<PAGE>

                                                                    EXHIBIT 10.5

                                    AGREEMENT

                                     BETWEEN

                           (1) CANARGO SAMGORI LIMITED

                                       AND

                        (2) GEORGIAN OIL SAMGORI LIMITED

               --------------------------------------------------

               COVERING: THE SAMGORI PRODUCTION SHARING CONTRACT,
                                    GEORGIA

               --------------------------------------------------

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

AGREEMENT DATED ________ JANUARY 2004 (THE "AGREEMENT")

between

(1)   CANARGO SAMGORI LIMITED, a company organised and existing under the laws
      of Guernsey (registered number 41491), and having its registered office at
      PO Box 291, St Peter Port, Guernsey GY1 3RR (CanArgo, and its successors
      and assignees, if any, will be referred to as "CanArgo")

and

(2)   GEORGIAN OIL SAMGORI LIMITED, a company wholly owned by the Joint Stock
      National Oil Company Georgian Oil ("Georgian Oil"), a legal entity
      organised and existing under the laws of Georgia pursuant to the Charter
      of Georgian Oil Samgori Limited and the Law on Oil and Gas and having
      offices at Kostava Street 65, Tbilisi 0171, Georgia (Georgian Oil Samgori
      Ltd, and its successors and assignees, if any, will be referred to as
      "GOSL")

CanArgo and GOSL together being referred to as the "Parties" and "Party" shall
be a reference to either of them.

WHEREAS

(A)   A Production Sharing Contract was entered into on 29 May 2001 (the "PSC")
      among (1) The State Agency for Regulation of Oil and Gas Resources of
      Georgia (the "State Agency"), (2) the Joint Stock National Oil Company
      Saknavtobi ("Georgian Oil"), both duly authorised representatives of the
      State of Georgia, and (3) National Petroleum Limited ("NPL"), and signed
      pursuant to the Georgian Law on Oil and Gas of 16 April 1999 (hereinafter
      the "Law"), in terms of which NPL was the sole Contractor (as defined in
      the PSC) under the PSC;

(B)   GOSL became a party to and the sole Contractor under the PSC by the
      acquisition of 100% of NPL's interest in the PSC pursuant to the Agreement
      of Assignment dated 16 December 2003 (the "Assignment") between NPL and
      GOSL;

(C)   GOSL wishes and is obliged to implement the Assignment provisions which
      include an agreed Work Programme as described in Annex 1 of the Assignment
      (the "Work Programme"), but does not currently possess sufficient funds
      and is looking for a partner;

(D)   GOSL desires to assign, and CanArgo desires to acquire a fifty per cent
      (50%) interest in GOSL's rights and obligations as the Contractor party
      under the PSC on the terms and on the basis set forth herein;

(E)   The Parties express a desire to jointly implement the Work Programme as
      defined in the Assignment and the provisions of the Assignment and
      subsequently the PSC;

(F)   Ioris Valley Oil and Gas Limited ("IVOG"), the Operating Company for
      Petroleum Operations under the PSC owned fifty per cent (50%) by Georgian
      Oil and fifty per cent (50%) by GOSL, currently holds an undivided one
      hundred per cent (100%) interest in the Licence (as defined in the PSC)
      over the Contract Area as described in Annex A and Annex B of the PSC,
      unless CanArgo has been notified that a new Operating Company has been
      duly appointed in accordance with the provisions of the PSC;

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

(G)   GOSL wishes to sell and CanArgo wishes to acquire GOSL's entire 50% share
      in IVOG (or in the event that another Operating Company has been appointed
      in accordance with the PSC then in such Operating Company) for a nominal
      price of one United States dollar (USD1).

NOW THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows:

1     DEFINITIONS

      Words and terms used in this Agreement shall unless otherwise expressly
      specified in this Agreement have the meanings attributed to them in the
      PSC:

      "Assignment" is defined in Recital B to this Agreement and a copy of which
      is annexed hereto as Appendix 1;

      "Completion" means completion of the farm in pursuant to Article 3;

      "Contractor" has the meaning attributed thereto in the PSC;

      "Contractor Percentage Interest" means the percentage interest of each of
      GOSL and CanArgo (as the case may be) in the Contractor's rights and
      obligations under the PSC;

      "Deed of Assignment and Adherence" means the deed in the form annexed
      hereto as Appendix 2;

      "PSC" is defined in Recital A to this Agreement and a copy of which is
      annexed hereto as Appendix 3;

2     SCOPE OF CONTRACT

2.1   The purpose of this Agreement is:-

      (i)   to allow GOSL to give notice to NPL pursuant to Article 5.3 of the
            Assignment;

      (ii)  to provide for the development of the Samgori Field and Contract
            Area through the implementation of the Work Programme pursuant to
            the Assignment and the PSC (hereinafter the "Project"); and

      (iii) to allow for the participation of CanArgo as a Contractor party
            under the PSC on the terms and subject to the conditions set out
            herein.

2.2   Following Completion, the respective Contractor Percentage Interest of
      each of GOSL and CanArgo shall be as follows:-

      (a)   GOSL - Fifty per cent (50%)

      (b)   CanArgo - Fifty per cent (50%)

3     ASSIGNMENT TO CANARGO

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

3.1   Completion of the assignment of a fifty per cent (50%) Contractor
      Percentage Interest to CanArgo shall be conditional upon receipt of and
      GOSL shall use its best efforts to obtain:-

      (a)   documentary proof, to the satisfaction of CanArgo, that the
            conditions outlined in Article 5.2 of the Assignment have been
            satisfied in full by GOSL and as such the Assignment is fully
            effective, as determined by Article 5 of the Assignment, for its
            entire term, which term is for the avoidance of doubt the Contract
            term specified in Article 4 of the PSC;

      (b)   written confirmation, to the satisfaction of CanArgo, that, as at
            the date of this Agreement, NPL has not exercised its option
            pursuant to Article 3 of the Assignment;

      (c)   written confirmation, to the satisfaction of CanArgo, that the
            Assignment and any arrangement to follow thereon has been duly
            registered in accordance with Georgian law and that GOSL is the
            legal owner of 100% of the Contractor party's interest under the
            PSC;

      (d)   in the event that a new Operating Company has been appointed under
            the PSC, written confirmation to the satisfaction of CanArgo that
            CanArgo can acquire a fifty per cent (50%) share in such an
            Operating Company on the same basis that it would have acquired a
            fifty per cent (50%) share in IVOG and that such Operating Company
            has been properly appointed in accordance with the terms of both the
            PSC and Georgian law;

      (e)   the consent of the State Agency and Georgian Oil for the assignment
            by GOSL of a fifty per cent (50%) Contractor Percentage Interest to
            CanArgo pursuant to Article 26 of the PSC;

      (f)   a waiver from the State Agency and Georgian Oil of their pre-emption
            rights under Article 26 of the PSC; and

      (g)   completion, to the sole satisfaction of CanArgo, of satisfactory
            financial, legal, technical and other due diligence in respect of
            IVOG (or such other Operating Company duly appointed under the PSC),
            the PSC and any relevant supplemental documentation.

3.2   In the event that any of the conditions outlined in Articles 3.1, with the
      exception of Article 3.1(g), are not fulfilled by 1st March 2004, CanArgo
      shall have the option to take over negotiations from GOSL and negotiate
      directly with third parties.

      In implementing the terms of the Assignment GOSL will not take any
      decisions or any act or omission without the prior written approval of
      CanArgo. Furthermore, GOSL will provide CanArgo as soon as possible with
      copies of all notices received pursuant to the Assignment. If requested by
      CanArgo, GOSL will approach NPL with a view to CanArgo becoming a party to
      the Assignment.

3.3   As soon as possible but certainly within one (1) month of the satisfaction
      of the conditions specified in Article 3.1 GOSL and CanArgo shall execute
      a Deed of Assignment and Adherence in terms satisfactory to CanArgo in
      respect of a fifty per cent (50%) Contractor Percentage Interest in the
      PSC.

3.4   On completion of the Deed of Assignment and Adherence and its effective
      registration with the State Agency and the matters referred to in Article
      3.5 of this Agreement, CanArgo shall

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

      commence to make the necessary funds outlined in Article 4 available in
      the amounts and within the timeframes narrated in Article 4 herein.

3.5   Coincident with completion of the Deed of Assignment and Adherence, GOSL
      will:

      (a)   prior to the sale by GOSL of its fifty per cent (50%) share in IVOG
            (or, in the event that a new Operating Company is appointed, then in
            such new Operating Company) pursuant to Article 3.5(b) below, if
            required by CanArgo, obtain the consent of Georgian Oil for the
            charter capital of IVOG (or, if necessary, such other new Operating
            Company) to be reduced to a nominal amount in such a way as to
            minimise any potential tax liability for CanArgo and GOSL shall
            further ensure that the requirements of Georgian law are complied
            with in order to effect such a reduction;

      (b)   sell its full fifty per cent (50%) share in IVOG (or the new
            Operating Company appointed under the PSC) to CanArgo for a nominal
            price of one United States dollar (USD1) and procure any necessary
            waivers of pre-emption rights or other consents; and

      (c)   obtain the consent of Georgian Oil for the chairman of IVOG (or such
            other new Operating Company appointed under the PSC) to be appointed
            solely by CanArgo and as such CanArgo through the chairman will have
            a casting vote. If required by CanArgo the constitutional documents
            of IVOG (or such other new Operating Company appointed under the
            PSC) will be amended to provide that CanArgo shall have a casting
            vote at both directors and shareholders meetings.

            In the event that NPL exercises its option pursuant to Article 3.1
            of the Assignment and as such reacquires its 50% interest in IVOG,
            CanArgo agrees that, if required, it shall use its reasonable
            endeavours to ensure that the Charter of IVOG is amended back to its
            original form.

3.6   CanArgo hereby confirms that upon completion of the acquisition of its
      fifty per cent (50%) share in IVOG (or the new Operating Company appointed
      under the PSC) pursuant to Article 3.5(b), it shall not change the
      management of IVOG (or such other new Operating Company) without the prior
      permission of Georgian Oil (such permission not to be unreasonably
      withheld or delayed) within two years of the date of signing of this
      Agreement.

3.7   As soon as practicable following the execution of the Deed of Assignment
      and Adherence the Parties will negotiate and enter into a joint operating
      agreement based on the current Association of International Petroleum
      Negotiators Model International Joint Operating Agreement ("JOA"). The JOA
      will include among others a sole risk provision and the provision for the
      joint sale of the Contractor's share of Petroleum produced from the
      Contract Area.

4     WORK PROGRAMME AND OBLIGATIONS OF THE PARTIES

4.1   In consideration of GOSL implementing the provisions of the Agreement in
      full, CanArgo at its own risk will fund one hundred per cent (100%) of the
      costs of drilling the first horizontal well pursuant to Phase I of the
      Work Programme which may be a horizontal section from an existing well as
      determined by the Project.

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

4.2   Based on the results of the drilling of the first horizontal well and the
      decision of the Parties, GOSL and CanArgo will jointly fund on a pro rata
      basis according to each Contractor's Percentage Interest the drilling of
      the second horizontal well pursuant to Phase I of the Work Programme which
      may be a horizontal section from an existing well as determined by the
      Project.

4.3   Within 15 months from signing this Agreement, the Parties will provide
      funds for fulfilling Phase 1 of the Work Programme determined by the
      Assignment, by taking into account the principles of Articles 4.1 and 4.2
      above. For the avoidance of doubt, all costs associated with the
      implementation of the Work Programme with the exception of the costs
      associated with the drilling of the first horizontal, which may be a
      horizontal well section, will be borne pro rata by the Parties in
      accordance with their respective Contractor Percentage Interest.

4.4   Obligations under the Assignment including the obligations to pay the Net
      Profit Interest to NPL shall be met by the parties pro rata according to
      their Contractor Percentage Interest.

4.5   For the avoidance of doubt, in the event that either party refuses or is
      unable to fund all or any part of its share of the funding for the Work
      Programme, the other Party shall be entitled to proceed on a sole risk
      basis and any operations carried out by either Party acting alone in
      relation to this Agreement shall be governed by the provisions outlined in
      Appendix 4.

5     RIGHTS UNDER THE PSC

5.1   The Parties agree that IVOG (or the new Operating Company appointed under
      the PSC in which CanArgo is acquiring a fifty per cent (50%) share
      pursuant to this Agreement) shall act as the Operating Company for the
      implementation of the Work Programme determined by the Project.

5.2   The Parties agree that CanArgo shall represent the Contractor Party on the
      Co-ordination Committee established under the PSC providing that Georgian
      Oil remains the State Representative on the Coordination Committee. In the
      event that Georgian Oil is no longer the State Representative on the
      Coordination Committee, CanArgo shall have a majority of the Contractor
      Representatives on the Coordination Committee and shall appoint the chief
      representative from the Contractor party.

5.3   The Parties agree, within a period of 45 (forty-five) days after
      completion of the Deed of Assignment and Adherence pursuant to Article 3
      of this Agreement, to establish a Contractor Management Council ("CMC")
      which shall comprise a maximum of four (4) members, two (2) from GOSL and
      two (2) from CanArgo. The CMC shall agree on the matters to be discussed
      and the position to be adopted by the Contractor with respect to the
      Coordination Committee. The chairman of the CMC shall be designated by
      CanArgo and CanArgo shall represent the Contractor parties at the
      Coordination Committee. In the event that Georgian Oil is privatised or it
      sells its interest to a non-state company, GOSL or its assignee shall be
      entitled to have 50% of the total number of the Contractor's
      representatives in the Coordination Committee.

5.4   Following the assignment of a fifty per cent (50%) Contractor Percentage
      Interest in and under the PSC to CanArgo, the Parties agree that CanArgo
      will become the Contractor Parties' chief representative in all dealings
      with the State.

6     ALLOCATION OF PRODUCTION AND RECOVERY OF COSTS AND EXPENSES

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

6.1   In order to fulfil the obligations under Article 2 of the Assignment, the
      Parties agree to jointly sell all Crude Oil and Natural Gas allocated to
      the Contractor parties under the PSC.

6.2   Until such time as the Parties have negotiated and duly executed a JOA,
      the Parties hereby agree that CanArgo will have sole responsibility for
      the selling of all Crude Oil and Natural Gas allocated to the Parties
      pursuant to this Agreement. Monies received by CanArgo from such sales
      shall be deposited into a jointly held bank account (the "Joint Account")
      which may be operated in either local or foreign currency or both.
      Thereafter, the proceeds of such sales, less all costs incurred by the
      Parties in respect of such sales and any Net Profit Interest payable to
      NPL pursuant to the Assignment, shall be distributed between the Parties
      pro rata in accordance with their respective Contractor Percentage
      Interest and the PSC. For the avoidance of doubt, there shall be two
      signatories for the Joint Account, one from GOSL and one from CanArgo.

7     FORCE MAJEURE

7.1   For the purposes of this Agreement, "Force Majeure" shall mean a
      circumstance which is irresistible or beyond the reasonable control of the
      Party affected, any act of Georgia or any governmental or administrative
      body therein, or any other hindrance of the affected Party's performance
      not due to its fault or negligence.

7.2   If as a result of Force Majeure, either Party is rendered unable, wholly
      or in part, to carry out its obligations under this Agreement, other than
      the obligation to pay any amounts due, then the obligations of that Party,
      so far as and to the extent that the obligations are affected by such
      Force Majeure, shall be suspended during the continuance of any inability
      so caused, but for no longer period.

8     ASSIGNMENTS AND TRANSFERS

8.1   Neither party may assign its rights or obligations hereunder without the
      prior written consent of the other, not to be unreasonably withheld or
      delayed. This provision shall not cover an assignment of rights and
      obligations hereunder in favour of an Affiliated Company, as stipulated in
      Article 26 of the PSC.

8.2   Save in the case of any assignment to an Affiliated Company, the Party
      wishing to assign all or part of its rights and interests hereunder or
      under the PSC or in any circumstances where there is deemed to be an
      assignment, the Party wishing to make the assignment shall first give
      written notice to the other Party specifying the proposed terms and
      conditions of the assignment.

      Following receipt of those terms and conditions, for a period of thirty
      (30) days the other Party shall have the preferential right to match the
      terms and conditions of the proposed assignment or deemed assignment. This
      right may be exercised by any Party giving written notice of its intention
      to match the relevant terms and conditions (the "Acceptance") and
      thereafter the relevant Parties shall negotiate all necessary
      documentation in good faith. If within a further period of ninety (90)
      days from receipt of the Acceptance the relevant parties have not reached
      final agreement the Party seeking to assign may within a further period of
      thirty (30) days complete an assignment to a third party on the same terms
      and

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

      conditions. For the avoidance of doubt any assignment to a third party
      shall be subject to the assigning Party and the third party complying with
      the provisions of this Article and the PSC and assuming its pro rata share
      of obligations under the Assignment, including the obligation to meet the
      Net Profit Interest.

9     DISPUTE RESOLUTION

9.1   If any dispute or difference arises between the Parties in connection with
      this Agreement then either Party may at any time give notice to the other
      Party of its intention to refer such dispute or difference to
      international arbitration in Stockholm, Sweden.

9.2   Notwithstanding the provisions of Article 9.1, in the event that the
      Parties have executed a JOA in accordance with Article 3.6, any dispute or
      difference between the Parties in connection with this Agreement shall be
      carried out in accordance with the terms of the JOA which shall contain
      the following options for dispute resolution:-

      (i)   if such a dispute or difference is of a technical matter it shall be
            referred to a technical expert;

      (ii)  if such a dispute or difference is of a legal or commercial nature
            such matter shall be referred to arbitration; or

      (iii) in the event that the Parties are unable to reach agreement on the
            Work Programme as determined by the Assignment or some future Work
            Programme or Budget (as defined in the PSC) a sole risk provision
            will exist.

10    GOVERNING LAW

10.1  This Agreement shall be governed by and construed in accordance with the
      law of England.

10.2  The parties hereto submit to the non-exclusive jurisdiction of the English
      courts as regards any claim, dispute or matter arising out of or relating
      to this Agreement and its implementation or effect.

10.3  This Agreement hereby supersedes any and all other agreements, oral or
      written, between the Parties and constitutes the entire agreement among
      the Parties hereto in respect of the subject matter of this Agreement.

10.4  This Agreement may only be amended by an agreement in writing executed by
      all the Parties.

11    TERM

11.1  This Agreement shall become effective on its signing date taking into
      consideration the terms of Article 3 herein and shall continue in full
      force and effect until the PSC and Licence are terminated under Article 4
      of the PSC or the Assignment is terminated by NPL exercising its option
      pursuant to the provisions of Article 3.1 therein, whichever occurs
      earlier.

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

12    REPRESENTATION AND WARRANTIES

12.1  All representations and warranties stipulated herein shall remain in force
      for the duration of this Agreement.

12.1.1 The Parties severally provide the following representations and
      warranties as of the date hereof:

      a.    The Parties are entitled and have all necessary powers to make, to
            sign, to exchange documents and to execute this Agreement. Signing,
            transfer and execution of this Agreement have been properly approved
            by all necessary corporate and other actions of the Parties. This
            Agreement, after it is signed by both Parties, shall be binding for
            the Parties, and can be enforced in relation to each Party according
            to its terms and conditions;

      b.    The Parties are properly established and exist according to the
            legislation of the jurisdiction;

      c.    Hereby the Parties warrant to each other that the corresponding
            representatives of GOSL and CanArgo, which sign this Agreement,
            possess all necessary authorities for conclusion of this Agreement
            and creation of rights and responsibilities for both Parties;

      d.    Hereby the Parties warrant to each other that during implementation
            of the responsibilities undertaken they will act in good faith in
            relation to each other;

12.1.2 GOSL solely represents and warrants that as of the date hereof:-

      a.    GOSL or NPL has not committed any material violations of the PSC
            terms, including violations of environmental standards and
            instructions and so far as GOSL is aware there are no claims,
            counterclaims, orders of court, legal proceedings and investigations
            related to non-fulfilment or improper fulfilment of the PSC terms by
            GOSL or NPL;

      b.    GOSL has not committed any material violations of the terms of the
            Assignment and NPL has not exercised its option pursuant to Article
            3 of the Assignment;

      c.    GOSL owns 100% of the participation interest of the Contractor in
            the PSC; and

      d.    the PSC and Assignment are valid and so far as GOSL is aware there
            are no grounds for the early termination of either contract.

12.1.3 CanArgo confirms that as at the date hereof it is acquainted with the PSC
      and the Assignment and agrees to comply with its terms upon completion of
      the Deed of Assignment and Adherence pursuant to Article 3 of this
      Agreement. Furthermore, CanArgo shall procure that its parent company,
      CanArgo Energy Corporation, shall provide Georgian Oil with a side letter
      indemnifying Georgian Oil in the event of a claim under the Parent Company
      Guarantee between Georgian Oil and NPL dated 16 December 2003 for an
      amount equivalent to the CanArgo's Contractor Percentage Interest of any
      such claim, in the form outlined in Appendix 5.

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

12.2  In the event that either Party suffers actual loss as a result of any of
      the foregoing representations and warranties given by the other proving to
      be incorrect, the Party suffering the said actual loss shall be entitled
      on demand to recover that loss from the other Party provided that; in no
      circumstances shall either Party's liability hereunder exceed USD2,000,000
      (two million US dollars); any claim made for breach of representation or
      warranty must be made and submitted in writing to the other Party within
      two years of the date hereof.

13    NOTICES AND CONFIDENTIALITY

13.1  Except as otherwise specifically provided, all notices authorised or
      required between the Parties by any of the provisions of this Agreement,
      shall be in writing in English and delivered in person or by registered
      mail or by courier service or by any electronic means of transmitting
      written communications which provides confirmation of complete
      transmission, and addressed to such Parties as designated below. The
      addresses for service of notices on each of the parties is as follows:

      CANARGO :

      CanArgo Samgori Limited
      PO Box 291
      St Peter Port
      Guernsey
      GY1 3RR

      Telephone +44 1481 729980
      Facsimile +44 1481 729982

      GOSL:

      Georgian Oil Samgori Limited
      Kostava 65
      Tbilisi 0171
      Georgia

      Telephone +995 ___________
      Facsimile +995 32 333032

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

14    TERMINATION AND BREACH

14.1  This Agreement shall terminate immediately upon the exercise by NPL of its
      option pursuant to Clause 3 of the Assignment or termination of the PSC,
      whichever is the earlier.

14.2  Notwithstanding the provisions of Article 14.1 of this Agreement, in the
      event that the condition outlined in Article 3.1(g) of this Agreement is
      not satisfied to the sole satisfaction of CanArgo within 3 months of the
      date of this Agreement, CanArgo shall have the right to terminate this
      Agreement with immediate effect.

14.3  Furthermore, notwithstanding the provisions of Article 14.1, if a new
      Operating Company has been appointed under the PSC and the condition
      outlined in Article 3.1(d) of this Agreement is not satisfied to the sole
      satisfaction of CanArgo then CanArgo shall have the right to terminate
      this Agreement with immediate effect.

14.4  Subject to Articles 14.2 and 14.3, neither Party may terminate this
      Agreement unilaterally.

14.5  Termination shall be without prejudice to the prior rights of either
      Party.

IN WITNESS WHEREOF this Agreement has been duly executed on behalf of each of
the parties on the day and year first before written

SIGNED by                             SIGNED by
on behalf of CANARGO SAMGORI LIMITED  on behalf of  GEORGIAN OIL SAMGORI LIMITED

...............................                ..................................

Name: Dr David Robson                         Name:  ...........................

Position: Chairman                            Position:.........................

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

                                   Appendix 1

                             AGREEMENT of ASSIGNMENT

                                     between

                           NATIONAL PETROLEUM LIMITED

                                       and

                          GEORGIAN OIL SAMGORI LIMITED

                             Dated 16 December 2003

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

                                   Appendix 2

                      The Deed of Assignment and Adherence

THIS ASSIGNMENT is made as a Deed on the _______day of _________2004

BETWEEN

(1)   GEORGIAN OIL SAMGORI LIMITED, a company wholly owned by the Joint Stock
      National Oil Company Georgian Oil ("GEORGIAN OIL"), a legal entity
      organised and existing under the laws of Georgia pursuant to the Charter
      of Georgian Oil Samgori Limited and the Law on Oil and Gas and having its
      offices at Kostava Street 65, Tbilisi 0171, Georgia (the "ASSIGNOR"); and

(2)   CANARGO SAMGORI LIMITED, a company organised and existing under the laws
      of Guernsey (registered number 41491), and having its registered office at
      PO Box 291, St Peter Port, Guernsey GY1 3RR (the "ASSIGNEE").

WHEREAS:-

(A)   On 29th May 2001 The State Agency for Regulation of Oil and Gas Resources
      in Georgia, Georgian Oil and National Petroleum Limited ("NPL") entered
      into a production sharing contract (the "PSC") in relation to the Samgori,
      Partadzuli and South Dome oilfields and Licence Block XIB in the Republic
      of Georgia and more particularly described in the PSC. The Assignor became
      a party to and the sole Contractor (as defined in the PSC) under the PSC
      by the acquisition of 100% of NPL's interest in the PSC pursuant to the
      Agreement of Assignment dated 16th December 2003 between the Assignor and
      NPL.

(B)   Pursuant to the farm-in agreement dated January 2004, (the "AGREEMENT")
      the Assignor has agreed to transfer and assign to the Assignee a 50%
      Contractor Percentage Interest (as defined in the Agreement) in and under
      the PSC, together with all rights and interests of the Assignor under the
      PSC.

THIS DEED WITNESSES as follows:-

1     Words and expressions defined in the Agreement shall have the same meaning
      when used in this Assignment.

2     In consideration of the obligations undertaken by the Assignee as set out
      in the Agreement, the Assignor hereby assigns to the Assignee a 50%
      Contractor Percentage Interest in and under the PSC and the Assignee
      hereby accepts such assignment.

3     The Assignor and Assignee hereby expressly state that the rights and
      privileges of The State Agency for Regulation of Oil and Gas Resources in
      Georgia (the "STATE AGENCY") under the PSC shall not be prejudiced by the
      provisions of this Deed.

4     The assignment shall become effective upon the date (the "EFFECTIVE DATE")
      it is signed by the State Agency and the assignment to be fully legal and
      effective.

5     The Assignee hereby confirms that it has been supplied with a copy of the
      PSC and hereby irrevocably and unconditionally covenants with each of the
      other parties to the PSC from

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

      time to time to perform and be bound by all of the terms of the PSC as
      Contractor as if the Assignee were an original contractor party thereto.

6     This Deed of Assignment is an Annex to the PSC and constitutes an integral
      part to it.

7     For better understanding, following the assignment of a 50% Contractor
      Percentage Interest in and under the PSC to the Assignee, the Assignee
      will become the Contractor Parties' representative in all dealings with
      the state, will maintain all obligations and responsibilities of a
      Contractor Party under the PSC and any dispute arising out of this Deed of
      Assignment or the Agreement will be a dispute between the parties to this
      document and will have no impact on operations performed under PSC.

8     This Assignment shall be governed by and construed in accordance with the
      law of England.

The parties hereto submit to the non-exclusive jurisdiction of the Courts of
England as regards any claim, dispute or matter arising out of or relating to
this assignment and its implementation or effect.

IN WITNESS of which the parties have executed this document as a deed on the
date first before written.

Executed and delivered as a Deed
For and on behalf of
GEORGIAN OIL SAMGORI LIMITED

By    ..............................    (Director)

      ..............................    (Director/Secretary)

Executed and delivered as a Deed
For and on behalf of
CANARGO SAMGORI LIMITED

By    ..............................    (Director)

      ..............................    (Director/Secretary)

State Agency for Regulation of Oil
and Gas Resources of Georgia

   Head of the Agency       Acting under the Georgian Law on Oil and
                            Gas, by signing this document on the date of
                            2004, the State Agency for Regulation of Oil
-----------------------     and Gas Resources of Georgia approves the
G. Itonishvili              Deed of Assignment regarding assignment of
                            part of the investor's rights

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

                                   Appendix 3

                           PRODUCTION SHARING CONTRACT

                                     between

                           NATIONAL PETROLEUM LIMITED

                                       and

                              THE STATE OF GEORGIA

                                 represented by

                The State Agency for the Regulation of Oil & Gas

                                       and

                 The Joint Stock National Oil Company Saknavtobi

                                Dated 29 May 2001

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

                                   Appendix 4

1     OPERATIONS BY LESS THAN ALL PARTIES - EXCLUSIVE OPERATIONS


1.1   (a)   No operations may be conducted in furtherance of the Work Programme
            except as joint operations carried out and funded by the Parties in
            accordance with this Agreement and funded in accordance with their
            respective Contractor Percentage Interest or as Exclusive Operations
            under the provisions of this Appendix 4.

      (b)   The following operations may be proposed and conducted as other than
            joint operations carried out in accordance with this Agreement
            ("Exclusive Operations"), subject to the terms of this Appendix 4:

            (i)   drilling and/or testing of exploration wells and appraisal
                  wells;

            (ii)  completion of exploration wells and appraisal wells not then
                  completed as productive of Petroleum;

            (iii) extending horizontally, deepening, sidetracking, plugging back
                  and/or recompletion of exploration wells and appraisal wells;
                  and

            (iv)  the carrying out of a development plan (or an amended
                  development plan) pursuant to a commercial discovery;

            (v)   the redevelopment or use of a well which would otherwise be
                  abandoned;

            (vi)  the further development of an existing well or existing
                  distribution structure;

            (iv)  the acquisition and processing of seismic data.

                  No other type of operation may be proposed or conducted as an
                  Exclusive Operation.

1.2   Subject to Article 1.1 of this Appendix 4, if a Party proposes to conduct
      an Exclusive Operation, such Party shall give notice of the proposed
      operation to the other Party. Such notice shall specify that such
      operation is proposed as an Exclusive Operation, the work to be performed,
      the location, the objectives, and estimated cost of such operation.

1.3   A Party entitled to receive such notice shall have the right to
      participate in the proposed operation by notifying the other Party within
      sixty (60) days after receipt of the notice proposing the Exclusive
      Operation.

1.4   Failure of a Party to whom a proposal notice is delivered to properly
      reply within the period specified above shall constitute an election by
      that Party not to participate in the proposed operation.

      If the other Party properly exercises its rights to participate, then the
      proposed operation shall be conducted as a joint operation.

1.5   If the Party entitled to receive such proposal notice properly exercise
      its rights to participate, then:

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

      (a)   the Party proposing the Exclusive Operations shall have the right
            exercisable for the applicable notice period set out in Article 1.3
            of this Appendix 4 to conduct the Exclusive Operation;

      (b)   if the Exclusive Operation is conducted, the parties agreeing to
            participate in and pay their share of the cost of an Exclusive
            Operation ("Consenting Parties") shall bear the sole liability and
            expense and operation of such Exclusive Operation; and

      (c)   if such Exclusive Operation has not been commenced within one
            hundred and eighty (180) Days (excluding any extension specifically
            agreed by all Parties or allowed by the force majeure) after the
            date that the right to conduct Exclusive Operations is acquired, the
            right to conduct such Exclusive Operation shall terminate. If any
            Party still desires to conduct such Exclusive Operation, notice
            proposing such operation must be resubmitted to the Parties in
            accordance with this Appendix 4, as if no proposal to conduct an
            Exclusive Operation had been previously made.

1.6   (a)   The Consenting Parties shall bear the entire cost and liability of
            conducting an Exclusive Operation and shall indemnify the non
            consenting parties from any and all costs and liabilities incurred
            incident to such Exclusive Operation (including but not limited to
            all costs, expenses or liabilities for environmental, or losses
            arising from business interruption, reservoir or formation damage,
            pollution control and environmental amelioration or rehabilitation)
            and shall keep the remaining contract area free and clear of all
            liens and encumbrances of every kind created by or arising from such
            Exclusive Operation. The Consenting Parties shall ensure that the
            Exclusive Operations do not breach the terms of the PSC.

      (b)   Notwithstanding Article 1.6(a) of this Appendix 4, each Party shall
            continue to bear its share of the cost and liability incident to the
            operations in which it participated, including but not limited to
            plugging and abandoning and restoring the surface location, but only
            to the extent those costs were not increased by the Exclusive
            Operation.

1.7   With regard to any Exclusive Operation, for so long as a non consenting
      party has the option under Article 1.9 of this Appendix 4 to reinstate the
      rights it relinquished under Article 1.8 of this Appendix 4, such non
      consenting party shall (at its own expense) be entitled to have reasonable
      access concurrently with the Consenting Parties to all data and other
      information relating to such Exclusive Operation.

1.8   Subject to Article 1.9 of this Appendix 4, the non consenting party shall
      be deemed to have relinquished to the Consenting Party, and the Consenting
      Party shall be deemed to own, in any Exclusive Operation:

      (a)   All of each such non consenting party's right to participate in
            further operations in the well or deepened or sidetracked portion of
            a well in which the Exclusive Operation was conducted and on any
            discovery made or appraised in the course of such Exclusive
            Operation; and

      (b)   All of each such non consenting party's right pursuant to this
            Agreement and the PSC to take and dispose of Petroleum produced and
            saved (or the cash proceeds thereof):

            (i)   From the well or deepened or sidetracked portion of a well in
                  which such Exclusive Operation was conducted, and

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

            (ii)  From any wells drilled to appraise or develop a discovery made
                  or appraised in the course of such Exclusive Operation.

1.9   A non consenting party shall have only the following options to reinstate
      the rights it relinquished pursuant to Article 1.8 of this Appendix 4:

      (a)   If the Consenting Parties decide to develop, appraise a discovery
            made in the course of an Exclusive Operation or to conduct further
            exploration not included in the original proposal for Exclusive
            Operations, the Consenting Parties shall submit to each non
            consenting party the approved budget and work programme. For thirty
            (30) Days from receipt of such budget and work programme, each non
            consenting party shall have the option to reinstate the rights it
            relinquished pursuant to Article 1.8 of this Appendix 4 and to
            participate in such programme. The non consenting party may exercise
            such option by notifying the other Party within the period specified
            above that such non consenting party agrees to bear fifty (50)
            percent of the expense and liability of such work programme, to pay
            the lump sum amount as set out in Article 1.11(a) of this Appendix 4
            and to pay the Cash Premium as set out in Article 1.11(b) of this
            Appendix 4.

1.10  (a)   If a non consenting party does not properly and in a timely manner
            exercise such option, including paying in a timely manner in
            accordance with Article 1.11 of this Appendix 4 all lump sum amounts
            and Cash Premiums, if any, due to the Consenting Party, such non
            consenting party shall have forfeited the options as set out in
            Article 1.9 of this Appendix 4 and the right to participate in the
            proposed programme, unless such programme, plan or operation is
            materially modified or expanded (in which case a new notice and
            option shall be given to such non consenting party under Article 1.9
            of this Appendix 4).

      (b)   A non consenting party shall become a Consenting Party with regard
            to an Exclusive Operation at such time as the non consenting party
            gives notice pursuant to Article 1.9 of this Appendix 4; provided
            that such non consenting party shall in no way be deemed to be
            entitled to any lump sum amount or Cash Premium paid incident to
            such Exclusive Operation. Such non consenting party shall be
            entitled to cost recover its fifty (50) percent of expenses paid
            pursuant to Article 1.9 of this Appendix 4. If all Parties
            participate in the proposed operation, then such operation shall be
            conducted as a Joint Operation pursuant to the Agreement.

      (c)   If after the expiry of the period in which a non consenting party
            may exercise its option to participate in a work programme, the
            Consenting Party desires to proceed, notice shall be given to the
            State under the appropriate provision of the PSC requesting a
            meeting to advise the State that the discovery is considered to be a
            Commercial Discovery. Following such meeting, the Contractor shall
            (at the Consenting Party's sole cost) apply for an Exploitation Area
            (if applicable in the PSC). The non consenting party to such
            development plan shall be deemed to have:

            (i)   Forfeited all economic interest in such Exploitation Area;

            (ii)  Assumed a fiduciary duty to exercise its legal interest in
                  such Exploitation Area for the benefit of the Consenting
                  Parties.

            The non consenting party shall be deemed to have withdrawn from this
            Agreement and the PSC to the extent it relates to such Exploitation
            Area, even if the development plan is modified or expanded
            subsequent to the commencement of

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

            operations under such development plan and shall be further deemed
            to have forfeited any right to participate in the construction and
            ownership of facilities outside such Exploitation Area designed
            solely for the use of such Exploitation Area.

1.11  (a)   Within thirty (30) Days of the exercise of its option under Article
            1.9 of this Appendix 4, the non consenting party shall pay in
            immediately available funds to the Consenting Party a lump sum
            amount, in the currency designated by such Consenting Party, equal
            to such non consenting party's Contractor's Percentage Interest of
            all liabilities and expenses, including overhead, that were incurred
            in every Exclusive Operations relating to the Discovery, or well, as
            the case may be, in which the non consenting party desires to
            reinstate the rights it relinquished pursuant to Article 1.8 of this
            Appendix 4, and that were not previously paid by such non consenting
            party.

      (b)   In addition to amounts payable under Article 1.11(a) of this
            Appendix 4, within thirty (30) Days of the exercise of its option
            under Article 1.9 of this Appendix 4 the non consenting party shall
            pay in immediately available funds, in the currency designated by
            the Consenting Party who took the risk of such Exclusive Operations,
            to such Consenting Party a Cash Premium equal to the total of five
            hundred percent (500%) of all liabilities and expenses, including
            overhead, that were incurred in the Exclusive Operations and any
            other Costs and Expenses whatsoever properly incurred in the
            Exclusive Operations.

1.12  (a)   There shall be maintained separate books, financial records and
            accounts for Exclusive Operations.

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

                                   Appendix 5

                     CanArgo Energy Corporation Side Letter

                    [NOTEPAPER OF CANARGO ENERGY CORPORATION]

Georgian Oil
Kostava 65
Tbilisi 0171
Georgia

(hereinafter referred to as "Georgian Oil")

    January 2004

Dear Sirs

In the event that there is any claim under the Parent Company Guarantee granted
by Georgian Oil in favour of National Petroleum Limited dated 16 December 2003,
we, CanArgo Energy Corporation, hereby undertake to indemnify Georgian Oil for
an amount equivalent to our Contractor Percentage Interest (as defined in the
Agreement between Georgian Oil Samgori Limited and CanArgo Samgori Limited dated
on or around the date of this Letter) of any such claim.

This Letter shall be governed by and construed in accordance with the laws of
England.

Yours faithfully

.................................... Director
For and on behalf of CANARGO
ENERGY CORPORATION

   Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd

<PAGE>

AGREEMENT OF ASSIGNMENT

This Agreement of Assignment (hereinafter referred to as "Agreement") made and
entered on this_______ day of _____________2003 by and between:

National Petroleum Limited, a company established and existing under the law of
Bermuda, with registered office at 33 Church Street Hamilton, Bermuda
(hereinafter referred to as "NPL"), and

Georgian Oil Samgori Ltd, a company established and existing under the law of
Georgia, with registered office in Kostava Street. 65, Tbilisi, Georgia
(hereinafter referred to as "GOSL")

NPL and GOSL are sometimes hereinafter collectively referred to as the "Parties"
and individually as a "Party".

