


(vi)            
engineering studies, development schedules and
annual progress reports on development projects;


(vii)          
field and well performance reports, including
reservoir studies and reserve estimates; and


(viii)        
copies of all reports relating to Operations
furnished by Paltar to a Government.


(b)              
Paltar shall provide Nation such additional
information as Nation may reasonably request in writing, provided that Nation
must pay the costs of preparing such information and the 



 





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preparation
of such information must not unduly burden Paltar’s administrative and
technical personnel.  


(c)               
Paltar shall give
Nation access at all reasonable times during normal business hours to all data
and reports acquired in the conduct of Operations. 
Nation may make copies of such other data at its sole expense.


3.7             
Settlement of Claims and Lawsuits


(a)               
Paltar shall
promptly notify Nation of any and all claims or suits which arise out of
Operations or relate in any way to Operations.  Paltar
shall represent Nation and defend or oppose the claim or suit. Paltar may in
its sole discretion compromise or settle any such
claim or suit or any related series of claims or suits for an amount not to
exceed the equivalent of $250,000,
exclusive of legal fees.  Paltar shall seek guidance from the Operating
Committee on amounts in excess of the
above-stated amount.  Nation shall have the right to be represented by its own counsel
at its own expense in the settlement, compromise or defence of such claims or
suits.


(b)              
Nation shall promptly notify Paltar of any claim
made against Nation by a third party which arises out of or may affect the
Operations.


3.8             
Limitation on Liability of Paltar


(a)               
Except as set out in clause 3.8(c), neither
Paltar nor any other Indemnitee (as defined below) shall bear any damage, loss, cost, expense or liability
resulting from performing (or failing
to perform) the duties and functions of Operator, and the Indemnitees are
hereby released from liability to
Nation for any and all damages, losses, costs, expenses and liabilities arising
out of, incidental to or resulting from such performance or failure to perform,
even though caused in whole or in part by a
pre-existing defect, the negligence (whether sole, joint or concurrent), strict
liability or other legal fault of Paltar (or any such Indemnitee).


(b)              
Except as set out in clause 3.8(c), Nation shall
defend and indemnify Paltar and its Related
Bodies Corporate, and their respective employees, officers and directors (collectively, the Indemnitees), from any
and all damages, losses, costs, expenses (including reasonable legal
costs, expenses and attorneys' fees) and liabilities incidental to claims,
demands or causes of action brought by or
on behalf of any person or entity, which claims, demands or causes of action
arise out of, are incidental to or result from Operations, even though caused
in whole or in part by a pre-existing
defect, the negligence (whether sole, joint or concurrent), strict
liability or other legal fault of Paltar (or any such Indemnitee). 


(c)               
Notwithstanding clauses 3.8(a) and 3.8(b), if
any Senior Supervisory Personnel of Paltar or its Related Bodies Corporate
engage in Wilful Misconduct which proximately causes Nation to incur damages,
loss, cost, expense or liability for claims, demands or causes of action
referred to in clauses 3.8(a) or 3.8(b), then Paltar shall be liable for such
damages, loss, cost, expense and liability.


(d)              
Notwithstanding the foregoing, under no
circumstances shall Paltar or any other Indemnitee ever bear any Consequential
Loss.  


 



 





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(e)               
In the event that there is a change of Operator
then, from the date a new Operator is appointed, the new Operator shall have
the benefit of each of clause 3.8(a) – (d) as if the new Operator were named in
those clauses in place of Paltar. 


3.9             
Insurance Obtained by Paltar


(a)               
Paltar shall maintain for such limits as it may
reasonably believe prudent any and all insurance it believes appropriate under
the circumstances, including:


(i)                
All insurance required by the Laws;  


(ii)              
Third party liability insurance covering
liability to third parties which may arise in connection with the Operations;


(iii)            
Cost of well control/redrilling and
recompletion expenses/seepage and contamination and pollution liability
insurance covering expenses incurred in regaining control of wells including
materials and services necessary to bring the wells under control and costs
expended to reinstate the well to the depth and condition which existed prior
to an insured occurrence; and


(iv)            
Workers compensation insurance.


(b)              
Paltar shall, in respect of such insurance:


(i)                
use reasonable endeavours to procure or cause
to be procured such insurance prior to or concurrent with the commencement of
relevant operations and maintain or cause to be maintained such insurance
during the term of the relevant operations or any longer term required under
the Permit or the Laws;


(ii)              
promptly inform Nation when insurance is taken
out and at Nation’s request supply it with certificates of insurance or copies
of the relevant policies when they are issued; and


(iii)            
duly file all
claims and take all necessary and proper steps to collect any proceeds.


(c)               
Paltar shall use its
reasonable endeavours to require all contractors (including sub‐contractors) performing work with respect to the Operations to:


(i)                
obtain and maintain all insurance required
under the Laws or any decision of the Operating Committee; and


(ii)              
provide Paltar with certificates reflecting such
insurance prior to the commencement of their services.


3.10         
Resignation


Subject
to clause 3.12, Paltar may resign as Operator at any time by so notifying
Nation at least 120 days before the effective date of such resignation.


 



 





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3.11         
Removal


(a)               
Paltar shall resign immediately if it dissolves,
liquidates, is wound up, or otherwise terminates its existence.


(b)              
Subject to clause 3.12, Paltar shall be removed
upon receipt of notice from any Party if: 


(i)                
Paltar becomes insolvent, bankrupt or makes an
assignment for the benefit of creditors; or


(ii)              
a receiver or receiver and manager is appointed
for a majority (by value) of Paltar's assets.


(c)               
Subject to clause 3.12, Paltar may be removed by
written notice from Nation if Paltar has
committed a material breach of this Agreement and has either failed to commence
to cure that breach within 30 days
after receipt of a Notice from Nation
detailing the alleged breach or failed to diligently pursue the cure to
completion.  


3.12         
Appointment of Successor


When a
change of Operator occurs pursuant to clause 3.10 or clause 3.11:


(a)                                 
the Operating Committee shall meet as soon as
possible to elect a successor Operator; provided, however, that if Paltar has
been removed or is deemed to have resigned and either fails to vote or votes
only to succeed itself, then the successor Operator shall be elected by the
affirmative vote of Nation alone. 


(b)              
if Paltar disputes commission of or failure to
rectify a material breach alleged pursuant to clause 3.11(c) and proceedings
are initiated pursuant to clause 15.2, Paltar shall continue as Operator and no
successor Operator may be appointed pending
the conclusion or abandonment of such proceedings;


(c)               
Paltar, if it resigns or is removed as Operator,
shall be compensated out of the Operating Account for its reasonable expenses
related to its resignation or removal;


(d)              
Paltar, if it resigns or is removed as Operator,
and the successor Operator shall arrange for the taking of an inventory of all Property and an audit of the books
and records relating to Operations, the cost of which shall be charged
to the Operating Account;


(e)               
the resignation or removal of Paltar as Operator
and its replacement by the successor Operator shall not become effective prior
to receipt of any necessary Government approvals; and


(f)               
upon the effective date of the resignation or
removal, the successor Operator shall succeed to all duties, rights and authority prescribed for Operator.  Paltar shall
transfer to the successor Operator custody of all Property, books of
account, records and other documents maintained by Operator pertaining to the Permit
Area and to Operations.  Upon delivery of the above-described property and
data, Paltar shall be released and discharged from all obligations and liabilities as Operator accruing after such date,
except to the extent such liabilities relate to facts, matters or circumstances
which occurred prior to such date.


 



 





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3.13         
Commingling of Funds


Paltar
may commingle with its own funds the monies which it receives from or for the
Operating Account pursuant to this Agreement.     


3.14         
Delegation


Operator
may delegate all or part of its rights or responsibilities as Operator under
this agreement to a Related Body Corporate. 
Any such delegation shall not relieve Operator of its obligations and
liabilities under this Agreement.




4.               
Operating Committee





4.1             
Establishment of Operating Committee


An
Operating Committee composed of
representatives of each Party shall provide overall supervision and
guidance to Paltar concerning the direction of Operations.  Each Party shall appoint one representative and two alternates to serve on the Operating
Committee.  Each Party shall as soon as possible after the date of this Agreement give notice in writing to the
other Party of the name and address of
its representative, its first alternate and its second alternate serving on the
Operating Committee.  Each Party shall have the right to change its
representative and alternate representatives at any time by giving Notice to
such effect to the other Party.


4.2             
Authority to Vote


The
representative of a Party, or in his absence the alternate representative,
shall be authorised to represent such Party
with respect to any matter which is within the power of the Operating Committee
and is properly brought before the Operating Committee. Each such
representative shall have one vote
on matters coming before the Operating Committee.  Alternate representatives
may attend Operating Committee meetings, but
shall have no vote at such meetings except
in the absence of the representative for whom they are the alternate.  In
addition to the representative and
alternate representatives, each Party may also bring to any Operating Committee
meetings such technical and other
advisers as it may deem appropriate.  The technical and other advisers shall
be given the opportunity to present data and voice opinions on behalf of a
Party, but may not vote.


4.3             
Subcommittees


The
Operating Committee may establish such advisory subcommittees, including
technical and commercial subcommittees, as the Operating Committee may deem appropriate.  


4.4             
Notice of Meeting


(a)               
Either Party may call a meeting of the Operating
Committee by giving Notice to the other Party at least 15 days in advance of
such meeting.


(b)              
Notice periods above may be waived with
unanimous consent of all Parties.


(c)               
The day the Notice was delivered and the date
the meeting is to be held shall not be included in calculating the Notice
period.


 



 





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(d)              
Notwithstanding the
above, Nation agrees that if there is an operational issue involving an urgent
operational matter, then Nation shall be deemed to have
waived the above notice period so that the Operating
Committee may make a decision within 48 hours, as contemplated by clause 4.11(a)(i).


4.5             
Contents of Meeting Notice


(a)               
Each Notice of a meeting of the Operating
Committee shall contain: 


(i)                
the date, time and location of the meeting; 


(ii)              
an agenda of the matters and proposals to be
considered and/or voted upon; and


(iii)            
copies of all proposals to be considered at the
meeting.


(b)              
A Party receiving Notice may, by Notice to the
other Party given not less than seven days before a meeting, may add additional
matters to the meeting agenda.