WITNESSETH

WHEREAS (1) the State Agency for Regulation of Oil and Gas Resources of Georgia
(hereinafter the "State Agency"), (2) the Joint Stock National Oil Company
Saknavtobi (hereinafter "Georgian Oil"), both duly authorised representatives of
the State of Georgia, together with (3) NPL have signed, pursuant to the
Georgian Law on Oil and Gas of April 16, 1999 (hereinafter the "Law") a
Production Sharing Contract (hereinafter the "PSC") dated May 29, 2001 which, by
fully complying with the Contract provisions, entered into force on September 1,
2001 (hereinafter the "Effective Date");

WHEREAS Ioris Valley Oil and Gas Limited ("IVOG"), a company owned fifty percent
(50%) by NPL and fifty percent (50%) by Georgian Oil holds an undivided one
hundred percent (100%) interest in the Licence over the Contract Area as
described in Annex A and Annex B of the PSC.

WHEREAS, pursuant to Article 26 of the PSC, NPL on the basis of an approval of
the State Agency and Georgian Oil, has the right to transfer a part or all of
its rights under the PSC to a third party;

WHEREAS, NPL desires to assign, and GOSL desires to acquire the whole one
hundred percent (100%) of NPL's rights and obligations in and under the PSC,
subject to the Annual Net Profit interest to NPL and the other terms and
conditions contained

                                       1
<PAGE>

in this Agreement.

WHEREAS, in order to attract sufficient funds GOSL requires a maximum of 15
(fifteen) months for negotiating and executing the relevant agreements with its
new investors.

WHEREAS, the definitions as contained in Article 1 of the PSC shall apply to
this Agreement, unless specifically amended herein;

NOW THEREFORE, the Parties have agreed as follows:

ARTICLE 1: NPL OBLIGATIONS

      1.1   NPL will transfer all its rights and obligations under the PSC to
            GOSL on the Assignment Date in full compliance with the terms of
            this Agreement, Article 22 0f the Law and Article 26 of the PSC;

      1.2   NPL will sell its full share in IVOG to GOSL, which is 50% of the
            entire interest, for a symbolic price of $US1;

ARTICLE 2: GOSL OBLIGATIONS

      In return for fulfilment of Clauses 1 and 2 of Article 1 of the Agreement,
      GOSL and/or its assignees will undertake the following;

      2.1   GOSL and/or its assignees will fully implement and fund the agreed
            Work Programme, as described in Annex 1 of this Agreement. The Work
            Programme shall commence upon full satisfaction of Articles 5.2 and
            5.3 of this Agreement;

      2.2   From the Assignment Date, GOSL and/or its assignees will pay to NPL
            30 (thirty) percent of the Annual Net Profit obtained; until the
            prior costs and expenses made by NPL and as determined in Article 4
            hereunder are fully recovered;

      2.3   In the event of developing new oil and gas fields as a result of
            GOSL exploring

                                       2
<PAGE>

            prospective structures identified on the basis of seismic surveys
            (coordinates are given in Annex 2) performed by NPL in the
            Exploration Area to pay 5 (five) percent of the Annual Net Profit
            obtained from the implementation of this project;

      2.4   The Net Profit payments described in Article 2.2 above will continue
            until the unrecovered prior costs and expenses incurred by NPL and
            as determined in Article 4 hereunder are fully recovered;

      2.5   The Net Profit payments described in Article 2.3 above will continue
            until the unrecovered prior costs and expenses incurred by NPL and
            as determined in Article 4 hereunder are fully recovered;

      2.6   Thereafter GOSL and/or its assignees will continue to pay five (5)
            percent of the Annual Net Profit obtained until the Contract Term of
            the PSC expires under Article 4 thereof; thereafter GOSL will have
            no further liability towards NPL.

      2.7   NPL will be entitled to attend all meetings of the Co-ordination
            Committee, and receive a copy of the minutes thereof; NPL may
            express an opinion, but will have no voting rights at such meetings;

      2.8   As long as Article 2.2 above is in effect , the GOSL and/or its
            assignees will employ (at their cost) a consultant acceptable to NPL
            to implement the Cost Recovery, Cost Reimbursement and Accountancy
            Procedures described in the PSC and such additional roles as may be
            agreed between the consultant, NPL, GOSL and/or its assignees. This
            consultant will provide regular (monthly) cash flow and production
            reports to the GOSL and/or its assignees and NPL.

      2.9   GOSL and/or its assignees will provide NPL with copies and reports
            of all relevant data related to the conduct of petroleum operations
            which they will get from the operator.

      2.10  Annual Net Profit will be determined as follows and confirmed by an
            internationally

                                       3
<PAGE>

            recognized audit:

            "Annual Net Profit" means

            (1) the gross revenue accruing to GOSL from sales of Petroleum from
            the Contract Area and all other revenues attributable to Petroleum
            Operations

            less

            (2) the total of the following deductions:

            (i)   all costs incurred by GOSL attributable to Petroleum
                  Operations and/or the sale of Petroleum and which are
                  consistent with prudent international oil and gas practice
                  including, but not limited to, transportation and processing
                  costs;

            (ii)  all Georgian taxes, royalties or other Governmental imposts on
                  the Contractor Parties arising in respect of the Contract
                  Area:

            (iii) all financing costs whether with Affiliates or third parties,
                  associated with the obtaining of finance and/or provision of
                  monetary security for Petroleum Operations which are
                  consistent with Article 1.39 of the PSC;

            (iv)  all costs associated with or set aside for decommissioning,
                  abandonment or reclamation of any facilities erected on the
                  Contract Area;

            (v)   the cost of premiums and deductibles in respect of insurance
                  of Petroleum Operations on the Contract Area; and

            (vi)  the cost of the consultant as described in Article 2.8 herein;

      2.11  Advance Funds determined by clauses 2.2 and 2.3 of Article 2 of this
            Agreement will be paid quarterly within forty five (45) days of the
            conclusion of each calendar quarter which afterwards will be
            regulated by an annual conclusion of internationally recognised
            audit.

                                       4
<PAGE>

      2.12  If GOSL and/or its assignees fails to pay any amount payable by it
            under this Agreement, interest shall accrue on the due amount from
            the last day of the period within which the payment was due up to
            the date of actual payment at a percentage rate per annum that is
            the aggregate of LIBOR and Margin. The payment of accrued interest
            shall be made together with the payment of due amount.

      2.13  In this Agreement LIBOR means the British Bankers' Association
            Interest Settlement Rate for US Dollars for the period of one (1)
            month, fixed on the last day of the period within which the payment
            was due as of 11:00 a. m. London time, displayed on the appropriate
            page of the Telerate screen. If the agreed page is replaced or
            service ceases to be available NPL may specify another page or
            service displaying the appropriate rate after consultation with
            GOSL.

      2.14  In this Agreement Margin means three percent (3%) per annum.

      2.15  GOSL will endeavour to obtain the international market price for its
            share of the oil and gas produced, as described under Article 12 of
            the PSC.

      2.16  GOSL and/or its successors shall have the right to assign, mortgage,
            transfer title, or effect any other similar action to its share or
            part thereof, providing NPL with written information of such
            transaction.

      2.17  Georgian Oil shall provide NPL with a guarantee that it holds
            ultimate responsibility for the fulfillment of the rights and
            responsibilities of GOSL.

ARTICLE 3: NPL OPTION

      3.1.  In the event GOSL and/or its assignees has not completed any Phase
            of the Work Programme described in Annex 1 within its defined
            timeframe, NPL may, in accordance and compliance with Article 3.2 of
            this Agreement, at its discretion, exercise the right to reacquire,
            free of charge, one hundred

                                       5
<PAGE>

            percent (100%) of GOSL's Participating interest in the PSC,
            ownership interests/shares in IVOG and any rights which GOSL and/or
            its assignees may have acquired under any operating agreement
            entered into with respect to the Contract Area (collectively "GOSL's
            Interests") within one hundred and eighty (180) days (the "Option
            Period").

      3.2.  Based on actual geological, technical and economic terms in the
            implementation of the Work Programme, Parties will have a right to
            amend, change or correct a Work Programme and amend the technical
            terms and/or volumes and/or timing of the work, subject to their
            unanimous agreement and the consent of the State Agency.

      3.3.  In order to exercise the option under Article 3.1 to reacquire
            GOSL's Interests, NPL must deliver to GOSL and/or its assignees
            within the Option Period, a notice in writing setting forth NPL's
            election. If NPL elects to reacquire GOSL's Interest it will assume
            any and all further obligations under the PSC.

      3.4.  In the event of NPL reacquiring GOSL's Interests, the Work Programme
            (Annex 1) will be suspended for a period of up to 12 (twelve)
            months.

      3.5.  It is understood that the right in Article 3.1, if exercised, is
            conditional upon receipt of Assignment Approval. In the event NPL
            exercises the right in accordance with Article 4.2 above, GOSL
            and/or its assignees agrees to apply for and use all reasonable
            endeavours to obtain all Assignment Approvals and consents required
            to reassign such Participating Interest to NPL.

      3.6.  If NPL does not elect to exercise the right in Article 3.1 before
            the end of the relevant Option Period, the right shall terminate and
            shall be of no further force and effect.

                                       6
<PAGE>

      3.7.  If NPL elect to exercise the right in Article 3.1, the new
            investor's investments in compliance with the PSC shall be deemed as
            costs and expenses and shall be cost recoverable.

ARTICLE 4: NPL PRIOR COSTS AND EXPENSES

NPL's unrecovered prior costs and expenses up to the end of the 3rd quarter of
1998 have been audited and amount to $33,936,279.0. NPL's subsequent unrecovered
costs and expenses will be determined by NPL subject to a joint audit by NPL and
Georgian Oil with participation of the Agency. The audit conclusion will be
included in Annex 3 prior to the Assignment Date).

ARTICLE 5: ASSIGNMENT DATE

      5.1.  This Agreement shall enter into force and effect in its entirety on
            its signing date and shall remain in force unconditionally for a
            period of not more than 15 (fifteen) months.

      5.2.  This Agreement shall become fully effective for its entire term, ie
            the term determined in Article 4 of the PSC, from the date
            (hereinafter the "Assignment Date") that the following conditions
            have been fulfilled to the satisfaction of an internationally
            recognized auditor:

            (i)   The Prior Costs and Expenses have been agreed to the
                  satisfaction of NPL, Georgian Oil and the State Agency and
                  inserted in Annex 3;

            (ii)  The transfer of NPL's interest in the Operating Company to
                  GOSL has been registered;

            (iii) The Parties have agreed on the appointment of the consultant
                  (Article 2.8) and concluded a contract with the consultant.
                  Subject to the contractual obligations, the Parties may, by
                  unanimous agreement, chose to replace the consultant on the
                  anniversary of the contract;

                                       7
<PAGE>

            (iv)  The Parties have agreed on the appointment of the independent
                  auditor (Articles 2.10 and 5.2) and concluded a contract with
                  the independent auditor. Subject to the contractual
                  obligations, the Parties may, by unanimous agreement, chose to
                  replace the independent auditor on the anniversary of the
                  contract;

            (v)   The State Agency has given its consent to the assignment and
                  the NPL option as described in Article 3 of this Agreement;

            (vi)  Georgian Oil has issued the guarantees described in Annex 4,
                  in accordance with Article 2.17 of this Agreement.

      5.3.  Within 15 months of the date of execution of this Agreement, GOSL
            will notify NPL and the State Agency that it is in a position to
            commence work (the "Work Commencement Date") and the Work Programme
            described in Annex 1 shall commence.

      5.4.  Notwithstanding any other provisions of this Agreement and the PSC,
            including but not limited to Article 29 thereof, if after the
            expiration of 15 (fifteen) months from the date of execution of this
            Agreement by all Parties, the above conditions , as determined by
            the provisions of Articles 5.2 and 5.3, have not been met, then this
            Agreement shall terminate and neither shall be of any further force
            or effect.

ARTICLE 6: LIABILITY

      GOSL and/or it assignees agree that they will be liable to Georgian Oil
      and the State Agency under the said PSC for all duties and obligations
      provided for in the PSC, but their liability shall be several and not
      joint or collective and nothing contained herein shall ever be construed
      as creating a partnership of any kind or an association or a trust or as
      imposing upon any or all of the Parties hereto any partnership duty,
      obligations or liability.

      Each Party shall be responsible only for its obligations as set forth in
      this Agreement, and always pursuant to their foregoing respective
      participating interest. After the Assignment Date, NPL shall have no
      further duties, obligations or liabilities under the PSC.

                                       8
<PAGE>

ARTICLE 7: CONFIDENTIALITY

      All information and data disclosed and delivered between the Parties shall
      be confidential and shall not be disclosed by the Parties to any third
      party either during the validity of this Agreement. Either Party shall be
      entitled to disclose the confidential information without the other
      Party's prior written consent to such of the following persons:

            (a)   employees, officers and directors of the respective Party;

            (b)   employees, officers and directors of an affiliated company;

            (c)   any consultant or agent retained by the respective Party or
                  its Affiliated Company;

            (d)   any bank or other Financial institution or entity funding or
                  proposing to fund the respective Party's participation related
                  to the assignment, including any consultant retained by such
                  bank or other financial institution or entity.

            (e)   state taxation and controlling bodies.

ARTICLE 8: GOVERNING LAW AND ARBITRATION

      8.1   This Agreement shall be governed by and interpreted in accordance
            with the substantive law of England and Wales. For state tax
            purposes, the Parties are subject to Georgian legislation.

      8.2   The Parties hereto agree that any dispute arising out of or in
            connection with this Agreement, including any question regarding its
            existence, validity or termination, shall be referred to and finally
            resolved by Arbitration in accordance with the Rules of Conciliation
            and Arbitration of the International Chamber of Commerce by three
            Arbitrators appointed in accordance with the said rules. The
            Arbitration shall be held in London and shall be conducted in the
            English language.

      8.3   The resulting arbitral award shall be final and binding, and
            judgment upon such award may be entered in any court having
            jurisdiction thereof. A dispute shall be deemed to have arisen when
            either Party notifies the other Party in writing to that effect.

ARTICLE 9: TERM

                                       9
<PAGE>

      9.1   This Agreement shall become effective on its signing date taking
            into consideration terms of Article 5 herein and continue in full
            until the PSC and Licence are terminated under Article 4 of the PSC.
            Articles 6,7,8 and 9 of this Agreement shall remain in effect for a
            further three (3) years from the date of termination;

      9.2   The assignment made hereunder shall be binding upon and inure to the
            benefit of the Parties hereto, their successors, heirs and
            assignees.

      9.3   This Agreement contains the entire agreement between the Parties
            hereto in relation to the subject matter hereof and supersedes any
            previous understandings or agreements in relation hereto. No
            purported future modification hereto or amendment hereof shall be
            binding on the Parties unless the same shall be in writing and
            executed by the authorised representatives of the Parties and shall
            expressly refer to this Agreement.

ARTICLE 10: FORCE MAJEURE

      10.1  If as a result of Force Majeure, any Party is rendered unable,
            wholly or in part, to carry out its obligations under this
            Agreement, other than the obligation to pay any amounts of money
            due, then the obligations of such Party so far as and to the extent
            that the obligations are affected by such Force Majeure, shall be
            suspended during the continuance of any inability so caused, but for
            no longer period.

            Such Party shall notify all other Parties of the Force Majeure
            situation within (14) Days of becoming aware of the circumstances
            relied upon and shall keep all other Parties informed of all
            significant developments. Such notice shall give reasonably full
            particulars of the said Force Majeure, and also estimate the period
            of time which such Party will probably require to remedy the Force
            Majeure. Failure to give any such notification in a timely fashion
            shall mean that the period of Force Majeure shall be deemed to have
            commenced on the date of the giving of such notice.

            The affected Party shall use all reasonable diligence to remove or
            overcome or avoid

                                       10
<PAGE>

            the Force Majeure situation as quickly as possible in an economic
            manner. The period of any such non-performance or delay, together
            with such period as may be necessary for the restoration of any
            damage done during such delay, shall be added to the time given in
            this Agreement for the performance of any obligation dependent
            thereon and the continuation of any right granted; provided,
            however, the term of this Agreement shall be not be extended as a
            result of

            (i)   any particular event of Force Majeure, if the duration of any
                  such particular event of Force Majeure which, together with
                  any period of time required for restoration, is for a period
                  of 30 Days or less; and

            (ii)  the enactment or adoption of a law, rule or regulation by the
                  State or any local or legislative body of or within Georgia,
                  whether acting directly or through Georgian Oil, if such law,
                  rule or regulation is comparable to one which has been enacted
                  or adopted, on or before the date the Contract is signed, by a
                  member nation of the European Union or any legislative or
                  regulatory body of the European Union. Notwithstanding
                  anything to the contrary herein contained, no event shall
                  constitute Force Majeure if it does not delay or prevent the
                  Contractor from engaging in the conduct of Petroleum
                  Operations.

            For the purposes of this Agreement, "Force Majeure" shall mean
            natural calamities, strikes, sabotage and other production
            disorders, civil disturbance, war (declared or undeclared), or other
            military actions, terrorist or guerrilla activity, blockade, revolt,
            earthquake, avalanche, orders, laws or decrees of any state or
            governmental entity of any country, or other similar events beyond
            the control of the Party claiming Force Majeure which could not have
            been prevented by it.

      10.2  The exercise by Georgian Oil or by the State Agency of any right
            under the PSC shall not constitute Force Majeure under any
            circumstance.

                                       11
<PAGE>

ARTICLE 11: NOTICES

Notices under this Agreement shall be deemed properly given when sent by fax,
telex or registered mail to the following addresses:

NPL

Address: 5, Quai du Mont-Blanc, 1201 Geneva, Switzerland
Fax: + 41 22 909 1680
Attn: Christian Cleret, Authorised Representative

Georgian Oil Samgori Limited
Address: Kostava 65, Tbilisi 0171, Georgia
Fax: +995 32 333032
Attn: Giorgi Makharadze, General Director

This Agreement is made in two (2) original copies in Georgian and English
languages. Each counterpart shall be deemed an original Agreement for all
purposes.

IN WHITNESS WHEREOF, the Parties have executed this Agreement of Assignment on
the day and year first above written.

SIGNED by

Duly authorized for and
on behalf of
(NPL)

SIGNED by

(Giorgi Makharadze)
Duly authorized for and
on behalf of
(GOSL)

                                       12
<PAGE>

ANNEX 1: AGREED WORK PROGRAMME

The objective of the work programme will be to increase production and revenue
in the Samgori-Patardzeuli oil field through the implementation of a horizontal
well drilling programme and rehabilitation of existing wells. Additional
production and revenue may be obtained through exploration activity in the
adjacent areas of Licence block XIb.

The programme shall consist of three phases:

PHASE 1 will determine the feasibility of the proposed programme. It will
include a geological study of the existing oil-water contact, the drilling of
two horizontal well sections which may be from a new well or as a horizontal
section from an existing well, whichever will be more reasonable to drill on the
basis of hydro-geological studies. Both wells will be tested in the oil-bearing
Middle Eocene volcaniclastic reservoir with horizontal sections of 500 metres
long, The section length will be justified on geological and technical
feasibility. The expected cost of the geological study is $200,000, the
sidetrack well $1.5 million and the new well $3.0 million.

At the same time a continuous programme of workover and rehabilitation will
continue on the existing Samgori-Patardzeuli-South Dome-Krtsanisi fields with
the objective of increasing production to over 100 tons per day. Phase 1 of this
programme is expected to cost up to $1 million.
Phase 1 should be completed within 18 months of the Work Commencement Date
determined by Article 5.3 of the Agreement.

PHASE 2 In the event of successful results of Phase 1, Phase 2 will continue the
implementation of horizontal drilling from the old wells and the new horizontal
well drilling programme. Its conclusion would be defined as the point at which
revenue obtained from the Assignment Date exceeds the expenditure from the
Assignment Date.

The programme of workover and rehabilitation will continue on the existing
Samgori-Patardzeuli-South Dome-Krtsanisi fields with the objective of increasing
production to over 120 tons per day. The expected cost of this programme is
$600,000 per year.

PHASE 3 In the event of positive results from Phase 2, Phase 3 will conclude the
horizontal drilling from the old wells and the new horizontal well drilling
programme when at least 10 horizontal wells with horizontal sections of 500
metres long have been completed. The section length will be justified on
geological and technical feasibility.

                                       13
<PAGE>

The programme of workover and rehabilitation will continue on the existing
Samgori-Patardzeuli-South Dome-Krtsanisi fields with the objective of containing
the decline in production to less than 15% per year. The expected cost of this
programme is $600,000 per year.

The minimum capital expenditure in Phases 1 to 3 is expected to be: drilling
$22.5 million, workovers and facilities $2.2 million, geological studies
$200,000.

Phases 1 to 3 should be completed within thirty six (36) months of the Work
Commencement Date described in Article 5.3. This may be extended to a maximum of
60 months if required for successful implementation of Phase 2.

Drilling of only 10 (ten) horizontal sections is required within all three
Phases.

EXPLORATION DRILLING on the adjacent structures will be dependant on both the
technical and the commercial success of the above programme

            SUMMARY CHART: BLOCK XIB PROPOSED WORK PROGRAMME

      -     PHASE 1

<TABLE>
<CAPTION>
                             18 months*
                             ----------
<C>                          <C>
2 horizontal well sections   $    3.0 m
Geological study             $    0.2 m
Enhanced workover activity   $    1.0 m
</TABLE>

      -     PHASE 2

<TABLE>
<CAPTION>
                             to payback
                             ----------
<S>                          <C>
horizontal well sections
workover activity            $  0.6 m/y
</TABLE>

      -     PHASE 3

<TABLE>
<S>                                           <C>
Conclusion of 10 horizontal well sections
workover activity                             $0.6 m/y
</TABLE>

      -     TOTAL PHASES 1 TO 3

<TABLE>
<CAPTION>
                             36 months*
                             ----------
<C>                          <C>
10 horizontal well sections  $   22.5 m
Geological study             $    0.2 m
Enhanced workover activity   $    2.2 m
</TABLE>

                  * from Assignment Date

      -     EXPLORATION DRILLING

            Contingent on the technical and commercial success
            of the above programme

                                       14
<PAGE>

ANNEX 2: COORDINATES OF THE EXPLORATION AREA COVERED IN THIS AGREEMENT

<TABLE>
<CAPTION>
##            NNL                      NEL
--      ----------------        ----------------
<S>     <C>                     <C>
1       41 degrees 34'52"       45 degrees 14'38"

2       41 degrees 33'08"       45 degrees 08'19"

3       41 degrees 38'35"       45 degrees 03'55"

4       41 degrees 41'50"       45 degrees 04'51"

5       41 degrees 45'00"       45 degrees 05'00"

6       41 degrees 45'53"       45 degrees 09'43"

7       41 degrees 44'26"       45 degrees 13'47"

8       41 degrees 42'50"       45 degrees 15'03"

9       41 degrees 38'02"       45 degrees 16'22"
</TABLE>


                                       15
<PAGE>

ANNEX 3: AUDIT CONCLUSION

                                       16
<PAGE>

ANNEX 4: PARENT COMPANY GUARANTEE

JSC National Oil Company Saknavtobi and/or its successors ("GEORGIAN OIL")
hereby refers to the Assignment Agreement (the "Agreement") between National
Petroleum Limited ("NPL") and its subsidiary Georgian Oil Samgori Ltd and/or its
successors ("GOSL") together with the Production Sharing Contract for Georgia
onshore block XIb as therein described (hereinafter called the "Contract") among
NPL and the State of Georgia (the "STATE") represented by the State Agency for
Regulation of Oil and Gas Resources (the "State Agency") and Georgian Oil.

GEORGIAN OIL states that it has taken notice of all of the clauses contained in
the Agreement and the Contract and in particular those that relate to GOSL's
commitments in favour of NPL and the STATE.

GEORGIAN OIL states that it has also taken notice of the relevant Georgian and
English laws and regulations in accordance with which the Agreement and the
Contract have been executed.

GEORGIAN OIL states that GOSL possesses full technical capabilities for the
execution of the operations stipulated in the Agreement and the Contract and
guarantees to NPL and the STATE that all of these commitments will be fulfilled
by GOSL, or in the absence of such fulfilment, by GEORGIAN OIL as herein below
provided.

GEORGIAN OIL states that GOSL possesses full financial capabilities for the
execution of the financial commitments whether in the form of obligations or
liabilities as stipulated in the Agreement and the Contract and guarantees to
NPL and the STATE that all of these commitments will be fulfilled by GOSL, or in
the absence of such fulfilment, by GEORGIAN OIL as herein below provided.

In the event of default by GOSL in the execution of any of its obligations,
GEORGIAN OIL commits and guarantees to execute and fulfil the said obligation(s)
no later than thirty (30) Days after the receipt of a written notification of
the default from either NPL (as defined in the Agreement) or the State Agency
(as defined in the Contract). This written notification will specify the nature
of the default by GOSL.

                                       17
<PAGE>

However, GOSL will have the right during this thirty (30) Day period to correct
its default before this guarantee comes into effect.

This guarantee is irrevocable and will not expire, subject to any remaining
responsibilities and obligations in respect of GOSL as provided in the Agreement
and the Contract until the earliest of (i) the date on which all of the
obligations stipulated in the Agreement and the Contract have been accomplished,
which are not necessarily co-extensive with the Contract; or (ii) the date GOSL
relinquishes all of its interests under the Contract.

The definitions used in this guarantee will have the meaning given to them in
the Agreement and the Contract.

In Witness GEORGIAN OIL has duly executed this GUARANTEE as of _____________ ,
2003.

GEORGIAN OIL

___________________

                                       18
<PAGE>

                                     AMENDED
                           PRODUCTION SHARING CONTRACT

                           NATIONAL PETROLEUM LIMITED

                                       AND

                              THE STATE OF GEORGIA

                                 REPRESENTED BY

                THE STATE AGENCY FOR THE REGULATION OF OIL & GAS
                                       AND
                 THE JOINT STOCK NATIONAL OIL COMPANY SAKNAVTOBI

                                    MAY 2001

<PAGE>

                                INDEX OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                Page
<S>                                                                                             <C>
Article 1         Definitions                                                                      6
Article 2         Scope of Contract and General Provisions                                        17
Article 3         Contract Area                                                                   20
Article 4         Contract Term                                                                   22
Article 5         Relinquishments                                                                 23
Article 6         Co-ordination Committee                                                         26
Article 7         Operating Company                                                               32
Article 8         Minimum Work Programme                                                          34
Article 9         Procedure for Approval of Appraisal and Development Plans                       37
Article 10        Annual Work Programme and Budgets                                               43
Article 11        Allocation of Production, Recovery of Costs and
                  Expenses, Production Sharing, and Right of Export                               45
Article 12        Crude Oil and Natural Gas Valuation                                             50
Article 13        Ancillary Rights of the Contractor and the Operating Company                    53

Article 14        Assistance Provided By the State                                                58
Article 15        Measurement of Petroleum                                                        61
Article 16        Natural Gas                                                                     63
Article 17        Tax/Fiscal Regime                                                               69
Article 18        Accounting, Financial Reporting and Audit                                       80
Article 19        Currency, Payments and Exchange Control                                         82

Article 20        Import and Export                                                               85
Article 21        Export of Hydrocarbons, Transfer of Ownership,
                  and Regulations for Disposal                                                    87

Article 22        Ownership of Assets                                                             89
Article 23        Insurance                                                                       91
Article 24        Environmental, Health, Safety and Liability                                     93

Article 25        Force Majeure                                                                   99
Article 26        Assignments and Guarantees                                                     101
Article 27        Contract Enforcement and Stabilisation, and
                  Representations and Warranties                                                 107
Article 28        Notices and Confidentiality                                                    113
Article 29        Termination and Breach                                                         116
Article 30        Dispute Resolution                                                             120
</TABLE>

                                       2
<PAGE>

<TABLE>
<S>                                                                                              <C>
Article 31        Text                                                                           123
Article 32        Effective Date                                                                 124

ANNEXES

Annex A           Extract from the License                                                       127
Annex B           Contract Area Description and Map                                              128
Annex C           Accounting Procedure                                                           129
Annex D           Addresses for Service                                                          156
Annex E           Operating Company Charter                                                      157
Annex F           Prior Costs and Expenses                                                       180
Annex G           Cost Reimbursement Agreement                                                   187
</TABLE>

                                       3
<PAGE>

                           PRODUCTION SHARING CONTRACT

This Contract is made and entered into as of         2001 by and between

(1)      The State of Georgia ("the State") represented by the State Agency for
         Regulation of Oil and Gas Resources ("State Agency");

(2)      The Joint Stock National Oil Company Saknavtobi, a legal entity under
         the laws of Georgia pursuant to the Charter of Saknavtobi and the Law
         on Oil and Gas ("Georgian Oil");

(3)      National Petroleum Limited, a company organised and existing under the
         laws of Bermuda ("Contractor");

The State, Georgian Oil, and Contractor may individually be referred to as a
"Party" and collectively as the "Parties".

                                   WITNESSETH:

WHEREAS, Georgian Oil and Contractor have entered into a Production Sharing
Agreement dated June 9 1995, as amended by Addendum No 1 of June 20 1997 and
Addendum No 2 of August 21 1998 (the "Original Agreements"); and

WHEREAS, a certain licence, series 33, 34, 46,47, number 7, was issued
provisionally on behalf of the State by the Georgian Oil Department of the
Republic of Georgia on July 10 1995 in respect of the Contract Area; and
subsequently reissued by licence, series 33, 34, 46,47, number 0058, by the
Department for the Protection of Mineral Resources and Mining of the Ministry of
Environmental Protection on October 13 1995; and subsequently extended by the
State Agency for the Regulation of Oil and Gas Resources and subsequently
re-issued temporary licence Series OGA Number 002 Code 01-11B by them on October
2 2000; and

WHEREAS, on April 16, 1999 the Law on Oil and Gas in Georgia ("the Petroleum
Law")

                                       4
<PAGE>

came into effect;

WHEREAS, the Petroleum Law, among other things, provided for the creation of the
State Agency and vested in it the power to represent the State in management of
oil and gas operations to include entering into production sharing contracts on
behalf of the State, to issue and to reissue licenses to investors for
performance of oil and gas operations, and to delegate all operational and
commercial functions of the State under production sharing contracts to Georgian
Oil until the State ceases to own more than 75% of its shares;

WHEREAS, the Petroleum Law, among other things, designated Georgian Oil to
perform the functions of the National Oil Company (as that term is defined in
Article 1.39 of the Petroleum Law) so long as the State owns more than 75% of
its shares;

WHEREAS, the Parties wish to amend and restate the terms of the Original
Agreements to take account of changed economic circumstances and the
introduction of the Georgian Law on Oil and Gas;

NOW, THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows:

                                       5
<PAGE>

                                    ARTICLE 1

                                   DEFINITIONS

The following words and terms used in this Contract shall unless otherwise
expressly specified in this Contract have the following respective meanings:

1.1      "Accounting Procedure" means the accounting procedure set out in Annex
         "C" hereto.

1.2      "Administrative Fees" shall mean any fees, fees, charges, or other
         imposts which are generally applicable or which are imposed for
         specific services or materials provided by the Government or any local
         authority, provided they are imposed by laws, rules and regulations of
         general application and do not discriminate or have the effect of
         discriminating against the Contractor.

1.3      An "Affiliated Company" or "Affiliate" means:

         1.3.1    with respect to Contractor or, as indicated, the Parent
                  Company, a company, corporation, partnership or other legal
                  entity:

                  i)   in which Contractor or the Parent Company, as the case
                       may be, owns, directly or indirectly, more than fifty
                       percent (50%) of the shares or voting interests as well
                       as the unrestricted right to exercise management control
                       on all matters and otherwise has the right to establish
                       management policy and exercise such management control;
                       or

                  ii)  in which at least fifty percent (50%) of the shares or
                       voting interests are owned directly or indirectly by a
                       company, corporation, partnership or other legal entity,
                       which owns directly or indirectly more than fifty percent
                       (50%) of the shares or voting interest as well as the
                       unrestricted right to exercise management control on all
                       matters, and otherwise has the right to establish
                       management policy and exercise such management control,
                       of Contractor or Parent Company;

                                       6
<PAGE>

         1.3.2    with respect to Georgian Oil, any legal entity directly or
                  indirectly controlled by Georgian Oil, or any legal entity
                  that directly or indirectly controls Georgian Oil. For the
                  purposes of this part of the definition, the term to "control"
                  shall mean with respect to any such entity, having the right
                  to carry out direct or indirect supervision of such entity or
                  to define a general scope of its activity based on holding the
                  shares entitled to vote, any other form of ownership, or on
                  any other grounds.

1.4      "Annex" or "Annexes" means each or all of the Annexes "A" through "G"
         attached to this Contract and made a part hereof. In the event of a
         conflict between the provisions of an Annex and a term in the main body
         of this Contract, the provisions of the latter shall prevail.

1.5      "Annual Work Programme" means a work plan and schedule, prepared and
         submitted by the Contractor to the Co-ordination Committee and
         approved, or deemed approved, by the Co-ordination Committee, all as
         more fully herein provided, setting forth the Petroleum Operations to
         be carried out during a Calendar Year by the Contractor.

1.6      "Appraisal" means all works carried out by the Contractor to evaluate
         and delineate a discovery of Petroleum in the Contract Area.

1.7      "Appraisal Area" means a part of the Contract Area in which an
         Appraisal Programme is to be conducted by the Contractor.

1.8      "Appraisal Programme" means a Work Programme submitted by the
         Contractor to the Coordination Committee for approval, under which the
         Contractor will evaluate and delineate a discovery of Petroleum, and
         which has been approved, or deemed approved, by the Coordination
         Committee as herein provided. Any Appraisal Programme which has not yet
         been so approved shall herein be referred to as a Draft Appraisal
         Programme.

1.9      "Associated Natural Gas" means all gaseous hydrocarbons produced in
         association with Crude Oil, which Crude Oil itself can be commercially
         produced and separated

                                       7
<PAGE>

         therefrom.

1.10     "Available Crude Oil" means Crude Oil produced and Saved from the
         Contract Area and not used in Petroleum Operations in accordance with
         Article 11.3.

1.11     "Available Natural Gas" means Associated or non-Associated Natural Gas
         produced and Saved from the Contract Area and not used in Petroleum
         Operations in accordance with Article 11.3.

1.12     "Available Petroleum" means Available Crude Oil and Available Natural
         Gas.

1.13     "Barrel" means a quantity consisting of forty-two (42) United States
         gallons liquid measure, corrected to a temperature of sixty (60)
         degrees Fahrenheit with pressure at sea level.

1.14     "Base Level Oil" is the amount of oil that Georgian Oil expect they
         would have produced from the Contract Area had there been no other
         arrangements over the period 1996 to 2000. The Parties agree that this
         Base Level Oil amounts to 250,000 tons.

1.15     "Budget" means the estimate of the expenditures, listed category by
         category, relating to Petroleum Operations and contained in any Work
         Programme.

1.16     "Calendar Quarter" or "Quarter" is a period of three consecutive months
         beginning on January 1st, April 1st, July 1st and October 1st of each
         Calendar Year.

1.17     "Calendar Year" or "Year" means a period of twelve (12) consecutive
         months beginning on January 1st and ending on December 31st in the same
         year, according to the Gregorian Calendar.

1.18     "Commercial Discovery" means a discovery of Petroleum in respect of
         which the Contractor has given a notice pursuant to Article 9.3.1.

1.19     "Commencement of Commercial Production" means the date on which the
         first lifting, shipment or delivery of Petroleum is made under
         Commercial Production.

                                       8
<PAGE>

1.20     "Commercial Production" means production of Petroleum and delivery
         under a lifting agreement or contract for sale as provided for in a
         Development Plan as amended from time to time.

1.21     "Contract" or "PSC" means the Original Agreements as amended, restated
         and superseded by this Production Sharing Contract together with all
         attached Annexes and any variation, extension or modification hereto,
         which may be agreed in writing by all the Parties.

1.22     "Contract Area" means the area (from the surface to all depths
         accessible to drilling technology) specified in Article 3 hereof and
         delineated in Annex A as reduced or enlarged from time to time in
         accordance with the provisions of this Contract.

1.23     "Contractor" means the Contractor and his permitted assignees and
         successors, as provided herein.

1.24     "Co-ordination Committee" means the committee constituted in accordance
         with Article 6.

1.25     "Cost Recovery" means the method by which Costs and Expenses are
         recovered in accordance with Article 11.5.

1.26     "Cost Recovery Petroleum" means Petroleum available for Cost Recovery
         pursuant to Article 11.5.

1.27     "Costs and Expenses" means all incurred costs and expenses necessary to
         conduct Petroleum Operations and chargeable to the Petroleum Operations
         Account, all as more fully set forth and in accordance with the
         Accounting Procedure, including such amounts so chargeable as are set
         forth in Annex F in respect of costs and expenses incurred prior to the
         date of this Contract or hereinafter stated to be approved by the
         Co-ordination Committee, subject to the audit provisions of this
         Contract.

1.28     "Crude Oil" means crude mineral oil, asphalt, ozokerite and all kinds
         of hydrocarbons whether in a solid, liquid or mixed state at the
         wellhead or separator or which is obtained from Natural Gas through
         condensation or extraction, excluding methane gas.

                                       9
<PAGE>

1.29     "Customs Duties" means all import (or export) tariffs and duties and
         other mandatory payments, other than Administrative Fees, as stipulated
         by applicable laws, rules or regulations of Georgia with respect to the
         import or export of Petroleum, materials, equipment, goods and any
         other similar items.

1.30     "Day" means a calendar day.

1.31     "Development Area" means all or any part of the Contract Area specified
         in a Development Plan approved, or deemed approved, by the Coordination
         Committee as herein provided.

1.32     "Development Plan" is a plan presented by the Contractor in accordance
         with Article 9.5 and approved, or deemed approved, by the Coordination
         Committee as herein provided. Any development plan which has not yet
         been so approved shall be a Draft Development Plan.

1.33     "Dispute" means any difference of view or disagreement between the
         First Party and the Second Party in relation to or in connection with,
         or arising out of any terms and conditions of this Contract, but does
         not include (a) any difference of view or disagreement between the
         First Party and the Second Party which under the provisions of this
         Contract is to be referred for determination to a Sole Expert pursuant
         to Article 30.9 or (b) any difference of view or disagreement falling
         under Article 30.8.

1.34     "Dispute Parties" shall have the meaning as ascribed thereto in Article
         30

1.35     "Dollar" or "US$" or "$" means the currency of the United States of
         America.

1.36     "Double Tax Treaty" means any international treaty or convention for
         the avoidance of double taxation of income and/or capital which is
         applicable in Georgia.

1.37     "Effective Date" is defined in Article 32.2.

1.38     "Exploration Programme" shall mean all the exploration activities for
         previously undiscovered Petroleum, which shall include geological,
         geophysical, aerial and other survey activities and interpretation of
         data relating thereto and the drilling of shot holes, core holes,
         stratigraphic tests, exploratory wells and tests thereof for the

                                       10
<PAGE>

         discovery of Petroleum and other related operations.

1.39     "Finance Costs" means in respect of debt incurred in carrying out
         Petroleum Operations, approved (including all their terms in respect
         thereof) by the Co-ordination Committee and owed to a party which is
         not an Affiliate of the Contractor, all amounts of interest, fees and
         charges paid in respect thereof, including any refinancing thereof, and
         in respect of such debt so approved and owed to an Affiliate of the
         Contractor, it shall include interest only to the extent it does not
         exceed a rate which would have been agreed between independent parties.

1.40     "First Dispute Party" has the meaning assigned to it in Article 30.

1.41     "Force Majeure" is defined in Article 25.1.

1.42     "Foreign Employee" is defined in Article 17.19.

1.43     "Foreign Exchange" means any lawful currency other than the currency of
         Georgia.

1.44     "Foreign Subcontractors" means Subcontractors in respect of which the
         Contractor has complied with Article 17.24.

1.45     "Gas Sales Contract" is any contract to be entered into for the sale of
         Natural Gas.

1.46     "Good Oilfield Practices" means all those things that are generally
         accepted in the international petroleum industry as good, safe,
         environmentally sound, economical and efficient in exploring for and
         producing Petroleum.

1.47     "Insolvency Event" means, with respect to a Contractor Party

         (i)      the appointment, without recall within 60 Days of appointment,
                  of a liquidator, other than for the purposes of amalgamation
                  or reconstruction; or

         (ii)     the appointment, without recall or revocation of appointment
                  or resignation within 60 Days of appointment, of an
                  administrator, receiver or administrative receiver in respect
                  of the whole or part of the assets and undertaking of that
                  Contractor Party; or

                                       11
<PAGE>

         (iii)    outside Bermuda, any procedure analogous with either (a) or
                  (b) above in any other jurisdiction.

1.48     "IVOG" means Ioris Valley Oil and Gas Limited, of Lilo Station,
         Chirnakhuli 9, Tbilisi, Georgia, a company half of which is owned by
         Contractor and half by Georgian Oil.

1.49     "Letter of Credit" means, with reference to Article 8.2.4, an
         engagement by a bank made on the instructions of the Contractor that
         the bank will hounour demands for payment to the State Agency, subject
         to the conditions specified in the Letter of Credit.

1.50     "Licence" means either:

         (i)      the Licence issued in connection with the Original Agreements,
                  provisionally issued by the Chairman of the specialised office
                  on Licensing and Informatics of Georgian Oil and formally
                  issued on 13 October 1995 by the Department of Protection of
                  Mineral Resources and Mining in the Ministry of Environmental
                  Protection, together with all annexes thereto and any
                  extension, renewal, re-issue or amendment thereof, including
                  that provided in 26.10.1 or

         (ii)     any Licence issued to the Contractor.

1.51     "Local Sales" is defined in Article 17.22.2.

1.52     "Marketing Team" is described in Article 16.5.

1.53     "Measurement Point" means the physical location at which title to
         Petroleum passes to Parties entitled thereto, and specified in a
         Development Plan.

1.54     "Minimum Work Programme" means the programme of work referred to in
         Article 8.2.

1.55     "Month" or "Calendar Month" means a calendar month.

1.56     "Natural Gas" means Non-associated Natural Gas and Associated Natural
         Gas in their natural state.

1.57     "Non-associated Natural Gas" means all gaseous hydrocarbons produced
         from gas wells, and includes wet gas, dry gas and residue gas remaining
         after the extraction

                                       12
<PAGE>

         of liquid hydrocarbons from wet gas.

1.58     "Operating Company" is the company formed pursuant to Article 7.1 and
         acting pursuant to the provisions of Article 7 and the other provisions
         of this Contract as the Operating Company.

1.59     "Original Agreements" shall mean the Production Sharing Agreement,
         dated 9 June 1995 between Georgian Oil and NPL, and subsequent
         amendments dated on 20 June 1997 and 21 August 1998.

1.60     "Parent Company" shall mean parent of a Third Party assignee under
         Article 26.

1.61     "Party" or "Parties" shall have the meaning set forth in the first
         paragraph of this Contract.

1.62     "Petroleum" means Crude Oil and Natural Gas.

1.63     "Petroleum Operations" means all Petroleum activities carried out by
         the Contractor in or in relation to the Contract Area in accordance
         with, and to the extent provided in the Contract, including any Minimum
         Work Program under Article 8.

1.64     "Petroleum Operations Account" shall have the meaning given to it in
         paragraph 1.4.1 of section I of the Accounting Procedure.

1.65     "Profit Natural Gas" is defined as set forth in Article 11.10.

1.66     "Profit Oil" is defined as set forth in Article 11.10.

1.67     "Profit Petroleum" means Profit Natural Gas and Profit Oil.

1.68     "Profit Tax" is defined as set forth in Article 17.4.

1.69     "Reservoir" means a discrete accumulation of Petroleum in a geological
         feature located in part or in whole within the Contract Area, limited
         by: -

         (a)      lithological boundaries; or

         (b)      structural boundaries

                                       13
<PAGE>

         so that the accumulation of Petroleum is in pressure or hydrocarbon
         communication.

1.70     "Saved" shall mean in respect of Petroleum, Petroleum which has been
         produced and has not been lost in the course of Petroleum Operations,
         reinjected into a producing field or flared or otherwise used in
         accordance with the Development Plan..

1.71     "Second Dispute Party" has the meaning assigned to it in Article 30.

1.72     "Sole Expert" has the meaning assigned to it in Article 30.9.

1.73     "State" means the state and people of Georgia represented by the duly
         constituted national Government of Georgia.

1.74     "State Representative" means the authorised representative of the State
         appointed in accordance with Article 2.7

1.75     "Subcontractor" means any natural person or juridical entity contracted
         directly or indirectly by or on behalf of the Contractor to supply
         goods, works or services in connection with Petroleum Operations.

1.76     "Tax Inspectorate" is defined as set forth in Article 17.18.

1.77     "Taxes" means all levies, duties, taxes or other fees or imposts which
         are in lieu thereof, but excluding Administrative Fees.

1.78     "Third Party" or "Third Parties" means one or more of a natural person
         or juridical entity other than a Party hereto and any Affiliate of a
         Party.

1.79     "VAT" means Georgian value added tax.

1.80     "Withholding Tax" is defined in Article 17.21.

1.81     "Wilful Misconduct" means, in relation to the Contractor or any
         Affiliate, an intentional or reckless disregard of any provision of
         this Contract or any Work Programme or Good Oilfield Practice not
         justifiable by an emergency or comparable special circumstance, but
         shall exclude any omission or error of

                                       14
<PAGE>

         judgement made by the Contractor or any Affiliate of the Contractor or
         any employee of the Contractor or its Affiliate in reasonable and good
         faith exercise of any function, authority or discretion conferred on
         the Contractor or its Affiliates under this Contract in relation to
         Petroleum Operations, in respect of which justification and exclusion
         the Contractor and Affiliate shall have the burden of proof.

1.82     "Work Programme" and "Work Programme and Budget" shall mean any work
         programme and work programme and Budget, which sets out proposed
         Petroleum Operations together with the associated Budget as the case
         may be, submitted to the Co-ordination Committee by the Contractor and
         approved, or deemed approved, by the Co-ordination Committee. Any Work
         Programme or Work Programme and Budget not yet so approved shall be
         referred to as a Draft Work Programme or Draft Work Programme and
         Budget.

                                       15
<PAGE>

                                       16
<PAGE>

                                    ARTICLE 2

                    SCOPE OF CONTRACT AND GENERAL PROVISIONS

2.1      The State hereby ratifies and confirms to the Contractor the License
         for its term, for the purpose and in accordance with the provisions of
         the Contract.

2.2      Subject to the terms and conditions of the Contract, the State hereby
         grants to the Contractor, (and Operating Company as herein provided),
         the exclusive rights to conduct Petroleum Operations in the Contract
         Area during the term of this Contract.

2.3      This Contract is an existing agreement for the purposes of the
         Petroleum Law as that term is defined in Article 1.36 thereof and shall
         enjoy any and all benefits attributed to it by Georgian law.

2.4      The Contractor shall be responsible to the State for the execution of
         all Petroleum Operations, including the activities of the Operating
         Company, all in accordance with the provisions of this Contract.

         The Contractor shall provide the financial and technical resources
         required for the execution of the Petroleum Operations, and its other
         obligations under this Contract. Subject to the other provisions of the
         Contract, in performing the Petroleum Operations, the Contractor shall
         conduct all operations diligently in accordance with Good Oilfield
         Practices and in compliance with applicable laws, rules and
         regulations.

         The Contractor may borrow funds from Third Parties and/or Affiliated
         Companies for the financing required for the investments necessary for
         Petroleum Operations. Finance Costs charged for such loans shall be
         recoupable as Costs and Expenses as provided in Article 11 and the
         Accounting Procedure.

2.5      Except as provided in Article 9.8.4, the Contractor shall be reimbursed
         for its investment and expenditures in connection with the conduct of
         Petroleum

                                       17
<PAGE>

         Operations not by way of reimbursement in cash, but only by receipt of
         its share of Petroleum from the Contract Area to which it may become
         entitled by way of Costs and Expenses from Cost Recovery Petroleum
         under Article 11 and other provisions of this Contract. If Cost
         Recovery Petroleum produced from Development Areas within the Contract
         Area is insufficient to reimburse the Contractor for Costs and Expenses
         incurred by the Contractor, the Contractor shall bear its own losses in
         respect of any shortfall.

2.6      Where the Contractor is more than one person or entity, any obligation
         of the Contractor hereunder shall be a joint and several obligation of
         all of the persons and entities who constitute the Contractor, except
         for the following which shall be a several obligation of each of said
         persons and entities: i) the obligation to pay Profit Tax or any other
         tax assessed and levied on profit or net income in accordance with
         Article 17; ii) the obligation to observe stipulations relating to
         confidentiality set out in Article 28, except in respect of their
         application to anything done or to be done by the Contractor in his
         capacity as such; and iii) the obligation to observe stipulations
         relating to foreign exchange set forth in Article 19, except in respect
         of their application to anything done or to be done by the Contractor
         in his capacity as such.

2.7      The State has appointed the State Agency as its representative for the
         purposes set out in Article 8 of the Petroleum Law and Georgian Oil as
         its representative for the purposes set out in Article 9 of the
         Petroleum Law, with right of substitution and removal, each to exercise
         the State functions and to perform the State obligations under the
         Contract as prescribed by the Petroleum Law and to enjoy the benefit as
         herein provided. The State will give notice to the Contractor of the
         appointment and removal and substitution of its representatives. The
         Contractor will be entitled to assume that each State Representative
         has full authority to represent the State for those State purposes
         under the Contract assigned to it according to the Petroleum Law,
         including those where herein specific reference is made to the State
         Representative.

                                       18
<PAGE>

                                    ARTICLE 3

                                  CONTRACT AREA

3.1      The Contract Area is as set out by the geographic location and
         co-ordinates described in Annex "B" attached hereto and delineated on
         the map which forms part thereof. The total area of the Contract Area
         may hereafter be reduced only in accordance with the provisions of this
         Contract.

3.2      Except as for all rights and authorisations necessary for the
         implementation of the provisions of this Contract, no right is granted
         in favour of the Contractor to the use or disposal of any other natural
         or man-made resources or aquatic resources other than as provided in
         Article 3.2 and Article 13.5. For the sake of clarity, it is understood
         that produced hydrocarbons and associated substances may be injected
         into underground reservoirs provided the purpose of such activity is to
         avoid discharge of deleterious substances into the environment or to
         enhance hydrocarbon recovery or to conserve hydrocarbons for which
         there is no immediate commercial market. It is also understood that
         certain waters may be utilised in the Petroleum Operations envisioned
         herein to enhance hydrocarbon recovery or process the hydrocarbons for
         sale.

3.3      Contractor shall have the right of free ingress and egress to and over
         the Contract Area over State lands and waters on, over, and adjoining
         the Contract Area for the purpose of Petroleum exploration,
         development, production, and removal. The State Agency will assist
         Contractor to obtain other necessary easements and rights of way.

3.4      Contractor may, subject to approval and permitting required by the laws
         and regulations of Georgia and to any contractual arrangements with
         third parties as necessary or convenient, re-inject Petroleum extracted
         from the Contract Area for operational reasons, including drilling,
         testing, re-working, or other activities to enhance or maintain the
         recovery of Petroleum or for storage of Petroleum for which there is no
         immediate market, and re-inject produced water and associated
         substances into underground reservoirs capable of commercial Petroleum

                                       19
<PAGE>

         production or other strata if the purpose of such activity is to avoid
         discharge of deleterious substances into the environment. Petroleum
         re-injected for operational purposes is not to be deemed as "produced".
         Petroleum produced from the Contract Area for which there is no
         immediate commercial market may be also re-injected into appropriate
         reservoirs or other strata, either on or off the Contract Area, for
         storage. Title to such stored Petroleum shall pass to the Parties at
         the Measurement Point at the time the stored Petroleum is withdrawn
         from storage and sold or otherwise disposed of. All obligations of the
         Parties to account for and to pay taxes or other obligations on or with
         respect to such stored Petroleum shall accrue at the time title passes.

                                       20
<PAGE>

                                    ARTICLE 4

                                  CONTRACT TERM

4.1      The term of the Contract shall continue from the Effective Date for a
         period of twenty years.

4.2      If in respect of any Development Area, Commercial Production, as set
         forth in a revised Development Plan, remains possible beyond the twenty
         year period specified in Article 4.1 the Contractor, after giving
         notice to Georgian Oil and the State Agency at least one (1) year prior
         to the end of such period, and after obtaining approval by the
         Co-ordination Committee of such revised Development Plan shall be
         entitled to have an extension of the term of this Contract with respect
         to such Development Area for an additional term of fifteen (15) years,
         or the producing life of the Development Area, whichever is lesser,
         subject to the approval of the State Agency, such approval not to be
         withheld unreasonably.

                                       21
<PAGE>

                                    ARTICLE 5

                                 RELINQUISHMENTS

5.1      Subject to Article 5.2, the Contractor shall select and relinquish
         portions of the Contract Area as follows:

         5.1.1    at least fifty percent (50%) of the Contract Area (excluding
                  any Development Areas) remaining after the relinquishment in
                  Clause 5.1.1, not later than the fifth anniversary of the
                  Effective Date of this Contract, and

         5.1.2    at least fifty percent (50%) of the Contract Area (excluding
                  any Development Areas) remaining after the relinquishment in
                  Clause 5.1.2 occurs not later than the tenth anniversary of
                  the Effective Date of this Contract, and

         5.1.3    at least fifty percent (50%) of the Contract Area (excluding
                  any Development Areas) remaining after the relinquishment in
                  Clause 5.1.3 occurs not later than the fifteenth anniversary
                  of the Effective Date of this Contract, and

         5.1.4    the remainder of the Contract Area (excluding any Development
                  Areas which are subject to an extension under Article 4.2) not
                  later than the twentieth anniversary of the Effective Date of
                  this Contract.

         5.1.5    the remainder of the Contract Area (if and to the extent the
                  term of this contract is extended pursuant to the provisions
                  of Article 4.2) not later than the thirty-fifth anniversary of
                  the Effective Date of this Contract or the producing life of
                  the Development Areas, whichever is the lesser.

5.2      Subject to the provisions of Article 5.1.6 and subject to the other
         provisions of this Article 5.2, the Contractor shall not be required
         pursuant to Article 5.1 to relinquish any portion of the Contract Area
         containing a Development Area.

                                       22
<PAGE>

         5.2.1    Following the expiration of five years from the declaration of
                  a Development Area, all depths deeper than the deeper of (a)
                  100 meters below the total depth of the deepest well drilled
                  within the Development Area, or (b) the base of the deepest
                  interval from which a well has produced, shall cease to be
                  included in the Development Area and shall be subject to
                  relinquishment under this Article 5.

         5.2.2    The Development Areas identified in Article 8.10 shall be
                  deemed to have been declared as Development Areas on the
                  Effective Date of this Contract.

5.3      The Contractor shall furnish the State Agency with a description of the
         boundaries of the part of the Contract Area to be relinquished not less
         than ninety (90) Days in advance of the deadline for the relinquishment
         prescribed in Article 5.1. If the Contract is earlier surrendered or
         terminated, the Contractor shall provide such descriptions a minimum of
         30 days before relinquishment.

         The relinquishment shall be in accordance with the requirements and
         obligations relating to site restoration, to the extent herein
         applicable, as set forth in any applicable law, rule or regulation in
         effect from time to time. The Contractor shall remain responsible for
         any losses, damages and liabilities arising under any claim, demand,
         action or proceeding arising from the conduct of Petroleum Operations
         prior to the date of the relinquishment in accordance with this
         Contract and any applicable laws, rules and regulations in effect at
         the time such Petroleum Operations are performed from time to time.

5.4      The area designated for relinquishment shall consist as far as
         practicable of rectangular blocks not less than five square kilometres
         in area and bounded by lines running due north and south and due east
         and west. The area designated for relinquishment need not consist of
         one contiguous tract. Contractor shall use its best efforts to
         designate non-contiguous tracts in such manner that subsequent
         Petroleum Operations on the relinquished tracts are not unreasonably
         impeded.

                                       23
<PAGE>

5.5      The Contractor may at any time relinquish voluntarily all or any part
         of the Contract Area. Article 5.4 shall apply to all voluntary
         relinquishments of a part only of the Contract Area. Any such voluntary
         relinquishment of less than all of the Contract Area shall be credited
         toward any subsequent relinquishment obligations hereunder.
         Notwithstanding anything to the contrary contained herein, no
         relinquishment of all or part of the the Contract Area shall relieve
         the Contractor of its obligations under Article 8, Minimum Woek
         Programme.

                                       24
<PAGE>

                                    ARTICLE 6

                             CO-ORDINATION COMMITTEE

6.1      For the purpose of providing the overall supervision and direction and
         ensuring the performance of the Petroleum Operations, Georgian Oil and
         the Contractor shall establish a Co-ordination Committee within
         forty-five (45) Days of the Effective Date.

6.2      The Co-ordination Committee shall comprise a total of six (6) members.
         Georgian Oil shall appoint a total of three (3) representatives and the
         Contractor shall appoint three (3) representatives to form the
         Co-ordination Committee. Georgian Oil and the Contractor shall each
         designate one of its representatives as its chief representative. All
         the aforesaid representatives shall have the right to attend and
         present their views at meetings of the Co-ordination Committee. Each
         representative shall have the right to appoint an alternate who shall
         be entitled to attend all meetings of the Co-ordination Committee. When
         a decision is to be made on any proposal, the chief representative (or
         in his absence, his alternate) from each Party shall be the spokesman
         on behalf of such Party and shall cast a single vote.

         The first chairman of the Co-ordination Committee shall be the chief
         representative of the Contractor (or his alternate) and the first vice
         chairman shall be the chief representative of Georgian Oil (or his
         alternate).

         The chairman of the Co-ordination Committee shall preside over meetings
         of the Co-ordination Committee, and in the absence of the chairman (or
         his alternate), the vice-chairman shall preside. Each Party may
         designate a reasonable number of advisors, who may attend, but shall
         not be entitled to vote at, Co-ordination Committee meetings. Such
         advisors may speak only with the permission of the chairman or
         vice-chairman.

         For the purposes of clarification and for the avoidance of any doubt,
         the chairman

                                       25
<PAGE>

         shall have no determinative casting vote.

6.3      A regular meeting of the Co-ordination Committee shall be held at least
         once each Calendar Quarter. The secretary to be designated pursuant to
         this Article shall be responsible for calling such regular meetings of
         the Co-ordination Committee and shall do so at the request of the
         chairman by sending a notice to the Parties. Other meetings, if
         necessary, may be held at any time at the request of Georgian Oil or
         the Contractor. In each case, the secretary shall give the Parties at
         least 30 Days notice (or such shorter period as the Parties may agree)
         of the proposed meeting date, the time and location of the meeting.

6.4      The Parties hereby empower the Co-ordination Committee to:

         6.4.1    review and approve any Work Programme, Budget, production
                  schedule and lifting schedule proposed by the Contractor and
                  any amendment thereof, and verify and supervise the accounting
                  of costs and the conformity of the operating and accounting
                  records with the terms of this Contract and Annexes "C" and
                  "E" hereof;

         6.4.2    review and approve Development Plans, including the respective
                  development operations and Budgets, and the demarcation of a
                  Development Area, all after determining the commerciality
                  thereof;

         6.4.3    approve or confirm the following specific items of procurement
                  and expenditure:

                  i)   approve procurement and purchase contracts of any item
                       within a Budget with a unit price exceeding one hundred
                       thousand US$ (US$100,000) or any single purchase order of
                       total monetary value exceeding two hundred and fifty
                       thousand US$ (US$250,000);

                  ii)  approve a lease of equipment, or an engineering
                       subcontract or a service contract within a Budget worth
                       more than two hundred and fifty thousand US$ (US$250,000)
                       in total; and

                                       26
<PAGE>

                  iii) confirm excess expenditures pursuant to Article 10.5
                       hereof and the expenditures pursuant to Article 10.6
                       hereof;

                  iv)  Unless otherwise agreed by the Coordination Committee,
                       every contract in excess of two hundred and fifty
                       thousand US$ (US$250,000) should be negotiated and
                       concluded by the Contractor rather than the Operating
                       Company.

         6.4.4    review and approve the insurance programme proposed by the
                  Contractor provided however, notwithstanding any such approval
                  the Contractor shall be fully liable for the adequacy,
                  sufficiency and suitability, as well as any shortcomings, of
                  any such insurance programme;

         6.4.5    review and approve emergency procedures on safety and
                  environmental protection; provided, however, that
                  notwithstanding any such approval, the Contractor shall be
                  fully liable for the adequacy, sufficiency and suitability, as
                  well as any shortcomings, of such procedures, including their
                  compliance with applicable laws, rules and regulations;

         6.4.6    review and approve personnel policies, selection and training
                  programmes for the Contractor, to the extent it is performing
                  Petroleum Operations in Georgia, and Operating Company.
                  Without prejudice to the foregoing, it is accepted that part
                  of the personnel policy of Contractor, to the extent it is
                  performing Petroleum Operations in Georgia, and Operating
                  Company shall be to give priority in the event of equal
                  qualifications to Georgian citizens who may be former
                  employees of Georgian Oil recommended by Georgian Oil,
                  provided that the conduct of Petroleum Operations shall not be
                  adversely affected and provided that candidates have the
                  required level of skill and experience. In furtherance of the
                  above, Georgian Oil will

                                       27
<PAGE>

                  specifically offer nominations for the positions of General
                  Director and Technical Director.

         6.4.7    deal with any other matters that have been proposed by any of
                  the Parties to the Co-ordination Committee;

         6.4.8    review and approve any matter required to be submitted to
                  relevant authorities of the State;

         6.4.9    review and approve the development work and methodology
                  proposed by the Contractor or Georgian Oil;

         6.4.10   appoint sub-committees to meet from time to time to review and
                  make recommendations concerning any aspect of Petroleum
                  Operations, which the Co-ordination Committee thinks fit; and

         6.4.11   appoint an auditor for the Petroleum Operations pursuant to
                  Article 18.4.

6.5      Decisions of the Co-ordination Committee shall be unanimous. All
         decisions made unanimously shall be deemed to be formal decisions and
         shall be conclusive and equally binding upon the Parties.

6.6      In the event that the Co-ordination Committee fails to reach agreement:

         6.6.1    within thirty (30) Days of the date of submission, concerning
                  the approval of any Work Programme or Budget submitted by the
                  Contractor, the proposal of the Contractor will be deemed to
                  have been approved and to be binding; provided, however, in
                  the case of a Work Programme to give effect to the provisions
                  of a Development Plan, it is consistent with the requirements
                  of that Development Plan as approved or deemed to have been
                  approved by the Coordination Committee;

                                       28
<PAGE>

         6.6.2    within ninety (90) Days from the date of submission,
                  concerning the approval of a Development Plan submitted by the
                  Contractor, or concerning a proposal submitted by the
                  Contractor to amend a Development Plan, either Georgian Oil or
                  the Contractor, or both of them jointly, may, in accordance
                  with Article 30, refer the disagreement to a Sole Expert who
                  will be asked to determine whether or not the Development Plan
                  as submitted by the Contractor, or as the case may be, as
                  amended in accordance with the Contractor's proposal, would
                  satisfy the requirements relating to Development Plans set out
                  in Article 9.

         6.6.3    A determination by a Sole Expert of a disagreement referred to
                  him under Article 6.6.2 shall be final and binding on the
                  Parties with effect that the proposal submitted by the
                  Contractor to the Coordination Committee will be deemed to
                  have been approved, or as the case may be, rejected, provided,
                  however, that if the proposal seeking approval of a
                  Development Plan is deemed to have been rejected the
                  Contractor at its election shall either as soon as practicable
                  after the determination of the Sole Expert has been
                  communicated to the Parties submit an alternative proposal or
                  inform Georgian Oil that the discovery to which the
                  Development Plan relates is no longer considered by the
                  Contractor to be commercial.

6.4      A matter which requires urgent handling may be decided by the
         Co-ordination Committee without convening a meeting, with the
         Co-ordination Committee making decisions through telexes, e-mail, or
         faxes or the circulation of documents, subsequently confirmed in
         writing by the chief representative from each party.

6.8      The Co-ordination Committee shall nominate a secretary, to record
         minutes of the meetings of the Co-ordination Committee. The secretary
         shall take a record of each proposal voted on and the results of such
         vote at each meeting of the Co-ordination Committee. Each
         representative of the Parties shall sign and be provided with a copy of
         such record at the end of such meeting. The secretary shall provide
         each Party with a copy of the minutes of each meeting of the
         Co-ordination Committee within thirty (30) Days after the end of such
         meeting. Each Party shall thereafter have a period of fifteen (15) Days
         to give notice of any objections to the minutes to the secretary.
         Failure to give notice within the said fifteen (15) Day period shall be
         deemed approval of those minutes. In any event the record of proposals
         voted on to be provided at the end of each meeting shall be conclusive
         and take precedence

                                       29
<PAGE>

         over the minutes. The Co-ordination Committee shall provide the State
         Agency with a copy of the approved minutes.

6.9      All costs and expenses incurred with respect to the activities of the
         Co-ordination Committee shall be paid or reimbursed by the Contractor
         and shall be Costs and Expenses in accordance with the Accounting
         Procedures.

                                       30
<PAGE>

                                    ARTICLE 7

                                OPERATING COMPANY

7.1      The Contractor and Georgian Oil shall re-register in Georgia their
         existing joint venture company Ioris Valley Oil and Gas as a juridical
         person having limited liability. The object of such company shall be to
         fulfil the functions of and act as Operating Company for Petroleum
         Operations (including, but not limited to, the employment and
         remuneration of staff) pursuant to the instructions of the Contractor
         and only in accordance with the technical, operational and management
         instructions of the Contractor, which shall be in accordance with Work
         Programmes and Budgets and Development Plans. The Contractor shall be
         fully liable for all actions and omissions of Operating Company
         performed or omitted within the scope of the above mentioned, it being
         agreed and understood the Operating Company is obligated to comply with
         the terms of this Contract and its Charter referred to below.

7.2      The Charter of the Operating Company will be as set forth in Annex E.

7.3      The Operating Company, pursuant to the instructions of the Contractor,
         which shall be in accordance with Work Programmes, Budgets and
         Development Plans, as approved by the Coordination Committee as herein
         provided, shall

         7.3.1    perform Petroleum Operations reasonably, economically and
                  efficiently in accordance with such instructions

         7.3.2    assist the Contractor in preparation of the Work Programmes
                  and Budgets and Development Plans;

         7.3.3    propose and, when approved by Contractor, undertake
                  procurement of installations, equipment and supplies and enter
                  into subcontracts and service contracts with service providers
                  and vendors related to the Petroleum Operations;

                                       31
<PAGE>

         7.3.4    prepare and submit for approval to the Contractor a personnel
                  training program and budget and carry out the same as approved
                  by the Coordination Committee;

         7.3.5    keep and maintain accurate accounts in accordance with
                  Georgian legislation and the Accounting Procedure;

         7.3.6    make necessary preparations for regular meetings of the
                  Coordination Committee, and submit to the Coordination
                  Committee information related to the matters to be reviewed
                  and approved by the Coordination Committee; and

         7.3.7    assist the Contractor and Georgian Oil in the provision of
                  reports to the Coordination Committee on Petroleum Operations.

7.4      The Operating Company shall provide all Parties with copies of all
         relevant data and reports pertaining to Petroleum Operations requested
         by such Parties.

7.5      The Operating Company shall conduct Petroleum Operations on a no profit
         no loss basis and in accordance with Good Oilfield Practices and in
         compliance with applicable laws, rules and regulations.

7.6      The Operating Company may use Petroleum produced from the area for the
         purpose of Petroleum Operations only in accordance with Good Oilfield
         Practice.

                                       32
<PAGE>

                                    ARTICLE 8

                             MINIMUM WORK PROGRAMME

8.1      The Contractor shall perform the Minimum Work Programme, as set forth
         in Article 8.2, and shall complete said Minimum Work Programme not
         later than 12 months after the Effective Date.

8.2      The Minimum Work Programme shall consist of:

         8.2.1    Within 12 months of the Effective Date, Contractor will
                  undertake to shoot and process seismic at a cost of $1.25
                  million which may be up to 200 km of new data.

         8.2.2    Within 12 months of the Effective Date, the Contractor will
                  carry out rehabilitation work in the Development Areas on the
                  Samgori, Patardzeuli, South Dome and Krtsanisi Fields
                  (outlined in red on the map in Annex B) to the value of $0.75
                  million.

         8.2.3    Within 18 months of the Effective Date, the Contractor will
                  complete a technical and economic evaluation of all known oil
                  or gas discoveries in the Contract Area. In the event that the
                  Contractor concludes that any such discovery may result in a
                  Commercial Discovery, then the procedures described in Article
                  9 shall apply. In the event that the Contractor concludes that
                  any such discovery would not lead to a Commercial Discovery,
                  then the area of the discovery shall be relinquished at the
                  first opportunity, unless there is demonstrable prospectivity
                  in horizons above or below the discovery horizon.

         8.2.4    Financing of the Minimum Work Programme will be guaranteed by
                  a stand-by Letter of Credit for $2 million. The Letter of
                  Credit will be made out in favour of the State Agency for
                  payment not before 31st _______2002 according to either of the
                  following terms and conditions:

                  (i)      Default or partial default in execution of the
                           Minimum Work Programme

                  (ii)     Termination of the Contract as per the provisions of
                           Article 29.2.2

                                       33
<PAGE>

                  The value of the Letter of Credit will be automatically
                  reduced by the amount of any payment made by NPL on account of
                  the Minimum Work Programme. All payments must be made by NPL's
                  bank, make reference to the Letter of Credit, and be approved
                  by the Co-ordination Committee and the State Agency.

8.3      After the completion of the acquisition of the initial seismic data
         (and additional seismic data, if deemed necessary by the Contractor),
         the Contractor may, within 18 Months of the Effective Date, present to
         the Coordination Committee an Exploration or Appraisal Programme,
         which, if necessary, may provide for the drilling of an exploration or
         appraisal well, the depth of such will be defined by the seismic data
         as determined by Contractor, and shall commence such Exploration or
         Appraisal Programme, as approved by the Coordination Committee, within
         24 Months of the Effective Date.

                  8.4   If the Contractor fails to present such an Exploration
            or Appraisal Programme because the Contractor has determined that
            the seismic surveys have not defined one or more structures with
            sufficient commercial potential to justify at least an exploration
            or appraisal well of the type described above, then Georgian Oil and
            the Contractor shall discuss in good faith on how to proceed. If no
            agreement is reached concerning a mutually acceptable Exploration
            Programme then all the areas outside the Development Areas shall be
            relinquished within three (3) years

8.5      If an exploration well is drilled as aforesaid and the Contractor
         concludes therefrom that there are significant quantities of Petroleum
         which may result in a Commercial Discovery and gives a notice under
         Article 9.1, then the provisions of Article 9.2 shall apply.

8.6      Upon completion of an Exploration or Appraisal Programme which has
         resulted in the drilling of a well, the Contractor, at its option,
         shall have the right to continue an Exploration Programme in the
         Contract Area for two (2) years. If as a result of this additional
         Exploration Programme, the Contractor believes therefrom that there are

                                       34
<PAGE>

         not sufficient quantities of Petroleum to lead to a Commercial
         Discovery, then Georgian Oil and the Contractor shall discuss in good
         faith on how to proceed with further exploration under this Contract.
         Subsequently, if no agreement is reached concerning a mutually
         acceptable Exploration Programme then all the areas outside the
         Development Areas shall be relinquished within 3 (three) years.
         Notwithstanding anything to the contrary contained herein, if there
         exists a conflict in the provisions of this Article 8 and the
         relinquishment provisions required under Article 5.1, then the
         provisions of Article 5.1 shall prevail.

8.7      Commencing with the operations described in this Article, Contractor
         shall use its reasonable and diligent efforts to reduce the timing of
         the implementation of the operations consistent with Good Oil Field
         Practices.

8.8      Contractor shall, with respect to any report or proposal it submits to
         the Coordination Committee pursuant to this Article 8, submit a copy at
         the same time to Georgian Oil and to State Agency.

8.9      At the request of the State Agency, the Contractor agrees to meet with
         the State Agency for consultative purposes concerning regulatory issues
         related to Work Programmes.

8.10     It is agreed that the Samgori, Patardzeuli, South Dome and Krtsanisi
         Fields (outlined in red on the map in Annex B) are Development Areas as
         of the Effective Date.

8.11     The Contractor will diligently continue rehabilitation work in the
         Development Areas throughout the term of the Contract or until, in the
         Contractor's view, production declines to an uneconomic level, in order
         to achieve the most efficient rate of production for the fields. If the
         Contractor determines that production from such Development Areas has
         declined to an uneconomic level, then the Contractor shall immediately
         relinquish any such uneconomic Development Areas. Nothing in this
         Article 8.11 should prevent the Contractor suspending operations
         temporarily through cyclical falls in the price of oil or gas.

                                       35
<PAGE>

                                    ARTICLE 9

                            PROCEDURE FOR APPROVAL OF
                         APPRAISAL AND DEVELOPMENT PLANS

9.1      If the Contractor, following the drilling of any exploration well,
         concludes therefrom that there are significant quantities of Petroleum
         which may result in a Commercial Discovery, the Contractor will notify
         the Coordination Committee within 45 Days of the completion of the well
         that it intends to prepare an Appraisal Programme for presentation to
         the Coordination Committee. In addition to the foregoing the
         Contractor, should it wish to carry out appraisal work in any part of
         the Contract Area, shall present to the Coordination Committee a
         proposed Appraisal Programme. The proposed Appraisal Programme shall
         specify, in reasonable detail, the work proposed to be carried out by
         the Contractor, including seismic work, drilling of wells and technical
         studies, and the estimated timetable within which such work will be
         conducted, including commencement and completion dates.

9.2      The Contractor shall carry out the Appraisal Programme as approved or
         deemed to be approved by the Coordination Committee. Within ninety (90)
         Days after completion of such Appraisal Programme, the Contractor shall
         provide to the Coordination Committee a schedule describing the
         estimated completion of the laboratory and other studies' completion to
         enable Contractor to submit to the Coordination Committee a
         comprehensive evaluation report on the Appraisal Programme. Such
         evaluation report shall include, but not be limited to, geological
         conditions, such as structural configuration, physical properties and
         extent of reservoir rocks, pressure, volume and temperature analysis of
         the reservoir fluid, fluid characteristics, including gravity of liquid
         hydrocarbons, sulphur percentage, sediment and water percentage, and
         product yield pattern, Natural Gas composition, production forecasts
         (per well and per Reservoir), and estimates of recoverable reserves.

                                       36
<PAGE>

9.3      Together with any evaluation report submitted in accordance with
         Article 9.2 or at any other time together with a reasonably detailed
         report supporting one of the following statements, the Contractor shall
         submit to the Coordination Committee a written declaration, including
         one of the following statements:

         9.3.1    that the Contractor believes that Commercial Production from
                  the Appraisal Area is feasible;

         9.3.2    that the Contractor believes that Commercial Production from
                  the Appraisal Area is not feasible; or

         9.3.3    that Commercial Production can be determined only after
                  further specified work that the Contractor commits to carry
                  out under a further Appraisal Programme in specified areas
                  within or outside the relevant Appraisal Area. The Contractor
                  shall submit such an Appraisal Programme to the Coordination
                  Committee within 90 days from submission of the above
                  declaration.

9.4      In the event that the Contractor makes a statement under Article 9.3.3,
         the Contractor shall be entitled to retain the relevant Appraisal Area
         temporarily pending the completion with reasonable diligence of the
         further work committed by the Contractor under said Article, at which
         time the Contractor shall advise the Coordination Committee of its
         conclusion as to whether or not there is in fact a new Commercial
         Discovery and the provisions of Article 9.3.1 or Article 9.3.2 shall be
         applied accordingly.

9.5      If the Contractor states pursuant to Article 9.3.1 that it believes
         that Commercial Production is feasible, the Contractor shall submit to
         the Coordination Committee for review and approval a proposed
         Development Plan in respect of the relevant Commercial Discovery. The
         Development Plan shall be submitted within 3 to 12 months of such
         declaration, depending on the complexity of the development. The
         Contractor, with any assistance requested of the Operating Company,
         shall proceed promptly and diligently to prepare the Development Plan
         and, if the Development Plan is approved or deemed to be approved by
         the Coordination Committee as herein provided, implement it in
         accordance with Good Oilfield Practices.

                                       37
<PAGE>

9.6      The Contractor's proposed Development Plan to be submitted pursuant to
         Article 9.5 shall:

         9.6.1    contain the Contractor's proposal for the designation of the
                  Development Area which shall, except in cases where the
                  Contractor proposes in accordance with Good Oilfield Practices
                  to develop Petroleum in an area or areas overlying proven or
                  potential producing horizons which may or may not be
                  subdivided into separate Reservoirs under a single Development
                  Plan, be a single area not exceeding the lateral extent of the
                  Reservoir in respect of which a statement has been made by the
                  Contractor pursuant to article 9.3.1 together with a
                  reasonable margin surrounding the periphery of that area;

         9.6.2    be prepared on sound engineering and economic principles in
                  accordance with accepted standards prevailing in the
                  international petroleum industry and designed to ensure:

                  (i)      the economic recovery of Petroleum by the efficient,
                           beneficial and timely use of the Petroleum resources
                           of the Development Area;

                  (ii)     protection for the environment taking account of any
                           environmental impact assessment studies which may
                           have been undertaken by or on behalf of the
                           Contractor and under the laws, rules and regulations
                           at the time Petroleum Operations are performed from
                           time to time;

                  (iii)    give details of the Contractor's proposals for the
                           development and operation of the Development Area
                           that Contractor believes will be required based on
                           information available at the time, including details
                           of:

                           -  facilities and infrastructure which may be
                              required up to the Measurement Point either within
                              or outside the Development Area;

                           -  production parameters, timing, number and location
                              of wells;

                                       38
<PAGE>

                           -  the facilities and infrastructure (including
                              proposed locations) to be installed for production
                              storage and loading of petroleum;

                           -  an estimate of the overall costs of the relevant
                              Petroleum Operations and estimates of the time
                              required to complete each phase of the Development
                              Plan;

                  (iv)     provide a production forecast and indicate any other
                           factor, including factors relating to the
                           transportation and disposal of Petroleum, that would
                           affect the economic and technical feasibility of the
                           Development Plan;

                  (v)      provide details of the Contractor's proposals for the
                           employment and training of citizens of Georgia; and

                  (vi)     include an abandonment and site restoration programme
                           and a funding procedure for such programme in
                           accordance with the requirements of Article 9.7.