(c)               
With the unanimous consent of all Parties, the
Operating Committee may consider at a meeting a proposal not contained in such
meeting agenda.


4.6             
Location of Meetings


All
meetings of the Operating Committee shall be held in Sydney, New South Wales,
or elsewhere as may be decided unanimously by the Operating Committee.


4.7             
Operator's Duties for Meetings


(a)               
With respect to meetings of the Operating
Committee and any subcommittee, Paltar's duties shall include, but not be
limited to:


(i)                
conduct of the meeting; and


(ii)              
preparation of a written record or minutes of
each meeting.


(b)              
Paltar shall have the right to appoint the
chairman of the Operating Committee and all subcommittees.


4.8             
Voting Procedure


Except
as otherwise expressly provided in this Agreement in respect of certain
specific matters, all decisions, approvals and other actions of the Operating
Committee on all proposals coming before it shall be decided by Paltar alone.  



4.9             
Record of Votes


The
chairman of the Operating Committee shall appoint a secretary who shall make a
record of each proposal voted on and the
results of such voting at each Operating Committee meeting.  Each representative
shall sign and be provided a copy of such record at the end of such meeting and
it shall be considered the final record of the decisions of the Operating
Committee.


 



 





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4.10         
Minutes


The secretary shall provide each
Party with a copy of the minutes of the Operating Committee meeting within 21 days after the end of the meeting.  Each
Party shall have 14 days
after receipt of such minutes to give notice of its objections to the minutes
to the secretary. A failure
to give notice specifying objection to such minutes within said 14 day period shall be deemed to be approval of such
minutes. In any event, the votes recorded under clause 4.9 shall take precedence over the minutes described above.


4.11         
Voting by Notice


(a)               
In lieu of a meeting, any Party may submit any
proposal to the Operating Committee for a vote by Notice.  The proposing Party shall notify Operator who shall give each
representative notice describing the
proposal so submitted and whether Paltar considers such operational matter an
urgent operational matter.  Each Party shall communicate its vote by Notice to
Paltar and any other Party within one
of the following appropriate time periods after receipt of Operator's notice:


(i)                
48 hours in the case of urgent operational
matters;


(ii)              
14 days in the case of all other proposals.


(b)              
Except in the case of clause 4.11(a)(i), Nation
may by Notice delivered to Paltar within five days after receipt of Paltar's
notice request that the proposal be decided
at a meeting rather than by notice. In such an event, that proposal shall be
decided at a meeting duly called for that purpose.


(c)               
Except as provided in clause 10.1(a), a Party
failing to communicate its vote in a timely manner shall be deemed to have
voted against such proposal.


(d)              
If a meeting is not requested, then at the
expiration of the appropriate time period, Paltar shall give Nation a
confirmation notice stating the tabulation and results of the vote.




5.               
Work Programs and Budgets; Production Licence Option 





5.1             
Agreed Permit Work Programs and Budgets


(a)               
The Work Program and Budget detailing the
Operations to be performed in respect of the Permit for the third and fourth Permit
Years is attached as Schedule 2.  


(b)              
On or before the
first day of July of each year beginning 2017 and continuing each year
thereafter, Operator shall deliver to Nation a proposed Work Program and Budget
detailing the Operations to be performed in respect of the Permit for the
following Permit Year. Within 21 days after such delivery, the Operating
Committee shall meet to consider and endeavour to agree the Work Program and
Budget; failing agreement, the proposed Work Program
and Budget reasonably estimated to cost the least will conclusively be deemed
adopted, so long as such proposed Work Program and Budget will satisfy all of
the Minimum Work Obligations of that Permit Year.   


 



 





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(c)               
Any approved Work Program and Budget may be
revised by the Operating Committee from time to time. To the extent such
revisions are approved by the Operating Committee, the Work Program and Budget
will be amended accordingly.


5.2             
Funding of Work
Program Expenses


(a)               
Nation agrees to
contribute 100% of the actual Work Program Expenses.   


(b)              
Nation must pay all Work Program Expenses as
follows:


(i)                
As soon as
practicable after Nation has such funds conveniently available,  Nation will
deliver to Paltar the full amount of the Work Program and Budget costs incurred for the second Permit Year, together with the Work Program
and Budget costs estimated
for the third Permit Year, as shown in Schedule 2; 


(ii)              
Estimated Work Program Expenses for the fourth and subsequent
years will be delivered by Nation to Paltar quarterly in advance, based
on anticipated cash requirements; and 


(iii)            
Required amounts in addition to estimated amounts will be
delivered by Nation to Paltar in accordance with the cash call procedures set
forth in clause 1.6 of the Accounting Procedure.


5.3             
Grant of Option


If, after the
Earning Date, Nation acquires an undivided 25% interest in a Production Licence
pursuant to clause 6.2(a) (the Acquisition Date), Paltar shall grant to
Nation, in exchange for $100 and other good and valuable consideration, the
sole and exclusive option (Option) to purchase at any time during the
period commencing on the Acquisition Date and ending ninety (90) days later
(the Option Period) the Paltar Interest in that Production Licence free
from Encumbrances, other than those referred to in clause 5.5(b). 


5.4             
Exercise of Option


The Option may
be exercised by Nation at any time during the Option Period by giving notice in
writing to Paltar specifying that the Option has been exercised.  


5.5             
Transfer 


(a)               
As soon as practicable after the exercise of the
Option in accordance with clause 5.4, Paltar will
deliver to Nation registrable transfer forms of Paltar’s entire interest in the
Production Licence, except for the payment of stamp duty and registration
fees.  Nation will lodge the transfer forms, together with a notice appointing
Nation or its designee as Operator of the Production Licence, with the
Government for approval and registration, as required under the Petroleum Act,
and promptly thereafter Nation shall deliver to Paltar the duly executed transfer
forms and pay the stamp duty and registration fees in the amounts determined by
the Government. 


(b)              
Upon the effective
transfer of Paltar’s entire interest in the Production Licence, Nation shall
assume all the obligations (and be assigned all the
benefits) of:





 





13


 





(i)                  
the
Exploration Agreements that relate to the Production Licence; and


(ii)                
the royalty burdens as set forth in Schedule 1 and as
provided in clause 5.6(a),


and Paltar shall execute all such
agreements (including any deeds of
assignment and assumption) as reasonably required by Nation and the counterparties to the above agreements to
perfect the assumption of such
obligations and the assignment of any benefits and the release of Paltar. 


(c)               
Upon the transfer of a Production Licence
pursuant to this clause 5.5, this Agreement will cease to apply to the portion
of the Permit Area covered by that Production Licence.


5.6             
Consideration 


(a)               
In consideration for the transfer of the Paltar
Interest to Nation, upon exercise of the Option, Paltar shall be entitled to an
overriding royalty (not subject to proportionate reduction) with respect to all
petroleum produced from the portion of the Permit Area covered by the
Production Licence equal to the difference between 25% and the
sum of the existing royalty burdens shown in Schedule 1, such that the revenue interest
of Nation in such production of petroleum, after giving effect to all of the
royalty burdens described in Schedule 1, will be exactly 75%, and with the
understanding that if a royalty burden set forth in Schedule 1 later increases
in accordance with its terms, the additional overriding royalty in favor of
Paltar will be correspondingly decreased, so that Nation’s revenue interest
will remain constant at 75%.


(b)              
Paltar and Nation will, as soon as practicable
after the exercise of the Option, enter into an overriding royalty agreement
under which Paltar holds the overriding royalty described in this clause and
which more fulsomely sets out the terms of the royalty based on terms standard
for such an agreement in the Australian petroleum industry.  


5.7             
Lapse of Option


In the event
that the Option is not exercised within the Option Period then the Option will
lapse and the parties shall use their best endeavours to enter a production
joint venture operating agreement in respect of such Production Licence under
which:


(a)               
Paltar holds the Paltar Interest and Nation
holds the Nation Interest in the Production Licence; and


(b)              
Nation is the operator of the joint venture; and


which is otherwise on terms
standard for the Australian petroleum industry (including provisions for
dilution of interests). 




6.               
Production
Licences





6.1             
Decision to Apply


(a)               
If a Discovery is made in the Permit Area,
Paltar shall deliver any Discovery notice required under the Petroleum Act and
shall as soon as possible submit to the Operating 



 





14


 





Committee
a report containing available details concerning the Discovery and Operator’s
recommendation as to whether a Production Licence should be sought.  


(b)              
The
Operating Committee decision whether to apply to the Government for a
Production Licence shall be decided by Nation alone. 


6.2             
Production Licence Granted 


(a)               
Paltar acknowledges and agrees that, following
the Earning Date, if a Production Licence is applied for and issued in respect
of any area under the Permit Area in accordance with the terms of this
Agreement, (i) Paltar’s undivided interest in such Production Licence will be
equal to 75%, subject to the Option granted hereunder pursuant to clause 5.3,
and Nation’s undivided interest in such Production Licence will be equal to 25%.


(b)              
Upon the issue of a Production Licence, Paltar
will be deemed to have resigned as Operator with respect to the Permit Area
covered by the Production Licence. 


(c)               
Upon the issue of a Production Licence to Nation
pursuant to this clause 6.2, each clause of this Agreement, other than clauses
5.3 through 5.7. will cease to apply to the Permit Area covered by that
Production Licence.


6.3             
Production Licence Not Granted


(a)               
If the Operating Committee decides not to apply
for a Production Licence or, having applied for a Production Licence, the
application is denied, the Operating Committee shall meet to determine whether
the Discovery merits appraisal.


(b)              
If the Operating Committee determines that the
Discovery merits appraisal, Paltar shall deliver to the Operating Committee
within 60 days after the determination a proposed Work Program and Budget for
appraisal of the Discovery.  Within thirty 30 days after delivery, or earlier
if necessary to meet any applicable deadline under the Petroleum Act, the
Operating Committee shall meet to consider or modify such Work Program and
Budget, with Nation having the sole power to approve, reject or modify the
proposal.  




7.               
Default





7.1             
Default and Notice


Nation
will be in default under this Agreement if it fails to contribute any portion
of the Work Program Expenses when due under clause 5.2(b).  Paltar shall
promptly provide Nation written notice of such default. 


7.2             
Immediate Consequences 


From the
date the default notice is given by Paltar until the time all defaults under
clause 7.1 have been remedied, Nation shall have no right to:


(i)                
call or attend Operating Committee or subcommittee meetings;


(ii)              
vote on any matter coming before the
Operating Committee or any subcommittee; or 


 



 





15


 





(iii)            
access any data or information relating to any
operations under this Agreement.


Any
matter which is to be decided by Nation alone under this Agreement shall
instead be decided by Paltar.  


7.3             
Remedies


(a)              
If the Nation default relates to a failure to pay
the Work Program Expenses incurred for the second Permit Year or to contribute
the Work Program Expenses for the third, fourth or fifth Permit Years, and if
Nation fails to remedy such default within 30 days following Paltar’s notice,
then Nation, upon the written request of Paltar, shall surrender its entire
interest in this Agreement to Paltar, free of all Encumbrances arising by,
through or under Nation, and shall execute a written surrender instrument in
such form as reasonably may be requested by Paltar.  As a result of such
surrender, Nation shall have no right ever to receive any interest whatsoever
in the Permit or Permit Area and no right ever to recover any amounts it
previously expended or contributed, whether under this Agreement, in quantum
meruit, or under any other legal or equitable principle.  


(b)              
If the Nation default relates to a failure to
contribute a portion of the Work Program Expenses for the sixth or subsequent
Permit Years, and if Nation fails to remedy such default within 30 days
following Paltar’s notice, then Paltar may, but is not obligated to, purchase
Nation’s entire interest under this Agreement for 90% of the fair market value
of such interest, less the amount in default. If Paltar wishes to undertake
this purchase, it will notify Nation of its desire and of the fair market
value, and Nation shall have seven days after receipt
of this notice either to notify Paltar that it accepts Paltar’s statement of
the fair market value, or that it requires an independent determination of the
fair market value.  If it does not notify Paltar, it will be deemed to have
accepted Paltar’s statement of the fair market value. In either event, Nation
will conclusively be deemed to have sold its rights under this Agreement to
Paltar effective as of the date Paltar sends notice of its desire to purchase
the interest and of the fair market value.


If Nation timely requests independent determination of the fair
market value, the Chairman of
the Australian Petroleum Production & Exploration Association Limited shall
be asked by either Party to appoint an expert to make the determination. The
expert so appointed shall have exclusive power to establish the venue and
timing of, and the procedural rules governing, the determination of fair market
value.  Each Party shall bear its own costs and attorney’s fees in connection
with the determination, although all fees, costs and expenses of the expert
shall be borne solely by Nation. 


7.4             
No Right of Set Off


Nation
acknowledges that a fundamental principle of this Agreement is that it pay the
Work Program Expenses under this Agreement as and when required. Accordingly, Nation waives any right to raise by way of set off or to invoke as a defence
any claim it may have against Paltar, whether under this Agreement or
otherwise, so as to reduce or avoid its obligation timely to contribute
required Work Program Expenses.  


7.5             
Without Prejudice


Paltar may exercise its rights, remedies or powers under
this clause 7 or otherwise at law or in equity, concurrently, individually
or cumulatively.


 



 





16


 





7.6             
No penalty


The
remedies in this clause 7 have been selected by the Parties in light of their
recognition that Paltar is not anticipated to have the funds necessary to pay
Work Program Expenses for the third, fourth or fifth Permit Years, so that the
Permit likely will be lost in its entirety if Nation fails to make the
contributions promised for those years.  In the years thereafter, the Parties
recognize that Paltar may be able to go forward with others based upon prior
work results, but only if it can obtain the interest previously held by
Nation.  Nation agrees that the remedies conferred by this clause 7 do not constitute a penalty or an
unreasonable forfeiture and are necessary to ensure the maintenance of the
Permit in good standing. Nation acknowledges that it is essential to the
viability of the Permit that Nation comply with its financial obligations in a
timely manner, and that assumption by Paltar of the obligations of Nation under
this Agreement is good and valuable consideration for the exercise by Paltar of
its rights to acquire Nation’s interest in this Agreement under this clause 7.




8.               
Relinquishments and renewals





8.1             
Relinquishment


If the
Petroleum Act or the Permit requires Paltar to relinquish any portion of the
Permit Area, Paltar will consult with Nation before selecting the portion to be
relinquished; the final decision concerning the relinquishment area will,
however, be made by Paltar alone.  


8.2             
Extension of the Term


Decisions to
renew the Permit will be made by the Operating Committee, although the Operating Committee decision
whether to renew shall be decided by Nation alone. If the
Operating Committee decides to renew, Nation will be bound by the renewal work
program and all other consequences of the renewal; if the Operating Committee
decides not to renew, Paltar may renew the Permit for its own account, and this
Agreement will automatically terminate upon such renewal.


8.3             
Surrender of Permit or Licence


If
Paltar wishes voluntarily to surrender the entire Permit, such surrender shall
require the specific agreement of Nation.




9.               
Transfer of interest or rights





9.1             
Obligations


If a
Transfer subject to this clause 9 occurs without satisfaction (in all material
respects) by the transferor of the requirements hereof, then the other Party
shall be entitled to enforce specific performance of the terms of this clause
9, in addition to any other remedies (including damages) to which it may be
entitled.  Each Party agrees that monetary damages alone would not be an
adequate remedy for the breach of any Party's obligations under this clause 9.


 



 





17


 





9.2             
Transfer


(a)               
Except in the
case of a Party transferring all of its interest under this Agreement, no
Transfer shall be made by any Party which results in the transferor or the
transferee holding an interest under this Agreement of less than ten percent (10%) of its original interest
under this Agreement.


(b)              
Both the transferee, and, notwithstanding the
Transfer, the transferring Party, shall be liable to the other Parties for the
transferring Party’s share of any obligations (financial or otherwise) which
have vested, matured or accrued under the provisions of this Agreement prior to
such Transfer, including any obligation to contribute Work Program Expenses.  


(c)               
A transferee shall have no rights under this
Agreement unless and until:


(i)                
it expressly undertakes in an instrument
reasonably satisfactory to the other Party to perform the obligations of the
transferor under this Agreement in respect of the interest being transferred;
and


(ii)              
except in the case of a Transfer to a Related
Body Corporate, the other Party has consented in writing to such Transfer,
which consent shall be denied only if the transferee fails to establish to the
reasonable satisfaction of the other Party its financial capability to perform
its obligations under this Agreement.


No consent shall be required under clause 9.2(c)(ii) for a Transfer to
a Related Body Corporate.  


(d)              
Nothing contained in this clause 9 shall prevent
a Party from Encumbering its interest under this Agreement to a third party for
the purpose of security relating to finance, provided that:


(i)                
the Party shall remain
liable for all obligations relating to such interest;


(ii)              
the Encumbrance shall be expressly subordinated to the rights of the other Party to this Agreement; and


(iii)            
the Party shall ensure that any Encumbrance is
expressly without prejudice to the provisions of this Agreement.




10.          
Withdrawal from Agreement





10.1         
Right of Withdrawal


(a)               
Nation may not voluntarily withdraw from this
Agreement before the close of the fifth Permit Year.


(b)              
Subject to the provisions of this clause 10,
Nation may withdraw from this Agreement at any time after the fifth permit year
by providing written notice to Paltar at least 90 days prior to the effective
date of the withdrawal.  Such Notice shall be unconditional and irrevocable
when given and, on the effective date of the withdrawal, this Agreement shall
terminate.


 



 





18


 





(c)               
Nation may not withdraw from this Agreement if
its interest in the Agreement is subject to any Encumbrance, unless Paltar is
willing to accept the assignment reflecting the withdrawal subject to any such
Encumbrance and any necessary consents are obtained from the holder of such
Encumbrance.   


10.2         
Obligations and Liabilities of Nation upon
Withdrawal


Nation
shall, following its notification of withdrawal, remain liable only for its share of the following:


(i)                
all Work Program Expenses coming due before the
effective date of the withdrawal;


(ii)              
all costs and expenses associated with a fire,
blow out, loss of well control, act of sabotage or vandalism, or other
emergency occurring prior to the effective date
of the withdrawal, without regard to when such costs are actually incurred;
and


(iii)            
all other obligations and liabilities of Nation
with respect to acts or omissions under this Agreement prior to the effective date
of the withdrawal for which Nation would
have been liable, had it not withdrawn from this Agreement.




11.          
Relationship of Parties and Tax





11.1         
Relationship of Parties


The
rights, duties, obligations and liabilities of the Parties under this Agreement
shall be several, not joint or joint and several.  It is not the intention of
the Parties to create, nor shall this Agreement be deemed or construed to
create a mining or other partnership or association or (except as explicitly
provided in this Agreement) a trust.  This Agreement shall not be deemed or
construed to authorise any Party to act as an agent,
servant or employee for any other Party for any purpose whatsoever except as
explicitly set forth in this
Agreement. In their relations with each other under this Agreement, the Parties
shall not be considered fiduciaries
except as expressly provided in this Agreement.


11.2         
Tax


Each Party shall be responsible for reporting and
discharging its own royalty and tax measured by the profit
or income of the Party under this Agreement.  Each Party shall protect, defend
and indemnify each other Party from any and
all loss, cost or liability arising from the indemnifying Party's failure to
report and discharge such royalties
and taxes.  The Parties intend that all income and all tax benefits (including,
but not limited to, deductions, depreciation, credits and capitalisation) with
respect to the expenditures made by the Parties hereunder will be
allocated by the relevant tax authorities to the Parties based on the share of
each tax item actually received or borne by each Party.  If such allocation is not accomplished due to the application of the
laws and regulations of the Government or other Government action, the
Parties shall attempt to adopt mutually agreeable arrangements that will allow
the Parties to achieve the financial results intended.  Paltar shall provide
each Party, in a timely manner and at such Party's sole expense, with such information with
respect to Operations as such Party may reasonably request for preparation of its tax returns or
responding to any audit or other tax proceeding.


 



 





19


 





11.3         
United States Tax Election


(a)               
For United Stated Federal Income Tax Purposes,
each U.S. Party hereby elects to be excluded from the application of all the
provisions of Subchapter K, Chapter 1, Subtitle A, of the United States
Internal Revenue Code of 1986, as permitted by Section 761 of said Code and the
Regulations promulgated thereunder.