9.7      Subject to the limitation set forth in Article 24.3, each abandonment
         and site restoration programme included in a Development Plan shall:

         9.7.1    describe removal and abandonment measures deemed necessary in
                  accordance with Good Oilfield Practices following completion
                  of production from the relevant Development Area together with
                  an estimate of the costs thereof. The abandonment plan shall
                  provide for the removal of facilities and equipment used in
                  Petroleum Operations or their in place abandonment, if
                  appropriate, in the Development Area and insofar as practical
                  restoration of used areas to a condition as defined in the
                  Development Plan. For the sake of clarity, it shall be
                  understood that the intent is to restore, insofar as
                  practical, to conditions which were shown in the environmental
                  baseline studies referred to in Article 24.3; and

                                       39
<PAGE>

         9.7.2    establish in respect of the measures described in 9.7.1 above
                  an abandonment and site restoration fund estimated from time
                  to time to be sufficient to fund those measures and placed in
                  a special interest bearing US$ account ("the Special
                  Account"), to be held in the joint names of the State Agency
                  and the Contractor and dedicated exclusively to meeting
                  expenditures for abandonment and site restoration. Except as
                  provided in Article 17.4 of the Petroleum Law, no taxes shall
                  be imposed on any amounts paid into, received or earned by, or
                  held in the Special Account and payments made into the Special
                  Account by the Contractor shall be treated as expenses
                  recoverable as Costs and Expenses.

9.8      Discharge of abandonment obligations:

         9.8.1    Unless, not later than one Year prior to date on which the
                  rights of the Contractor under this Contract will terminate,
                  the State has informed the Contractor by notice in writing
                  that on termination another contractor, or Georgian Oil, will
                  take over the Development Area as a going concern, the
                  Contractor will be responsible for carrying out the
                  abandonment and site restoration programme here in this
                  Article described proceeding with all due diligence and in the
                  event that the funds available in the special interest bearing
                  account are insufficient for that purpose, will make up the
                  shortfall.

         9.8.2    In respect of the obligations of the Contractor under Article
                  9.8.1, this Contract shall, notwithstanding the provision of
                  Article 4, remain in force until the Contractor has discharged
                  those obligations in full, and for that purpose the provisions
                  of Article 30 shall continue to be applicable.

         9.8.3    If the State gives the Contractor a notice of the kind
                  referred to in Article 9.8.1 the Contractor shall have no
                  further responsibility for carrying out the abandonment and
                  site restoration programme and title to the funds in the
                  Special Account shall vest exclusively in the State Agency.

                                       40
<PAGE>

         9.8.4    If the Contractor has discharged in full its obligations under
                  Article 9.8.1 and surplus funds remain in the Special Account
                  after meeting the related costs, such surplus shall first be
                  used to recover any unrecovered Costs and Expenses and any
                  surplus shall be divided between the Contractor and Georgian
                  Oil in proportions which correspond to the proportions in
                  which the Contractor and Georgian Oil have shared cumulative
                  Profit Oil.

9.9      Any significant changes to an approved Development Plan or proposals
         related to extension of a Development Area or for enhanced recovery
         projects shall be submitted to the Coordination Committee for approval.

9.10     Subject to the terms of this Contract, the Contractor shall carry out,
         at its own expense and financial risk, all the necessary Petroleum
         Operations to implement an approved Development Plan. However, if the
         Contractor is able to demonstrate to the reasonable satisfaction of the
         Coordination Committee that exploitation turns out not to be
         commercially profitable, the Coordination Committee shall decide on the
         steps to be taken as a consequence of such an event, and the Contractor
         shall not be obligated to continue implementation of the original
         Development Plan.

9.11     Contractor shall, with respect to any report or proposal it submits to
         the Coordination Committee pursuant to this Article 9, submit a copy at
         the same time to Georgian Oil and to the State Agency in compliance
         with the regulations of the State Agency in force from time to time.

9.12     At the request of the State Agency, the Contractor agrees to meet with
         the State Agency for consultative purposes concerning regulatory issues
         related to Work Programmes.

                                       41
<PAGE>

                                   ARTICLE 10

                       ANNUAL WORK PROGRAMMES AND BUDGETS

10.1     The Contractor shall be responsible for the procurement of
         installations, equipment and supplies and entering into contracts for
         the purchase of goods and services with Foreign Subcontractors and
         others required for Petroleum Operations, all in accordance with
         approved Annual Work Programmes and Budgets. Such activities may be
         delegated to the Operating Company.

10.2     Within ninety (90) Days after the Effective Date, the Contractor shall
         submit to the Co-ordination Committee for its approval an Annual Work
         Programme and Budget for the remainder of the then current Calendar
         Year and a forecast for the next succeeding Calendar Year.

10.3     Before 31 October in each Calendar Year, the Contractor shall prepare
         and submit to the Co-ordination Committee for its review a proposed
         Annual Work Programme and Budget for the next Calendar Year. Article
         6.4 shall apply to the approval of Annual Work Programmes and Budgets
         and modifications thereto.

10.4     In connection with the review and approval of an Annual Work Programme
         and Budget, the Contractor shall submit to the Co-ordination Committee
         such supporting data as may be requested by the Co-ordination
         Committee.

10.5     Subject to the provisions of Article 6.4, the Contractor may, in
         accordance with the following provisions, incur expenditures in excess
         of an approved Budget or expenditures outside an approved Budget in
         carrying out an approved Work Programme, provided that the objectives
         in the approved Work Programme are not substantially changed, subject
         to the following conditions:

         (i)      In carrying out an approved Annual Work Programme the
                  Contractor may, if necessary, incur excess expenditures of no
                  more than ten percent (10%) of the approved Budget in any
                  specified budgetary category. The Contractor

                                       42
<PAGE>

                  shall report quarterly the aggregate amount of all such excess
                  expenditures to the Co-ordination Committee for information.

         (ii)     For the efficient performance of Petroleum Operations, the
                  Contractor may, without approval, undertake certain individual
                  projects which are not included in an approved Annual Work
                  Programme and Budget, for a maximum expenditure of two hundred
                  and fifty thousand US$ (US$250,000) per Calendar Year, but
                  shall, within ten (10) Days after such expenditures are
                  incurred, report to the Co-ordination Committee for
                  information.

         (iii)    Excess expenditures under this Article 10.5 shall not exceed
                  five percent (5%) of the approved or modified annual Budget
                  for the Calendar Year. If such excess is expected to be in
                  excess of said five percent (5%) of the approved total annual
                  Budget, the Contractor shall present its reasons therefor to
                  the Co-ordination Committee and obtain its approval prior to
                  incurring such expenditures.

10.6     In case of emergency, the Contractor (or the Operating Company on
         behalf of the Contractor) may incur emergency expenditures for the
         amount actually needed but shall report such expenditures to the
         Co-ordination Committee as soon as practicable after they are made.
         Such emergency expenditures shall not be subject to Article 10.5 above.

10.7     Except as provided otherwise in this Contract, Petroleum Operations
         will only be performed in accordance with an approved or modified
         Annual Work Programme and Budget.

                                       43
<PAGE>

                                   ARTICLE 11

                 ALLOCATION OF PRODUCTION, RECOVERY OF COSTS AND
                EXPENSES, PRODUCTION SHARING, AND RIGHT OF EXPORT

11.1     The Contractor shall provide or procure the provision of all resources,
         including funds, required to conduct Petroleum Operations under
         approved Annual Work Programmes under this Contract, except as
         otherwise provided in this Contract, and the Contractor shall be
         entitled to recover its Costs and Expenses from Petroleum produced from
         the Contract Area as provided below.

11.2     Prior Costs and Expenses and Prior Cost Recovery Petroleum

         11.2.1   Cost and Expenses incurred by the Contractor or IVOG in
                  connection with Petroleum Operations prior to the Effective
                  Date and summarised in Annex F shall be deemed to be Costs and
                  Expenses for the purposes of this Contract and shall be deemed
                  to be incurred on the Effective Date and shall be fully
                  recoverable from Cost Recovery Petroleum in accordance with
                  the provisions of this Contract.

         11.2.2   Costs and Expenses incurred by the Contractor between 1
                  January 2000 and the Effective Date, but not included in Annex
                  F, shall be audited as soon as possible thereafter. Subject to
                  approval by the Co-ordination Committee and the State Agency,
                  such Costs and Expenses shall be deemed to be Costs and
                  Expenses for the purposes of this Contract and shall be deemed
                  to be incurred on the Effective Date and shall be fully
                  recoverable from Cost Recovery Petroleum in accordance with
                  the provisions of this Contract.

         11.2.3   Cost Recovery Petroleum taken by the Contractor in connection
                  with Petroleum Operations prior to the Effective Date and
                  summarised in Annex F shall be deemed to be Cost Recovery
                  Petroleum for the purposes of this Contract and shall be
                  deemed to have been taken on the Effective Date

                                       44
<PAGE>

11.3     The Contractor shall have the right to use free of charge Petroleum
         produced from the Contract Area to the extent required for Petroleum
         Operations under the Contract. The amount of Petroleum which the
         Contractor shall be entitled to use for Petroleum Operations shall not
         exceed the amount which would be expected to be used in accordance with
         international Petroleum industry practice in the exercise of Good
         Oilfield Practices. For the avoidance of doubt, such Petroleum shall be
         used only for the benefit of Petroleum Operations and not for the
         personal gain of any Party.

11.4     Available Crude Oil and Available Natural Gas shall be measured at the
         applicable Measurement Point and allocated as set forth below in
         Articles 11.5 and 11.10.

11.5     The Contractor shall be entitled to recover all Costs and Expenses
         incurred in respect of Petroleum Operations from a maximum of fifty
         percent (50%) per Calendar Quarter of all Available Crude Oil and
         Available Natural Gas from the Contract Area (hereinafter referred to
         as Cost Recovery Crude Oil and Cost Recovery Natural Gas, as the case
         may be).

         Recovery of Costs and Expenses shall be in a manner consistent with the
         Accounting Procedure and Article 11.6.

11.6     Costs and Expenses shall be recoverable from Cost Recovery Petroleum on
         a first in, first out basis (i.e. Costs and Expenses incurred will be
         recovered according to the date they were incurred, earliest first and
         measured in US$ in accordance with Article 18.1) and shall be
         calculated on a Calendar Quarter basis.

11.7     To the extent that in a Calendar Quarter outstanding recoverable Costs
         and Expenses related to the Contract Area exceed the value of all Cost
         Recovery Crude Oil and Cost Recovery Natural Gas for such Calendar
         Quarter, the excess shall be carried forward for recovery in the next
         succeeding Calendar Quarters until fully recovered, but in no case
         after termination of the Contract. In amplification of the foregoing a
         full audit shall be undertaken in every Calendar Year to ensure
         compliance, among other matters, with the principles of Article 11.5.

                                       45
<PAGE>

11.8     Recovery of Costs and Expenses shall be achieved by transferring to a
         Party at the Measurement Point title to quantities of Cost Recovery
         Petroleum of equivalent value (determined in accordance with Article
         12) to the Costs and Expenses to be recovered in accordance with this
         Article 11. [No change]

11.9     To the extent that the value of Cost Recovery Petroleum received by a
         Party from the Contract Area during a Calendar Quarter is greater or
         less than the Party was entitled to receive for that Calendar Quarter,
         an appropriate adjustment shall be made in accordance with the
         Accounting Procedure in the subsequent Calendar Quarters.

11.10    Following recovery of Costs and Expenses from Cost Recovery Petroleum
         in each Calendar Quarter in accordance with the provisions of this
         Article 11, the remaining Petroleum, including any portion of Cost
         Recovery Petroleum not then required or available for recovery of Costs
         and Expenses (hereinafter referred to as "Profit Oil" or "Profit
         Natural Gas") shall be allocated in each Calendar Quarter between
         Georgian Oil and the Contractor as follows:

         11.10.1  Fifty percent (50%) of the Profit Oil (and Profit Natural Gas)
                  resulting from Petroleum Operations will be allocated to
                  Georgian Oil and fifty percent (50%) to the Contractor, so
                  long as the cumulative Costs and Expenses, plus finance costs
                  incurred by the Contractor exceed the value of the cumulative
                  Cost Recovery Petroleum, cumulative Profit Oil and cumulative
                  Profit Natural Gas given to the Contractor, calculated from
                  the Effective Date to the end of the prior quarter.

         11.10.2  If at any time the value of the cumulative Cost Recovery
                  Petroleum, cumulative Profit Oil and cumulative Profit Natural
                  Gas delivered to the Contractor exceeds the cumulative Costs
                  and Expenses, plus interest incurred by the Contractor (but
                  excluding interest already included in Costs and Expenses and
                  excluding interest on interest), then seventy percent (70%) of
                  the Profit Oil (and Profit Natural Gas) resulting from
                  Petroleum Operations will be allocated to Georgian Oil and
                  thirty percent

                                       46
<PAGE>

                  (30%) to the Contractor, calculated from the Effective Date to
                  the end of the prior quarter.

11.11    Notwithstanding Articles 11.5 and 11.10, when the value of the
         cumulative Cost Recovery Petroleum, cumulative Profit Oil and
         cumulative Profit Natural Gas delivered to the Contractor exceeds the
         cumulative Costs and Expenses, plus finance costs incurred by the
         Contractor, and calculated from the Effective Date to the end of the
         prior quarter, then Georgian Oil will be entitled to receive, as a
         priority, up to 250,000 tons of oil (or oil equivalent) from a maximum
         of fifty percent (50%) per Calendar Quarter of all Available Crude Oil
         and Available Natural Gas from the Contract Area (the Base Level Oil).

         11.11.1  During the period that Base Level Oil is being delivered to
                  Georgian Oil, the Contractor shall be entitled to recover all
                  Costs and Expenses, calculated from the Effective Date to the
                  end of the prior quarter incurred in respect of Petroleum
                  Operations, as Cost Recovery Petroleum from a maximum of fifty
                  percent (50%) per Calendar Quarter of the remaining Available
                  Crude.

         11.11.2  During the period that Base Level Oil is being delivered to
                  Georgian Oil, after delivery of Base Level Oil and Cost
                  Recovery Petroleum the remaining Available Crude Oil and
                  Available Natural Gas resulting from Petroleum Operations in
                  the Contract Area will be allocated as Profit Oil (and Profit
                  Natural Gas) with fifty percent (50%) being delivered to
                  Georgian Oil and fifty percent (50%) being delivered to the
                  Contractor.

11.12    The Contractor shall prepare and provide to Georgian Oil and the State
         Agency not less than ninety (90) Days prior to the beginning of each
         Calendar Quarter a written

                                       47
<PAGE>

         forecast setting out the total quantity of Petroleum that the
         Contractor estimates can be produced and saved hereunder during each of
         the next four (4) Calendar Quarters in accordance with Good Oilfield
         Practices and the Annual Work Programme approved in accordance with
         Article 10.

11.13    Crude Oil, whether as Cost Recovery Petroleum or as Profit Oil, shall
         be measured at the Measurement Point for purposes of the Contract and
         delivered to Georgian Oil and Contractor who as owners shall take in
         kind, assume risk of loss and separately dispose of their respective
         entitlements of Crude Oil. All Natural Gas shall be sold on a jointly
         committed basis or as otherwise provided in accordance with Article 16
         of this Contract.

11.14    For the avoidance of any doubt, title to their relevant shares of
         Petroleum shall pass from the State to Georgian Oil and Contractor as
         appropriate at the Measurement Point and the Operating Company will
         have no title to any Petroleum.

         Georgian Oil and the Contractor shall agree on procedures for taking
         volumes of Crude Oil corresponding to their respective entitlements on
         a regular basis and in a manner that is appropriate having regard to
         the respective destinations and uses of the Crude Oil, all in
         accordance with the provisions of this Contract. If necessary, Georgian
         Oil and the Contractor will enter into a lifting agreement setting out
         the agreed procedures for taking volumes of Crude Oil, and such
         agreement shall comply with the principles of Good Oilfield Practices.

         Details of all Costs and Expenses approved as herein provided shall be
         given by the Contractor to the State Agency and Georgian Oil on a
         quarterly basis.

                                       48
<PAGE>

                                   ARTICLE 12

                       CRUDE OIL AND NATURAL GAS VALUATION

12.1     The value of Crude Oil that constitutes Cost Recovery Crude Oil and is
         sold by Contractor to Third Parties in "fairly valued" transactions
         shall be the net realised price (i.e., after deducting commissions and
         brokerages) ex works at the Measurement Point. The sale is "fairly
         valued" if

         (i)      the price is the sole consideration for the sale; and

         (ii)     the terms of the sale are not affected by any commercial
                  relationship, other than that created by the contract of sale
                  itself, between the seller or an Affiliate and the buyer or an
                  Affiliate; and

         (iii)    the seller or an Affiliate does not have any interest in the
                  subsequent resale or disposal of the Crude Oil or any product
                  derived therefrom.

12.2     It is the intent of the Parties that the value of Cost Recovery
         Petroleum that is sold by Contractor other than to Third Parties in
         "fairly valued" transactions shall reflect the prevailing international
         market price for Crude Oil saved and sold from the Contract Area ex
         works the Measurement Point. For the purpose of determining the value
         and allocation of Cost Recovery Petroleum taken and disposed of by the
         Parties and/or their assignees under this Contract during each Calendar
         Quarter, Georgian Oil and the Contractor shall agree upon a basket of
         no more than four (4) Crude Oils freely traded in international
         markets, and the value of Cost Recovery Petroleum shall be adjusted to
         reflect the weighted average daily f.o.b. prices for term contract
         sales from Petroleum producing countries in international markets for
         the same Calendar Quarter of such basket of Crude Oils, it being
         understood that the following principles will apply:

         (i)      Each of such basket marker Crude Oils shall originate from the
                  closest

                                       49
<PAGE>

                  geographic location to the Contract Area as possible and have
                  the same primary geographic market as the Contract Area Crude
                  Oil being valued. The weighted average of the basket shall be
                  such that the average gravity, sulphur content and product
                  yield of the basket and the average gravity, sulphur content
                  and product yield of the Crude Oil produced under this
                  Contract shall approximate each other as nearly as is
                  possible; and

         (ii)     The prices for individual referenced Crude Oil markers used
                  within the basket shall be based upon the numerical average of
                  a daily report of the actual price for each referenced Crude
                  Oil marker as published in agreed internationally recognised
                  publications; and

         (iii)    Adjustment provisions will be incorporated into the basket
                  formula to take account of transportation costs and location
                  differentials between the marker basket of Crude Oils and the
                  Crude Oil produced under this Contract arriving at a
                  designated sales point (where the sales point is not the
                  Measurement Point) and to take account of gravity and sulphur
                  content variation beyond a pre-agreed range; and

         (iv)     Contractor's third party fairly valued sales prices received
                  for Crude Oil produced under this Contract shall be the basis
                  used to determine appropriate changes to the adjustments set
                  out in (iii) above;

         (v)      Unless agreed otherwise, the last calculated weighted average
                  basket price shall serve as the provisional price for a
                  Calendar Quarter until a new price is determined.

12.3     In the event that Georgian Oil and the Contractor are unable to agree
         upon the

                                       50
<PAGE>

         basket of Crude Oils envisaged in Article 12.2 above, or the principles
         relating thereto, then either Georgian Oil or the Contractor or both of
         them jointly may pursuant to Article 30, refer the matter or matters in
         issue for determination by a Sole Expert. Pending such determination,
         the price shall be as determined under Article 12.2 (iv) above.

12.4     Natural Gas shall be valued at the actual revenues received by
         Contractor less transportation, storage, treatment, processing,
         liquefaction and all other associated costs incurred by the Contractor
         beyond the Measurement Point in supplying Natural gas to customers
         beyond the Measurement Point. If the Contractor bears the cost of
         installing and operating the pipeline required to transport Natural Gas
         produced from the Contract Area to the market for such Natural Gas and
         such pipeline is located downstream of the Measurement Point, the
         Contractor shall be entitled to deduct a tariff from the sales price of
         the Natural Gas for the purpose of determining the value of Cost
         Recovery Petroleum. The tariff associated with such natural gas
         pipeline shall be computed on the basis of the investment incurred in
         such pipeline, the operating costs of such pipeline and a reasonable
         return on Contractor's investment.

                                       51
<PAGE>

                                   ARTICLE 13

            ANCILLARY RIGHTS OF THE CONTRACTOR AND OPERATING COMPANY

13.1     The State and Georgian Oil shall provide or otherwise procure access
         for the Contractor to all existing facilities and infrastructure, which
         is available on an open access basis for private commercial purposes,
         which for the sake of clarification does not include such facilities or
         infrastructure subject to contractual or treaty obligations or
         restrictions, in the Contract Area owned by the State or Georgian Oil
         necessary for the purpose of carrying out Petroleum Operations during
         the term of the Contract. Such access shall be on terms as regards
         access and tariffs no less favourable than the best terms then being
         offered to other private commercial Third Parties namely non-State
         owned entities, for comparable usage.

13.2     Provided that Georgian Oil and the State Agency are provided with
         copies of the following data, the Contractor shall, subject to the
         confidentiality provisions herein provided, have the right to use,
         reproduce, reprocess and export all existing geoscience, engineering,
         environmental and geodetic data (including magnetic tapes and films),
         maps, surveys, reports, and studies it deems necessary to carry out
         Petroleum Operations hereunder, including, but not limited to, magnetic
         surveys, seismic surveys, well logs and analysis, core analysis, well
         files, geological and geophysical maps and reports, reservoir studies,
         reserve calculations, accurate geodetic co-ordinates for the location
         of all wells and seismic lines and all other pertinent data relative to
         the Contract Area. Georgian Oil and the Contractor may sell such data,
         subject to the approval of the Co-ordination Committee and the prior
         consent of the State Agency and, in the event of such approval, subject
         to the entering into of a confidentiality agreement on terms comparable
         to those herein set forth by the purchaser thereof. The proceeds from
         any such sale shall be shared in accordance with the provisions of
         Article 11.10.

                                       52
<PAGE>

13.3     The Contractor shall have the right within the Contract Area to conduct
         all geoscience, engineering, environmental and geodetic studies it
         deems necessary to carry out Petroleum Operations hereunder. Said
         studies may include, but are not limited to, seismic surveys, magnetic
         surveys, global positioning surveys, aerial photography, and the
         collection of soil/water/oil/gas/rock samples for scientific and
         environmental studies. The Contractor shall be granted access to and/or
         permission to fly, subject to obtaining appropriate consents (which
         will not be unreasonably withheld or delayed), over the Contract Area
         to conduct said studies. The Contractor shall have the right to import
         equipment and supplies necessary to conduct said studies as well as the
         right to export data, film and samples, subject to the provisions of
         Article 13.2, to laboratories outside the State to conduct such
         studies.

13.4     The agents, employees, and personnel of the Contractor or the
         Subcontractors, may enter or leave the Contract Area and have free
         access, within the scope of their functions, to all installations put
         in place by the Contractor or otherwise utilised in Petroleum
         Operations and to installations used for Petroleum Operations outside
         the Contract Area.

13.5     Subject to applicable laws, rules and regulations, as herein provided,
         including the prior approval of any appropriate State bodies as well as
         any local governmental bodies, and the approval of the Coordination
         Committee to a draft Work Programme describing the utilisation
         hereinbelow contemplated and the Development Plan and the agreement of
         relevant landowners, the Contractor shall have the right to utilise the
         upper soil, mature timber, clay, sand, lime, gypsum and stones other
         than precious stones, and any other similar substances, necessary for
         the performance of Petroleum Operations. The Contractor, subject as
         aforesaid, may utilise the surface and subsurface water necessary for
         Petroleum Operations on condition that reasonable efforts are taken to
         minimise potentially adverse effects on irrigation and navigation, and
         that land, houses and the watering places are not

                                       53
<PAGE>

         adversely affected.

13.6     Subject to applicable laws, rules and regulations, as herein provided,
         including the prior approval of any appropriate State bodies as well as
         any local governmental bodies, obtained through the State Agency, which
         shall not be unreasonably withheld, and the approval of the
         Coordination Committee to a draft Work Programme describing the
         utilisation hereinbelow contemplated and the Development Plan and the
         agreement of relevant owners, the Contractor, to the extent necessary
         for the performance of the Petroleum Operations, may clear land, dig,
         pierce, drill, construct, operate and maintain pits, tanks, wells,
         trenches, excavations, dams, canals, water pipes, reservoirs, maritime
         storage facilities, primary distillation units, separating units for
         first oil extraction, sulphur factories and other Petroleum producing
         facilities, as well as pipelines, pumping stations, compressor
         stations, generator units, power plants, high voltage lines, telephone,
         telegraph, radio, internet connections, and any other means of public
         or private communication (including satellite communication systems),
         warehouses, offices, personnel housing, hospitals, schools, docks,
         harbours, dikes, jetties, dredges, breakwaters, underwater piers and
         other installations, ships, vehicles, railroad cars, roads, bridges,
         ferry-boats, airplanes, airstrips and other means of transportation,
         garages, hangars, maintenance and repair shops.

13.7     It is recognised by the Parties that in order to maximise the benefit
         of Petroleum Operations to the State, Georgian Oil and the Contractor,
         it is in the interests of the State to promote cooperation among
         Georgian and foreign enterprises carrying on Petroleum Operations in
         Georgia to share infrastructure in such a manner as to ensure efficient
         operation among themselves. The State Agency and Georgian Oil, at their
         discretion, hereby agree to seek to promote, using reasonable efforts
         under the circumstances, subject to contractual commitments, treaty
         obligations and the

                                       54
<PAGE>

         rights of Third Parties, access for the Contractor to any existing, new
         or modernised pipelines or other infrastructure including sea ports and
         rail terminals, passing through or in Georgia which may be constructed
         or upgraded during the term of the Contract on terms with regard to
         access and tariffs no less favourable than the then prevailing terms
         available to private commercial Third Parties, namely non-State owned
         or controlled entities, for comparable usage, excluding any contractors
         or participants of said construction or upgrading.

13.8     The Contractor shall be entitled to bring Foreign Employees into
         Georgia in connection with the performance of Petroleum Operations. The
         entry into Georgia of such personnel is hereby authorised, and the
         State shall issue at the Contractor's request the required documents,
         such as entry and exit visas, work permits and residence cards, subject
         to the normal procesures of Georgian law. At the Contractor's request,
         the State shall facilitate all immigration formalities at the points of
         exit and entry into Georgia for the employees and family members of the
         Contractor, its Affiliates and Subcontractors. The Contractor (or the
         Operating Company on its behalf) shall contact the appropriate offices
         of the State to secure the necessary documents, and to satisfy the
         required formalities.

13.9     All employees working within the scope of Petroleum Operations shall be
         placed under the authority of the Contractor, as herein set forth, its
         Affiliates, or its Subcontractors or Operating Company, each of which
         shall act individually in their capacity as employers. The works,
         hours, wages, and all other conditions relating to their employment
         shall be determined by the relevant employer of such employees. In
         relation to employees who are citizens of Georgia their employment
         shall be in accordance with Georgian law. To the extent that any
         Foreign Employees are engaged under a contract subject to Georgian law,
         that contract shall comply with the provisions of Georgian law. The
         Contractor, taking into

                                       55
<PAGE>

         account Article 6.5.6, or its Affiliates, and its Subcontractors and
         Operating Company, however, shall enjoy full freedom in the selection
         and assignment of their employees.

                                       56
<PAGE>

                                   ARTICLE 14

                        ASSISTANCE PROVIDED BY THE STATE

14.1     To enable the Contractor to properly carry out the Petroleum Operations
         as set forth in Work Programmes and Development Plans, the State shall,
         in good faith, provide reasonable assistance to help the Contractor to:

         (i)      secure the approvals or permits needed to conduct such
                  Petroleum Operations and open bank accounts (for both local
                  and foreign currency) in Georgia;

         (ii)     provide for Foreign Exchange conversion in accordance with the
                  principles set out in Article 19.7 of this Contract;

         (iii)    obtain office space, office supplies, transportation and
                  communication facilities and make arrangements for
                  accommodations as required;

         (iv)     facilitate any custom formalities;

         (v)      provide, in accordance with Article 13.8 and subject to the
                  normal provisions of Georgian law, entry and exit visas and
                  work permits for Foreign Employees and their family members of
                  the Contractor, its Affiliates and Foreign Subcontractors, who
                  are not citizens of Georgia, who come to Georgia for the
                  implementation of the Contract and to provide assistance for
                  their transportation, travel and medical facilities whilst in
                  Georgia;

         (vi)     provide necessary permissions to send abroad documents, data
                  and samples for analysis or processing related to such
                  Petroleum Operations;

                                       57
<PAGE>

         (vii)    contact and instruct appropriate departments and ministries of
                  the State and any other bodies controlled by the State to do
                  all things, within and according to their authority, necessary
                  to help expedite such Petroleum Operations;

         (viii)   provide permits, approvals, and land use rights, in accordance
                  with applicable rules and regulations, requested by the
                  Contractor for the construction of bases, facilities and
                  installations for use in conducting such Petroleum Operations;
                  and

         (ix)     provide to the Contractor existing data and samples concerning
                  the Contract Area useful for the conduct of such Petroleum
                  Operations, other than those produced as a result of Petroleum
                  Operations hereunder.

14.2     The State may charge as Administrative Fees for such assistance such
         reasonable amounts as may be customary for the provision of such
         services, but in no event shall such charges be in excess of charges
         applicable to Third Parties for comparable service or assistance. It is
         also understood that with respect to a number of matters such as the
         conversion of currency and the provision of accommodations, for
         example, the State may also have to secure the services of private
         Third Parties.

14.3     Notwithstanding anything in this Contract to the contrary, the
         Contractor agrees to pay the fees described in Article 14.2 to the
         State Agency, together with reimbursement to the State Agency for all
         direct expenses incurred by it in preparing and making necessary
         applications to ministries, state agencies and other governmental
         authorities in the course of obtaining permits and approval required
         for the Contractor and/or the Operating Company to conduct Petroleum
         Operations. Such direct expenses may include the cost of retaining
         experts to review or prepare technical submissions (e.g., environmental
         or engineering data). But in no event

                                       58
<PAGE>

         shall the State Agency charge for additional compensation, if any, to
         its personnel for performing such services. Other direct expense items
         shall include, but not be limited to, copying or printing of
         applications and supporting data submitted to other governmental
         bodies, transportation and hall rental for public hearings required by
         laws or authorities other than those of the State Agency itself, and
         similar items that the State Agency cannot reasonably provide through
         its own resources.

14.4     Fees and direct expenses paid under Articles 14.2, 14.3 and 14.5 shall
         be treated as Costs and Expenses for the purposes of determining Cost
         Recovery Petroleum.

14.5     The contractor pays regulatory fee to the State Agency for Regulation
         of Oil and Gas Resources, in the amount of USD 150.000, the half of the
         sum shall be paid by the time of signing the PSA and the second half
         within the 12 month of the effective date, the management,
         coordination, monitoring, control and supervision by the State Agency
         also covering of the costs related to the implementation of the
         competence envisaged by the present Agreement and Georgian legislation.

14.6     Contrctor shall pay all fees and charges in compliance with the
         normative acts promulgated by the State Agency, provided that such fees
         and charges are not discriminatory with respect to the Contractor. Such
         fees and charges shall be Costs and Expenses for the purposes of
         determining Cost Recovery Petroleum.

                                       59
<PAGE>

                                   ARTICLE 15

                            MEASUREMENT OF PETROLEUM

15.1     All Petroleum produced, Saved and not used in the Petroleum Operations
         in accordance with Article 11.3 shall be measured at the Measurement
         Point. Georgian Oil and State Agency shall be afforded access to the
         Measurement Point by Contractor as long as such access does not
         significantly interfere with Petroleum Operations.

15.2     The Measurement Point shall be at the end of the facilities for which
         the costs are included as Costs and Expenses. The Measurement Point
         shall be determined in accordance with the provisions set out in
         Articles 9 and 11.

15.3     All Petroleum shall be measured in accordance with standards generally
         acceptable in the international Petroleum industry and certified
         Georgian standards. All measurement equipment shall be installed,
         maintained and operated by the Contractor. The Contractor and Georgian
         Oil and State Agency shall be entitled periodically to inspect the
         measuring equipment installed and all charts and other measurement or
         test data at all reasonable times. The accuracy of measuring equipment
         shall be verified by tests at regular intervals and upon request by
         State Agency or Georgian Oil or the Contractor, using means and methods
         generally accepted in the international Petroleum industry.

15.4     Should a meter malfunction occur, the Contractor shall immediately have
         the meter repaired, adjusted and corrected and following such repairs,
         adjustment or correction shall have it tested or calibrated to
         establish its accuracy. Upon the discovery of metering error, the
         Contractor shall have the meter tested immediately and shall take the
         necessary steps to correct any error that may be discovered.

15.5     In the event a measuring error is discovered, the Contractor shall use
         all reasonable efforts to determine the correct production figures for
         the period during which there

                                       60
<PAGE>

         was a measuring error and correct previously used readings. The
         Contractor shall submit to the Co-ordination Committee and State Agency
         a report on the corrections carried out. In determining the correction,
         the Contractor shall use, where required, the information from other
         measurements made inside or outside the Development Area. If it proves
         impossible to determine when the measuring error first occurred, the
         commencement of the error shall be deemed to be the point in time
         halfway between the date of the last previous test and the date on
         which the existence of the measuring error was first discovered.

15.6     All measurements for all purposes in this Contract shall be adjusted to
         standard conditions of pressure at sea level and temperature at sixty
         (60) degrees Fahrenheit.

                                       61
<PAGE>

                                   ARTICLE 16

                                  NATURAL GAS

16.1     Associated Natural Gas

         16.1.1   Associated Natural Gas produced within the Contract Area shall
                  be used primarily for purposes related to the Production
                  Operations and production enhancement, including, without
                  limitation, oil treating, gas injection, gas lifting and power
                  generation.

         16.1.2   Based on the principle of full utilisation of the Associated
                  Natural Gas and with no impediment to normal production of the
                  Crude Oil, any Development Plan shall include a plan of
                  utilisation of Associated Natural Gas. If there is any excess
                  Associated Natural Gas remaining in any Oil Field after
                  utilisation pursuant to Article 16.1.1 (hereafter referred to
                  as "Excess Associated Natural Gas"), the Contractor shall
                  carry out a feasibility study regarding the commercial
                  utilisation of such Excess Associated Natural Gas.

                  If Georgian Oil and the Contractor agree that Excess
                  Associated Natural Gas has no commercial value, then such
                  Natural Gas shall be disposed of by the Contractor through
                  reinjection, venting, flaring or otherwise as may be provided
                  in an approved Development Plan, and subject to approval from
                  the State Agency.

                  If Georgian Oil and the Contractor agree that Excess
                  Associated Natural Gas has commercial value, they will
                  endeavour to enter into gas sales agreement(s) and/or other
                  commercial and/or technical arrangements with Third Parties
                  required to develop such Natural Gas. Investments in the
                  facilities necessary for production, transportation and
                  delivery of Excess Associated Natural Gas shall be made by the
                  Contractor.

                                       62
<PAGE>

                  If either Georgian Oil or the Contractor considers that Excess
                  Associated Natural Gas has commercial value while the other
                  considers that Excess Associated Natural Gas has no commercial
                  value, the one who considers Excess Associated Natural Gas to
                  have commercial value may utilise such Excess Associated
                  Natural Gas, at its own cost and expense and without impeding
                  the production of Crude Oil and without affecting the shares
                  of Crude Oil and Natural Gas otherwise to be allocated under
                  the other provisions of this Contract, but if such Excess
                  Associated Natural Gas is not so utilised at any time or from
                  time to time, then such Excess Associated Natural Gas shall be
                  disposed of by the Contractor, in a manner approved by the
                  State Agency.

         16.1.3   Investments made in conjunction with the utilisation of both
                  Associated Natural Gas and Excess Associated Natural Gas,
                  together with investments incurred after approval of a
                  Development Plan in carrying out feasibility studies on the
                  utilisation of Excess Associated Natural Gas, shall be Costs
                  and Expenses.

16.2     Non-associated Natural Gas

         16.2.1   When any Non-associated Natural Gas is discovered within the
                  Contract Area, the Contractor may present proposals for
                  appraisal and development as follows:

                  After Non-associated Natural Gas has been discovered within
                  the Contract Area, the Contractor shall present to the
                  Co-ordination Committee, a report, including, without
                  limitation, an initial estimate of the boundaries of the
                  Non-associated Natural Gas Reservoir and a range of
                  recoverable reserves.

                  The Contractor shall be required to decide whether to submit
                  an Appraisal Programme as soon as is practical in all the
                  circumstances but not later than thirty-six (36) Months from
                  the date of the submission of the

                                       63
<PAGE>

                  discovery report.

                  If the Contractor commits to an approved Appraisal Programme
                  for the Non-associated Natural Gas Reservoir, delineation and
                  review of the potential of the Non-associated Natural Gas
                  Reservoir will continue for a period not longer than three (3)
                  Years from the Approval of the Appraisal Programme. During the
                  review period and the period of the Appraisal Programme, the
                  Contractor shall maintain all rights and interests in the
                  relevant portion of the Contract Area.

                  The expenses incurred by the Contractor in carrying out the
                  said review, evaluation and Appraisal Programme shall be Costs
                  and Expenses.

         16.2.2   Following the completion and review of the Appraisal
                  Programme, the Contractor shall submit an appraisal report to
                  the Co-ordination Committee and may submit a Development Plan
                  for approval in accordance with Article 9.5. Georgian Oil and
                  the Contractor shall also endeavour to finalise Gas Sales
                  Contract(s) and other agreements necessary for the commercial
                  exploitation of such Non-associated Natural Gas.

         16.2.3   Unless otherwise agreed between the Contractor and Georgian
                  Oil, all Non-associated Natural Gas (and excess Associated
                  Natural Gas) produced from the Contract Area under a
                  Development Plan which has been approved, or deemed to have
                  been approved, by the Co-ordination Committee shall be sold by
                  the Contractor on its own behalf and as agent for Georgian Oil
                  on a joint dedicated basis on terms common to both Parties.
                  Every such agreement shall require the express approval of
                  Georgian Oil which shall not be unreasonably withheld.
                  Georgian Oil may engage independent experts, as proper and
                  reasonable, to make the necessary examination of any such
                  agreement the costs of which shall be reimbursed to Georgian
                  Oil by the Contractor and shall constitute Costs and Expenses.