(b)              
Should there be any requirement that each U.S.
Party evidence this election, each Party agrees to execute such documents and
furnish such other evidence as may be required by the United States Internal
Revenue Service or may otherwise be necessary. Each Party further agrees not to
give any notices or take any other action inconsistent with the election made hereby.


(c)               
If any further income tax law of the United
States contains provisions similar to those contained in said Subchapter K,
under which an election similar to that provided by Section 761 is permitted,
each U.S. Party agrees to make such elections as may be permitted by such laws.
In making this election, each U.S. Party affirms that the income derived by it
from the operations under this Agreement can be adequately determined without
the computation of partnership taxable income.


(d)              
Unless approved by every U.S. Party, no activity
shall be conducted under this Agreement that would cause any Non-U.S. Party to
be deemed to be engaged in a trade or business within the United States under
United States income tax laws or regulations.


(e)               
Nothing in this Agreement shall be interpreted
to require any Party to do or execute any document that might subject it or its
income or property to United States taxation or to render liable to United
States taxation any Party which prior to entering into this Agreement was not subject
to United States taxation.


(f)               
For the purposes of this clause 11.3, “U.S. Party” shall
mean any Party that is subject to the income tax law of the United States in
respect with operations under this Agreement.  “Non-U.S. Party”
shall mean any Party that is not subject to such income tax law. 


11.4         
Goods and Services Tax


(a)               
Unless otherwise stated, all consideration
specified in this Agreement does not include goods and services tax (GST)
under the A New Tax System (Goods and Services Tax) Act 1999 (Cwlth) (GST
Act).


(b)              
If and to the extent that a supply under this
Agreement is subject to GST, the recipient must pay to the supplier an
additional amount equal to the amount of GST payable on that supply (GST
Amount).


(c)               
The GST Amount is payable at the same time as
the GST exclusive consideration for the supply is payable or to be provided. 
However, the GST Amount need not be paid until the supplier provides a Tax
Invoice to the recipient.


(d)              
If the GST Amount differs from the amount of GST
payable by the supplier, the GST Amount must be adjusted.


 



 





20


 





(e)               
If a party is entitled to be reimbursed or
indemnified under this agreement, the amount to be reimbursed or indemnified
must be reduced by any amount for which the Participant is entitled to an Input
Tax Credit (as defined in the GST Act) for the acquisition to which that
reimbursement of indemnification relates.




12.          
Confidential Information





12.1         
Disclosure of Confidential Information


Nation
may not disclose Confidential Information to any person except:


(i)                
with the
written consent of Paltar;


(ii)              
if Nation is required to do so by law, a Government
or a stock exchange;


(iii)            
if Nation is required to do so in connection
with legal proceedings relating to this Agreement;


(iv)            
to a transferee or potential transferee (or its
advisers) of the whole or any part of Nation’s interest under this Agreement who gives an
appropriate confidentiality undertaking to
Nation for the benefit of Paltar; or


(v)              
in connection with,
or in contemplation of, a listing on a stock exchange. 


12.2         
Disclosure by recipient of Confidential Information


If
Nation discloses Confidential Information under clause 12.1, it must use all reasonable endeavours to ensure that persons
receiving Confidential Information do not disclose the information except in
the circumstances permitted in that clause.


12.3         
Use of Confidential Information


Nation
may not use Confidential Information except for the purpose of exercising its
rights or performing its obligations under this Agreement.


12.4         
Prior notification of disclosure to stock
exchange


If Nation is required or wishes to
disclose Confidential Information in accordance with clause 12.1(ii) or clause
12.1(iii), it must notify Paltar of the proposed disclosure as far in advance
as practicable.


12.5         
Return of
Confidential Information


Nation must, upon the request of Paltar,
immediately deliver to Paltar all documents or other materials containing or
referring to the Confidential Information which are in its possession, power or control or in the possession,
power or control of persons who
received Confidential Information from it under clause 12.1(i) or 12.1(iv).


 



 





21


 





12.6         
Retention of
Confidential Information


Despite clause 12.5, Nation may retain
one single copy only of the documents or
other materials referred to in that clause provided that the Party continues to comply with all other obligations set
out in this clause 12 in respect of any retained copies.


12.7         
Obligations Continue


The rights
and obligations of a Party under this clause 12 with respect to confidentiality will continue to apply to that
Party even after this Agreement terminates.  




13.          
Force majeure





13.1         
Force Majeure


If, as a
result of an event of Force Majeure, a Party becomes unable, wholly or in part,
to perform any of its obligations under this Agreement:


(a)               
that Party shall give the other Party notice of
the event of Force Majeure with reasonably full particulars and, insofar as is
known to it, the probable extent to which it will be unable to perform or be
delayed in performing its obligations;


(b)              
on giving the notice of the event of Force
Majeure, that obligation, other than an obligation to pay money, is suspended but only so far as and for so long as it is affected by the
Force Majeure; and


(c)               
the Party affected by the event of Force Majeure must continue to
maintain, or ensure that Paltar maintains, the Permit in good condition.


13.2         
Labour disputes and Native Title matters


The
obligation to use reasonable diligence to overcome or remove the effect of
event of Force Majeure does not require the affected Party to:


(a)               
settle any strike, or other labour dispute on
terms contrary to its wishes;


(b)              
contest the validity or enforceability of any
Laws; or


(c)               
settle any Native Title Claim or enter into any
agreement with respect to Native Title Rights,


(d)              
on terms not reasonably acceptable to it solely
for the purpose of removing the event of Force Majeure.


13.3         
Resumption


The
obligation of the affected Party to perform its obligations resumes as soon as
it is no longer affected by the Force Majeure event.









 





22


 





14.          
Notices





14.1         
Form of Notice


(a)               
Unless expressly stated otherwise in this
Agreement, any notice, certificate, consent, approval, waiver or other
communication in connection with this Agreement (Notice) must be in
writing or given by electronic transmission, signed by an authorised officer of
the sender and marked for the attention of the person identified in clause 14.3
or, if the recipient has notified otherwise, then marked for attention in the
last way notified.


14.2         
When Notices are taken to have been given and
received


(a)               
A Notice is regarded as given and received: 


(i)                
if delivered by hand, when delivered;


(ii)              
if sent by pre-paid post from an address in
Australia to an address in Australia, three days after posting;


(iii)            
if sent by pre-paid post from or to an address
outside Australia, ten days after posting;


(iv)            
if given by fax, when the sender’s fax machine
issues a successful transmission report;


(v)              
if given by email, on the earlier of:


(A)            
the time the sender receives an automated
message that the email was delivered; and


(B)             
six hours after being delivered unless:


(I)               
the sender receives an automated message that
the email was undeliverable or that the recipient is out of the office; or 


(II)             
the sender knows or reasonably should know that
there is a network failure and accordingly knows or suspects that the email was
not delivered,


(b)              
in which case the email is taken not to be
delivered and the sender should resend the notice by hand, post or fax.


14.3         
Address details for Notices


Paltar Petroleum Limited  


Level 10, 32 Martin Place, Sydney, NSW 2000


Attention:  Marc Bruner / Darrel Causbrook


Telephone: +61 2 8222 6100


                        Facsimile: +61 2 9222 1880


                        e-mail: 
darrel.causbrook@causbrooks.com.au





 





23


 





Nation Energy (Australia)
Pty Ltd 


1500 West 16th
Avenue, Suite F


Vancouver, B.C.
Canada V6J 2L6  


Attention: John R. Hislop


Telephone: +1 604 331 3375   


Facsimile: +1 604 688 4712     


e-mail:  jhislop@14u.org          




15.          
Applicable law and arbitration





15.1         
Applicable Law


This
Agreement shall be governed by, construed, interpreted and applied in
accordance with the laws of the Northern Territory, excluding any choice of law
rules which would refer the matter to the laws of another jurisdiction.  


15.2         
Arbitration


(a)               
Any and all claims, demands, causes of action,
disputes, controversies and other matters in question arising out of, in
connection with, or relating to this Agreement, including any question
regarding its breach, existence, validity or termination, must be submitted to
binding arbitration in accordance with, and subject to, the International
Chamber of Commerce Rules of Arbitration. 


(b)              
The appointing and administering body will be
The Institute of Arbitrators & Mediators Australia.  The arbitrators must
have at least ten years’ experience as to the subject of the dispute.


(c)               
There shall be three arbitrators, the language
of arbitration shall be English and the place of arbitration shall be a
mutually-agreed place in Australia.


(d)              
Each Party will each appoint one arbitrator
within 30 days of the filing of the request for arbitration and the two
arbitrators so appointed will select the presiding arbitrator within 30 days of
the appointment of the first two arbitrators.


(e)               
The resulting arbitral award will be final and
binding upon the Parties, and judgment upon such an award may be entered and
enforced by either Party in any court with sufficient jurisdiction.




16.          
Term 





(a)               
Subject to clause 16(b), this Agreement shall be
effective upon execution by all Parties and shall continue, unless sooner
terminated by the express provisions of this Agreement, until Production
Licences covering the entire Permit Area have been issued or until Nation witthdraws
from the Agreement under clause 10.  


(b)              
Any provision of this Agreement that would (but
for this clause) effect an acquisition of an interest in Australian urban land
(within the meaning of the Foreign Acquisitions and
Takeovers Act 1975 (Cth) (FATA)) is subject
to and conditional upon the person making the acquisition not having received any
order or notice under the FATA prohibiting the 



 





24


 





person
from making the acquisition or making the acquisition subject to conditions
which are unacceptable to the person.


(c)               
At any time after March 31, 2017, Nation may
apply to the relevant Minister pursuant to section 96(3) of the Petroleum Act
for approval of this agreement for the purposes of having an entry made in the
register in accordance with section 96(7) of the Petroleum Act.  Paltar
shall take such steps as necessary or reasonably requested by Nation in order
to achieve the approval and entry in the register in accordance with this
clause. 




17.          
General provisions





17.1         
Warranties as to no Payments, Gifts and Loans


Each of
the Parties warrants that neither it nor its affiliates has made or will make,
with respect to the matters provided for
hereunder, any offer, payment, promise to pay or authorisation of the payment
of any money, or any offer, gift,
promise to give or authorisation of the giving of anything of value, directly
or indirectly, to or for the use or
benefit of any official or employee of the Government or to or for the use or benefit of any political party, official,
or candidate unless such offer, payment, gift, promise or authorisation
is authorised by the Laws, or the payment of any bribe to any person or
entity.  Each of the Parties further warrants that neither it nor its Related
Bodies Corporate has made or will make any such offer, payment, gift, promise
or authorisation to or for the use or
benefit of any other person if the Party knows, has a firm belief, or is aware that there is a high probability that the
other person would use such offer, payment, gift, promise or authorisation for
any of the purposes described in the preceding sentence.  Each Party shall respond promptly, and in
reasonable detail, to any notice from any other Party or its auditors
pertaining to the above stated warranty and
representation and shall furnish documentary support for such response upon request from such other Party.


17.2         
Conflicts of Interest


(a)               
Each Party
undertakes that it shall avoid any conflict of interest between its own
interests (including the interests of Related Bodies
Corporate) and the interest of the other Parties in dealing with suppliers,
customers and all other organisations or individuals doing or seeking to do
business with the Parties in connection with activities contemplated under this
Agreement.


(b)              
The provisions of 17.2(a) shall not apply to
Paltar's acquisition of products or services from a Related Body Corporate, or
the sale thereof to a Related Body Corporate, made in accordance with the terms
of this Agreement.


(c)               
Unless otherwise agreed, the Parties and their
Related Bodies Corporate are free to engage or invest (directly or indirectly)
in an unlimited number of activities or businesses, any one or more of which
may be related to or in competition with the business activities contemplated
under this Agreement, without having or incurring any obligation to offer any
interest in such business activities to any Party.


17.3         
Public Announcements


(a)               
Subject to clause 17.3(b), Paltar shall be
responsible for the preparation and release of all public announcements and
statements regarding this Agreement or the Operations; 



 





25


 





provided
that, no public announcement or statement shall be issued or made unless prior
to its release Nation has been furnished with
a copy of such statement or announcement.  Where a public announcement or
statement becomes necessary or desirable because of danger to or loss of life, damage
to property or pollution as a result of activities arising under this
Agreement, Paltar is authorised to issue and
make such announcement or statement without prior approval of Nation,
but shall promptly furnish Nation with a copy of such announcement or
statement.


(b)              
Nation may issue
any such public announcement or
statement if it is necessary to do so in order to comply with the applicable
laws, rules or regulations of any
government, legal proceedings or stock exchange having jurisdiction over Nation or its Related Bodies Corporate.


17.4         
Successors and Assigns


Subject
to the limitations on transfer contained in clause 9, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the Parties.


17.5         
Waiver


No waiver by any Party of any one or more defaults
by another Party in the performance of this Agreement
shall operate or be construed as a waiver of any future default or defaults by
the same Party, whether of a like or of a
different character.  Except as expressly provided in this Agreement no Party shall
be deemed to have waived, released or modified any of its rights under this
Agreement unless such Party has expressly stated, in writing, that it does
waive, release or modify such right.


17.6         
Severance of Invalid Provisions


If and
for so long as any provision of this Agreement shall be deemed to be judged
invalid for any reason whatsoever, such
invalidity shall not affect the validity or operation of any other provision of
this Agreement except only so far as
shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed
severed from this Agreement without affecting the validity of the
balance of this Agreement.


17.7         
Modifications


Except
as is provided in clause 17.6, there shall be no modification of this Agreement
except by written consent of all Parties.


17.8         
Headings


The topical headings used in this Agreement are
for convenience only and shall not be construed as having
any substantive significance or as indicating that all of the provisions of
this Agreement relating to any topic are to be found in any particular clause.


17.9         
Singular and Plural


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


 



 





26


 





17.10     
Gender


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


17.11     
Entirety


This
Agreement constitutes the entire agreement of the Parties with respect to the
subject matter contained herein and
supersedes all prior understandings and negotiations of the Parties.  


17.12     
Legislation


A reference in this Agreement to the Petroleum Act
or any other statute or any provision or clause thereof shall be read (unless otherwise provided in this Agreement) as though the
words ‘including any statutory amendment or
modification thereof any statutory provision substituted thereof, re-enactment
or replacement thereof and any rules, regulations, by laws and
instruments or other documents made pursuant thereto’ were added to such
reference.


No clause within this document can be used by any
person as defence to any action brought under the Criminal
Code or Corporations Act.


17.13     
Rule against perpetuities


For the purposes only of avoiding breach of the rule against
perpetuities this Agreement has a term not exceeding 80 years.




18.          
Definitions





18.1         
Defined terms


Acquisition Date has the meaning
ascribed thereto in clause 5.3.


Authorised Person of a Party means:


(a)             
the officers and employees of the Party;


(b)             
the technical, financial, legal or other
advisors of the Party; and


(c)             
the respective officers and employees of the
technical, financial, legal or other advisors of the Party.


Blocks means the numbered blocks that
each graticular section of the Northern Territory is divided into pursuant to
Section 8 of the Petroleum Act and Block is a reference to any one of
them.  


Commencement
Date means the date hereof.


Confidential
Information means all confidential, non-public or proprietary information
regardless of how the information is stored or delivered, delivered to Nation
before, on or after the date of this Agreement relating to this Agreement or
the Operations. 


Consequential
Loss means:





 





27


 





(a)              
any damages or losses which are not direct or which do not flow
naturally from the relevant breach of this Agreement, even if those damages or
losses may reasonably be supposed to have been in the contemplation of all
Parties as a probable result of the breach at the time they entered into this
Agreement; and


(b)            
any losses of profits, business opportunity, reputation, customers or
markets, whether direct or indirect.


Corporations Act means the Corporations Act 2001 (Cth).


Discovery means the discovery of an
accumulation of petroleum whose existence until that moment was unproven by
drilling. 


Earning Amount means $6,958,523 of Expenditures, which, for the avoidance of doubt,
is an amount separate and apart from the Cash Consideration and the Share
Consideration.


Earning Date has the meaning ascribed
thereto in clause 3.1.


Earning Period means the period commencing on the Commencement Date and ending March
31, 2017.  


Encumbrance means any mortgage, lien,
charge, pledge, assignment by way of security,
security interest, preferential right or trust arrangement, or other arrangement having the same
effect.


Expenditure means expenditure in
respect of Operations and other exploration on the Permit Area and includes all
amounts spent on keeping the Permit in good standing or fulfilling obligations
of Paltar with respect to the Permit. 


Exploration
Agreement means the agreement dated 27 June 2013 among Paltar, the Native
Title Parties (as that term is defined in the Exploration Agreement), and
Northern Land Council, and any other agreement entered into in accordance with
the provisions of the Native Title Act or the Aboriginal Land Rights Act in
relation to the Permit.


Force
Majeure means any of the following events provided that they are outside
the reasonable control of the affected Party and could not have been prevented
or avoided by that Party taking reasonable steps:


(a)              
act of God, earthquake, cyclone, fire, explosion, flood, landslide,
lightning, storm, tempest, drought or meteor;


(b)             
war (declared or undeclared), invasion, act of a foreign enemy,
hostilities between nations, civil insurrection or militarily usurped power;


(c)              
act of public enemy, sabotage, malicious damage, terrorism or civil
unrest;


(d)             
ionising radiation or contamination by radioactivity from any nuclear
waste or from combustion of nuclear fuel;


(e)              
confiscation, nationalisation, requisition, expropriation, prohibition,
embargo, restraint or damage to property by or under the order of any
government or government authority; or





 





28


 





(f)              
strikes, blockades, lock out or other industrial disputes.


Government means any department, local
government council, administrative or statutory authority or any other person
under a Law which has a right to impose a requirement or whose consent is
required.


Indemnitees has the meaning set forth in
clause 3.8(b).


Law means any treaty,
statute, subordinate legislation, code, regulation, rule, common law, equity
determination, injunction, judgment, order, decree, ruling, directive, decision
and any judicial, regulatory, administrative or other interpretation, 
implementation or enforcement of any of the foregoing issued by any Government
having jurisdiction as to the undertakings and any other matters arising under
this Agreement, whether currently in effect or subsequently modified, including
Commonwealth, Northern Territory and local government legislation, regulations,
by‐laws, and other subordinate legislation. 


Minimum Work Obligations means those
work or expenditure obligations that must be performed in order to satisfy
Permit obligations.


Nation Interest means an undivided twenty-five
percent (25%) interest in the Permit, insofar as it covers the Permit Area, and
any Production Licence granted in connection therewith (subject to clause 5). 


Native Title Claims means either:


(a)              
any claim, application or proceeding in respect
of Native Title Rights which is accepted by the Native Title Tribunal or the
Registrar thereof pursuant to the Native Title Act 1993 (Cth); or


(b)            
any claim, application or proceeding in respect
of those rights, interests and statutory protections of and relating to
aboriginal persons as set out in the legislation of the Northern Territory or
the Aboriginal and Torres Strait Islander Heritage Protection Act 1984
(Cth).


Native Title Rights has the same meaning as the expressions “native title” or “native
title rights and interests” defined in section 223(1) of the Native Title
Act 1993 (Cth) and includes those rights, interests and statutory
protections of and relating to aboriginal persons and aboriginal cultural
heritage as set out in the relevant legislation of the Northern Territory
including the Northern Territory Aboriginal Sacred Sites Act (NT) or the Aboriginal
and Torres Strait Islander Heritage Protection Act 1984 (Cth).


Notice has the meaning set forth in
clause 14.1.


Operating
Account means the account established and maintained by the Operator in
accordance with this Agreement to record all charges, expenditures, credits and
receipts in respect of Operations which are chargeable or to be credited to
Nation.


Operating Committee means the committee
established and functioning under clause 4.


Operations means the following
activities required for the operation of the Permit in accordance with this
Earning Agreement:





 





29


 





(a)              
management and operation of the Permit;


(b)             
facilitation of access to the Permit including
liaising with native title parties and landholders; 


(c)              
preparation, development and carrying out of
exploration and appraisal programs on the Permit Area; 


(d)             
geological analysis and interpretation of
exploration results; 


(e)              
compliance with conditions and legal
requirements relating to the Permit; 


(f)              
appointment and management of contractors
undertaking seismic analysis, drilling, and related exploration and appraisal
programs. 