                                       64
<PAGE>

         16.2.4   Where Non-associated Natural Gas (or excess Associated Natural
                  Gas) is sold by the Contractor on a joint dedicated basis
                  pursuant to Article 16.2.3, the provisions of Article 11,
                  relating to the allocation of Petroleum for recovery of costs
                  and production sharing, shall apply to the distribution of the
                  proceeds from the sale of Non-associated Natural Gas with
                  effect that Georgian Oil and the Contractor shall have title
                  in undivided shares to the Non-associated Natural Gas
                  available for sale on a joint dedicated basis and will hold
                  those shares in undivided proportions equal to the proportions
                  in which during that period they were entitled to share
                  available Petroleum. Accordingly the net proceeds from the
                  sale on a joint dedicated basis of Non-associated Natural Gas
                  in any given period shall be divided between Georgian Oil and
                  the Contractor in the proportions in which they had title to
                  the Non-associated Natural Gas sold.

         16.2.5   The production period for any Non-associated Natural Gas
                  within the Contract Area shall be a period equal to the
                  greater of the term of the Gas Sales Contract(s) or other
                  commercial Natural Gas agreement for such Non-associated
                  Natural Gas and twenty-five (25) consecutive Years beginning
                  on the date of commencement of Commercial Production of such
                  Non-associated Natural Gas. Such period shall not exceed the
                  maximum term of the Contract, plus any extensions permitted
                  under Article 4,2. Georgian Oil and the Contractor shall
                  endeavour to conclude Gas Sales Contract(s) and implement a
                  Development Plan for Non-associated Natural Gas so as to
                  deplete each Reservoir within its production period and within
                  the term of this Contract, subject always to the application
                  of Good Oilfield Practices.

         16.2.6   In the event that the development of Non-associated Natural
                  Gas appears to be uneconomic under the provisions of this
                  Contract, the Parties shall meet to discuss amending the terms
                  of this Contract. In the event the

                                       65
<PAGE>

                  Parties are unable to agree upon modifications to make
                  development, production, and marketing of a Non-associated
                  Natural Gas discovery economic to the Contractor, the State
                  and Georgian Oil agree that they will not enter into any
                  arrangements for the development of such Non-associated
                  Natural Gas discovery with any Third Parties under less
                  favourable terms to the State and Georgian Oil than the
                  Contractor's last offer under the negotiations above, without
                  first offering such development and terms to the Contractor.
                  State and Georgian Oil shall notify Contractor in writing
                  within thirty (30) days of receipt of any such offer, giving
                  the full details of such offer. Contractor shall have one
                  hundred eighty (180) days following its receipt of notice of
                  the Third Party offer to match the offer. This right of first
                  refusal shall run concurrent with the term of this Contract
                  and shall survive the expiration or termination of this
                  Contract for a period of five (5) years. If the Third Party
                  offer to the State and Georgian Oil is on more favourable
                  commercial terms to the State and Georgian Oil than
                  Contractor's last offer, the above limitation on the State and
                  Georgian Oil shall not apply.

16.3     The Contractor may participate in the installation and operation of the
         pipeline(s) required to transport Non-associated Natural Gas produced
         from the Contract Area to the market for such Non-associated Natural
         Gas and share with Georgian Oil in any revenues, in the proportion in
         which Article 11 they were entitled to share available Petroleum,
         generated from the use of said pipeline(s) by others. If the Contractor
         participates in the installation and operation of such pipeline(s), the
         installation and operation of such pipeline(s) shall be included in
         Development Plan and Petroleum Operations under this Contract.

16.4     If the State-owned company or other entity, or Georgian Oil provides
         Natural Gas

                                       66
<PAGE>

         transportation services to the Contractor, then the tariffs charged to
         the Contractor for such services shall be non-discriminatory,
         reasonably based on the investment necessary to provide the
         transportation services and in no event will exceed the rates then
         available to other Third Parties for comparable services based on
         comparable usage and comparable agreement terms. The State through such
         State owned company and Georgian Oil, as the case may be, will ensure
         that such transportation services will be provided in a time frame that
         will not delay field development, all as may be set forth in an
         agreement providing for such services.

16.5     The Co-ordination Committee may appoint a Marketing Team to investigate
         the market conditions and opportunities for the sale of Natural Gas and
         the costs of the Marketing Team will be Costs and Expenses. The Parties
         agree to use their best efforts working with Contractor to secure
         markets and, if necessary, improved Natural Gas terms which may
         include, among other things with respect to Natural Gas:

         the local Georgian market needs and demands;

         the Parties shall have the right to submit potential customers for
         Natural Gas sales;

         the local Georgian market shall have priority if the commercial terms
         available in that market are at least equivalent to commercial terms
         available to Contractor in other markets;

         provisions for a holiday or exemption from Profits Tax and Mineral
         Usage Tax;

         Cost Recovery out of up to 100% of production; and

         a reduced share of the Profit Natural Gas for the Parties representing
         the State.

                                       67
<PAGE>

                                   ARTICLE 17

                                TAX/FISCAL REGIME

17.1     In the event that Contractor introduces other Contractors to this
         Contract this Article shall apply to each Contractor party
         individually.

17.2     Contractor, Foreign Subcontractor, Foreign Employee and Operating
         Company shall be entitled to full and complete exemption from all Taxes
         prior to or after the Effective Date of this Contract, except as
         otherwise provided for in this Contract and the Georgian Tax Code. It
         is acknowledged by the Parties that any modification of Taxes payable
         or imposition of new Taxes may be cause for enforcement of the
         provisions of Article 27.3 of this Contract at the discretion of the
         Contractor.

17.3     It is acknowledged that Georgia may enter into Double Tax Treaties
         which may have the effect of giving relief from Taxes to, but not
         limited to, the Contractor, Foreign Subcontractors and Foreign
         Employees.

17.4     Contractor Party shall be subject to the following Taxes in accordance
         with the Laws of Georgia as set forth in the Tax Code of Georgia in
         effect on the date of signing of this Contract:

         (i)      the Tax on Profits (the "Profit Tax") which is at the rate
                  currently prescribed in the Tax Code of Georgia for those
                  existing agreements that were signed prior to entry into force
                  of the Tax Code of Georgia;

         (ii)     the Mineral Usage Tax (the "Mineral Usage Tax");

         (iii)    VAT on Local Sales;

         (iv)     Social Tax and Medical Insurance Contribution on Georgian
                  nationals ("the Social Taxes"); and

                                       68
<PAGE>

         (v)      Customs Duties and VAT on sales of equipment or assets
                  imported free of Customs Duties and VAT and subsequently sold
                  by Contractor for purposes other than the Petroleum
                  Operations.

17.5     Except for the Taxes listed in Article 17.4, neither the Operating
         Company nor any Contractor Party shall be subject to any other Taxes,
         bonuses, duties, levies, funds or similar types of payments of any
         nature imposed prior to the date of signing of this Contract, currently
         or in the future by the State or any other Governmental entity or
         subdivision of the State, including, but not limited to Enterprise
         Property Tax, VAT (otherwise than in the cases indicated at Article
         17.4 (iii) and (v)), Stamp Duty, Profit Repatriation Tax, Export Duty,
         Customs Duty, Freight Tax, Dividend Tax, Land Tax, Property Transfer
         Tax, Road Use Tax, Excise Tax, Entrepreneur's Tax, fees for
         administration (with the exception of any Administrative Fees as
         defined in Article 1.2) any Taxes on the transportation and export of
         Petroleum, and any Taxes related to the assignment of all or a portion
         of the Contractor's interest under this Contract in accordance with the
         Laws of Georgia as set forth in the Tax Code of Georgia in effect on
         the date of signing of this Contract.

         In the event that the Contractor becomes liable to Taxes not listed in
         Article 17.4 above, notwithstanding the provisions of Article 17.2 and
         27.3, such additional Taxes shall be considered as Costs and Expenses
         for the purposes of determining Cost Recovery Petroleum.

17.6.    Contractor Party shall be liable for the Profit Tax at the rate of ten
         percent (10%) on the taxable base defined in Article 17.8. The rate of
         Mineral Usage Tax shall be five percent (5%) on the value of produced
         Petroleum excluding VAT for the duration of the Contract.

                                       69
<PAGE>

17.7     Assumption, payment and discharge of taxes shall take place as follows:

         The State shall ensure that Georgian Oil (or its successors or
         assignees) shall assume, pay and discharge when due, in the name and on
         behalf of Contractor, Profit Tax liability and Mineral Usage Tax
         liability for each Calendar Year calculated in accordance with this
         Article 17 out of Georgian Oil's share of Profit Oil and Profit Natural
         Gas for each Calendar Year. For the avoidance of ambiguity, this
         obligation of Georgian Oil as related to the Mineral Usage Tax and
         Profit Tax under this Article 17.7 shall also extend to the Operating
         Company if, under the laws of Georgia, under the License it is deemed
         liable instead of the Contractor Parties for the payment of Profit Tax
         or Mineral Usage Tax. Also for the avoidance of ambiguity, Georgian Oil
         shall have the obligation to obtain any necessary consents or approvals
         from the Tax Inspectorate in relation to the provisions of this Article
         17.7 within one (1) month from the date of signing this Contract, as
         more fully described in Article 32.2.

         The obligation of Georgian Oil to assume, pay and discharge
         Contractor's entire Profit Tax and Mineral Usage Tax liability in
         accordance with the provisions of this Article 17.7 shall fulfil the
         entire Profit Tax and Mineral Usage Tax liability of Contractor and of
         Operating Company, if it has any such liability, as set out above.

17.8     The calculation of the taxable base for Contractor for a Calendar Year
         shall be as follows:

         17.8.1   The taxable base for each Contractor Party shall be determined
                  as the total of each such Contractor Party's sales revenues
                  from Cost Recovery Petroleum, Profit Oil and Profit Natural
                  Gas acquired by that Contractor Party pursuant to Article 11
                  of this Contract increased by an amount equal to the
                  Contractor's Profit Tax and Mineral Usage Tax paid on its
                  behalf by Georgian Oil pursuant to Article 17.7 of this
                  Contract and reduced by the amount of Mineral Usage Tax and
                  Deductions.

                                       70
<PAGE>

         "Deductions" shall include all costs incurred by each Contractor Party
         during each Calendar Year in connection with Petroleum Operations,
         whether incurred in Georgia or elsewhere and whether paid by the
         Contractor Party directly or through the Operating Company, including
         the following:

                  (i)      the Contractor Party's Costs and Expenses recoverable
                           from Cost Recovery Petroleum in accordance with
                           Article 11; and

                  (ii)     the Contractor Party's share of costs and the
                           Contractor Party's own costs incurred during a
                           Calendar Year in respect of Petroleum Operations
                           which are not included in Costs and Expenses
                           determining Cost Recovery Petroleum in Article 11 of
                           this Contract, including any transportation and other
                           associated costs incurred when Profit Oil is not sold
                           at the Measurement Point; and

                  (iii)    any loss calculated in accordance with Article 17.9
                           of this Contract.

         17.8.2   Sales revenues from Cost Recovery Petroleum shall be defined
                  as the value of the volumes of Cost Recovery Petroleum taken
                  and disposed of by the Contractor and/or his assignees under
                  this Contract during a Calendar Year and determined by
                  applying the principles of valuation set out in Article 12 of
                  this Contract. Sales revenues from Profit Oil and Profit
                  Natural Gas shall be defined as the value of the volumes of
                  Profit Oil and Profit Natural Gas taken and disposed of by the
                  Contractor and/or his assignees under this Contract during a
                  Calendar Year.

                  Profit Oil volumes and Profit Natural Gas volumes sold to
                  Third Parties will be valued at the actual price received at
                  the Measurement Point where actually sold at the Measurement
                  Point. Where Profit Oil volumes are not

                                       71
<PAGE>

                  sold at the Measurement Point, they shall be valued at the
                  actual price received at the sales point less transportation
                  and other associated costs incurred by the Contractor in
                  transporting such Profit Oil from the Measurement Point to the
                  actual sales point. The value of sales of Profit Oil and
                  Profit Natural Gas to any Affiliate or sales involving barter
                  will be determined by applying the principles of valuation as
                  set out in Article 12 of this Contract.

         17.8.3   For the purposes of this Article 17 and specifically for the
                  purposes of calculating the taxable base of Contractor in
                  accordance with this Article 17.8 and Article 17.9, the costs
                  and expenses approved by the Parties pursuant to Article 11.2
                  shall be deemed to have been incurred on the Effective Date of
                  this Contract.

17.9     If in calculating the taxable base of Contractor the total sum of
         Deductions exceeds sales revenues from Cost Recovery Petroleum, Profit
         Oil and Profit Natural Gas in any Calendar Year, the resulting loss may
         be carried forward by Contractor to the following Calendar Year and to
         subsequent Calendar Years, one at a time in chronological order, and
         shall be deductible in full and without restriction in computing
         Contractor's taxable base in such Calendar Year(s) until such time as
         the loss is wholly offset against Contractor's taxable base, or
         otherwise in accordance with the Tax Code of Georgia.

17.10    Each Contractor Party shall maintain its tax books and records in US$
         and Georgian Lari (with conversion in accordance with the provisions of
         Article 19), in accordance with the laws of Georgia.

                                       72
<PAGE>

17.11    The Profit Tax return for Contractor shall be prepared and submitted as
         follows:

         17.11.1  Contractor shall prepare a Profit Tax return for each Calendar
                  Year and submit it to the Tax Inspectorate by 31 March
                  following such Calendar Year and provide a copy to Georgian
                  Oil and the State Agency.

         17.11.2  Other records or documentation shall be submitted to the Tax
                  Inspectorate when and as required by Georgian law.

         17.11.3  Only one (1) Profit Tax return shall be required to be
                  prepared and submitted to the Tax Inspectorate for Contractor
                  for a Calendar Year.

17.12    Contractor Party shall prepare a Mineral Usage Tax return and submit it
         to the Tax Inspectorate in accordance with the provisions of the Tax
         Code of Georgia and provide a copy to Georgian Oil and the State
         Agency.

17.13    Georgian Oil shall furnish to Contractor and the State Agency the
         proper official assessments and proper official receipts that evidence
         official payment by Georgian Oil of Contractor's Profit Tax and Mineral
         Usage liability for a Calendar Year by 15 April following that Calendar
         Year.

17.14    Georgian Oil, in computing its Profit Tax liability or any other
         payments required of it to the State or treasury of Georgia, shall not
         receive any subsidy or claim any credit which is calculated or
         determined, directly or indirectly, by reference to the amount of
         income tax paid by Contractor or by reference to the base used to
         compute the amount of such income tax. However, Georgian Oil may deduct
         the payments of Contractor Parties' Profit Tax or Mineral Usage Tax for
         a Calendar Year in calculating Georgian Oil's Profit Tax liability for
         that Calendar Year.

17.15    In the event that the Tax Inspectorate has issued a Contractor Party
         with a notice of

                                       73
<PAGE>

         additional Profit Tax or Mineral Usage Tax due pursuant to an audit of
         the Contractor Party in accordance with Article 17.19, then the
         Contractor Party shall assume, pay and discharge any and all penalties,
         interest, fines or similar levies assessed as a result of such notice.
         The principal amount of Profit Tax or Mineral Usage Tax in this case
         shall continue to be assumed, paid and discharged by Georgian Oil in
         accordance with Article 17.7.1. Any and all penalties, interest, fines
         or similar levies assessed as a result of such notice and assumed, paid
         and discharged by the Contractor Party shall be treated as Costs and
         Expenses for the purposes of determining Cost Recovery Petroleum in
         accordance with Article 11, however any penalties, interest, fines or
         similar levies due to Contractor Party's failure to provide necessary
         information to the Tax Inspectorate in a timely fashion and by the
         proper dates, as provided in Article 17.16, shall not be included as
         Costs and Expenses.

17.16    Georgian Oil shall assume, pay and discharge any penalties, interest,
         fines or similar levies for late payment of Contractor's Profit Tax or
         Mineral Usage Tax liability in respect of any Calendar Year unless the
         Contractor has failed to provide the necessary information to the Tax
         Inspectorate in a timely fashion and by the dates herein provided.

17.17    The filing of the Profit Tax and Mineral Usage Tax returns and the
         payment of Profit Tax and Mineral Usage Tax for a Calendar Year will be
         considered the final settlement of all Profit Tax and Mineral Usage Tax
         liabilities for a Contractor for that Calendar Year upon the date six
         years from the end of the Calendar Year for which the return was filed.

17.18    The State will notify Contractor within one (1) Month of the Effective
         Date of this Contract of the tax inspectorate office ("the Tax
         Inspectorate") which is to be located in Tbilisi and be responsible for
         and administer the implementation of the provisions of this Contract,
         including, but not limited to, the filing of Contractor's Profit Tax
         and Mineral Usage Tax returns for each Calendar Year, the issuing of
         official assessments and receipts evidencing the payment of
         Contractor's Profit Tax and Mineral Usage Tax liability, any audit in
         respect of any Calendar Year of Contractor's Profit Tax and Mineral
         Usage Tax returns and any other payment, liability or procedures in
         respect of any other Taxes.

                                       74
<PAGE>

17.19    Employees of the Contractor, its Affiliates and Subcontractors, and
         those employees assigned by the Contractor to the Operating Company who
         are not citizens or permanent residents of Georgia ("Foreign
         Employees") shall be liable to Georgian Individual Income Tax imposed
         by the State in accordance with the provisions of the Tax Code of
         Georgia A Foreign Employee will continue to be subject to any
         applicable Double Tax Treaty.

17.20    Foreign Employees who perform work in Georgia and their employers that
         would otherwise be covered by and subject to social insurance, pension
         fund contributions and similar payments under the social security
         system of Georgia will be exempt from those payments in accordance with
         the provisions of the Tax Code of Georgia and of the 1996 Law of
         Georgia on Investment Promotion and Guarantees.

17.21    The only Taxes to be levied by the State or by any other Governmental
         entity on a Foreign Subcontractor in connection with Petroleum
         Operations pursuant to this Contract shall be a tax to be withheld by
         any person or other legal entity making payments to a Foreign
         Subcontractor (the "Withholding Tax"). The Withholding Tax shall be
         calculated and will apply as follows:

         17.21.1  The Withholding Tax will be calculated at a fixed rate of four
                  percent (4%) of any payment made to a Foreign Subcontractor in
                  respect of work and/or services undertaken in Georgia in
                  connection with Petroleum Operations pursuant to this
                  Contract. For the avoidance of doubt, work and/or services
                  performed by Foreign Subcontractors outside Georgia are not
                  subject to the Withholding Tax.

         17.21.2  Any person or other legal entity making payments to a Foreign
                  Subcontractor must pay the Withholding Tax to the Tax
                  Inspectorate upon making the payment to the Foreign
                  Subcontractor. The Tax

                                       75
<PAGE>

                  Inspectorate shall issue the person or other legal entity
                  making the payment with proper official receipts in the name
                  of the Foreign Subcontractor within fifteen (15) Days of the
                  payment of the Withholding Tax that evidence the payment of
                  the Withholding Tax stating the date, the amount, and other
                  particulars customary for such receipts. The State Agency and
                  Georgian Oil shall provide the Contractor with any necessary
                  assistance in obtaining such receipts.

         17.21.3  In the event that such Withholding Tax is paid late, the
                  person responsible for the Withholding Tax to the Tax
                  Inspectorate shall be subject to interest at the rate
                  determined by the Tax Code of Georgia for late payment,
                  calculated from the latest date that the Withholding Tax
                  should have been paid to the Tax Inspectorate.

         17.21.4  A Foreign Subcontractor will continue to be subject to the
                  provisions of any applicable Double Tax Treaty.

17.22    Value Added Tax ("VAT") shall be imposed, and VAT refunds shall be
         made, as follows:

         17.22.1  Goods, works and services supplied directly or indirectly to a
                  Contractor Party or to the Operating Company for the purposes
                  of Petroleum Operations shall be exempt from VAT.

         17.22.2  The Contractor shall charge VAT at the current rate of twenty
                  percent (20%) on Petroleum sold locally within Georgia which
                  is not intended for export in circumstances in which the
                  purchaser is a Georgian national or Georgian entity ("Local
                  Sales").

         17.22.3  The Contractor shall be entitled to a refund of any VAT paid
                  on local purchases within forty-five (45) business Days of the
                  submission of a request to the Tax Inspectorate. The refund
                  shall be equal to VAT paid on local purchases in excess of VAT
                  charged on Local Sales. If a full

                                       76
<PAGE>

                  VAT refund is not paid within forty five (45) business Days as
                  specified above, the Contractor shall be entitled to recover
                  the relevant amount as Costs and Expenses in accordance with
                  the provisions of Article 11.

         17.22.4  All imports, including, but not limited to, goods, equipment,
                  works or services acquired by a Contractor Party, its
                  Affiliates, their Subcontractors or the Operating Company for
                  the purpose of the Petroleum Operations shall be exempt from
                  VAT.

         17.22.5  Exports of Petroleum by each Contractor Party shall be liable
                  to VAT at the rate of zero per cent (0%).

         17.22.6  All exports and re-exports by a Contractor Party or its
                  Affiliates or Subcontractors of goods, works and services
                  supplied for the purposes of Petroleum Operations, including,
                  but not limited to, re-export of goods imported into Georgia
                  for the purposes of Petroleum Operations shall be exempt from
                  VAT or be liable to VAT at the rate of zero percent (0%) as
                  the case may be.

         17.22.7  The Tax Inspectorate shall provide each Contractor Party and
                  its Affiliates, Operating Company and Foreign Subcontractors
                  with certificates confirming the VAT exemption provided in the
                  Tax Code of Georgia and referred to in Articles 17.23.1 and
                  17.23.4 within thirty (30) Days of the Contractor Party
                  requesting such a certificate. State Agency and Georgian Oil
                  shall provide the Contractor with any necessary assistance in
                  this respect.

                                       77
<PAGE>

17.23    Contractor and its Affiliates shall have no liability or responsibility
         for any Taxes which its Subcontractors do not pay or for any other
         failure of such Subcontractors to comply with the laws of Georgia.

17.24    The Contractor shall treat a Subcontractor as a Foreign Subcontractor
         for the purposes of Article 17.21 provided that:

         (i)      the Subcontractor is a legal entity organised outside Georgia;
                  and

         (ii)     the Subcontractor has demonstrated to the Contractor's
                  satisfaction that it does not have a Georgian Tax registration
                  certificate.

                                       78
<PAGE>

                                   ARTICLE 18

                    ACCOUNTING, FINANCIAL REPORTING AND AUDIT

18.1     The Contractor shall maintain books and accounts of Petroleum
         Operations in accordance with the Accounting Procedure. These shall be
         maintained in US$ in accordance with generally accepted international
         Petroleum industry accounting principles, which US$ maintained books
         and accounts shall control for the purposes of this Contract and the
         rights and obligations of the Parties hereunder. In addition, these
         books and accounts shall also be maintained in Lari to the extent
         required and provided by law. All books and accounts which are made
         available to Georgian Oil and the State in accordance with the
         provisions of the Accounting Procedure shall be prepared both in the
         Georgian and English languages.

18.2     The Accounting Procedure specifies the procedure to be used to verify
         and establish promptly and conclusively the amount of Costs and
         Expenses in respect of the matters covered by this Contract.

18.3     Sales revenues, expenditures, financial results, tax liabilities, and
         loss carry-forwards of Contractor shall be determined in accordance
         with the rules, rights, and obligations set forth in this Contract in
         so far as such sales revenues, expenditures, financial results, tax
         liabilities, and loss carry-forwards are related to Petroleum
         Operations under this Contract.

18.4     The Co-ordination Committee may, and if requested by Georgian Oil
         shall, appoint an independent auditor of international standing,
         familiar with international Petroleum industry accounting practice, to
         conduct an audit of the Contractor's accounts and records in respect of
         Petroleum Operations for each Calendar Year, provided, however, any
         such audit shall be no more frequent than on an annual basis. The costs
         of such auditor shall be borne by the Contractor and treated as Costs
         and Expenses. In the event that the Co-ordination Committee cannot
         reach agreement on the appointment of such auditor, the view of
         Georgian Oil as to such

                                       79
<PAGE>

         appointment shall prevail.

18.5     Contractor shall during the term of the Contract, at its own expense,
         prepare and submit, in both English and Georgian, to Georgian Oil and
         the State Agency its own financial statements for each of its
         accounting periods audited in accordance with international auditing
         standards.

18.6     Pursuant to paragraph 1.3.1 of the Accounting Procedure set out in
         Annex C, the State Agency or Georgian Oil shall have the right to audit
         the Contractor's accounts and records at their discretion.

                                       80
<PAGE>

                                   ARTICLE 19

                     CURRENCY, PAYMENTS AND EXCHANGE CONTROL

19.1     The Contractor and its Affiliates and the Operating Company shall have
         the right to open, maintain, and operate Foreign Exchange bank accounts
         both in and outside of Georgia and local currency bank accounts inside
         Georgia.

19.2     The Contractor and its Affiliates and the Operating Company shall have
         the right to transfer all funds received in or converted to Foreign
         Exchange in Georgia to bank accounts outside of Georgia without payment
         of any Taxes for the right to effect such transfer of funds.

         The Contractor and its Affiliates and the Operating Company shall have
         the right to transfer funds outside of Georgia in the form of dividends
         or the payment of principal and interest on loans used for funding
         Petroleum Operations without the payment of or withholding of any
         Taxes.

         At the Effective Date the Parties are not aware of any such taxes in
         the Tax Code of Georgia and any subsequent imposition would result in
         the implementation of Article 27.3.

19.3     The Contractor and its Affiliates and Foreign Subcontractors and the
         Operating Company shall have the right to hold, receive and retain
         outside Georgia and freely use all funds received and derived directly
         or indirectly from Petroleum Operations by them outside Georgia without
         any obligation to repatriate or return the funds to Georgia, including,
         but not limited to, all payments received from export sales of
         Contractor's share of Petroleum and any sales proceeds from an
         assignment of its interest in this Contract. [No change]

19.4     The Contractor and its Affiliates and Foreign Subcontractors and the
         Operating Company, with respect to Foreign Exchange maintained in
         Georgia, shall be

                                       81
<PAGE>

         exempt from all legally required or mandatory conversions of Foreign
         Exchange into local or other currency, except to the extent such
         conversion is non-discriminatory and required because of a national
         emergency as declared by the State, the parliament of Georgia or the
         national bank of Georgia. Notwithstanding the foregoing provisions of
         this Article 19 the Contractor and the Operating Company will pay
         citizens of Georgia and Georgian legal entities engaged by them in
         Petroleum Operations in local currency for so long as this is a
         requirement of the law of Georgia.

19.5     The Contractor and its Affiliates and Foreign Subcontractors and the
         Operating Company have the right in accordance with applicable laws to
         import into Georgia funds required for Petroleum Operations under this
         Contract in Foreign Exchange.

19.6     The Contractor and its Affiliates and Foreign Subcontractors and the
         Operating Company shall have the right to pay outside of Georgia for
         goods, works and services of whatever nature in connection with the
         conduct of Petroleum Operations under this Contract without having
         first to transfer to Georgia the funds for such payments.

19.7     Whenever such a need arises, the Contractor and its Affiliates and
         Foreign Subcontractors and the Operating Company shall be entitled to
         purchase local currency with Foreign Exchange and convert local
         currency into Foreign Exchange, at banks authorised to do business in
         Georgia, at the most favourable exchange rate legally available to
         private commercial parties and in any event at an exchange rate which
         shall be no less beneficial than that granted to other foreign
         investors by the National Bank of Georgia, if the National Bank of
         Georgia engages in currency exchanges for private parties, without the
         payment of any Taxes.

19.8     The Contractor and its Affiliates and Foreign Subcontractors shall have
         the right to pay outside Georgia principal and interest on loans used
         for funding Petroleum Operations without having to first transfer to
         Georgia the funds for such payment and without payment of any
         withholding taxes.

                                       82
<PAGE>

19.9     The Contractor and its Affiliates and Foreign Subcontractors and the
         Operating Company shall have the right to pay wages, salaries,
         allowances and benefits of their foreign personnel working in Georgia
         in Foreign Exchange outside Georgia, subject to the obligations of such
         personnel under Article 17 hereof.

19.10    The Contractor and its Affiliates and the Operating Company shall have
         the right to pay their Foreign Subcontractors working on Petroleum
         Operations in Georgia in Foreign Exchange outside Georgia, subject to
         the obligations of the Contractor and such Foreign Subcontractors under
         Article 17 hereof.

19.11.   Conversions of currency shall be recorded at the rate actually
         experienced in that conversion. Expenditures incurred and amounts
         received in currency other than US$ shall be translated to US$ at the
         official rate as posted by the National Bank of Georgia at the close of
         business on the date upon which such expenditures are incurred or
         amounts received.

                                       83
<PAGE>

                                   ARTICLE 20

                                IMPORT AND EXPORT

20.1     Contractor and each of its Affiliates and their agents, and
         Subcontractors and the Operating Company shall have the right to import
         and re-export from Georgia free of any Taxes, other than VAT, which
         shall be applied at a rate of zero percent (0 %), and restrictions,
         including, but not limited to, Customs Duties, in their own name
         materials, equipment, machinery and tools, vehicles, spare parts,
         foodstuffs, goods and supplies necessary in the Contractor's reasonable
         opinion for the proper conduct and achievement of Petroleum Operations
         and only in connection therewith. Notwithstanding the above, if for any
         reason any Taxes are levied on import or re-export by each Contractor
         Party and each of their Affiliates and their agents, Subcontractors and
         the Operating Company, then such Taxes shall be treated as Costs and
         Expenses for the purposes of determining Cost Recovery Petroleum.

20.2     Contractor and each of its Affiliates, their agents and Subcontractors
         and the Operating Company shall have the right to sell any materials or
         equipment or goods which were used in Petroleum Operations provided
         that customs duties at the applicable rate as well as VAT and other
         applicable Taxes shall be payable by the importer on the written down
         value of such items, if they are sold in Georgia to a person who would
         not be exempt from the payment of Customs Duties, VAT or other such
         Taxes on the import of such items. The proceeds therefore shall be
         applied as in the Accounting Procedure provided.

20.3     The Contractor, its customers and their carriers shall have the right
         to freely export, free of all Taxes, other than VAT, which shall be
         applied at a rate of zero per cent (0%), including, but not limited to,
         Customs Duties, and at any time, the share of Petroleum to which
         Contractor is entitled in accordance with the provisions of this
         Contract.

                                       84
<PAGE>

20.4     Petroleum to which the Contractor is entitled in accordance with the
         provisions of this Contract shall not be subject to any requirements
         imposed currently or in the future by the State or any other
         Governmental entity or subdivision of the State as to export quotas or
         export licenses or any other similar requirements.

20.5     All copies of original records and data and representative portions of
         all samples or information prepared or obtained by the Contractor and
         its Affiliates and their Subcontractors and the Operating Company with
         regard to activities under this Contract which is exported for use
         thereof by the Contractor, including, but not limited to, processing,
         analysing or studying, shall be exempt from any requirements imposed,
         currently or in the future, by the State or any other Governmental
         entity or subdivision of the State as to export licenses, any
         restrictions on export and Customs Duties or Taxes with respect to such
         data and information.

20.6     The Contractor shall be exempt from any obligatory registration,
         existing currently or in the future in Georgia, as exporters of
         Petroleum.

20.7     Foreign Employees of the Contractor and its Affiliates and the
         Operating Company, and Foreign Subcontractors and their dependants
         shall have the right after arrival to import into Georgia personal and
         household effects free of Customs Duties or other Taxes, provided,
         however, that Customs Duties at the applicable rate or other applicable
         Taxes shall become payable by the importer in respect of the sales
         price of any such item which is sold in Georgia to a person who would
         not be exempt from the payment of Customs Duties or other Taxes on the
         import or sale of such items, provided, however, any such effects may
         be re-exported without the payment of any Customs Duties or other
         Taxes.

                                       85
<PAGE>

                                   ARTICLE 21

                       EXPORT OF HYDROCARBONS, TRANSFER OF
                     OWNERSHIP, AND REGULATIONS FOR DISPOSAL

21.1     The Contractor, any purchaser from him and their respective carriers
         shall, for the duration of this Contract, have the unrestricted right
         to export from any export point selected by the Contractor for such
         purpose, the share of Petroleum to which the Contractor is entitled
         under this Contract.

         Access to such export points shall be provided to the above parties on
         terms, including access and tariffs, no less favourable as is then
         generally available to private commercial Third Parties, namely
         non-State owned or controlled entities for comparable usage.

21.2     Title to Petroleum produced under this Contract shall pass to Georgian
         Oil and the Contractor at the Measurement Point unless otherwise agreed
         in a lifting agreement.

21.3     The Contractor and Georgian Oil shall each be entitled to designate (at
         their own cost) an employee, independent company or consultant who
         shall check the liftings of Petroleum from the Measurement Point.

21.4     Before the Commencement of Commercial Production Georgian Oil and the
         Contractor will enter into a lifting agreement on appropriate terms.
         Such lifting agreement shall provide that if one of the Parties is
         unable to lift its share of Petroleum in due time, with the result that
         Petroleum Operations shall be interfered with or disrupted, then after
         the giving of such notice as is practical under the circumstances, any
         other Party may dispose of it, and thereafter at its option give back
         to such non-lifting Party an equivalent amount of Petroleum or the
         actual net proceeds from such disposal, after taking into account any
         necessary costs reasonably incurred. Such lifting agreement shall also
         provide that Contractor Parties and Georgian Oil (and any purchaser
         from any such Party, and their respective carriers) shall have access
         to the lifting point for lifting their shares of Petroleum subject to
         laws, regulations and safety, capacity, environmental, scheduling and
         operational requirements.

                                       86
<PAGE>

                                       87
<PAGE>

                                   ARTICLE 22

                               OWNERSHIP OF ASSETS

22.1     Ownership of all assets, whether fixed or moveable, acquired by or on
         behalf of the Contractor in connection with Petroleum Operations, shall
         vest in the State, without consideration, on the day the original cost
         thereof has been recovered by the Contractor as Costs and Expenses from
         Cost Recovery Petroleum.

22.2     Notwithstanding the provisions of Article 22.1, the Contractor shall
         enjoy continued free, exclusive and unrestricted use of all assets
         acquired by or on behalf of the Contractor in connection with Petroleum
         Operations at no cost or loss of benefit to the Contractor until the
         termination of this Contract or until, if earlier, they are no longer
         required for Petroleum Operations. The Contractor, shall bear the
         custody and maintenance of such assets and all risks of loss or damage
         thereto for so long as they are required for Petroleum Operations,
         provided, however, that all costs necessary to operate, maintain and
         repair such assets and to replace or repair any damage or loss shall be
         recoverable as Costs and Expenses from Cost Recovery Petroleum.

22.3     When the Contractor relinquishes part of the Contract Area, all
         moveable assets located in the relinquished Contract Area may be
         transferred to any part of the remaining Contract Area for conducting
         Petroleum Operations and all fixed assets located on the relinquished
         Contract Area shall vest in the State. When the Contract comes to an
         end, all moveable assets whose cost has not been recovered by the
         Contractor as Costs and Expenses from Cost Recovery Petroleum remain
         the property of the Contractor, subject to any adjustment necessary to
         account for partial recovery of costs.

22.4     The provisions of Articles 22.1, 22.2 and 22.3. shall not apply to
         materials or other property that are rented or leased to the
         Contractor, its Affiliates, the Operating Company or Subcontractors or
         which belong to employees of the Contractor, its Affiliates, the
         Operating Company or Subcontractors

                                       88
<PAGE>

                                       89
<PAGE>

                                   ARTICLE 23

                                    INSURANCE

23.1     The Contractor shall obtain and maintain for all Petroleum Operations
         insurance of the type, and in such amount as is customary for
         exploration and development in the international petroleum industry in
         accordance with Good Oilfield Practices. Said insurance, without
         prejudice to the generality of the foregoing, shall cover:

         23.1.1   loss or damage to any and all property, including
                  installations, equipment, pipelines and other assets, whether
                  leased or owned, for so long as they are used in the Petroleum
                  Operations;

         23.1.2   liability to Third Parties, including property loss or damage
                  or bodily injury suffered by any Third Party;

         23.1.3   liability for damages resulting from sudden or accidental
                  pollution arising out of Petroleum Operations;

         23.1.4   expenses for wild well control; and

         23.1.5   destruction of Crude Oil in storage, following extraction from
                  the Reservoir and removal or transportation to surface storage
                  facilities.

                  The Contractor shall require its Subcontractors to carry
                  insurance of the type and in such amount as is customary, for
                  on-shore exploration and development, in the international
                  petroleum industry in accordance with Good Oilfield Practices.

                  The Contractor shall exhibit to the Co-ordination Committee
                  and the State Agency certificates of insurance or other
                  statements from brokers or underwriters confirming any
                  insurance providing coverage with respect to Petroleum
                  Operations or procured pursuant to this Article 23.1,
                  including, but not limited to, the identity of the insurers,
                  types and amounts of coverage, applicable deductibles,
                  premiums paid and changes thereto. The premiums for all
                  insurance (excluding premiums for insurance covering the
                  marketing of Petroleum) obtained by the Contractor for
                  Petroleum Operations pursuant to this Article 23.1, as well

                                       90
<PAGE>

                  as deductibles for such insurance, in amounts as approved by
                  the Co-ordination Committee, shall be deemed to be recoverable
                  as Costs and Expenses from Cost Recovery Petroleum.

23.2     The Contractor, notwithstanding the provisions of Article 23.1, may
         self-insure, subject to the agreement of Georgian Oil, which shall not
         be unreasonably withheld, it being understood that the basis of the
         terms of any such self-insurance shall be international insurance
         industry standards for comparable risks.

                                       91
<PAGE>

                                   ARTICLE 24

                    ENVIRONMENT, HEALTH, SAFETY AND LIABILITY

24.1     Notwithstanding the other provisions of this Contract, the Contractor
         shall indemnify and hold harmless the State and Georgian Oil against
         all losses, damages and liability arising under any claim, demand,
         action or proceeding brought or instituted against the State or
         Georgian Oil by any employee of the Contractor or any Subcontractor or
         dependent thereof, for personal injuries, industrial illness, death or
         damage to personal property sustained in connection with, related to or
         arising out of the performance or non-performance of this Contract
         regardless of the fault or negligence in whole or in part of any entity
         or individual; provided, however, that such losses, damages and
         liabilities are not caused by or do not arise out of the performance or
         non-performance of this Contract by the State and/or Georgian Oil, and
         the State and/or Georgian Oil shall indemnify and hold the Contractor
         (including for this purpose any Affiliate, the Operating Company and
         all Subcontractors) harmless against all such damage, losses and
         liabilities.