Operator
has the meaning given to it in
the 1993 NT Onshore Petroleum Directions.


Option has the meaning ascribed thereto
in clause 5.3.


Option Period has the meaning ascribed
thereto in clause 5.3.


Paltar
Interest means an undivided seventy‐five percent (75%) interest in
the Permit, insofar as it covers the Permit Area, and any Production Licence
granted in connection therewith (subject to clause 5).


Parties means the entities named in the first paragraph to
this Agreement and their respective permitted
successors or assigns, and Party is a reference to any one of them. 


Permit means Exploration Permit 231
issued under the Petroleum Act and includes any extension, renewal, conversion,
substitution, modifications or variations thereof. 


Permit Area means the entire geographic
area covered from time to time by the Permit.


Permit Year means a year beginning 3
October and ending the following 2 October.


Petroleum Act means the Petroleum Act
2009 (NT).


Production
Licence has the meaning provided in the Petroleum Act.


Property means all property,
whether real or personal, which is owned, leased, held, developed, constructed,
produced or acquired by the Operator solely for the conduct of Operations.


Related Body Corporate has the meaning
given to it in section 50 of the Corporations Act.


Senior Supervisory Personnel means a
Party’s senior manager, who directs all operations and activities of such Party
in Australia.  


Transfer
means assign, transfer or otherwise dispose of any interest in this
Agreement in whole or part, whether by sale, lease, declaration or creation of
a trust or otherwise.


Wilful Misconduct means an intentional
and conscious disregard of any obligation
owed by the relevant person, but does not include any act or omission which is
(directly or indirectly) attributable to any breach or
negligence on the part of any other person or of such other person's
Related Body Corporate.



 





30


 







Work Program and Budget means an annual
work program prepared by Paltar setting out the Operations to be undertaken
during that year under this Agreement in respect of the Permit, together with
the estimated amounts required to perform such work program.  


Work
Program Expenses means the costs and expenses incurred, paid or payable by
the Operator in accordance with the provisions of this Agreement or otherwise
authorized by the Operating Committee in connection with conducting Work
Programs and Budgets.   


18.2         
Interpretation


In this
Agreement, except where the context otherwise requires:


(a)             
the singular includes the plural and vice versa and a gender includes other
genders;


(b)             
another grammatical form of a defined word or expression has a corresponding meaning;


(c)             
a reference to a clause, paragraph, schedule or
annexure is to a clause or paragraph of, or schedule or annexure to, this
Agreement and a reference to this Agreement includes any schedule or annexure;


(d)             
a reference to a document or instrument includes
the document or instrument as novated, altered, supplemented or replaced from
time to time;


(e)             
except where expressly indicated otherwise, all
references to dollar amounts are in Australian currency;


(f)              
a reference to a Party is to a party to this
Agreement and a reference to a Party to a document includes the Party's
executors, administrators, successors and permitted assigns and substitutes;


(g)             
a reference to a person includes a natural
person, partnership, body corporate, association, governmental or local
authority or agency or other entity;


(h)             
a reference to a statute, ordinance, code or
other law includes regulations and other instruments under it and
consolidations, amendments, re-enactments or replacements of any of them;


(i)               
the meaning of general words is not limited by
specific examples introduced by including, for example or similar expressions;


(j)               
a rule of construction does not apply to the
disadvantage of a Party because the Party was responsible for the preparation
of this Agreement or any part of it; and


(k)             
if a day on or by which an obligation must be
performed or an event must occur is not a business day in Sydney, Australia,
the obligation must be performed or the event must occur on or by the next day
that is a business day.






 





31


 





18.3         
Headings


Headings are for ease of reference only and do not affect
interpretation.


[Signature
page follows]





 





 





32


 





	
  Executed by Paltar Petroleum
  Limited (ACN 149 987 459) in accordance with section 127 of the
  Corporations Act by authority of its directors:

   

   

  /s/ Nick Tropea

  	
   

  	
   

   

   

   

   

  /s/ Marc A. Bruner

  
	
  Secretary

   

  Nick Tropea

  	
   

  	
  Director

   

  Marc A. Bruner

  
	
  Print name

  	
   

  	
  Print name

  




 


 


	
  Executed by Nation Energy
  (Australia) Pty Ltd (ACN 606 533 046) in accordance with section 127 of
  the Corporations Act by authority of its directors:

   

   

  /s/ Darrel Causbrook

  	
   

  	
   

   

   

   

   

   

  /s/ John R. Hislop

  
	
  Secretary/Director

   

  Darrel Causbrook

  	
   

  	
  Director

   

  John R. Hislop

  
	
  Print name

  	
   

  	
  Print name

  














 

Schedule 1 – Royalties


 


	
  Holder & Granting Document

  	
  Percentage of Hydrocarbons produced/sold

  
	
  1.     Exploration
  Agreement among Paltar, Native Title Parties and Northern Land Council  

  	
  2%, increasing to 4% after one
  million barrels have been produced from EP 231, 232 and 234, and increasing
  again to 5% after one billion barrels have been produced from lands covered
  by the three permits

  
	
  2.     Northern
  Territory of Australia royalty pursuant to the Petroleum Act (NT)

  	
  10%

  











 


And see
clause 5.6(a) of the Agreement for an additional overriding royalty that will
be reserved by Paltar when assigning to Nation the Paltar Interest in any
Production Licence, so that the effective revenue interest in the Production
Licence in the hands of Nation will, if Nation exercises its purchase option, be
75% of 100%. 


                                                      













\ 







 

Schedule 2 – Work Program and Budget (all values
in $ AUD)


      Permit
Year 3 (3 Oct 2015 to 2 Oct 2016)


            Drill one vertical exploration
well                                                      $ 5,544,640


            Geological and geophysical work                                                            
415,848


            Engineering,
Geological and Geophysical Services                                  998,035


                                                                                                                       $
6,958,523


      Permit
Year 4 (3 Oct 2016 to 2 Oct 2017)


            Complete well drilled in Permit
Year 3 and drill one new vertical well             $   9,703,120  Geological
and geophysical work                                                                                               
 2,439,642    Engineering, Geological and Geophysical Services                                                                                 
     998,035


                                                                                                                        $13,140,797


 


Amounts shown above are in Australian
dollars.  All such amounts were originally estimated in United States dollars
and converted to Australian dollars at the rate of USD 1.00 = AUD 1.38616, the
oanda.com average bid rate in effect @ 10:45 pm MST, 20 May 2016.


The term Engineering, Geological and
Geophysical Services was used in lieu of G&A because it is a better
description of those services provided for benefit of Paltar blocks.


Completion and testing of drill well in
Permit Year 3 occurs in Permit Year 4.


This is an estimate of the current work
commitment to be performed on behalf of the Exploration Permit.  The actual
work performed will be dependent upon approval by the Northern Territory
Department of Mines and Energy (“DME”) of the Application for Suspension,
Variation and Extension that will be filed during July 2016.


 


 












 

Annex 1 – Accounting Procedure


_______________________


Section
1............................................................................  
General Provisions. 1


Section
2..................................................................................  
Direct Charges. 7


Section
3................................................................................  
Indirect Charges. 11


Section
4.....................................................................  
Acquisition of Material 12


Section
5........................................................................  
Disposal of Materials. 13


Section 6........................................................................................  
Inventories. 14


____________________________________


 


Section 1          
General Provisions


1.1             
Purpose


The purpose of this Accounting Procedure is to establish fair and
equitable methods for determining charges and credits applicable to Operations.  If the methods prove unfair or inequitable to Paltar or Nation,
the Parties shall meet and in good faith endeavour to agree on changes to
correct any unfairness or inequity.


1.2             
Conflict


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


1.3             
Definitions


The definitions contained in
clause 18 of the Agreement shall
apply to this Accounting Procedure and have the same meanings when used herein.
Certain terms used herein are defined as follows:


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


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


Country of Operations means the Commonwealth of
Australia.


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





 





3


 





1.4             
Operating Account
Records / Currency Exchange


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


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


1.4.3       
The
Operating Account shall be maintained by Paltar in the English language and in
Australian currency. 
Conversions of currency shall be recorded at the rate actually experienced in
that conversion. 
Currency translations are used to express the amount of expenditures and
receipts for which a currency conversion has not actually occurred.  Currency
translations for expenditures and receipts shall be recorded at the arithmetic average of the buying
and selling exchange rates at the close of each business day of the month of the current
accounting period as published by oanda.com or, if not published by oanda.com,
then by Westpac Banking Corporation.


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


1.4.5       
The
Accrual basis for accounting shall be used in preparing accounts concerning the
Operations.  If a Cash basis
for accounting is used, Paltar shall show accruals as memorandum items.


1.5             
Statements and Billings


Unless
otherwise agreed by the Parties, Paltar shall submit monthly to Nation, on or
before the 15th day of each month, statements of the costs and
expenditures incurred during the prior month,
indicating by appropriate classification the nature thereof and the
corresponding budget category.


1.5.1       
These statements, as a
minimum, shall contain the following information:


(i)                
advances of funds
setting forth the currencies received from Nation;


(ii)              
the share of Nation in
total expenditures, if other than 100%;


(iii)            
the accrued
expenditures;


(iv)            
the current account
balance of Nation;


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



 





4


 







(vi)                        
details of unusual charges and credits in excess of
fifty thousand Australian dollars (A $50,000.00).


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


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


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


1.6             
Payments and Advances


1.6.1       
Upon
approval of any Work Program and Budget, if Paltar so requests, Nation shall advance its share
of estimated cash requirements for the succeeding month's operations.  Each
such Cash Call shall be equal to Paltar's estimate of the money to be spent in
the currencies required to
perform its duties under the Work Program and Budget during the month
concerned.  For informational purposes the Cash Call shall contain an estimate
of the funds required for the succeeding two
months detailed by the categories designated in the Work Program and
Budget.


1.6.2       
Each
such cash Call, detailed by the categories designated in the Work Program and Budget, shall be made in writing and delivered to Nation not less than 15
days before the payment due date.  The
due date for payment of such advances shall be set by Paltar but shall be no sooner than the first day of the
month for which the advances are required. All advances shall be made without bank charges. Any charges related to
receipt of advances from Nation shall be borne by Nation.


1.6.3       
Nation
shall wire transfer its share of the full amount of each Cash Call to Paltar on or before
the due date, in the currencies requested or any other currencies acceptable to Paltar
at a bank designated by Paltar.  If currency provided by Nation is other than the
requested currency, then the entire cost of converting to the requested currency shall be charged to Nation.


1.6.4       
Notwithstanding the
provisions of clause 1.6.2 of this Accounting Procedure, should Paltar be required to pay any sums of money for
Operations which were unforeseen at the time estimates were provided to Nation, Paltar may make a written
request of Nation for special advances covering Nation' share of such payments.  Each such Nation shall
make its proportional special advances within
ten days after receipt of such notice.





 





5


 





1.6.5       
If
Nation's advances exceed its share of cash expenditures, the next succeeding
cash advance
requirements, after such determination, shall be reduced accordingly.  However,
if the amount
of such excess advance is greater than the amount of the next month's estimated
cash requirements for such
Nation, Nation may request a refund of the difference, which refund shall be
made by Paltar within ten days after receipt of Nation's request provided that the amount is in excess of twenty five thousand
Australian dollars (A$25,000.00).


1.6.6       
If
Nation's advances are less than its share of cash expenditures, the deficiency
shall, at Paltar's
option, be added to subsequent cash advance requirements or be paid by Nation within ten days
following the receipt of Paltar's billing to Nation for such deficiency.


1.6.7       
If, under the
provisions of the Agreement, Paltar is required to segregate funds received
from the Parties, any interest received on
such funds shall be applied against the next succeeding Cash Call.  


1.6.8       
If
Paltar does not ask Nation to advance its share of estimated cash requirements, Nation
shall pay its share of cash expenditures within 10 days following receipt of Paltar's billing.


1.6.9       
Payments of advances or
billings shall be made on or before the due date. If these payments are not
received by the due date the unpaid balance shall bear and accrue interest from
the due date until the payment is received by
Paltar at the Agreed Interest Rate.   For the purpose of determining the unpaid balance and interest owed,
Paltar shall translate to Australian currency
all amounts owed in other currencies using the currency exchange rate
determined in accordance with clause 1.4.3 at the close of the last
business day prior to the due date for the unpaid balance.


1.6.10    Subject to governmental regulation, Paltar
shall have the right, at any time and from time to time, to convert the funds advanced or any part thereof to other
currencies to the extent that such currencies are then required for
operations.   The cost of any such conversion shall be charged to the Operating Account.


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


1.6.12    If under the Agreement,
Paltar is required to segregate funds received from or for the Operating
Account, the provisions under this clause 1.6 for payments and advances by
Nation shall
apply also to Paltar.


1.7             
Adjustments


Payments of any advances or billings shall not prejudice the right of
Nation to protest or question
the correctness thereof; provided, however, all bills and statements rendered
to Nation by Paltar during any year shall conclusively be presumed to be true
and correct after 24 months following the end of such year, unless within the
said 24 month period Nation takes written exception thereto and makes claim on Paltar for adjustment.  Failure on the part
of Nation to make claim on Paltar for
adjustment within such period shall establish the correctness thereof and
preclude the filing of exceptions
thereto or making claims for adjustment thereon.  No
adjustment favourable to Paltar shall
be made unless it is made within the same prescribed period.  The provisions
of this clause 1.7 shall not prevent adjustments resulting from a physical
inventory of the Material as provided for in clause VI.  Paltar shall be
allowed to make adjustments to the Operating Account after such 24 month period
if these adjustments result from audit exceptions outside of this Accounting
Procedure, third party claims, or government requirements.  Any such adjustments shall be subject to audit within the
time period specified in clause 1.8.l of this Accounting Procedure.



 





6


 







1.8             
Audits


1.8.1       
Nation,
upon at least 60 days advance notice in writing to Paltar, shall have the right to audit the
Operating Account and records of Paltar relating
to the accounting hereunder for any year within the 24 month period following
the end of such year, except as otherwise provided in clause 3.1 of this
Accounting Procedure.  As provided in clause 4.2(b)(6) of the Agreement, Nation
shall have reasonable access to Paltar's personnel and to the facilities,
warehouses, and offices directly or
indirectly serving Operations.  The cost of each such audit shall be borne by
Nation.  Nation must take written exception to and make claim upon Paltar for all
discrepancies disclosed by said audit within said 24 month period.  Nation
may request information from Paltar prior to the commencement of the audit. 
Paltar will provide the information in electronic format or hard copy
documents, if electronic format is not available.  Paltar will provide the
information requested within 30 days before commencement of the audit but in no
event sooner than 30 days after the written request.  The information requested
shall be limited to that normally used for pre-audit work such as trial
balance, general ledger, and sub-ledger data.  


1.8.2       
Paltar
shall endeavour to produce information from its Affiliates reasonably necessary
to support charges from those
Affiliates to the Operating Account other than those charges referred to in
clause 3.1 of this Accounting Procedure.


1.8.3      
Except for charges under clause 2.7.1, the following
provisions apply to all charges by Paltar for its Affiliates. 


In addition to the information provided by Paltar
under clause 1.8.2, Nation may seek to audit the books and records of an
Affiliate of Paltar relating to the charges by the Affiliate to the Operating
Account for the same year as provided in clause 1.8.1 above.  The charges of
the Affiliate shall be subject to audit in accordance with (a), (b), or (c)
below or any combination thereof.


(a)      If the Affiliate of Paltar consents to the
audit, the audit may be conducted in the same manner as the audit of the books
and records of Paltar.  


If all or part of the charges are not audited under
(a) above, the unaudited portion may be audited under (b) and/or (c) below.


(b)     The Affiliate may require use of an
internationally recognized independent public accounting firm to confirm
confidential or proprietary information and charges.  The cost of the
internationally recognized independent public accounting firm shall be borne by
Nation.  Nation will seek agreement with the Affiliate on the audit scope to
confirm the details and facts relating to such information and charges.     





 





7


 





If the internationally recognized
independent public accounting firm of the Affiliate declines to conduct the
audit, Nation will seek agreement with the Affiliate on an alternative
internationally recognized independent public accounting firm.  The cost of
using such firm shall be borne by Nation.


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


If all or part of the charges are not audited under
(a) or (b) above, the unaudited portion may be audited under (c) below.


(c)     Paltar may request its Affiliate to provide
Nation an annual report from an internationally recognized independent public
accounting firm attesting that charges billed from such Affiliate to the
Operating Account represent a complete and accurate allocation of its costs to
the Operations, exclude any element of profit, exclude any duplication of costs
covered under clauses 2 and 3, and are consistent in application to all of its
activities.  The report will be furnished by Paltar within 12 months of the
request from Nation.  The cost of providing the annual report shall be borne by
Nation.


No amounts paid to an Affiliate of Paltar, which
Nation seeks to audit, may be charged to the Operating Account if the Affiliate
of Paltar does not allow audit of such amounts as provided above.


1.8.4      
Any
information obtained by Nation under the provisions of clause
1.8 which does not relate directly to the Operations shall be kept confidential
and shall not be disclosed to any party, except as would otherwise be permitted
under clause 15.2(a)(ii) and (x) of the Agreement.


1.8.5      
In
the event that Paltar is required by law to employ a public accounting firm to
audit the Operating Account
and records of Paltar relating to the accounting hereunder, the cost thereof
shall be a charge against the Operating Account, and a copy of the audit shall
be furnished to Nation.


1.8.6       At the conclusion of each audit, the
Parties shall endeavour to settle outstanding matters expeditiously.  To this end
Nation will make a reasonable effort to prepare and distribute a written
report to Paltar as soon as possible and in any event within 90 days after the
conclusion of each audit.  The
report shall include all claims arising from such audit together with comments pertinent to the operation of the accounts and
records.  Paltar shall make a reasonable effort to reply to the report in writing as soon as possible
and in any event no later than 90 days
after receipt of the report.  Should Nation consider that the report or reply
requires further investigation of any item therein, Nation shall have the right
to conduct further investigation in
relation to such matter notwithstanding the provisions of clauses 1.7 and 1.8 of this Accounting Procedure that the
period of 24 months may have expired. 
However, conducting such further investigation shall not extend the 24 month period for taking written exception to and
making a claim upon Paltar for all discrepancies
disclosed by said audit. Such further investigations shall be commenced within 30 days and be concluded within 60 days after the
receipt of such report or reply, as
the case may be.





 





8


 





1.8.7       
All
adjustments resulting from an audit agreed between Paltar and Nation conducting the audit
shall be reflected promptly in the Operating Account by Paltar and reported to Nation. 
If any dispute shall arise in connection with an audit, it shall be reported to and
discussed by the Operating Committee, and, unless otherwise agreed by the Parties to the dispute, resolved in
accordance with the provisions of clause 18 of the Agreement. If all the Parties to the dispute so agree, the
adjustments) may be referred to an independent expert agreed to by the Parties to the dispute.  At the election of the
Parties o the dispute, the decision
of the expert will be binding upon such Parties.  Unless otherwise agreed, the
cost of such expert will be shared equally by all Parties to the
dispute.


1.9             
Allocations


If it
becomes necessary to allocate any costs or expenditures to or between
Operations and any other operations, such
allocation shall be made on an equitable basis. When it is reasonably
foreseeable that such an allocation will be required, Paltar will
furnish a description of its allocation procedures pertaining to these costs and expenditures and its rates for personnel
and other charges.  Such allocations
shall be subject to audit under clause 1.8.


Section 2          
Direct Charges


Paltar
shall charge the Operating Account with all costs and expenditures incurred by Paltar
for the conduct of Operations.  Charges for services normally provided by an
operator such as those contemplated in clauses 2.7.2 and 2.7.3 which are
provided by Paltar’s Affiliate shall reflect the cost to the Affiliate,
excluding profit, for performing such services, except as otherwise provided in
clause 2.6 and clause 2.7.1.


Charges
shall only be applied to the Operating Account to the extent such charges are
reasonably incurred in the legitimate exercise of Operations under the
Agreement and in bona fide arms-length transactions on commercial terms
generally available in the market place.