24.2     The Contractor (including for this purpose any Affiliate, the Operating
         Company and all Subcontractors) shall indemnify the State and Georgian
         Oil for all loss or damage suffered by the State or Georgian Oil
         arising out of the Contractor's Petroleum Operations if such Petroleum
         Operations were not in accordance with Good Oilfield Practices or
         applicable laws, rules and regulations and, notwithstanding the
         foregoing, for any loss or damage to the environment or any cultural or
         national monument arising out of conduct of the Petroleum Operations;
         provided, however, that the Contractor (including for this purpose any
         Affiliate, the Operating Company and all Subcontractors) shall have no
         liability hereunder if and to the extent any loss and damage is caused
         by or arises out of any breach of this Contract (and any other
         agreements that may be entered into by and between the Contractor, the
         State or Georgian Oil in respect of the Petroleum Operations) or breach
         of duty by the State or Georgian Oil. Notwithstanding the foregoing the
         Contractor (including for this purpose any Affiliate, the Operating
         Company and all Subcontractors) shall not be liable to the State or
         Georgian Oil for any punitive or exemplary damages or any other
         indirect or consequential damages.

                                       92
<PAGE>

         24.3.1   The Contractor shall not be responsible to the State or
                  Georgian Oil for, and shall bear no cost, expense or liability
                  of the State or Georgian Oil for, any claim, damage or loss to
                  the extent such claim, damage or loss does not arise out of a
                  failure to conduct Petroleum Operations as provided in Article
                  24.2.

         24.3.2   The Contractor shall not be liable for damages arising from
                  any environmental condition or damage existing in the Contract
                  Area prior to the 10th July 1995, or caused by a Force Majeure
                  event subsequent to that date, provided, however, that
                  Contractor shall be laible for environmental conditions or
                  damages resulting from a Force Majeure event to the extent
                  that such conditions or damages result from Contractor's
                  failure to exercise Good Oilfield Practices that would have
                  prevented or ameliorated such environmental conditions or
                  damages.

         24.3.3   Notwithstanding any other provision of this Contract,
                  Contractor and Georgian Oil acknowledge that, as of the date
                  of signing of this Contract, there exists on the Contract Area
                  certain environmental damage, and Contractor and Georgian Oil
                  agree to perform clean-up and remediation of such damage to
                  their respective properties as specified in this Article 24.3.

         24.3.4   Not later than one Month following the Effective Date hereof,
                  Contractor and Georgian Oil shall prepare, in consultation
                  with the State Agency and with the approval of the Head of the
                  State Agency, a clean-up and remediation plan for the Contract
                  Area. Such plan shall specify the particular areas of
                  responsibility of the Contractor and Georgian Oil, and it
                  shall specify the activities required by each of them to
                  restore the portions of the Contract Area damaged by oilfield
                  activities whether prior to or subsequent to 10 July 1995, to
                  a condition acceptable under internationally accepted
                  standards for the restoration of lands

                                       93
<PAGE>

                  damaged by oilfield production and storage activities. The
                  Contractor and Georgian Oil shall agree a time frame for the
                  implementation and completion of the clean up and remediation
                  with the State Agency. The plan shall include work plans for
                  at least the following:

                  (i)      Inspection of all wells and well bores for safety and
                           absence of leakage of Petroleum, both at the surface
                           and down hole;

                  (ii)     Plugging and abandonment, consistent with
                           internationally acceptable standards, of all wells
                           and well bores not capable of economic production;

                  (iii)    Equipping each well capable of economic production
                           with suitable wellhead equipment and casing for
                           prevention of loss or leakage of Petroleum, or repair
                           and refurbishment of existing equipment;

                  (iv)     Removal and proper disposition of spilled Petroleum,
                           drilling fluids, and other waste materials, and, to
                           the extent practicable, restoration of soil; and

                  (v)      Removal and proper disposition of all scrap, junk,
                           and surplus equipment.

         24.3.5   In the event that Contractor fails or refuses to submit a plan
                  under this Article 24, or fails to implement and complete
                  clean-up and remediation, the State Agency may take all steps
                  to develop and implement a clean-up and remediation plan.
                  Contractor shall promptly reimburse the State Agency for all
                  costs and expenses thereof, plus five (5%) percent of such
                  costs and expense, in addition to all other penalties and
                  consequences.

         24.3.6   The State and Georgian Oil shall indemnify the Contractor
                  against any claim, damage or loss arising from environmental
                  condition or damage existing on 10 July 1995, subject to the
                  Contractor's implementing the clean-up and remediation plan
                  described in this Article 24, and taking all reasonable
                  actions to mitigate continued impact of of such conditions or
                  damage, and excluding any

                                       94
<PAGE>

                  and all natural conditions existing on that date or
                  thereafter. It is understood that the Contractor is
                  knowledgeable concerning conditions on the Contract Area and
                  has assumed the risk of pursuing Petrleum Operations thereon.

24.4     In conducting Petroleum Operations, the Contractor shall operate
         according to Good Oilfield Practices and use best endeavours to
         minimise potential disturbances to the environment, including the
         surface, subsurface, sea, air, flora, fauna, other natural resources
         and property. The order of priority for actions shall be protection of
         life, environment, cultural heritage and property.

24.5     The Contractor shall take all necessary steps to respond to, and shall
         promptly notify the State Agency of, all emergency and other events
         (including explosions, leaks and spills), occurring in relation to the
         Petroleum Operations which are causing or likely to cause material
         environmental damage or material risk to health and safety. Such notice
         shall include a summary description of the circumstances and steps
         taken and planned by the Contractor to control and remedy the
         situation. The Contractor shall provide such additional reports to the
         State Agency as are necessary in respect of the effects of such events
         and the course of all actions taken to prevent further loss and to
         mitigate deleterious effects.

24.6     In the event of emergency situations as set forth in 24.5, above, at
         the request of the Contractor, the State, without prejudice and in
         addition to any indemnification obligations the State may have
         hereunder, shall assist the Contractor, to the extent possible, in any
         emergency response, remedial or repair effort by making available any
         labour, materials and equipment in reasonable quantities requested by
         the Contractor which are not otherwise readily available to the
         Contractor and by facilitating the measures taken by Contractor to
         bring into Georgia personnel, materials and equipment to be used in any
         such emergency response or remedial or repair effort. Contractor shall
         reimburse the State's reasonable and necessary costs incurred in such
         efforts, which reimbursed amounts shall be considered Costs and
         Expenses.

                                       95
<PAGE>

24.7     The Contractor shall not be liable to the State, Georgian Oil or Third
         Parties for any damages caused by contamination entering the Contract
         Area as a result of State, Georgian Oil or Third Party activities
         beyond or within the boundaries of the Contract Area. The State shall
         be legally and financially responsible for any loss, damage and
         liability, including remediation of environmental conditions which may
         be required for safe conduct of the Petroleum Operations, caused by the
         State's or Georgian Oil's activities beyond or within the Contract
         Area.

24.8     The Contractor shall not be liable for any loss or damage, including
         but not limited to spillage, explosion, contamination or similar
         environmental damage, in respect of any storage facilities, pipelines
         or means of transportation which are not under the direct possession
         and control of the Contractor or its Affiliates or its Subcontractors
         or the Operating Company. In addition to the foregoing, the Contractor
         shall not be liable for any damage whatsoever in respect of the State
         share of Petroleum, storage or transportation thereof once Georgian Oil
         has taken custody of the State share of Petroleum.

24.9     The State shall make best efforts to ensure the safety and security of
         the Contractor's property and personnel in Georgia and to protect them
         from loss, injury and damage resulting from war (declared or
         undeclared), civil conflict, sabotage, blockade, riot, terrorism,
         unlawful commercial extortion, or organised crime. Notwithstanding
         anything to the contrary contained herein, Contractor acknowledges and
         agrees that the obligations undertaken by the State in this Article
         24.9 are no greater than the general obligations of the State towards
         citizens of Georgia in respect to the perils named above. Furthermore,
         Contractor agrees that it shall have no claim for legal or equitable
         relief for failure of the State to comply with the provisions of
         Article 24.9, except as may be permitted by law.

                                       96
<PAGE>

24.10    Except as set forth in Article 29 hereof, it is understood and agreed
         that the State shall not seek or declare any cancellation or
         termination of this Contract and/or the License as a result of the
         occurrence of any emergency event described in this Article 24.

                                       97
<PAGE>

                                   ARTICLE 25

                                  FORCE MAJEURE

25.1     If as a result of Force Majeure, any Party, including the Contractor is
         rendered unable, wholly or in part, to carry out its obligations under
         this Contract, other than the obligation to pay any amounts of money
         due, then the obligations of such Party so far as and to the extent
         that the obligations are affected by such Force Majeure, shall be
         suspended during the continuance of any inability so caused, but for no
         longer period.

         Such Party shall notify all other Parties of the Force Majeure
         situation within (14) Days of becoming aware of the circumstances
         relied upon and shall keep all other Parties informed of all
         significant developments. Such notice shall give reasonably full
         particulars of the said Force Majeure, and also estimate the period of
         time which such Party will probably require to remedy the Force
         Majeure. Failure to give any such notification in a timely fashion
         shall mean that the period of Force Majeure shall be deemed to have
         commenced on the date of the giving of such notice.

         The affected Party shall use all reasonable diligence to remove or
         overcome or avoid the Force Majeure situation as quickly as possible in
         an economic manner. The period of any such non-performance or delay,
         together with such period as may be necessary for the restoration of
         any damage done during such delay, shall be added to the time given in
         this Contract for the performance of any obligation dependent thereon
         and the continuation of any right granted; provided, however, the term
         of this Contract shall be not be extended as a result of

         (i)      any particular event of Force Majeure, if the duration of any
                  such particular event of Force Majeure which, together with
                  any period of time required for restoration, is for a period
                  of 30 Days or less; and

         (ii)     the enactment or adoption of a law, rule or regulation by the
                  State or any local or legislative body of or within Georgia,
                  whether acting directly or through Georgian Oil, if such law,
                  rule or regulation is comparable to one which has

                                       98
<PAGE>

                  been enacted or adopted, on or before the date the Contract is
                  signed, by a member nation of the European Union or any
                  legislative or regulatory body of the European Union.
                  Notwithstanding anything to the contrary herein contained, no
                  event shall constitute Force Majeure if it does not delay or
                  prevent the Contractor from engaging in the conduct of
                  Petroleum Operations.

         For the purposes of this Contract, "Force Majeure" shall mean natural
         calamities, strikes, sabotage and other production disorders, civil
         disturbance, war (declared or undeclared), or other military actions,
         terrorist or guerrilla activity, blockade, revolt, earthquake,
         avalanche, orders, laws or decrees of any state or governmental entity
         of any country, or other similar events beyond the control of the Party
         claiming Force Majeure which could not have been prevented by it. [No
         change]

25.2     The exercise by Georgian Oil or by State Agency of any right under this
         Contract shall not constitute Force Majeure under any circumstance

25.3     It is recognised that a Force Majeure event may pertain only to part of
         the Contract Area. In the event part of the License is in Force Majeure
         when a Work Programme or a relinquishment become due, then the Work
         Programme and/or relinquishment required shall be reduced in size by a
         ratio proportionate to the area in Force Majeure divided by the full
         size of the then current Contract Area.

         Likewise, the time period for a Work Programme and/or relinquishment
         for any area under Force Majeure shall be suspended for the time it is
         under Force Majeure.

                                       99
<PAGE>

                                   ARTICLE 26

                           ASSIGNMENTS AND GUARANTEES

26.1     No assignment, mortgage or charge or other encumbrance or transfer (for
         the purposes of this Article 26, all of the foregoing an "assignment"
         and correlatives thereof) shall be made by the Contractor of its rights
         obligations or interests arising under this Contract other than in
         accordance with the provisions of this Article 26.

26.2     Except in case of an assignment made pursuant to the provisions of
         Articles 26.4 and 26.5, the provisions of this Section 26.2 shall first
         apply. Any Party, (which shall include Georgian Oil, or any other
         successor entity owned by the State, from and after its exercise of its
         rights under this Section pursuant to which it shall have become a
         Contractor by acquiring the rights of a Contractor or otherwise shall
         become a Contractor), wishing to assign all or part of its rights and
         interests hereunder or in any circumstances where there is deemed to be
         an assignment shall first give written notice to the other Parties
         specifying the proposed terms and conditions of the assignment.
         Following receipt of those terms and conditions, for a period of thirty
         (30) Days, each Party shall have the preferential right to match the
         terms and conditions of the proposed assignment or deemed assignment.
         This right may be exercised by any Party giving written notice within
         said period of its intention to match the relevant terms and conditions
         (the "Acceptance") and thereafter the relevant Parties shall negotiate
         all necessary documentation. If, within a further period of sixty (60)
         Days from the receipt of the Acceptance, the relevant Parties have not
         reached substantially final agreement, the Party seeking to assign may
         within a further period of thirty (30) Days complete an assignment to a
         Third Party on the same terms and conditions. In amplification of the
         foregoing sentence and for the avoidance of any doubt, any assignment
         to a Third Party shall be subject to the assigning Party and the Third
         Party complying with the provisions of this Article 26.

26.3     Contractor may assign all or part of its rights, obligations and
         interests arising from this Contract, and the Parent Company may,
         whether directly or indirectly, assign Control of a Contractor Party,
         to a Third Party or another Contractor provided that

                                      100
<PAGE>

         any such assignee:

         26.3.1   has the technical and financial ability to perform the
                  obligations to be assumed by it under the Contract; provided,
                  however, that the technical or financial ability or experience
                  of a prospective assignee shall not be assumed merely because
                  such assignee has the financial ability or technical ability
                  or experience of the assigning Contractor Party or its Parent
                  Company, whether singly or collectively, or has already become
                  another Contractor Party;

         26.3.2   accepts and assumes all of the terms and conditions of the
                  Contract, including providing a Parent Company Guarantee;

         26.3.3   is an entity with which the State, Georgian Oil and the
                  Contractor can legally do business.

         Any such assignment shall be subject to the prior written consent of
         the State Agency which consent shall not be unreasonably withheld or
         delayed. Georgian Oil shall be deemed to have approved any assignment
         to which the State Agency has consented.

         By way of clarification and not in limitation of the foregoing
         provisions of this Article, the State shall not be considered to be
         acting unreasonably in declining to consent to any such assignment if
         the assignment to such proposed assignee is deemed contrary to State
         interests, as evidenced by a writing to that effect signed by the
         President, the State Minister or State Chancellor/Secretary, or the
         Minister of Foreign Affairs or Defence or there is an act of Parliament
         to that effect.

         If within thirty (30) Days following notification of an intended
         assignment, accompanied by a copy of the proposed deed of assignment
         and related documentation with respect to the proposed assignee,
         including certified financial statements and other evidence to the
         State's reasonable satisfaction of the matters set forth in Article
         26.3.1 and such documentation, which shall include evidence of

                                      101
<PAGE>

         the identity of owners of the assignee, provided in the case of a
         company the stock of which is registered on a recognised stock
         exchange, a copy of the documents identifying the significant owners,
         as such concept is defined or used in the applicable laws pursuant to
         which such company registered its stock, will satisfy the foregoing
         requirements, and its direct and indirect parent companies, including
         the identity of the owners of the ultimate parent, subject to the
         foregoing proviso, as may be reasonably necessary for the State, and as
         requested by the State, to make a determination of the State interests
         as described above, the State has not given its written decision
         concerning such assignment, then it shall be deemed that the State has
         declined to give such consent; provided that thereafter if upon the
         further written request of the Contractor for a written decision, the
         State has not given a written response of any kind within fifteen (15)
         Days after such further request, then the assignment shall be deemed
         approved and the State shall execute an assignment, in the form
         contemplated in Article 26.8 accepting such assignment. This second
         request from the Contractor shall cite the provisions of this paragraph
         and the Contractor shall obtain confirmation from the State that the
         request has been received.

26.4     Notwithstanding the provisions of Article 26.3, Contractor may assign
         all or part of its rights, obligations and interests arising from this
         Contract to an Affiliate without the prior consent of the State or
         Georgian Oil, provided that any such Affiliate:

         26.4.1   has the technical and financial ability and experience to
                  perform the obligations to be assumed by it under the
                  Contract; and

         26.4.2   accepts and assumes all of the terms and conditions of the
                  Contract as if the Affiliate had originally been a signatory
                  to this Contract.

                                      102
<PAGE>

         In the event of such an assignment, the Parent Company shall provide an
         undertaking to the State guaranteeing that it holds ultimate control of
         its Affiliate and ultimate responsibility for the rights and
         responsibilities of the Affiliate.

         If such Affiliate shall be less that 100%, directly and indirectly
         owned by the Parent Company, then the consent of the State shall be
         required, but may not be withheld unless the Parent Company does not
         have voting control over all decisions of the proposed assignee,
         whether such decisions are exercised as stockholder or indirectly
         through the board of directors or other governing body of such
         assignee, provided, however, the election or appointment of a resident
         or citizen of the nation or territory, where an entity is incorporated,
         as a member of the board of directors or other governing body of such
         entity or the ownership of a nominal equity interest in such entity by
         any such person to satisfy the mandatory requirements of any applicable
         law of such nation or territory shall not be deemed to negate the
         satisfaction of the foregoing. The Contractor shall provide the State
         with such evidence that the State may reasonably request to satisfy the
         State that it does not have the right to decline to give its consent
         based on the provisions of the foregoing provision.

         If the Parent Company wishes to assign its direct or indirect Control
         of a Contractor Party to an Affiliate which is 100% directly or
         indirectly owned by the Parent Company, then the consent of the State
         shall not be required.

26.5     Provided that Contractor has obtained the prior consent of the State
         (not to be unreasonably withheld) as contemplated in Article 26.3,
         Contractor and its assignees shall not be restricted in any way and
         shall not be required to obtain any

                                      103
<PAGE>

         additional consent for any pledge or assignment of their respective
         interests in this Contract or any Petroleum Operations undertaken
         pursuant hereto to any bank, lender or other person providing financing
         in connection with this Contract or such Petroleum Operations and if
         such bank, lender or other person shall foreclose upon such interest
         pledged or assigned, such bank, lender or person shall become entitled
         to the rights, and subject to the obligations of an assignee hereunder.

26.6     Georgian Oil may assign its rights, obligations and interests arising
         from this Contract (including, but not limited to, all or part of its
         right to lift a share of Profit Oil); provided, however,
         notwithstanding the provisions of Article 26, the obligations of
         Georgian Oil under this Contract may, and may only, be assigned to
         another majority owned State entity.The provisions of this Article 26.6
         shall not apply to the assignment of any rights that Georgian Oil may
         hold as a Contractor Party.

26.7     No Taxes, fees or other charges shall be payable to the State or to
         Georgian Oil as a consequence of any assignment; provided, however,
         appropriate Administrative Fees, including the reasonable and proper
         fees of any independent advisors, may be charged, including for a
         review of the appropriate documents and payment for re-registration of
         the license.

26.8     Every assignment under this Article shall be evidenced by an
         assignment, incorporating all the terms hereinabove provided in this
         Article 26, including those contemplated in Article 26.7, and shall be
         executed by all of the State, Georgian Oil, the assignor and assignee
         and all other appropriate Parties, which assignment shall include
         provisions whereby the assignee, accept and assume all of the terms and
         conditions of this Contract. In addition, a Parent Company Guarantee
         shall also be provided by the applicable Parent Company. Such
         assignment instrument and Parent Company Guarantee shall be subject to
         the reasonable satisfaction of the State.

26.9     In this Article 26, "Control" shall mean the ownership or control of
         such interests in an entity as to enable a person or persons acting
         together to exercise, directly or through another entity or entities,
         management control or establish management

                                      104
<PAGE>

         policy. Equity ownership of a majority of the outstanding ownership
         interests in any entity shall be deemed to constitute Control. In
         clarification of the foregoing, a change in the membership of the board
         of directors does not in and of itself constitute a change or loss of
         Control.

26.10    Licence

26.10.1  The Licence shall continue to be held by the re-registered Operating
         Company, and the State Agency shall issue a supplementary amendment to
         the Licence, including therein a reference to this Contract and
         confirming the Contractor's rights and obligations under this Contract.
         The State Agency shall issue the supplementary amendment not more than
         thirty days after the execution hereof.

26.10.2  Contractor agrees to be responsible for the fulfilment of all
         obligations of the Licence by the Operating Company or otherwise and
         for all liabilities arising from any breach of the Licence.

26.10.3  The Operating Company may assign the Licence only with the prior
         written consent of the Contractor, Georgian Oil, and the State Agency.

                                      105
<PAGE>

                                   ARTICLE 27

   CONTRACT ENFORCEMENT AND STABILISATION, AND REPRESENTATIONS AND WARRANTIES

27.1     In the course of performing the Petroleum Operations, the Contractor
         shall be subject to all applicable laws, decrees, rules and regulations
         of Georgia.

27.2     The Parties agree to cooperate in every possible way in order to
         achieve the objectives of this Contract. Subject to applicable laws,
         decrees, rules and regulations, the State shall facilitate the exercise
         of the Contractor's activities by granting it all necessary permits,
         licenses and access rights as in this Contract set forth so that the
         Parties may derive the greatest benefit from Petroleum Operations for
         their own benefit and for the benefit of Georgia.

27.3     If at any time after this Amended Production Sharing Contract is
         signed, there is a change in the applicable laws of Georgia which:

         27.3.1   materially affects the Contractor's or the Operating Company's
                  conduct of Petroleum Operations in Georgia under this
                  Contract; or

         27.3.2   imposes on the Contractor or the Operating Company any Taxes
                  which would not have been applicable to the Contractor or the
                  Operating Company when this Contract was signed or increases
                  the rates of any Taxes that applied when this Contract was
                  signed; or

         27.3.3   places an undue material economic burden on the Contractor
                  which was not present when the Contract was signed;

         Then the State undertakes that:

         27.3.4   in the case of a change falling under Article 27.3.1 the
                  Contractor and the Operating Company will, in respect of any
                  matter for which express

                                      106
<PAGE>

                  provision is made in this Contract, be deemed to be in full
                  compliance with the law as amended from time to time, if the
                  Petroleum Operations carried out by the Contractor or the
                  Operating Company comply with the provisions of this Contract,
                  and any relevant plan approved or deemed to be approved by the
                  Co-ordination Committee, and are consistent with Good Oilfield
                  Practices.

         27.3.5   in the case of a change falling under Article 27.3.2, the
                  State and Georgian Oil will, after consultation with the
                  Contractor, propose alterations to this Contract which will
                  restore the Contractor, or as the case may be, the Operating
                  Company, to the same overall economic position which it, or
                  they, would have enjoyed if the change in the applicable law
                  had not been made. If the proposal made by the State and
                  Georgian Oil, or any amendment of that proposal put forward by
                  the State and Georgian Oil is not accepted by the Contractor
                  within ninety (90) Days from the date on which a notice in
                  writing of a proposed amendment is made, any party may refer
                  the matter in dispute to arbitration in accordance with
                  Article 30.

         27.3.6   in the case of a change falling under Article 27.3.3, the
                  State and Georgian Oil will, after consultation with the
                  Contractor, propose alterations to this Contract which will
                  restore the Contractor, to the same overall economic position
                  which it, or they, would have enjoyed if the change in the
                  applicable law had not been made. If the proposal made by the
                  State and Georgian Oil, or any amendment of that proposal put
                  forward by the State and Georgian Oil is not accepted by the
                  Contractor within ninety (90) Days from the date on which a
                  notice in writing of a proposed amendment is made, any party
                  may refer the matter in dispute to arbitration in accordance
                  with Article 30.

         27.3.7   Nothing in this Article 27.3 shall be read or construed as
                  relieving the Contractor or the Operating Company from the
                  obligation to comply with the provisions of laws, decrees,
                  rules and regulations in force from time to

                                      107
<PAGE>

                  time after the date the Petroleum Law became effective, which
                  relate to health, safety or environmental protection;
                  provided, such laws, decrees, rules and regulations do not
                  discriminate against the Contractor or the Operating Company;

27.4     The State hereby represents and warrants to the Contractor as follows:

         27.4.1   The State has taken the appropriate steps necessary to appoint
                  State Agency and Georgian Oil as the first State
                  Representatives in accordance with Article 2.7 and to
                  authorise the State Agency and Georgian Oil to execute the
                  Contract on behalf of the State and has the power to do so;

         27.4.2   The signatories to this Contract on behalf of the State are
                  duly authorised to bind State Agency and Georgian Oil in their
                  capacities as the State Representatives.

         27.4.3   The Licence is a valid instrument issued by the State in
                  respect of the Contract Area and any and all issuance,
                  re-issuance, registration, re-registration or extension
                  thereof, provisional or otherwise, has been duly authorised by
                  the State.

27.5     Georgian Oil hereby represents and warrants that:

         27.5.1   It is a legal entity duly organised, validly existing and in
                  good standing under the laws of Georgia and has all requisite
                  corporate power and authority to enter into this Contract and
                  to perform its obligations hereunder and that all such actions
                  have been duly authorised by all necessary procedures on its
                  part;

                                      108
<PAGE>

27.6     NPL hereby represents and warrants that:

         27.6.1   The execution, delivery and performance by NPL of this
                  Contract are within the corporate powers of NPL and have been
                  duly authorised by all necessary corporate action of NPL.

27.7     The State and the State Representatives unconditionally and irrevocably
         agree that the execution, delivery and performance by them of this
         Contract constitute a private and commercial act. In furtherance of the
         foregoing, the State and State Representatives hereby irrevocably and
         unconditionally agree that:

         27.7.1   should any proceedings be brought against them or the State
                  assets, other than assets protected by diplomatic and consular
                  privileges under the State Immunity Act of England or the
                  Foreign Sovereign Immunities Act of the United States or any
                  analogous legislation, or assets otherwise exempt from
                  execution under the laws of Georgia in effect on the Effective
                  Date, subject to the State's obligations under the New York
                  Convention on Recognition and Enforcement of Arbitral Awards
                  (collectively, the "Protected Assets") in any jurisdiction in
                  relation to the Contract or any of the transactions
                  contemplated by the Contract, no claim of immunity from such
                  proceedings shall be claimed by or on behalf of them or any of
                  the State assets, other than the Protected Assets; For the
                  avoidance of any doubt, the State's share of Petroleum
                  hereunder is the property of the State and a state asset for
                  the purposes of this article.

         27.7.2   The State and State Representatives waive any right of
                  immunity, if any, which the State or any of the State assets,
                  other than the Protected Assets, now has or may in the future
                  have in any jurisdiction in connection with any such
                  proceedings; and

                                      109
<PAGE>

         27.7.3   Subject to the provisions of Article 30, the State and the
                  State Representatives consent to the service of proceedings
                  and enforcement of any award or judgement against them in any
                  such proceedings in any jurisdiction and to the giving of any
                  interim or final relief or the issue of any process in
                  connection with such proceedings, including, without
                  limitation, the making, enforcement or execution against or in
                  respect of its assets, other than the Protected Assets.

         27.8     In the event that Georgian Oil becomes a private party to the
                  Contract, Georgian Oil unconditionally and irrevocably agrees
                  that the execution, delivery and performance by it of this
                  Contract constitute a private and commercial act. In
                  furtherance of the foregoing it irrevocably and
                  unconditionally represents, warrants and agrees, and the
                  State, as the sole founder and shareholder of Georgian Oil,
                  hereby confirms that:

         27.8.1   Georgian Oil, as a person of private law and not the State
                  Representative, is not entitled to any right of sovereign
                  immunity under Georgian law and shall not use this or similar
                  defences should any proceedings be brought against it or its
                  assets in any jurisdiction with respect to this Contract or
                  any of the transactions contemplated by this Contract;

         27.8.2   Georgian Oil, as a person of private law and not as the State
                  Representative, subject to the provisions of Article 30,
                  consents to the service of proceedings and enforcement of any
                  award or judgement against it in any such proceedings in any
                  jurisdiction and to the giving of any interim or final relief
                  or the issue of any process in connection with such
                  proceedings, including, without limitation, the making,
                  enforcement or execution against or in respect of its assets,
                  other than the Protected Assets.

                                      110
<PAGE>

27.9     Notwithstanding the provisions of Article 27.7 and 27.8 or anything
         else in this Contract contained, neither Georgian Oil nor the State
         shall be liable (whether in contract, tort or otherwise) for any
         consequential loss or damage arising out of this Contract, it being
         understood that the limit of such liability are direct damages only.

                                      111
<PAGE>

                                   ARTICLE 28

                           NOTICES AND CONFIDENTIALITY

28.1     Except as otherwise specifically provided, all notices authorised or
         required between the Parties by any of the provisions of this Contract,
         shall be in writing in Georgian and English and delivered in person, by
         registered mail, by courier service or by fax (with a copy by mail) to
         the addresses, including fax numbers, given for the purpose.

         The originating notice given under any provision of this Contract shall
         be deemed delivered only when received by the Party to whom such notice
         is directed, and the time for such Party to deliver any notice in
         response to such originating notice shall run from the date the
         originating notice is received. The second or any responsive notice
         shall be deemed delivered when received. "Received" for purposes of
         this Article with respect to written notice delivered pursuant to this
         Contract shall be actual delivery of the notice to the Party to be
         notified specified in accordance with this Article.

         Each Party shall have the right to change its address at any time
         and/or designate that copies of all such notices be directed to another
         person at another address, by giving written notice thereof to all
         other Parties. Until such notice is given the respective addresses for
         service are those set out in Annex D.

28.2     Subject to the provisions of the Contract, the Parties agree that all
         information and data acquired or obtained by any Party in respect of
         Petroleum Operations shall be considered confidential and shall be kept
         confidential and not be disclosed for a period of five (5) years from
         the date the information or data was acquired or obtained, to any
         person or entity not a Party to this Contract, except:

                                      112
<PAGE>

         28.2.1   To an Affiliate, provided such Affiliate maintains
                  confidentiality as provided herein;

         28.2.2   To a State agency or other entity when required by,
                  contemplated by or necessary under the Contract, or any person
                  or his successor who has been involved by the State in the
                  review and approval process of this Contract or is involved in
                  the maintenance or review of this Contract hereafter;

         28.2.3   To the extent such data and information is required to be
                  furnished in compliance with any applicable laws or
                  regulations, or pursuant to any legal proceedings or because
                  of any order of any court binding upon a Party;

         28.2.3   To prospective or actual contractors, consultants and
                  attorneys employed by any Party where disclosure of such data
                  or information is essential to such contractor's, consultant's
                  or attorney's work, but only to the extent that such person
                  needs to know such data or information;

         28.2.5   To a bona fide prospective transferee of a Party's
                  participating interest (including an entity with whom a Party
                  or its Affiliates are conducting bona fide negotiations
                  directed toward a merger, consolidation or the sale of a
                  majority of its or an Affiliate's shares), provided that such
                  prospective transferee is prima facie eligible to become an
                  assignee under Article 26 by satisfying the conditions therein
                  set forth;

         28.2.6   To a bank or other financial institution to the extent
                  appropriate to a Contractor Party arranging for funding;

         28.2.7   To the extent such data and information must be disclosed
                  pursuant to any rules or requirements of any government or
                  stock exchange having jurisdiction over such Party, or its
                  Affiliates;

         28.2.8   To its respective employees for the purposes of Petroleum
                  Operations,

                                      113
<PAGE>

                  subject to each Party taking customary precautions to ensure
                  such data and information is kept confidential;

         28.2.9   To the extent that any data or information which, through no
                  fault of a Party, becomes a part of the public domain;

         28.2.10  To the extent that the Contractors have, with the consent of
                  Georgian Oil and the State Agency, exchanged or "traded" any
                  seismic, well or production data for comparable data obtained
                  by a contractor in an adjacent license, concession or contract
                  area. Both of the Contractors and said contractor shall be
                  obliged to maintain such traded data confidential pursuant to
                  Article 28.4 or comparable provision or agreement.

         28.2.11  In respect of areas which have been relinquished by the
                  Contractor as herein provided, the State may use any such data
                  and information in respect of negotiating, whether by auction
                  or otherwise, subject to the recipient party entering into
                  appropriate confidentiality agreements, and entering into
                  agreements with other parties in respect of other areas for
                  exploration or development, which agreements in respect of
                  such data shall also be subject to appropriate confidentiality
                  agreements.

28.3     Disclosure as pursuant to Articles 28.2.4, 28.2.5, 28.3.6, 28.3.10 and
         28.2.11 shall not be made unless prior to such disclosure the
         disclosing Party has obtained a written undertaking from the recipient
         party to keep the data and information strictly confidential for at
         least five (5) Years and not to use or disclose the data and
         information except for the express purpose for which disclosure is to
         be made.

                                      114
<PAGE>

                                   ARTICLE 29

                             TERMINATION AND BREACH

29.1     At any time, if in the opinion of the Contractor, acting reasonably and
         in good faith, circumstances do not warrant continuation of the
         Petroleum Operations in the Contract Area or in any Development Area,
         the Contractor may, by giving not less than ninety (90) Days written
         notice to that effect to the State Agency with a copy to Georgian Oil
         relinquish its rights and be relieved of its obligations pursuant to
         this Contract as to the Contract Area or as to that Development Area,
         except such rights and obligations as related to the period prior to
         such relinquishment, including, without limitation, any obligation
         under Articles 5.3, 8 and 9.7.

29.2     Subject to the remaining provisions of this Article 29, the State may,
         by written notice to the Contractor, terminate the Contract in any of
         the following events:

         29.2.1   the Contractor is in material breach of the Contract
                  (excluding a breach elsewhere in this Article 29.2 referred
                  to), and such breach continues for ninety (90) Days after
                  receipt of notice of the breach;

         29.2.2   the Contractor is in breach of Article 8 of this Contract and
                  such breach continues thirty (30) Days after receipt of notice
                  of the breach:

         29.2.3   any material breach of the provisions of Article 26 where the
                  Contractor comprises one entity;

         29.2.4   any failure to comply with any decision of an arbitration
                  tribunal under Article 30 within the period specified in such
                  decision or, if none is specified, ninety (90) Days from the
                  date of such decision;

                                      115
<PAGE>

         29.2.5   any failure within a thirty (30) days to accept and to
                  commence implementation of the decision of a Sole Expert to
                  whom, pursuant to the Contract, any matter has been referred;

         29.2.6   an Insolvency Event occurs with respect to the Contractor
                  where the Contractor comprises one entity;

         29.2.7   is in material breach of the Contract pursuant to Article
                  26.8.

         29.2.8   Failure to develop known and prospective Petroleum reservoirs
                  diligently as a reasonable and prudent operator would develop
                  the same under the same or similar circumstances is a material
                  breach within the meaning of this Article 29.

         29.2.9   Failure or refusal to timely complete the clean up and
                  remediation programme established pursuant to Article 24.3.

29.3     In the event that more than one entity constitutes the Contractor or
         the Parent Company, and in respect of any such entity (here in this
         Article 29 a "Defaulting Participant") an event occurs of the kind
         described in Articles 29.2.2, 29.2.3, 29.2.4 or 29.2.5 or any such
         entity (also herein referred to as a "Defaulting Participant") is in
         material breach of an obligation which as provided in the Contract is a
         several obligation, the State and Georgian Oil will not be entitled to
         terminate the Contract unless all the entities who constitute the
         Contractor and the Parent Company are Defaulting Participants, but may,
         acting together, and subject to Article 29.5, serve on the Defaulting
         Participants a notice (hereinafter a "Default Assignment Notice").

29.4     Where a Default Assignment Notice has been served on a Defaulting
         Participant, the Defaulting Participant shall forthwith,
         unconditionally, without consideration, and free from all encumbrances,
         assign its undivided participating share, including

                                      116
<PAGE>

         rights and obligations, in the Contract to the other Contractors (the
         "Non-Defaulting Participants") in undivided shares in proportion to the
         undivided shares in which the Non-Defaulting Participants hold their
         shares in the Contract and each of the Non-Defaulting Participants
         shall be obliged to accept that assignment, including all the
         obligations arising after the date thereof. In amplification and
         clarification of the foregoing, a Non-Defaulting Participant accepting
         such an assignment shall not be responsible for any obligation of the
         assigning Defaulting Participant to the State, Georgian Oil or any
         Third Party which accrued prior to the date of the assignment.

29.5     The State may terminate the Contract pursuant to Article 29.2.1 or
         serve a Default Assignment Notice only if:

         29.5.1   the State gives not less that thirty (30) Days written notice
                  ("Notice") to the Contractor or, as the case may be, the
                  Defaulting Participant, of an intention to terminate the
                  Contract or to serve a Default Assignment Notice, stating in
                  detail in the Notice the alleged material breach or other
                  grounds for termination or service of a Default Assignment
                  Notice relied upon by the State;

         29.5.2   the Contractor or the Defaulting Participant is given a period
                  of ninety (90) Days from receipt of the Notice to cure or
                  remove such material breach or other grounds specified in the
                  Notice for termination or service of a Default Assignment
                  Notice; and

         29.5.3   the Contractor or the Defaulting Participant has failed within
                  such ninety (90) Days to cure or remove such material breach.

29.6     It is acknowledged that the Contractor or the Defaulting Participant
         may invoke its arbitration rights under Article 30 and thereby dispute
         any such termination. If the Contractor or any Defaulting Participant
         submits any matter to arbitration, then such submission shall not
         suspend the effectiveness of a termination under Articles 29.2.1,
         29.2.2 and 29.7. Further if there should be any violation of any law,
         rule or regulation, the applicable provisions thereof shall govern with
         respect to the

                                      117
<PAGE>

         consequences of any such violation.

29.7     Notwithstanding anything in this Contract to the contrary, if a Parent
         Company fails to comply with its obligations under Article 26 and
         further fails to reasonably and in good faith commence acting to
         correct such failure within thirty (30) Days of notification thereof;
         then such failure to comply shall constitute a material breach with the
         result that this Contract shall terminate immediately with respect to
         the Affiliate of the defaulting Parent Company which is a Contractor
         Party.

29.8     The Licence shall terminate, ipso facto, upon the termination or
         expiration of this Contract. In the event that this Contract terminates
         with respect to fewer than all of the Parties, all rights of such
         Parties under the Licence shall terminate, ipso facto, concurrently
         with such partial termination.

                                      118
<PAGE>

                                   ARTICLE 30

                               DISPUTE RESOLUTION

30.1     Save in the case of disagreements falling within Article 30.5, for the
         purpose of this Article, there are two parties that is to say the State
         and Georgian Oil who shall so long as Georgian Oil is designated as the
         National Oil Company together constitute the First Dispute Party and
         the Contractor who shall constitute the Second Dispute Party, and
         references in this Article to the Dispute Parties shall be construed
         accordingly. In the event that Georgian Oil ceases to be designated as
         the National Oil Company, the Parties will reasonably and in good faith
         review this Article 30.1.

30.2     The Parties hereby consent to submit to the International Centre for
         Settlement of Investment Disputes (ICSID) any Dispute in relation to or
         arising out of this Contract for settlement by arbitration pursuant to
         the Convention on the Settlement of Investment Disputes between States
         and Nationals of Other States (the "Convention"). It is acknowledged
         that the State has signed and deposited its instrument of ratification
         of the Convention on the 7th of August 1992 and the Dispute Parties may
         rely on the Convention having entered into force in the Republic of
         Georgia without qualification on the 6th September 1992.

30.3     The Dispute Parties agree that, for the purposes of Article 25(1) of
         the Convention, any Dispute is a legal dispute arising directly out of
         an investment.

30.4     For the purposes of Article 25(2) of the Convention, it is agreed that
         NPL is a national of Bermuda and any wholly owned subsidiaries shall be
         treated as nationals of the latter state for the purposes of the
         Convention.

30.5     In the event that a dispute arises among the private Parties to this
         Contract and neither the State nor Georgian Oil is a Dispute Party, the
         private Parties, unless otherwise agreed among the private Parties to
         the Contract, hereby submit to arbitration in London, United Kingdom in
         accordance with the arbitration rules of the London Court of
         International Arbitration. Judgement upon any arbitral award

                                      119

<PAGE>

         under this Article 30.5 may be entered in any jurisdiction by any court
         having jurisdiction of the relevant Party, its property or assets.

30.6     Arbitration proceedings shall be conducted in the English language.

30.7     Any arbitration tribunal constituted pursuant to this Contract shall
         apply the provisions of this Contract as governed and construed
         according to the law of Georgia and such rules of international law as
         may be applicable.

30.8     Contractor, the State and Georgian Oil (with reference to any matter
         pertaining to Georgian Oil's role as a State Representative) hereby
         consent to submit to ICSID any disagreement arising out of the
         Contract, including, without limitation, whether the State and Georgian
         Oil have served a valid Default Assignment Notice. The provisions of
         Articles 30.2, 30.3, 30.4, 30.7 and 30.8 shall apply to the arbitration
         of such disagreement. In the event that Contractor is organised in a
         state which is not a party to the Convention, any disagreement shall be
         submitted for settlement by arbitration under the Additional Facility
         Rules of ICSID.

30.9     Either the First Dispute Party or the Second Dispute Party may commence
         a Sole Expert determination with respect to any matter in dispute
         between such Dispute Parties which may be or is required to be referred
         to a Sole Expert under the provisions of the Contract (or with respect
         to any other matter which the First Dispute Party and the Second
         Dispute Party may otherwise agree to so refer) by giving written notice
         to such effect. Such notice shall contain a statement describing the
         issue and all relevant information associated therewith. A Sole Expert
         shall be an independent and impartial person of international standing
         with relevant qualifications and experience appointed pursuant to the
         mutual agreement of the First Dispute Party and the Second Dispute
         Party. The Sole Expert shall act as an expert and not as an arbitrator
         or mediator and, unless otherwise agreed, shall be instructed to
         resolve the dispute referred to him within thirty (30) Days of his
         appointment. Upon the selection of the Sole Expert, the Dispute Party
         receiving the notice of referral above shall submit its own statement
         containing all information it considers relevant with respect to the
         matter in dispute. The decision of the Sole

                                      120

<PAGE>

         Expert shall be final and binding and not subject to any appeal. If the
         First Dispute Party and the Second Dispute Party are unable to agree on
         the appointment of a Sole Expert within twenty (20) Days after a
         Dispute Party has received a notice of referral under this Clause 30.10
         the Sole Expert shall be selected by the Secretary General of ICSID and
         the person so selected shall be deemed to have been appointed by the
         Dispute Parties.

30.10    The fees and expenses of the Sole Expert appointed under the provisions
         of Article 30.9 or other provision of this Contract shall be borne by
         the losing Dispute Party and shall not be considered Costs and
         Expenses.

30.11    It is further agreed by the Parties, that no registered presence that
         the Contractor may establish or may be required to establish in
         Georgia, including but not limited to the formation of an Operating
         Company, registration of an NPL representative office, registration
         with the tax authorities or creation of a permanent establishment for
         tax purposes, shall constitute a Georgian legal entity for the purposes
         of Article 30.2 of the Petroleum Law. To amplify the foregoing, the
         State and Georgian Oil hereby irrevocably and unconditionally confirm
         that the arbitration agreement set forth in Article 5 of the Original
         Contract, as amended hereunder is valid, effective and binding on the
         State and Georgian Oil.

                                      121

<PAGE>

                                   ARTICLE 31

                                      TEXT

31.1     This Contract shall be executed in three (3) originals in the Georgian
         language and three (3) originals in the English language. The two
         versions shall be certified as exact translations. by a competent
         authorised body, and each of which shall have equal legal force and
         effect; provided, however, that in the case of dispute, conflict or
         arbitration the English version shall (after the Georgian version has
         been reviewed and its provisions have been discussed in good faith)
         control for interpretative purposes and shall be used as the authentic
         version to determine the rights and obligations of the Parties which
         shall be determined by reference solely to the English version of this
         Contract. [No change]

31.2     Contract shall be amended only by written document signed by all the
         Parties.

31.3     If and for so long as any provision of this Contract shall be deemed or
         judged to be invalid for any reason whatsoever, such invalidity shall
         not affect the validity or operation of any other provision of this
         Contract except only as 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 Contract without affecting the validity of
         the rest of the Contract.

                                      122

<PAGE>

                                   ARTICLE 32

                                 EFFECTIVE DATE

32.1     This Contract, as an amendment to the Original Agreements, shall enter
         into force and effect in its entirety on the Effective Date..

32.2     The Effective Date of the Contract will be the date on which the
         following conditions have been fulfilled to the satisfaction of the
         Contractor, the State and Georgian Oil and declared as such:

         32.2.1   The Operating Company has been re-registered

         32.2.2   The Licence has been amended as provided in Article 26.10.1.

         32.2.3   The Licence has been ammended to provide for its full term by
                  the State Agency

         32.2.4   The Administration Fee set forth in Article 14.5 and any other
                  outstanding fees or sums then due and owing by the Contractor
                  or the Operating Company to the State, if any, have been paid
                  by the Contractor.

         32.2.5   The Letter of Credit, referred to in Article 8.2.4 has been
                  issued.

         32.2.6   Georgian Oil has obtained the consent or approval from the Tax
                  Inspectorate for Georgian Oil (or its successors or assigns)
                  to assume, pay and discharge, in the name and on the behalf of
                  NPL NPL's entire Profit Tax liability and Mineral Usage Tax
                  liability for each Calendar Year in accordance with the legal
                  procedures set by the Georgian Tax Code.

         32.2.7   All Parties have agreed in writing to the report of auditors
                  and the content of Annex F, Prior Cost and Expenses.

                                      123

<PAGE>

32.3     Notwithstanding any other provision of this Contract, including but not
         limited to Article 29, if after the expiration of one (1) year from the
         date of the execution of this Contract by all Parties, the Effective
         Date, as determined by provisions of Article 32.2, has not occurred,
         then the Licence and this Contract shall terminate and neither shall be
         of any further force and effect.

This Contract is executed this        day of         2001 in three (3) versions
in the Georgian language and three (3) versions in the English language.

Joint Stock National Oil Company SAKNAVTOBI

By:

NATIONAL PETROLEUM LIMITED

By:

                                      124

<PAGE>

By execution hereof, the State Agency for Regulation of Oil and Gas Resources in
Georgia, acting in its capacity as the sovereign representative of Georgia,
pursuant to the Law of Georgia on Oil and Gas, enacted 16 April 1999 and as
successor to Saknavtobi in such capacity, joins as a Party to the foregoing
Production Sharing Contract, as amended, and consents to provisions thereof.

Signed and sealed this ____ day of _____________________, 2001, at Tbilisi,
Georgia.

STATE AGENCY FOR REGULATION OF OIL AND GAS
RESOURCES IN GEORGIA

By: ____________________________________
      Gia Itonishvili, Head of Agency

                                      125

<PAGE>

                                     ANNEX A

                                     LICENCE

Licence issued by the State Agency

                                      126

<PAGE>

                                     ANNEX B

                      CONTRACT AREA - MAP AND CO-ORDINATES

                                      127

<PAGE>

                                     ANNEX C

                              ACCOUNTING PROCEDURE

SECTION I
GENERAL PROVISIONS

1.1.     PURPOSE

         The accounting procedures included in this Accounting Procedure
         establish a framework of accounting principles as generally accepted
         within the international Petroleum industry. The purpose of this
         Accounting Procedure is to establish a fair and equitable method for
         accounting for Petroleum Operations under the Contract, to classify
         expenditures, define Costs and Expenses and prescribe the manner in
         which the Contractor's accounts shall be prepared and approved.

1.2.     DEFINITIONS

         For the purpose of this Accounting Procedure the following terms shall
         have the following meanings:

         "Accepted Accounting Procedure" shall mean accounting principles,
         practices and procedures generally accepted and recognised in the
         international Petroleum industry.

         "Accounting Procedure" shall mean the accounting principles, practices
         and procedures set forth in this Annex C.

         "Accruals Accounting Basis" shall mean the basis of accounting which
         records the effect of transactions and events on financial conditions
         and income when an obligation is created or a right arises.

         "Contract" shall mean the production sharing contract this Accounting
         Procedure is annexed to.

         "Controllable Material" means all materials and equipment controlled
         and inventoried by the Contractor. A list of types of such Controllable
         Material shall be

                                      128

<PAGE>

         furnished to Georgian Oil upon request.

         "Material and Equipment" means property, including without limitation
         all exploration, appraisal and development facilities together with
         supplies and equipment, acquired and held for use in Petroleum
         Operations.

         The words and phrases defined in the Contract but not defined above
         shall have the same meaning in this Accounting Procedure as is given to
         them in the Contract.

1.3.     AUDITS

         1.3.1    The State or Georgian Oil shall have the right to audit the
                  Contractor's accounts and records maintained under the
                  Contract with respect to each Calendar Year within two Years
                  from the end of each such Year as follows. Should Georgian Oil
                  decide not to perform its own audit, the audit may be
                  conducted by the State Agency. However, the audit may be
                  conducted instead by an independent auditor of international
                  standing familiar with international petroleum industry
                  practice in accordance with international auditing standards
                  at the request of Georgian Oil or the State Agency, but not
                  both. If audit is performed by an independent auditor, the
                  cost of such auditor should be borne by the Contractor and
                  treated as Costs and Expenses. For the avoidance of doubt, it
                  is understood that Contractor shall be subject to no more than
                  one audit in total in a single Calendar Year.

         1.3.2    Any audit exceptions shall be made in writing and notified to
                  the Contractor within ninety (90) Days, following completion
                  of the audit in question, and failure to give such written
                  exception within such time shall be deemed to be an
                  acknowledgement of the correctness of the Contractor's books
                  and accounts.

                                      129

<PAGE>

         1.3.3    For purposes of auditing, the State or Georgian Oil may
                  examine and verify, upon providing at least sixty (60) days
                  advance notice to Contractor and at its sole expense, all
                  charges and credits relating to the Petroleum Operations, such
                  as books of account, accounting entries, material records and
                  inventories, vouchers, payrolls, invoices and any other
                  documents, correspondence and records including electronic
                  records considered necessary by the State or Georgian Oil to
                  audit and verify the charges and credits. Furthermore, the
                  auditors shall have the right in connection with such audit,
                  to visit and inspect at reasonable times, all sites, plants,
                  facilities, warehouses and offices of the Contractor directly
                  or indirectly serving the Petroleum Operations and to question
                  personnel associated with those Operations. Where the State or
                  Georgian Oil requires verification of charges made by an
                  Affiliated Company of the Contractor, the State or Georgian
                  Oil shall have the right to obtain an audit certificate from
                  an internationally recognised firm of public accountants
                  acceptable to both the State or Georgian Oil and the
                  Contractor, which may be the Contractor's statutory auditor.
                  The auditors shall make every reasonable effort to conduct
                  their examination in a manner which will result in a minimum
                  of inconvenience to the Contractor

         1.3.4    The Contractor shall answer any notice of exception under
                  paragraph 1.3.2 within one hundred eighty (180) Days of the
                  receipt of such notice. Where the Contractor has, after the
                  said one hundred eighty (180) Days, failed to answer a notice
                  of exception the exception shall prevail.

         1.3.5    All agreed adjustments resulting from an audit and all
                  adjustments required by prevailing exceptions shall be
                  promptly made in the Contractor's accounts and any
                  consequential adjustments to payments due to the State or
                  Georgian Oil shall be made promptly.

                                      130

<PAGE>

         1.3.6    If the Contractor and the State or Georgian Oil are unable to
                  reach final agreement on proposed audit adjustments they shall
                  refer their dispute for binding and final resolution by an
                  internationally recognised firm of independent public
                  accountants appointed in accordance with the procedures for
                  appointing a Sole Expert pursuant to Article 30 of the
                  Contract. When issues are outstanding with respect to an
                  audit, the Contractor shall maintain the relevant documents
                  and permit inspection thereof until the issue is resolved.

1.4.     THE CONTRACTOR'S BOOKS

         1.4.1    The Contractor shall maintain at the Contractor's office in
                  Georgia in English in local currency and US$ and on an Accrual
                  Accounting Basis books and accounts for Petroleum Operations.
                  Such books and accounts shall be kept in accordance with
                  Accepted Accounting Procedure and the provisions of the
                  Contract and this Accounting Procedure ("Petroleum Operations
                  Account").

         1.4.2    All US$ expenditures shall be charged in the amount expended.
                  Expenditures incurred in currencies other than US$ shall be
                  translated into US$ in accordance with Article 19.11 of the
                  Contract. A record shall be kept of the exchange rates used in
                  translating expenditures incurred in currencies other than
                  US$. Any gain or loss resulting from the exchange of
                  currencies required for Petroleum Operations and any fees or
                  other banking charges levied in connection with such exchange
                  of currencies or any gain or loss resulting from translation
                  of expenditures and sales revenues in accordance with the
                  provisions of Article 19.11 shall be included in Costs and
                  Expenses and recoverable from Cost Recovery Petroleum and
                  credited or charged to the Petroleum Operations Account.

         1.4.3    The Contractor shall maintain books and accounts relating to
                  Petroleum

                                      131

<PAGE>

                  Operations for six (6) Years following the end of the Calendar
                  Year to which they relate.

1.5.     PRECEDENCE OF DOCUMENTS

         In the event of any inconsistency or conflict between the provisions of
         this Accounting Procedure and the provisions of the Contract treating
         the same subject differently, the provisions of the Accounting
         Procedure shall prevail.

1.6.     REVISION OF ACCOUNTING PROCEDURE

         This Accounting Procedure may be revised from time to time by mutual
         written agreement among the Parties.

1.7.     ARBITRATION PROCEDURES

         Any dispute in relation to or arising out of this Accounting Procedure
         shall, unless otherwise provided in this Accounting Procedure, be
         submitted first to a Sole Expert who shall have the rights set forth in
         the Contract, the cost of which shall be reimbursable as Cost Recovery
         Petroleum. If such matter is not so settled, the dispute shall be
         submitted to arbitration in accordance with Article 30 of the Contract.

                                      132

<PAGE>

SECTION II

CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS

2.1      SEGREGATION OF COSTS

         Costs shall be segregated in accordance with the purposes for which
         such costs are incurred. The purposes which shall qualify are those
         which have been included in the approved Work Programme and Budget for
         the year in which the costs are incurred and other items which have
         been agreed by the Parties from time to time. All costs allowable under
         Section III relating to Petroleum Operations shall be classified,
         defined and allocated as set out below.

2.2.     EXPLORATION COSTS

         "Exploration Costs" are all direct and allocated indirect costs
         incurred in the search for Petroleum in an area which is, or was at the
         time when such costs were incurred, part of the Contract Area
         including:

         2.2.1    Aerial, geophysical, geochemical, paleontological, geological,
                  topographical and seismic surveys and studies and their
                  interpretation and purchased geological and geophysical
                  information all separately identified.

         2.2.2    Stratigraphic test hole drilling and water well drilling.

         2.2.3    Labour, materials, supplies, and services used in drilling
                  wells with the object of finding Petroleum or appraisal wells
                  excluding any costs of the subsequent completion of such wells
                  as producing wells.

                                      133

<PAGE>

         2.2.4    Facilities used solely in support of the purposes described in
                  Paragraphs 2.2.1, 2.2.2 and 2.2.3 above, including access
                  roads, all separately identified.

         2.2.5    That portion of all Service Costs (as defined in Paragraph
                  2.5) and that portion of all General and Administrative Costs
                  (as defined in Paragraph 2.6) allocated to Exploration Costs
                  as determined by the proportionate share of total Costs and
                  Expenses (excluding General and Administrative Costs and
                  Service Costs) represented by all other Exploration Costs.

         2.2.6    Any other costs incurred in the search for and appraisal of
                  Petroleum after the Effective Date but prior to the
                  Commencement of Commercial Production and not covered under
                  Paragraph 2.3.

2.3      DEVELOPMENT AND PRODUCTION COSTS

         "Development and Production Costs" shall consist of all costs, whether
         incurred by acquisition of assets, leasing or other financial
         arrangement incurred in:

         2.3.1    Drilling wells, other than wells classified as Exploration
                  Costs, whether these wells are dry or producing and drilling
                  wells for the injection of water or gas to enhance recovery of
                  Petroleum.

         2.3.2    Completing wells by way of installation of casing or equipment
                  or otherwise after a well has been drilled for the purpose of
                  bringing the well into use as a producing well or as a well
                  for the injection of water or gas to enhance recovery of
                  Petroleum.

         2.3.3    Acquisition, construction or provision of Petroleum
                  production, transport and storage facilities such as
                  pipelines, flow lines, production and treatment units,
                  wellhead equipment, subsurface equipment, enhanced recovery
                  systems, Petroleum storage facilities, and access roads for

                                      134

<PAGE>

                  production activities.

         2.3.4    Engineering and design studies for the wells and facilities
                  referred to in Paragraphs 2.3.1, 2.3.2 and 2.3.3.

         2.3.5    That portion of all Service Costs and that portion of all
                  General and Administrative Costs allocated to Development and
                  Production Costs as determined by the proportionate share of
                  total Petroleum Operations Costs (excluding General and
                  Administrative Costs and Service Costs) represented by all
                  other Development and Production Costs.

2.3      OPERATING COSTS

         Operating Costs are all costs incurred in Petroleum Operations after
         the Commencement of Commercial Production which are other than
         Exploration Costs and Development and Production Costs, including those
         portions of General and Administrative Costs and Service Costs which
         are not allocated to Exploration Costs or Development and Production
         Costs.

2.5      SERVICE COSTS

         Service Costs are costs in support of Petroleum Operations including
         warehouses, vehicles, motorised rolling equipment, aircraft, fire and
         security stations, workshops, water and sewerage plants, power plants,
         housing, community and recreational facilities and furniture, tools and
         equipment used in these activities. Service Costs in any Calendar Year
         shall include the costs incurred in such year to purchase and/or
         construct the said facilities as well as the annual costs of
         maintaining and operating the same. All Service Costs shall be
         regularly allocated as specified in Paragraphs 2.2.5, 2.3.5 and 2.4 to
         Exploration Costs, Development and Production Costs and Operating Costs
         and shall be separately shown under each of these categories. Where
         Service Costs are incurred in respect of shared facilities the basis of
         allocation of costs to Petroleum Operations hereunder shall be
         specified.

                                      135

<PAGE>

2.6      GENERAL AND ADMINISTRATIVE COSTS

         2.6.1    Direct Overhead

                  Direct overhead covers all office, field office and general
                  administrative expenditures of the Contractor and its
                  Affiliates in the State of Georgia.

                  Services performed outside Georgia by the departments of the
                  Contractor and its Affiliates which directly benefit Petroleum
                  Operations under the contract shall be charged as direct costs
                  in accordance with Paragraph 3.7 of this Annex C.

         2.6.2    Indirect Overhead

                  Indirect overhead covers an annual charge for indirect
                  services rendered by the Contractor's Affiliates outside
                  Georgia to support and manage Petroleum Operations under the
                  Contract. Indirect overhead will be deemed to cover the actual
                  cost incurred for indirect services rendered by those
                  functions of Contractor's Affiliates which:

                  (i)      cannot, without unreasonable effort and/or
                           expenditure or without the release of confidential
                           data proprietary to Contractor's affiliates be
                           charged under any other Section of this Annex C; and

                  (ii)     are properly allocable to Petroleum Operations under
                           the Contract.

         2.6.3    The Contractor's indirect overhead, as described above, shall
                  be charged to Petroleum Operations Account based on a
                  percentage applied monthly to the actual expenditures
                  attributable to Petroleum Operations during each

                                      136

<PAGE>

                  month. The percentage to be applied to each month's actual
                  expenditures attributable to Petroleum Operations will be
                  determined by the following table and based on cumulative
                  actual direct expenditures attributable to Petroleum
                  Operations incurred during each Calendar Year:

                  (i) Exploration Costs

<TABLE>
<CAPTION>
                                                         Rate
                                                         ----
<S>                                                      <C>
    ($US per Calendar Year)

    $0 to $10,000,000 of expenditures                    5.0%
    $10,000,000 to $15,000,000 of expenditures           3.0%
    Over $15,000,000 of expenditures                     2.0%
</TABLE>

                  (ii) Development and Production Costs

<TABLE>
<CAPTION>
                                                         Rate
                                                         ----
<S>                                                      <C>
     ($US per Calendar Year)

     $0 to $10,000,000 of expenditures                   3.0%
     $10,000,000 to $15,000,000 of expenditures          2.5%
     Over $15,000,000 of expenditures                    2.0%
</TABLE>

                  (iii) Producing Operations

                        The indirect rate for production operations shall be two
                        percent (2.0%) of the total amount of the actual costs
                        for the Operating Costs in each Calendar Year.

2.7      FINANCE COSTS

         Finance Costs are all costs as defined in Article 1.39 of the Contract

                                      137

<PAGE>

SECTION III
COSTS, EXPENSES, AND EXPENDITURES AND CREDITS

Except to the extent provided in Paragraph 3.17 of this Section the Contractor
shall charge the Petroleum Operations Account for all Costs and Expenses
incurred and necessary to conduct Petroleum Operations under this Contract as
classified under the headings set forth in Section II of this Accounting
Procedure. For the purposes of this Accounting Procedure Costs and Expenses
referred to in Article 11.2 shall be deemed to be incurred on the Effective Date
of this Contract. Costs and Expenses shall include, but not be limited to:

3.1      LICENSES, PERMITS

         All costs, if any, attributable to the acquisition, maintenance,
         renewal or relinquishment of licenses (excluding the Licence as defined
         in Article 1.49), permits, contractual and/or surface rights acquired
         for Petroleum Operations.

3.2      SALARIES, WAGES AND RELATED COSTS

         3.2.1    The employees of Contractor and its Affiliates in Georgia
                  directly engaged in Petroleum Operations whether temporarily
                  or permanently assigned. Time of such employees shall be
                  documented by timesheets.

         3.2.2    The employees of Contractor and its Affiliates outside Georgia
                  directly engaged in Petroleum Operations whether temporarily
                  or permanently assigned, and not otherwise covered in Section
                  3.7.2. Time of such employees shall be documented by
                  timesheets.

                                      138

<PAGE>

         3.2.3    Salaries and wages, including everything constituting the
                  employees' total compensation. To the extent not included in
                  salaries and wages, the Petroleum Operations Account shall
                  also be charged with the cost to Contractor of holiday,
                  vacation, sickness, disability benefits, living and housing
                  allowances, travel time, bonuses, tax equalisation payments
                  and other customary allowances applicable to the salaries and
                  wages chargeable hereunder, as well as costs to Contractor for
                  employee benefits, including but not limited to employee group
                  life insurance, group medical insurance, hospitalisation,
                  retirement, severance payments required by laws or regulations
                  of the State of Georgia, and other benefit plans of a like
                  nature applicable to labour costs of Contractor. Contractor's
                  employees participating in Georgian benefit plans may be
                  charged at a percentage rate to reflect payments or accruals
                  made by Contractor applicable to such employees.

         3.2.4    Expenditures or contributions made pursuant to assessments
                  imposed by governmental authority for payments with respect
                  thereto or on account of such employees.

         3.2.5    Salaries and wages charged in accordance with Contractor's
                  usual practice, when and as paid or accrued, or on a basis of
                  the Contractor's average cost per employee for each job
                  category; and the rates to be charged shall be reviewed at
                  least annually. In determining the average cost per employee
                  for each job category, expatriate and national employee
                  salaries and wages shall be calculated separately. During a
                  given period of time it is understood that some costs for
                  salaries and wages may be charged on an actual basis while the
                  remaining costs for salaries and wages are charged at a rate
                  based upon the above described average cost

         3.2.6    Reasonable expenses (including related travel costs) of those
                  employees whose salaries and wages are chargeable to the
                  Petroleum Operations

                                      139

<PAGE>

                  Account under Sections 3.2.1 and 3.2.2 of this Section III and
                  for which expenses the employees are reimbursed under the
                  usual practice of Contractor.

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

         3.2.8    Costs related to training or technology transfer for the State
                  or Georgian Oil representatives including related travel and
                  subsistence costs, course work and materials.

3.3      EMPLOYEE RELOCATION COSTS

         3.3.1    Except as provided in paragraph 3.3.3 of this Section III, the
                  Contractor's or its Affiliates costs of employees' relocation
                  to or from the Contract Area vicinity or location where the
                  employees will reside or work, whether permanently or
                  temporarily assigned to the Petroleum Operations. If such
                  employee works on other activities of the Contractor in
                  addition to Petroleum Operations, such relocation costs shall
                  be charged to the other activities based on the percentage
                  time expected to be worked on other activities multiplied by
                  the employee relocation costs.

         3.3.2    Such relocation costs shall include transportation of
                  employees and their family, personal and household effects of
                  the employee and their family, transit expenses, and all other
                  related reasonable costs in accordance with the Contractor's
                  and its Affiliates' usual practice.

         3.3.3    Relocation costs from the vicinity of the Contract Area to
                  another location classified as a foreign location by the
                  Contractor shall not be chargeable to the Petroleum Operations
                  Account unless such foreign location is the point of origin of
                  the employee.

                                      140

<PAGE>

3.4      OFFICES, CAMPS AND MISCELLANEOUS FACILITIES

         All costs of maintaining any offices, sub-offices, camps, warehouses,
         housing, and other facilities of the Contractor and/or Affiliates
         directly serving the Petroleum Operations either within Georgia or
         elsewhere. If such facilities serve operations in addition to the
         Petroleum Operations the costs shall be allocated to the properties
         served on an equitable basis approved by the Parties.

3.5      MATERIAL AND EQUIPMENT

         Costs of materials and supplies, equipment, machines, tools and any
         other goods of a similar nature used or consumed in Petroleum
         Operations subject to the following:

         3.5.1    Acquisition - the Contractor shall only supply or purchase
                  materials for use in Petroleum Operations that may be used in
                  the foreseeable future. The accumulation of surplus stocks and
                  inventory shall be avoided so far as is reasonably practical
                  and consistent with efficient and economical operations.
                  Inventory levels shall, however, take into account the time
                  lag for replacement, emergency needs, weather conditions
                  affecting operations and similar considerations.

         3.5.2    Components of costs, arm's length transactions - except as
                  otherwise provided in paragraph 3.5.3 below, material
                  purchased by the Contractor in arm's length transactions in
                  the open market for use in the Petroleum Operations under the
                  Contract shall be valued to include invoice price less trade
                  and cash discounts (if any), purchase and procurement fees
                  plus freight and forwarding charges between point of supply
                  and point of shipment, freight to port of destination,
                  insurance, taxes, customs duties, consular fees, excise taxes,
                  other items chargeable against imported materials and, where
                  applicable, handling and transportation expenses from point of
                  importation to warehouse or operating site.

                                      141

<PAGE>

         3.5.3    Accounting - such material costs shall be charged to the
                  accounting records and books in accordance with the "First in,
                  First out" (FIFO) method;

         3.5.4    Material purchased from or sold to Affiliates of the
                  Contractor or transferred from other activities of the
                  Contractor to or from Petroleum Operations under the Contract
                  shall be valued and charged or credited at the prices
                  specified as follows:

                  3.5.4.1  New material, including new material moved from
                           inventory (Condition "A"), shall be valued at the
                           current international net price which shall not
                           exceed the price prevailing in normal arm's length
                           transactions in the open market.

                  3.5.4.2  Used material (Conditions "B", "C" and "D");

                      (i)     Material which is in sound and serviceable
                              condition and is suitable for re-use without
                              reconditioning shall be classified as Condition
                              "B" and priced at seventy-five percent (75%) of
                              the current price of new material defined in
                              Paragraph 3.5.4.1;

                      (ii)    Material which cannot be classified as Condition
                              "B" but which after reconditioning will be further
                              serviceable for its original function shall be
                              classified as Condition "C" and priced at not more
                              than fifty percent (50%) of the current price of
                              new material as defined in 3.5.4.1 above. The cost
                              of reconditioning shall be charged to the
                              reconditioned material provided that the value of
                              Condition "C" material plus the cost of
                              reconditioning do not exceed the value of
                              Condition "B" material;

                      (iii)   Material which cannot be classified as Condition
                              "B" or Condition "C" shall be classified as
                              Condition "D" and priced at a value commensurate
                              with its use by the

                                      142

<PAGE>

                              Contractor. If material is not fit for use by the
                              Contractor it shall be disposed of as junk.

                  3.5.4.3  Material involving erection costs shall be charged at
                           the applicable condition percentage of the current
                           knocked-down price of new material as defined in
                           Paragraph 3.5.4.1 above.

                  3.5.4.4  When the use of material is temporary and its service
                           to the Petroleum Operations under the Contract does
                           not justify the reduction in price as provided for in
                           paragraph 3.5.4.2(b) hereof, such material shall be
                           priced on a basis that will result in a net charge to
                           the accounts under the Contract consistent with the
                           value of the service rendered.

                  3.5.4.5  Premium prices - whenever material is not readily
                           obtainable at published or listed prices because of
                           national emergencies, strikes or other unusual causes
                           over which the Contractor has no control, the
                           Contractor may charge Petroleum Operations for the
                           required material at the Contractor's actual cost
                           incurred in providing such material, in making it
                           suitable for use, and in moving it to the Contract
                           Area; provided notice in writing is furnished to the
                           State of the proposed charge prior to charging
                           Petroleum Operations for such material and the State
                           shall have the right to challenge the transaction on
                           audit.

3.6      EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF THE CONTRACTOR AND
         AFFILIATES

         Charges for exclusively owned equipment, facilities and utilities of
         the Contractor and its Affiliates at costs or rates commensurate with
         the cost of ownership and operation not to exceed the average cost or
         rates of non-affiliated Third Parties then prevailing for the
         Contractor for like equipment, facilities, and utilities for use.

                                      143

<PAGE>

3.7      SERVICES

         3.7.1    Third Parties: the actual cost of contract services, services
                  of professional consultants, utilities and other services
                  necessary for the conduct of Petroleum Operations performed by
                  Third Parties.

         3.7.2    Affiliates of the Contractor: the cost of services performed
                  by Affiliates of the Contractor which the Contractor may use
                  in lieu of having its own employees. Charges shall reflect the
                  cost of providing their services and shall not include any
                  element of profit and shall be no less favourable than similar
                  charges for other operations carried on by the Contractor and
                  its Affiliates.

         The charges for such services shall not exceed those currently
         prevailing if performed by Third Parties, considering the quality and
         availability of such services.

         Examples of such services include, but are not limited to, the
         following:

                  Geologic studies and interpretation
                  Seismic data processing
                  Well log analysis, correlation and interpretation
                  Well test analysis and interpretation
                  Laboratory services
                  Well site geology
                  Project engineering
                  Source rock analysis
                  Petrophysical analysis
                  Geochemical analysis
                  Drilling supervision
                  Development evaluation
                  Accounting and professional services
                  Other data processing

         Costs shall include salaries and wages of such technical and
         professional personnel, lost time, governmental assessments, employee
         benefits, and expenses which are considered reasonable in accordance
         with the Contractor's and its Affiliates' usual practice. Costs shall
         also include all support costs necessary for such technical and

                                      144

<PAGE>

         professional personnel to perform such services, such as, but not
         limited to, rent, utilities, administration, support staff, drafting,
         telephone and other communications expenses, computer support,
         supplies, and depreciation. Where the work is performed outside the
         home office base of such personnel, the daily rate shall be charged
         from the date such personnel leave the home office base where they
         usually work up to their return thereto, including days which are not
         working days in the location where the work is performed, excluding any
         holiday entitlements derived by such personnel from their employment at
         their home office base.

3.8      INSURANCE

         Premiums paid for insurance required by law or the Contract to be
         carried for the benefit of the Petroleum Operations. If the insurance
         is for the benefit of operations in addition to the Petroleum
         Operations the premiums paid shall be allocated to the operations
         covered on an equitable basis.

3.9      DAMAGES AND LOSSES TO PROPERTY

         3.9.1    All costs or expenditures necessary to replace or repair any
                  damages, losses incurred by fire, flood, storm, theft,
                  accident, or any other cause. Operating Company shall maintain
                  written documentation of damages or losses.

         3.9.2    Expenditures incurred in the settlement of all losses, claims,
                  damages, judgements, and other expenses for the account of
                  Petroleum Operations.

3.10     LITIGATION AND LEGAL EXPENSES

         The Costs and Expenses of litigation and legal services necessary for
         the protection

                                      145

<PAGE>

         of the Petroleum Operations under this Contract as follows:

         Legal Services necessary or expedient for the protection of the
         Petroleum Operations, and all Costs and Expenses of litigation,
         arbitration or other alternative dispute resolution procedure,
         including, but not limited to, lawyers' fees and expenses, court costs,
         cost of investigation of procuring evidence, together with all
         judgements obtained against the Parties or any of them arising from the
         Petroleum Operations.

3.11     TAXES AND DUTIES

         All Taxes, duties, assessments and charges, of every kind and nature
         (except for the Profit Tax, Mineral Usage Tax and VAT unless the
         provisions of Clause 17.22.1 of the Contract apply) assessed or levied
         upon or in connection with the Petroleum Operations.

         If the Contractor or an Affiliate is subject to withholding tax as a
         Foreign Subcontractor as a result of services performed for Petroleum
         Operations under the Contract, its charges for such services may be
         increased by the amount of such taxes incurred.

3.12     ABANDONMENT AND SITE RESTORATION

         3.12.1   Any costs and expenditures in relation to abandonment and site
                  restoration prior to the cessation of Petroleum Operations in
                  any part of the Contract Area.

         3.12.2   Any payments in accordance with the funding procedure
                  described in Article 9.7 of the Contract shall be charged to
                  the Petroleum Operations Account.

3.13     ENERGY EXPENSES

         All costs of fuel, electricity, heat, water or other energy used for
         Petroleum Operations.

                                      146

<PAGE>

3.14     COMMUNICATION CHARGES

         The costs of acquiring, leasing, installing, operating, repairing and
         maintaining communications systems.

3.15     FINANCE COSTS

         All Finance Costs

3.16     CO-ORDINATION COMMITTEE

         All costs and expenditures incurred with respect to the activities of
         the Co-ordination Committee pursuant to Article 6 of the Contract.

3.17     COSTS AND EXPENDITURE NOT TO BE TREATED AS COSTS AND EXPENSES

         The following costs and expenditures shall not be included in the Costs
         and Expenses recoverable under Article 11: -

         3.17.1   Profit Tax paid in accordance with Article 17 of the Contract;

         3.17.2   Any payment made to the State by reason of the failure of the
                  Contractor to fulfil the minimum expenditure obligations under
                  Article 8 of the Contract;

         3.17.3   The cost of any letter of guarantee required under the
                  Contract;

         3.17.4   Costs incurred before the Effective Date except as provided in
                  Article 11.2 of the Contract;

                                      147

<PAGE>

         3.17.5   Costs of marketing or transportation of Petroleum beyond the
                  Measurement Point except as otherwise provided in this
                  Contract;

         3.17.6   Attorney's fees and other costs of proceedings in connection
                  with arbitration under Article 30 of the Contract or as
                  provided in the Contract or this Accounting Procedure and all
                  fees relating to a Sole Expert determination under Article
                  30.9, which shall be borne by the losing Dispute Party in
                  full;

         3.17.7   Fines and penalties imposed under the laws of Georgia.

         3.17.8   Payments which violate the laws of Georgia.

         3.17.9   Costs occasioned by Wilful Misconduct of the Contractor, its
                  Affiliates or Subcontractors.

3.18     CREDITS

         The Contractor will credit to the Petroleum Operations Account the
         proceeds, other than proceeds from the sale of Petroleum, received from
         Petroleum Operations of transactions, including, but not limited to,
         the following:

         3.18.1   Any successful insurance claim in connection with Petroleum
                  Operations where the claim is with respect to operations or
                  assets which were insured and where the insurance premiums
                  with respect thereto have been charged to the Petroleum
                  Operations Account.

         3.18.2   Any successful claim in connection with Petroleum Operations
                  where the costs and expenditures relating to the subject of
                  the claim have been charged to the Petroleum Operations
                  Account.

         3.18.3   The sale, exchange or salvage of Material and Equipment
                  previously charged to Petroleum Operations Account will be
                  credited to the

                                      148

<PAGE>

                  Petroleum Operations Account less any expenses associated with
                  the disposition of the Material and Equipment. Material and
                  Equipment transferred to the Contractor or an Affiliate will
                  be credited to the Petroleum Operations Account at fair market
                  value.

         3.18.4   Legal costs charged to the Petroleum Operations Account and
                  subsequently recovered by the Contractor.

         3.18.5   Revenue received from Third Parties for the use of property or
                  assets the cost of which has been charged to the Petroleum
                  Operations Account.

         3.18.6   Any adjustment received by the Contractor from the suppliers
                  or manufacturers or their agents in connection with a
                  defective material the cost of which was previously charged by
                  the Contractor to the accounts under the Contract.

         3.18.7   Rentals, refunds, including refunds of taxes paid, or other
                  credits received by the Contractor which apply to any charge
                  which has been made to the accounts under the Contract, but
                  excluding any award granted to the Contractor under
                  arbitration or Sole Expert proceedings referred to in Article
                  30 of the Contract.

         3.18.8   Prices originally charged to the accounts under the Contract
                  for materials subsequently exported from Georgia without being
                  used in Petroleum Operations under the Contract.

         3.18.9   The sale or license of any intellectual property the
                  development costs of which were incurred pursuant to the
                  Contract.

         3.18.10  The sale, exchange, lease, hire, transfer or disposal in any
                  manner whatsoever of any other item the costs of which have
                  been charged to the Petroleum Operations Account.

                                      149

<PAGE>

3.19     DUPLICATION OF CHARGES AND CREDITS

         Notwithstanding any provision to the contrary in this Accounting
         Procedure, there shall be no duplication of charges or credits to the
         Petroleum Operations Account.

3.20     OTHER EXPENDITURES

         Any other costs and expenditures incurred by the Contractor for the
         necessary and proper conduct of the Petroleum Operations in accordance
         with approved Work Programmes and Budgets and not covered in this
         Section III of this Accounting Procedure may be charged to the
         Petroleum Operations Account.

                                      150

<PAGE>

SECTION IV
INVENTORIES

4.1      Periodic Inventories, Notice and Representation

         At reasonable intervals as determined by the Co-ordination Committee
         inventories shall be taken by the Contractor of all Controllable
         Material, which shall include materials, physical assets and
         construction projects. Written notice of intention to take inventory
         shall be given by the Contractor to the Co-ordination Committee at
         least thirty (30) Days before any inventory is to begin.

4.2      RECONCILIATION AND ADJUSTMENT OF INVENTORIES

         Reconciliation of inventory shall be made by the Contractor and
         adjusted by the Contractor as determined by the Co-ordination
         Committee.