The costs
and expenditures shall be recorded as required for the settlement of accounts
between the Parties hereto in connection with the rights and obligations under
this Agreement and for purposes of complying with the tax laws of the Country
of Operations and of such other countries to which any of the Parties may be subject.  Chargeable costs and expenditures may include, but are not limited to:


2.1             
Permits


All costs,
if any, attributable to the acquisition, maintenance, renewal or relinquishment
of the Permits paid in accordance with the
Petroleum Act when paid by Paltar in accordance with the provisions of the Agreement.


2.2             
Salaries, Wages and
Related Costs.


Salaries,
wages and related costs include everything constituting the employees' total
compensation, as well as the cost to Paltar
of holiday, vacation, sickness, disability benefits, living and housing allowances,
travel time, bonuses, and other customary allowances applicable to the salaries
and wages chargeable hereunder, as well as the costs to Paltar for employee
benefits, including but not limited to employee group life insurance,
group medical insurance, hospitalization, retirement, severance payments required by the laws or regulations of the
Country of Operations.  



 





9


 







Expenditures or contributions made pursuant to assessments imposed by
governmental authority for payments with respect to or on account of employees
described in clause 2.2.1 and clause 2.2.2 shall be chargeable to the Operating
Account.


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


2.2.2       
The salaries, wages and
related costs of employees of Paltar and its Affiliates temporarily or
permanently assigned outside the Country of Operations directly engaged in
Operations and not otherwise covered in clause 2.7.2 of this Accounting
Procedure shall be chargeable to the Operating Account;


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


2.2.4       
Reasonable
expenses (including related travel costs) of those employees whose salaries and
wages are chargeable to the
Operating Account under clauses 2.2.1 and 2.2.2 of this Section 2 and for which
expenses the employees are reimbursed under the usual practice of Paltar shall
be chargeable to the Operating Account; and


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


2.3             
Employee Relocation
Costs


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


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


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





 





10


 





2.4             
Offices, Camps, and
Miscellaneous Facilities.


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


2.5             
Material


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


2.6             
Exclusively Owned
Equipment and Facilities of Paltar and Affiliates.


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


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


2.7             
Services


2.7.1       
The
charges for services provided by third parties shall be chargeable to the Operating Account.


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


2.8             
Insurance


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





 





11


 





2.9             
Damages and Losses to
Property


2.9.1       
All
costs or expenditures necessary to replace or repair damages or losses incurred
by fire, flood,
storm, theft, accident, or any other cause shall be chargeable to the Operating
Account. Paltar shall furnish
Nation written notice of damages or losses incurred in excess of fifty thousand
Australian dollars (A$50,000) as soon as practical after report of the same has
been received by Paltar.  All losses in excess of fifty thousand Australian
dollars (A$50,000) shall be listed separately in the monthly statement of costs
and expenditures.


2.9.2       
Credits for settlements
received from insurance carried for the benefit of Operations and from others
for losses or damages to Property or Materials shall be chargeable to the
Operating Account.  


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


2.10         
Litigation, Dispute
Resolution and Associated Legal Expenses


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


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


2.10.2    If the Parties shall so agree, litigation,
arbitration or other alternative dispute resolution procedures resulting from
actions or claims affecting the Operations hereunder may be handled by the legal staff of one or any of the
Parties or their respective Affiliates; and a charge commensurate with the reasonable
costs of providing and furnishing such services rendered may be made by the
Party or the Affiliate providing such
service to Paltar for the Operating Account, but no such charges shall be made until
approved by the Parties.


2.11         
Taxes and Duties


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


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


2.12         
Ecological and
Environmental


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



 





12


 







2.13         
Decommissioning
(Abandonment) and Reclamation.


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


2.14         
Other Expenditures


Any other
costs and expenditures incurred by Paltar for the necessary and proper conduct
of the Operations and not covered in this
Section 2 or in Section 3.


Section 3          
Indirect Charges


3.1             
Purpose


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


3.2             
Amount


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


3.2.2      
Unless exceeded by the minimum assessment under clause
3.2.3, the Year-to-Date indirect
charges shall be a percentage of the aggregate Year-to-Date expenditures,
calculated on the following
scale:


Annual Expenditures


$0 to A$3,000,000 of
expenditures = 5 %


Next A$7,000,000
of expenditures =
4 %





 





13


 





Next A$11,000,000 of expenditures = 3 %


Excess
above A$11,000,000 of expenditures = 1.5 %


3.2.3       
A minimum
amount of A$36,000.00 shall be assessed each year calculated from the Effective
Date and shall be reduced pro rata for periods of less than a year.


3.3             
Indirect Charge for
Projects.


If a major
infrastructure construction project is undertaken, a separate indirect charge for such project shall be approved by
the Operating Committee at the time of approval of the project.


Section 4          
Acquisition of Material


4.1             
Acquisitions


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


4.2             
Materials Furnished by
Paltar


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


4.2.1       
New Materials
transferred from the warehouse or other properties of Paltar hall be priced at
net cost determined in accordance with clause 4.1 above as if Paltar had
purchased such new Material just prior to its transfer.  Such net costs shall
in no event exceed the then current market price.


4.2.2       
Material which is in
sound and serviceable condition and suitable for use without repair or
reconditioning shall be classed as Condition ‘B’ and priced at 75% of such new
purchase net cost at the time of transfer.


4.2.3       
Materials not meeting
the requirements of clause 4.2.2 above, but which can be made suitable for use
after being repaired or reconditioned, shall be classed as Condition
"C" and priced at 50% of such new purchase net cost at the time of
transfer.  The cost of reconditioning shall also be charged to the Operating
Account provided the Condition ‘C’ price, plus cost of reconditioning, does not
exceed the Condition ‘B’ price; and provided that Material so classified meet
the requirements for Condition ‘B’ Material upon being repaired or
reconditioned.


4.2.4       
Material which cannot
be classified as Condition ‘B’ or Condition ‘C’, shall be priced at a value
commensurate with its use.


4.2.5       
Tanks, derricks,
buildings, and other items of Material involving erection costs, if transferred
in knocked-down condition, shall be graded as to condition as provided in this clause 4.2 of Section 4, and priced on the basis of knocked-down price of
like new Material.



 





14


 







4.2.6       
Material including
drill pipe, casing and tubing, which is no longer useable for its original purpose but is useable for some other purpose,
shall be graded as to condition as provided in this clause 4.2 of
Section 4.  Such Material shall be priced on the basis of the current price of
items normally used for such other purpose if sold to third parties.


4.3             
Premium Prices


Whenever
Material is not readily obtainable at prices specified in clauses 4.1 and 4.2
of this clause IV because of national
emergencies, strikes or other unusual causes over which Paltar has no control, Paltar may charge the Operating Account for the
required Material at Paltar's actual cost incurred procuring such Material, in
making it suitable for use, and moving it to Permit area, provided that notice in writing, including a detailed
description of the Material required and the required delivery date, is furnished to Nation of the proposed charge at
least 10 days (or such shorter period
as may be specified by Paltar) before the Material is projected to be needed
for operations and prior to billing
Nation for such Material the cost of which exceeds fifty thousand Australian dollars (A$50,000.00).  Nation shall have the
right, by so electing and notifying Paltar within seven days (or such shorter
period as may be specified by Paltar) after receiving notice from Paltar, to furnish in kind all or
part of his share of such Material per the terms of the notice which is suitable for use and acceptable to Paltar
both as to quality and time of delivery.  Such acceptance by Paltar shall not be unreasonably withheld.  If Material
furnished is deemed unsuitable for
use by Paltar, all costs incurred in disposing of such Material or returning
Material to owner shall be borne by
Nation furnishing the same unless otherwise agreed by the Parties.  If Nation fails to properly submit an election notification
within the designated period, Paltar is not required to accept Material furnished in kind by Nation.  If Paltar fails
to submit proper notification prior
to billing Nation for such Material, Paltar shall only charge the Operating
Account on the basis of the price allowed during a "normal"
pricing period in effect at time of movement.


4.4             
Warranty of Material
Furnished by Paltar


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


Section 5          
Disposal of Materials


5.1             
Disposal


Paltar
shall be under no obligation to purchase the interest of Nation in new or used
surplus Materials.  Paltar shall have the
right to dispose of Materials but shall advise and secure prior agreement of the Operating Committee of any
proposed disposition of Materials having an original cost to the Operating Account either individually or in the
aggregate of A$50,000 or more.  When
Operations are relieved of Material charged to the Operating Account, Paltar shall advise Nation of the original cost
of such Material to the Operating Account so that the Parties may
eliminate such costs from their asset records.  Credits for Material sold by
Paltar shall be made to the Operating Account in the month in which payment is
received for the Material.  Any Material sold
or disposed of under this clause shall be on an ‘as
is, where is’ basis without guarantees or warranties of any kind or nature. Costs and expenditures
incurred by Paltar in the disposition of Materials shall be charged to the Operating Account.



 





15


 







5.2             
Material Purchased by
Nation or its Affiliate


Proceeds
received from disposed Material purchased by Nation or its Affiliate shall be credited to the Operating Account, with new
Material valued in the same manner as new Material under clause 4.2.1 of this Accounting Procedure and used
Material valued in the same manner as
used Material under clause 4.2.2 of this Accounting Procedure, unless otherwise
agreed by the Operating Committee.


5.3             
Sales to Third Parties


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


Section 6          
Inventories


6.1             
Periodic Inventories -
Notice and Representation


At
reasonable intervals, inventories shall be taken by Paltar of all Material held
in warehouse stock on which detailed
accounting records are normally maintained.  The expense of conducting periodic
inventories shall be charged to the
Operating Account.  Paltar shall give Nation written notice at least 60 days in advance of its intention to take
inventory, and Nation, at its sole cost and expense, shall each be entitled to
have a representative present.  The failure of Nation to be represented at such
inventory shall bind such Nation to accept the inventory taken by Paltar, who
shall in that event furnish Nation with a reconciliation of overages and
shortages.  Inventory adjustments to the Operating Account shall be made for
overages and shortages.  Any adjustment equivalent to A$50,000 or more
shall be brought to the attention of the
Operating Committee.


6.2             
Special Inventories


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