                                      151

<PAGE>

SECTION V
FINANCIAL REPORTS

5.1      ACCOUNTS OF PETROLEUM OPERATIONS

         The Contractor shall submit to Georgian Oil by March 15 following each
         Calendar Year accounts in accordance with this Accounting Procedure.

5.2      STATEMENT FOR RECOVERY OF COSTS AND OF COST RECOVERY PETROLEUM

         The Contractor shall render to State Agency and Georgian Oil as
         promptly as practical but not later than forty five (45) Days after the
         end of the last Calendar Quarter in which the date of commencement of
         Commercial Production first occurs, and not later than forty five (45)
         Days after the end of each succeeding Calendar Quarter, a Calendar
         Quarter Cost Recovery report and Calendar Quarter Profit Petroleum
         division report showing:

         5.2.1    Costs and Expenses carried forward from the previous Calendar
                  Quarter, if any;

         5.2.2    Costs and Expenses incurred during the Calendar Quarter;

         5.2.3    Total recoverable Costs and Expenses for the Calendar Quarter
                  (sum of 5.2.1 plus 5.2.2);

         5.2.4    Volume and value of Cost Recovery Petroleum taken and
                  separately disposed of by the Contractor for the Calendar
                  Quarter;

         5.2.5    Amount of Costs and Expenses actually recovered for the
                  Calendar Quarter;

         5.2.6    Amount of recoverable Costs and Expenses to be carried forward
                  into the succeeding Calendar Quarters if any;

                                      152

<PAGE>

         5.2.7    Excess, if any, of the value of Cost Recovery Petroleum taken
                  and separately disposed of by the Contractor over recoverable
                  Costs and Expenses for the Calendar Quarter;

         5.2.8    The value and volume of Petroleum produced, Petroleum used in
                  Petroleum Operations and Petroleum available for lifting and
                  actually lifted by Parties during the Calendar Quarter; and

         5.2.9    Profit Petroleum allocated to the Contractor and Georgian Oil
                  during the Calendar Quarter.

5.3      PAYMENTS

         If such statement shows an amount due to a Party, payment of that
         amount shall be made in US$

                                      153

<PAGE>

SECTION VI
CONTROL AND MAJOR ACCOUNTS

6.1      COST RECOVERY CONTROL ACCOUNT

         The Contractor may establish a cost recovery control account and an
         offsetting contract account to control therein the amount of cost
         remaining to be recovered, if any, and the amount of cost recovered.

6.2      MAJOR ACCOUNTS

         For the purpose of classifying costs, expenses and expenditures for
         cost recovery, costs, expenses and expenditures shall be recorded in
         major accounts, including, but not limited to, the following:

         (a)      Exploration Costs

         (b)      Development and Production Costs.

         (c)      Operating Costs

         (d)      Finance Costs

         Any other necessary sub-accounts shall be used.

                                      154

<PAGE>

ANNEX D

ADDRESSES FOR SERVICE

State Agency for Regulation of Oil & Gas Resources:

                                    Head of Agency
                                    State Agency for the Regulation of Oil & Gas
                                    Resources
                                    45 Kazbegi Avenue
                                    380077 Tbilisi, Georgia

                                    Fax: +995-32-253-311

JSC National Oil Company Saknavtobi:

                                    The General Director
                                    Georgian Oil
                                    Georgia,
                                    Tbilisi 380015,
                                    Kostava Street 65

                                    Fax: +995-32-333-032

National Petroleum Limited

                                    [Details to be added when
                                    Representative Office has been set up]

                                      155

<PAGE>

                                     ANNEX E

                            OPERATING COMPANY CHARTER

                                      156

<PAGE>

REGISTERED BY THE DECREE NO ________________

OF THE DISTRICT COURT OF ____________

ON __________________ 2001

                                     CHARTER

                                     OF THE

                            LIMITED LIABILITY COMPANY

                        IORIS VALLEY OIL AND GAS LIMITED

Tbilisi                                                                 May 2001

                                      157

<PAGE>

                                     CHARTER

TABLE OF CONTENTS

ARTICLE 1     GENERAL PROVISIONS

ARTICLE 2     PURPOSE AND SUBJECT OF ACTIVITIES OF THE COMPANY

ARTICLE 3     PARTNERS OF THE COMPANY

ARTICLE 4     CHARTER CAPITAL OF THE COMPANY

ARTICLE 5     LEGAL STATUS OF THE COMPANY AND THE PARTNERS

ARTICLE 6     MEETING OF THE PARTNERS

ARTICLE 7     THE DIRECTORATE

ARTICLE 8     ANNUAL AND QUARTERLY RESULTS AND DISTRIBUTION OF PROFITS

ARTICLE 9     TERMINATION OF THE COMPANY

ARTICLE 10    SETTLEMENT OF DISPUTES

ARTICLE 11    FINAL PROVISIONS

                                      158

<PAGE>

                                     CHARTER
                                       OF
              THE LIMITED LIABILITY COMPANY IORIS VALLEY OIL & GAS

                                    ARTICLE 1

                               GENERAL PROVISIONS

1.1      Name of the Company

         In Georgian:         __________

         In English:          Ioris Valley Oil & Gas Ltd

1.2      Address of the Company:
         Tbilisi, Lilo Station, Chirnakhuli 9, Georgia.

1.3      The Company's fiscal year shall be the calendar year. The period from
         the moment of registration to December 31, 2001 shall be an incomplete
         fiscal year.

1.4      The Company shall exist for the term of the PSC and Licence.

1.5      The Company is a legal person under the legislation of Georgia. The
         Company is entitled to acquire, use and dispose of on its own behalf
         property and individual non-property rights, to act as plaintiff and
         defendant in arbitration, trial, appellate and other courts, and have
         its seal with the Company name.

1.6      The Company activities shall be regulated by Georgian and international
         law; other agreements between and among the Partners, the Company and
         third parties; and this Charter.

1.7      The Company's liability to creditors shall be limited to its assets and
         that of the Partners' to their share in the Charter Capital. Use of the
         term "partners" is meant

                                      159

<PAGE>

         only to be consistent with use of the term in the Georgian Law on
         Entrepreneurs with respect to limited liability companies and shall not
         be construed as creating a partnership under the laws of Georgia or any
         other jurisdiction. Ioris Valley Oil & Gas is a limited liability
         company.

1.8      Georgian and English shall be the official working languages of the
         Company.

                                      160
<PAGE>

                                    ARTICLE 2

                PURPOSE AND SUBJECT OF ACTIVITIES OF THE COMPANY

2.1      During Petroleum Operations, the Company shall act as a non-commercial
         agent. The purpose of the Company is to hold in its name, the license
         for the Samgori - Patardzeuli block and to carry out activities in the
         areas of oil and gas exploration, development and production on behalf
         of the Contractor in connection to the latter's Production Sharing
         Contract signed on _________ with NPL, Joint Stock National Oil Company
         Saknavtobi and the State Agency for the Regulation of Oil and Gas
         Resources. It has no title to ownership of the produced oil or gas and
         hence no right to sell any of the oil or gas so produced.

2.2      The subject activities of the Company are any business activity not
         prohibited by law, subject to proper licenses and approvals from the
         government, including but not limited to:

         2.2.1    Exploration, development, production and transportation of oil
                  and gas, including the construction of field and processing
                  facilities, in Georgia;

         2.2.2    purchase, execute lease or exchange, hire or otherwise acquire
                  and hold any estate or interest in any lands, buildings,
                  easements, rights, privileges, concessions, designs,
                  copyrights, patents, patent rights, licenses, processes,
                  machinery, plant, and any real or personal property of any
                  kind necessary or convenient for the purposes of or in
                  connection with the Company's business;

         2.2.3    guarantee obligations and contracts;

         2.2.4    engage in training, servicing and all other activities related
                  to the business of the Company; and

                                      161
<PAGE>

         2.2.5    do all or any of the above things, either as principals,
                  agents, trustees, contractors or otherwise, and either alone
                  or in conjunction with others, and either by or through
                  agents, trustees, sub-contractors or otherwise.

2.3      The Company shall operate on a cost reimbursement basis, in accordance
         with the Cost Reimbursement Agreement.

                                      162

<PAGE>

                                    ARTICLE 3

                             PARTNERS OF THE COMPANY

The Partners of the Company are:

3.1      National Petroleum Ltd ("NPL"), registered under the laws of Bermuda

         Registration No.,

         Address: Bank of Bermuda Building
                  Front Street
                  Hamilton,
                  Bermuda

3.2      Georgian Oil, registered under the laws of Georgia,

         Registration No.,

         Address: Kostava Street 65
                  Tbilisi
                  Georgia

                                      163

<PAGE>

                                    ARTICLE 4

                         CHARTER CAPITAL OF THE COMPANY

4.1      The Charter Capital of the Company registered in 1995 was $10 million.

4.2      Each of the Partners had the following interest in and contribution to
         the Charter Capital:

         NPL:          $5 million, i.e. 50% of the Charter Capital

         GEORGIAN OIL: $5 million, i.e. 50% of the Charter Capital

4.3      Partners' interests in the charter capital are reflected in the Charter
         and in the Enterprise Register kept at the registering district court.

4.4      If a Partner exceeds the time limit set for the making of his
         contribution, another Partner may demand in writing that he makes his
         contribution, specifying a new time limit and warning that he may be
         expelled from the Company. Any additional time period shall be no less
         than one month.

         In case of failure to meet the above deadline, the Partner whose
         contribution is overdue shall lose his share and shall not be entitled
         to any profits or benefits earned as a result of his partially
         performed obligation. He shall be informed of the above in writing.

4.5      The contribution to the Charter Capital is considered to be the
         Company's property. The return of the contribution shall be allowed
         only by way of decreasing the Charter Capital, which shall be duly
         reflected in the Charter. The decrease of the Charter Capital shall be
         registered in the Entrepreneurs' Register at the court.

4.6      In case the amount of the Charter Capital becomes less than the minimum
         amount established by the law (currently two thousand (2,000) Lari), it
         shall be urgently replenished up to the established minimum amount.

4.7      None of the Partners shall have any special rights to use any assets
         which are regarded as property of the Company.

                                      164

<PAGE>

                                    ARTICLE 5

                  LEGAL STATUS OF THE COMPANY AND THE PARTNERS

5.1      In accordance with the terms of this Charter, the Company shall have
         the right to:

         5.1.1    execute agreements on its own behalf;

         5.1.2    establish affiliates within and outside Georgia in accordance
                  with applicable legislation;

         5.1.3    own, use and dispose of its assets in accordance with Georgian
                  legislation and the purposes of the Company;

5.2      In accordance with the terms of this Charter and subject to article 5.5
         below, every Partner of the Company or his duly authorised
         representative shall have the right to:

         5.2.1    participate in the Meetings of the Partners;

         5.2.2    have one vote per each percentage of ownership at the Meeting
                  of the Partners;

         5.2.3    receive a copy of all operating and financial reports, budgets
                  and any documents generated by the Company;

         5.2.4    verify the accuracy of all reports and for this purpose
                  examine documents in person or have them examined by
                  independent auditors and demand explanation from management
                  before approval of any reports;

         5.2.5    have free access to all operations, facilities, personnel and
                  documents of the Company;

         5.2.6    partners whose shares in the Company jointly or severally
                  amount to 5% of the Charter Capital shall have the right to
                  convene an extraordinary meeting of partners if it is in the
                  interest of the Company. Such request

                                      165

<PAGE>

                  shall be in writing to the Director and state reasons. If the
                  extraordinary meeting is not held within 8 days, it can be
                  caused by the Partners;

         5.2.7    receive dividends in proportion to share ownership, except as
                  otherwise agreed; and

         5.2.8    in case of the Company's liquidation, receive the assets of
                  the Company in proportion to share ownership after covering
                  the Company's debts.

5.3      Any action in respect to a Partner's share or part thereof, such as
         assignment. mortgaging, transfer of title, or any other similar action
         shall be allowed only if approved by the Meeting of the Partners.

         In case of assignment or alienation by a Partner of his share, the
         agreement shall be notarised.

5.4      Each Partner shall undertake to do the following except as otherwise
         agreed:

         5.4.1    to make timely payments of their respective contributions to
                  the Charter Capital in the manner and on the dates determined
                  herein and by future decisions of the Meeting of the Partners;

         5.4.2    not to disclose confidential information concerning the
                  operation of the Company to third parties, unless approved by
                  the Meeting of the Partners;

         5.4.3    to discharge his assumed responsibilities (i.e., being a board
                  member) with diligence and in time;

         5.4.4    to effect additional inputs (i.e. additional capital
                  injections) as may be decided by the Meeting of the Partners;

         5.4.5    to comply with the provisions of the Charter and decisions of
                  the Meeting of Partners; and

         5.4.6    except as may be provided in this Charter, not to incur any
                  debts, liabilities, or obligations on behalf of the Company.
                  Any unauthorised act of a Partner and/or of any of the
                  Company's agents, shall not bind the Company.

                                      166

<PAGE>

                                    ARTICLE 6

                            MEETINGS OF THE PARTNERS

6.1      The highest governing body of the Company shall be the Meeting of the
         Partners. The Meeting of the Partners shall determine the general
         business policy of the Company, as well as the Company's principal
         guidelines, activities and structure. Partners are expected to
         personally attend meetings. If a Partner is unable to attend the
         Meeting in person, he may vote on any matter on the agenda for such
         meeting by appointing a proxy by written notice to the Chairman of the
         Meeting prior to the Meeting or by giving notice of his actual vote on
         the matter in writing to the Chairman before the Meeting.

6.2      The Meeting of the Partners shall be held as necessary, but not less
         than once per year. The Meeting of the Partners will be held at the
         registered address of the Company unless otherwise agreed by the
         Partners.

6.3      The Meeting of the Partners shall be convened by the Directorate (as
         defined in Article 7) which shall notify the Partners of the meeting
         and the draft agenda not later than 8 days prior to the Meeting. Upon
         receipt of the notice related to the Meeting, a Partner may, within
         five days, introduce changes and/or amendment to the draft agenda of
         the Meeting. In the beginning of the Meeting, Partners may vote on
         individual issues to be included in the agenda.

6.4      Any person attending the Meeting of the Partners in any capacity is
         bound by the same rules regarding maintenance of confidentiality and
         disclosure of interest which bind the Partners.

6.5      The Directorate is responsible to convene immediately the Meeting of
         the Partners if it is in the interest of the Company, provided that any
         notice given under this article shall give the Partners sufficient time
         to travel to such meeting.

6.6      The Directorate and a Partner whose shares amount to at least 5% of the
         Charter Capital shall be entitled to demand an extraordinary meeting of
         the Partners by specifying the purpose and grounds for such meeting and
         addressing it to the other Partners.

                                      167

<PAGE>

6.7      A Meeting shall be entitled to decision-making only if it is attended
         by the Partners holding more than 50% of the voting rights.
         Notwithstanding the foregoing, the following matters are deemed to be
         outside the routine operations of the Company and require the
         attendance of all Partners that have the right to vote:

         (i)      amendments to the Charter;

         (ii)     changes in the Charter Capital or shares therein;

         (iii)    approval of a competent, properly certified auditor to conduct
                  auditing activities required by law;

         (iv)     reorganisation, merger, liquidation or alienation of the
                  Company or substantially all of its assets;

         (v)      appointment and release of Directors, the Chief Geologist and
                  the Chief Accountant:

         (vi)     representing the Company in legal proceedings against
                  Directors.

6.8      Each Partner must cast all its votes as a block and may not divide its
         votes on any matter.

6.9      The decisions of the Meeting of the Partners shall be adopted by a
         simple majority vote.

6.10     The annual, as well as extraordinary Meeting of the Partners need not
         be held if each Partner which has the right to vote, gives a written
         consent with regard to the issue under consideration. If any Partner is
         against such a procedure, an actual Meeting of the Partners shall be
         held to discuss the matter.

6.11     The Meeting of the Partners shall be presided over by the Chairman of
         the Meeting. The representative of NPL shall serve as Chairman of the
         meeting in the first year and the representative of Georgian Oil shall
         serve as Chairman of the meeting in the second year, thereafter
         alternating on an annual basis.

6.12     After any and all Meetings of the Partners at which a decision is
         adopted, minutes shall be recorded, signed by the Chairman of the
         Meeting, and sent to all Partners.

         The minutes shall indicate the place, date and time of the Meeting of
         the Partners, the list of participating Partners and guests, the
         agenda, the issues under consideration,

                                      168

<PAGE>

         the decisions of the Meeting of the Partners and any special opinion of
         a Partner.

         Partners shall confirm their approval or disapproval of the Minutes
         within thirty days of receipt thereof.

                                      169

<PAGE>

                                    ARTICLE 7

                                 THE DIRECTORATE

7.1.     The Company shall be managed and represented by the Directorate. The
         Directorate shall be responsible for the managing and the supervising
         the day-to-day operations of the Company according to the direction of
         the Meeting of the Partners.

7.2.     The members of the Directorate shall consist of:

            -     A General Director

            -     A Deputy General Director

            -     A Technical Director

            -     A Finance Director

7.3      The General Director shall be authorised to carry out and be
         responsible for the following, within the framework of the decisions of
         the Partners, the provisions of this Charter and the applicable
         legislation:

         7.3.1    Subject to any limitation in the Charter, to represent the
                  Company in its dealings with outside parties and to conclude,
                  without a power of attorney, contracts and other obligations
                  on behalf of the Company. The conclusion by the Company of any
                  transaction or a set of related transactions outside the
                  procedures in the Cost Reimbursement Agreement shall require
                  the approval of the Partners. The aforementioned limit may be
                  changed by the decision of the Partners;

         7.3.2    To manage and dispose of the property of the Company in the
                  ordinary course of business;

         7.3.3    To ensure the fulfilment of the policies and directives of the
                  Partners.

         7.3.4    Implement the decisions of the Partners within the frame work
                  of this Charter and the applicable legislation.

7.4      The Partners shall appoint a bookkeeper or accountant who, under the
         supervision of

                                      170

<PAGE>

         the Directorate shall be responsible for developing financial reporting
         and control systems in order to allow the Partners to monitor
         efficiently the financial status and results of the Company. The
         Directorate shall be responsible for ensuring proper record-keeping and
         payment with respect to taxes, customs, charges, levies or fees imposed
         by the authorities and for keeping abreast of all changes in official
         legislation or regulations relevant to the Company's finances,
         accounting, reporting and payment obligations.

7.5      The Directorate shall ensure that unaudited quarterly financial
         statements are prepared and submitted to the Partners for approval
         within the time frame set by the Partners. In addition, the Directorate
         shall ensure that audited annual financial statements are prepared
         according to GAAP or IAS, consisting of balance sheet, income
         statement, and cash flow statement, and are submitted to the Partners
         for approval no later than ten weeks after the end of the fiscal year
         covered.

7.6      Every year, on a day to be determined by the Meeting of the Partners,
         the Directorate shall submit to the Meeting of the Partners the
         proposed capital and operating budgets for the subsequent year to be
         approved by the Partners.

7.7      Without prior consent of the Partners, the Directorate shall not be
         entitled to conduct separately the same activities as those of the
         Company or to take part in the activities of companies of the same
         type.

7.8      The members of the Directorate shall conduct the activities of the
         Company in good faith and in accordance with the governing law and this
         Charter, as well as in accordance with the decisions of the Meeting of
         the Partners.

7.9      The members of the Directorate shall comply with the rules and
         regulations of the Company and shall conduct all activities which
         require the prior consent of the Meeting of the Partners only upon
         their agreement.

7.10     The Directorate shall provide the Partners information on the
         day-to-day operations of the Company as requested.

7.11     The following actions of the Directorate require prior approval of all
         Partners. Such approval shall be obtained by a Meeting of the Partners
         or by written decision:

                                      171

<PAGE>

         7.11.1   acquisition (including construction), or lease of tangible or
                  intangible capital property;

         7.11.2   alienation and encumbrance of real estate and any other
                  immovable or movable;

         7.11.3   participation in any other ventures, as well as creation and
                  liquidation of branches;

         7.11.4   execution of license, supply or operating agreement, and all
                  other agreements with other enterprises, concerning the
                  provision of oil and gas and their products

         7.11.5   annual budget, strategic and business plans, the planned
                  balance, and the profit and loss balance-sheet, as well as the
                  investment plan;

         7.11.6   the establishment of long-term (more than 6 months) binding
                  relations with third parties or the adoption of financial
                  commitments (i.e. purchase contracts) which exceed monetary
                  limits set above or by the Meeting of the Partners;

         7.11.7   liabilities arising from long-term (more than 6 months)
                  obligations;

         7.11.8   obtain loans and credits or assumption of indebtedness which
                  exceed the amount to be determined by the Meeting of the
                  Partners;

         7.11.9   guarantee loans and credits;

         7.11.10  any new investment activity;

         7.11.11  disclosure of annual budgets, quarterly and annual financial
                  statements, or any other report to third parties, except as
                  required by proper government authorities;

         7.11.12  selection of banks for local and foreign accounts and for
                  effecting any transaction;

                                      172

<PAGE>

         7.11.13  issuance and annulment of "powers-of-attorney", with the
                  exception of routine specific authorisations;

         7.11.14  instalment of internal controls and procedures; and

         7.11.15  any other actions which go beyond normal operational
                  activities and of equal importance to the above in this
                  article 7.11, shall be determined by the Meeting of the
                  Partners.

7.12     The Meeting of the Partners may adopt further rules and regulations of
         the Company with a view to fully determine the rights, obligations,
         scope of competence and authority of the Directorate.

7.13     The Directorate shall have custody of the Corporate Seal of the Company
         and shall affix and attest the same to all instruments requiring it and
         shall act so within the scope of authority as determined by the Meeting
         of the Partners.

7.14     In case of violation of duties, the members of the Directorate shall be
         held personally liable before the Partners for the losses incurred.
         Individual members of the Directorate may prove that there was no
         violation of duties on their part and be relieved of such
         responsibility.

                                      173

<PAGE>

                                    ARTICLE 8

            ANNUAL AND QUARTERLY RESULTS AND DISTRIBUTION OF PROFITS

8.1      The unaudited quarterly and audited annual financial statements and
         reports shall be prepared under the supervision of the Directorate for
         submission to the Partners. Quarterly reports shall be submitted within
         the time frame set by the Meeting of the Partners and annual reports
         not more than 10 weeks after the end of the fiscal year covered. The
         quarterly and annual reports shall be approved by the Meeting of the
         Partners.

8.2      The Directorate shall be responsible for producing and maintaining
         proper books, accounts and reports in compliance with Georgian law and
         International Accounting Standards (IAS) or Generally Accepted
         Accounting Principles (GAAP).

8.3      The books of the Company shall be annually audited by independent
         auditors appointed by the Meeting of the Partners. All charges for the
         services and expenses related to the above auditing shall be paid by
         the Company.

                                      174

<PAGE>

                                    ARTICLE 9

                           TERMINATION OF THE COMPANY

9.1      The Partners may agree by majority vote to liquidate the Company.

9.2      The Partners may agree by majority vote to reorganise the Company
         (merger, amalgamation, division, transformation).

9.3      Liquidation of the Company pursuant to this Article shall be
         implemented by the Directorate. Upon the request of one of the
         Partners, liquidators may be appointed by the court in whose
         jurisdiction the Company is located. The court shall be entitled to
         appoint a liquidator who is not the Director.

9.4      The property of the liquidated company, after the repayment of debts,
         shall be distributed between the Partners in proportion to their share
         in the Company. The distribution shall be made only upon the expiration
         of a one year period. This period shall begin from the date when the
         creditors were informed about the liquidation by way of publication and
         notices no less than three times.

         The distribution of property may be effected by the court prior to the
         expiration of a one year period, if the prevailing situation creates no
         risk to creditors.

9.5      If a dispute arises between the Partners during the distribution of
         property, the liquidator shall stop the distribution until the dispute
         is legally settled.

                                      175

<PAGE>

                                   ARTICLE 10

                             SETTLEMENT OF DISPUTES

10.1     Dispute between the Partners, arising out of or in connection with this
         Charter or the interpretation hereof, shall be settled amicably by the
         Partners themselves. If the dispute cannot be resolved in this manner
         within 30 calendar days after first conferring, or such further period
         as the Partners shall agree in writing, then the dispute shall be
         finally settled by arbitration.

         Arbitration shall take place at the Arbitration Institute of the
         Stockholm Chamber of Commerce in accordance with the UNCITRAL rules of
         arbitration. Each party to the dispute may appoint one arbitrator, and
         the arbitrators so appointed shall agree on an additional arbitrator to
         serve as Chairman. All arbitrators shall be selected from the list
         maintained by the Institute. The language of the proceedings shall be
         the official language of the location where the arbitration shall be
         held, except that the proceedings shall be in English if the
         arbitration is held in Stockholm.

10.2     All decisions of the Court of Arbitration shall be final and binding on
         the Partners.

10.3     Neither the existence of any dispute, controversy or claim, nor the
         fact that arbitration is pending hereunder, shall relieve any of the
         Partners of its obligation under this Charter.

10.4     Without prejudice to this Article 10, the Partners shall have the right
         at their discretion to initiate legal actions against the Directorate
         in the Georgian courts or any such jurisdiction as it deems necessary.

                                      176

<PAGE>

                                   ARTICLE 11

                                FINAL PROVISIONS

11.1     No amendment to this Charter shall be effected unless notarised and
         duly registered in the court where the Company is registered.

11.2     If any provisions of this Charter shall be invalid, the validity of the
         Charter as a whole shall not in any way be affected.

11.3     Any notice required to be given by the Company to any person ("the
         recipient") under these articles may be given by means of hand delivery
         or international courier post to the address or number of the recipient
         notified to the Company by the recipient for such purpose (or, if not
         so notified, then to the address or number of the recipient last known
         to the Company). Any notice so given shall be deemed, in the absence of
         any agreement to the contrary between the Company and the recipient, to
         have been served at the time of delivery (or, if delivery is refused,
         then when tendered) and delivery shall be deemed to have occurred no
         later than 10 days after dispatch in the case of international courier
         post and at the expiration of 24 hours after dispatch in the case of
         hand delivery.

         Delivery may be made by facsimile only if the Partners agree in writing
         that they may receive notice by that method.

11.4     The communications addresses of the Partners for any notice sent under
         this agreement are as follows:

              National Petroleum Ltd

              Telephone:
              Facsimile:

              Georgian Oil
              Kostava Street 65
              Tbilisi
              Georgia

              Telephone:
              Facsimile:

                                      177

<PAGE>

11.5     This Charter is being executed in Georgian and English and the two
         versions shall be certified as exact translations. The Georgian version
         is official and determinative for all business before the Georgian
         government, or any subdivision thereof, and in the event of arbitration
         or litigation in a Georgian forum. The English version shall prevail,
         however, in the event of any arbitration or litigation conducted
         outside of Georgia.

         Signed:

         National Petroleum Limited

         ____________

         ____________, Founding Partner

         Georgian Oil

         ______________

         ______________, Founding Partner

                                      178

<PAGE>

                                     ANNEX F

                            PRIOR COSTS AND EXPENSES

The Parties agree that $US 33,710,454 have been incurred as Costs and Expenses,
less the value of cost recovered oil of $US623,997, for purposes of determining
the value of outstanding Cost Recovery Petroleum by NPL prior to 31 December
1998, as shown below:

                          SUMMARY OF COSTS AND EXPENSES
                            (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                           1995       1996       1997       1998       Total
------------------------------------------------------------------------------
<S>                      <C>        <C>        <C>        <C>        <C>
CAPITAL EXPENDITURE

NPL                       2,087.7    9,565.5    8,814.1      446.9    20,914.2
NPDL                        912.6      679.7      981.1      214.0     2,787.4

OPERATING EXPENDITURE
Ioris Valley Oil & Gas      281.0    3,152.0    3,120.4      463.4     7,016.8
Salaries                    526.6    1,128.8    1,209.1      421.0     3,285.5
------------------------------------------------------------------------------
Total Costs & Expenses    3,875.6   14,788.8   14,124.7    1,545.3    34,334.5
------------------------------------------------------------------------------
COST RECOVERY
Value of Recovered Oil                           (324.0)    (300.0)     (624.0)
------------------------------------------------------------------------------
Total                     3,875.6   14,788.8   13,800.7    1,245.3    33,710.5
------------------------------------------------------------------------------
</TABLE>

The figures for 1999, 2000 and the period 1st January to 29th May 2001 are still
subject to audit and will be assessed and agreed at the earliest opportunity.

                                      179

<PAGE>

                                     ANNEX G

                          COST REIMBURSEMENT AGREEMENT

                                      180

<PAGE>

                          COST REIMBURSEMENT AGREEMENT

                                     BETWEEN

                           NATIONAL PETROLEUM LIMITED

                                       AND

                          IORIS VALLEY OIL AND GAS LTD

TBILISI                                                                 MAY 2001

                                      181

<PAGE>

                          COST REIMBURSEMENT AGREEMENT

This Cost Reimbursement Agreement (this "Agreement"), dated as of ____________,
2001, is entered into by National Petroleum Limited, a company formed under the
laws of Bermuda ("Contractor") and Ioris Valley Oil and Gas Limited, a Limited
Liability Company formed under the laws of Georgia (the "Operating Company");
with the Contractor and the Operating Company collectively called the "Parties"
and each of them individually called a "Party").

RECITALS

A.       The Operating Company, on behalf of the Contractor, may incur certain
         Costs and Expenses (as defined below) in connection with the
         development of the Project (as defined below). The Contractor and the
         Operating Company now wish to set forth their understanding with
         respect to the Operating Company's entitlement to reimbursement of
         Costs and Expenses incurred as Costs and Expenses in Petroleum
         Operations (as defined below) under the Production Sharing Contract (as
         defined below).

B.       It is not the intention of the Parties that the Operating Company shall
         make either a profit or a loss as a consequence of the discharge of its
         obligations under this Agreement

1        DEFINITIONS

         The following words and terms shall have the following meanings:

1.1      "Authorisation for Expenditure" or "AFE" shall mean a document
         submitted by the Operating Company showing the detailed breakdown of
         Project activity (or other Petroleum Operations required by
         Contractor), costs, manpower and timing, and duly approved.

1.2      "Business Day" means any day other than a Saturday, a Sunday, or a day
         on which banks in Tbilisi, Geneva or London are authorised or required
         by law to be closed.

                                      182

<PAGE>

1.3      "Costs and Expenses" shall have the same meaning ascribed thereto in
         Article 1.27 of the Production Sharing Contract.

1.4      "day" means a calendar day.

1.5      "dollars" or "$" means U.S. dollars.

1.6      "Petroleum Operations" shall have the same meaning ascribed thereto in
         Article 1.63 of the Production Sharing Contract.

1.7      "Production Sharing Contract" shall have the same meaning ascribed
         thereto in Article 1.21 of the Production Sharing Contract.

1.8      "Project" means the exploration appraisal, and the subsequent
         development of any discovery, financing, construction, ownership,
         maintenance, and operation of such facilities by or on behalf of
         Contractor (or carried out by the Operating Company on its behalf)
         under the Production Sharing Contract.

1.9      "Project Contracts" means any agreements to which the Operating Company
         is or will be a party that are approved in advance by Contractor
         including:

         (i)      agreements relating to the provision of goods and services in
                  Petroleum Operations;

         (ii)     the agreement or agreements under which one or more
                  contractors will design, procure, construct, complete, test,
                  commission, perform and remedy defects in the Project;

         (iii)    the agreement under which a service company will provide
                  operating and maintenance services to the Operating Company in
                  connection with the Project;

         (iv)     the agreement or agreements under which the Operating Company
                  will acquire title to the sites for the Project or will be
                  granted leasehold title in those sites;

         (v)      any other agreement with another Person for the exploration,
                  development

                                      183

<PAGE>

                  construction, operation, maintenance of the Project,

1.10     "Project Manager" means the individual assigned to supervise the
         design, implementation and completion of a Project and to control its
         costs.

                                      184

<PAGE>

2        RIGHTS AND COSTS

2.1      APPROVAL OF COSTS & EXPENSES. All Costs and Expenses to be incurred by
         the Operating Company for Petroleum Operations under the Production
         Sharing Contract shall be shall be submitted as AFEs by the Operating
         Company for approval by the Contractor. The Operating Company agrees
         not to negotiate, contract, or incur any liability other than Costs and
         Expenses for Petroleum Operations approved through an AFE by
         Contractor.

2.2      TRANSFER OF RIGHTS Project Contracts entered into by the Operating
         Company shall be executed by the Operating Company, and all data,
         engineering and other information relating to the Project will be
         developed for the benefit of Contractor, subject to Oil & Gas Law of
         Georgia..

2.3      The Operating Company shall have no claim against Contractor in respect
         of any service or product provided hereunder

3.       REIMBURSEMENT OF COSTS AND EXPENSES

         REIMBURSEMENT GENERALLY To the extent Contractor approves the AFEs in
         Article 2.1, Operating Company shall be entitled to reimbursement or to
         have Contractor discharge the payment under any Project Contract or
         other Petroleum Operations required by Contractor. It is understood
         that the Operating Company shall neither gain or lose from providing
         services or entering into Project Contracts as required by Contractor.
         Contractor shall not be liable to pay, and Operating Company
         indemnifies Contractor against, any expense, liability or Costs and
         Expenses the Operating Company becomes liable for, that have not been
         approved by Contractor in accordance with Article 2. Operating Company
         covenants with Contractor that it will only undertake activities and
         perform Petroleum Operations that have been approved by the
         Coordination Committee.

3.2      PAYMENT OF REIMBURSEMENT Prior to the commencement of each phase of a
         Project

                                      185

<PAGE>

         (or other Petroleum Operations required by Contractor) and following
         the approval of the AFE, Contractor shall advance sufficient funds to
         the Operating Company, up to the amount specified in the AFE, for the
         Operating Company to implement the Project under the supervision of the
         Project Manager. The Contractor may elect to discharge some or all of
         the payments itself.

         Should it appear that the Project cost is likely to exceed the AFE and
         the sum advanced, the Project Manager shall prepare and submit a
         supplementary AFE explaining the reasons for the cost increase and
         detailing the additional costs and, if necessary, timing changes.
         Subject to approval of the supplementary AFE, the Contractor will
         advance sufficient funds to the Operating Company for it to continue
         with the Project.

         At the completion (or at such other time as Contractor may require) of
         each phase of a Project or other Petroleum Operations required by
         Contractor, the Operating Company shall submit details of expenditure
         to Contractor for Costs and Expenses incurred through each phase of the
         Project (or for other Petroleum Operations required by Contractor) as
         applicable to the AFE.

         In the event that the expenditure is less than the sum advanced by the
         Contractor, the Operating Company shall reimburse the difference to the
         Contractor within 30 days of making the expenditure, or at such other
         time as Contractor may require. The Contractor may opt to carry forward
         such reimbursements.

                                      186

<PAGE>

4.       RESOLUTION OF DISPUTES

4.1      ARBITRATION If any dispute or claim between Contractor and the
         Operating Company (in this Section 4.1, each a "disputing party")
         arising out of this Agreement or the rights and duties of the
         Contractor and the Operating Company arising out of this Agreement (in
         this Section 4.1, a "claim") has not been resolved by mutual agreement
         on or before the 30th day following the first notice of the subject
         matter of the claim to or from the disputing parties, then any
         disputing party may refer the claim to arbitration under the following
         provisions:

         (i)      To refer a claim to arbitration, a disputing party must
                  provide notice to the other disputing parties stating (a) a
                  general description of the claim and (b) that the claim is
                  being referred to arbitration under this Section 4.1. (the
                  "Notice").

         (ii)     The disputing parties shall endeavour to agree promptly on a
                  panel of three arbitrators. If no agreement is reached within
                  30 days of receipt of the Notice either party may request the
                  panel of three arbitrators be appointed in accordance with the
                  rules of the International Chamber of Commerce.

         (iii)    The arbitration shall be conducted in London or such other
                  place as the disputing parties may agree. The arbitrators
                  shall set the date, the time, and the place of the hearing,
                  which must commence on or before the 30th day following the
                  designation of the third arbitrator. The hearing may be
                  adjourned to later times and dates as the arbitrators
                  determine. The arbitration shall be conducted under the rules
                  of the International Chamber of Commerce not inconsistent with
                  the provisions of this Agreement. The arbitrators shall
                  endeavour to notify any disputing parties not present of any
                  adjournment to other dates or places; however, the proceedings
                  may continue in the absence of any disputing party that has
                  received notice of the date, the time, and the place of the
                  initial session of the hearing. All hearings shall be
                  conducted in English.

         (iv)     The arbitrators shall endeavour to render their decision on or
                  before the 30th day following the last session of the hearing.
                  If the position of one or more disputing parties prevails,
                  then the other disputing party or parties shall pay all fees
                  and expenses of the arbitrators and the prevailing disputing
                  party in the arbitration. Each disputing party against which
                  the decision assesses a

                                      187

<PAGE>

                  monetary obligation shall pay that obligation on or before the
                  30th day following the decision or such other date as the
                  decision may provide.

         (v)      The decisions of the arbitrators are final and binding on all
                  disputing parties and are not subject to appeal. Without
                  limiting the provisions of Section 4.2, the decisions of the
                  arbitrators may be enforced in any court of competent
                  jurisdiction, and the disputing parties authorise any such
                  court to enter judgement on the arbitrators' decisions.

         (vi)     Each Party agrees that arbitration under this Section 4.1 is
                  the exclusive method for resolving any claim and that it will
                  not commence any action or proceeding based on a claim, except
                  to reinforce arbitrators' decisions as provided in section
                  4.1(v) or to compel the other Party to participate in
                  arbitration under this section 4.1.

4.2      JURISDICTION

         (i)      This Section 4.2 does not affect the limitations set forth in
                  Section 4.1 on commencing judicial proceedings, but may be
                  used to enforce arbitrators' decisions, to compel Parties to
                  participate in arbitration, or to compel Parties that have
                  brought judicial proceedings other than in compliance with
                  this Article 4 to dismiss those proceedings.

         (ii)     Any action arising out of this Agreement or the rights and
                  duties of the Parties arising out of this Agreement may be
                  brought, if at all, only in the courts of England and not in
                  any other jurisdiction, court or tribunal.

         (iii)    Each Party submits itself and its property to the personal
                  jurisdiction of the English courts in any such action. In this
                  connection, each Party waives any objection that now or in the
                  future it may have to the venue of any such action

                                      188

<PAGE>

                  and any right to assert that the court is inconvenient, and
                  agrees not to raise any such objection or assertion. A copy of
                  this Agreement may serve as evidence of this waiver.

                                      189

<PAGE>

5.       MISCELLANEOUS PROVISIONS

5.1      NOTICES All notices, requests, or consents provided for or permitted to
         be given under this Agreement must be in writing and are effective on
         actual receipt by the intended recipient or by delivery to the address
         or facsimile number for the recipient listed below:

         To Contractor at:

                  Attn:
                  Fax No.:

         To the Operating Company at:

                  Attn:

                  Fax No.

         Any Party may change the address to which notices are to be directed to
         it by notice to the other Parties in the manner specified above.

                                      190

<PAGE>

5.2      GOVERNING LAW. This Agreement and the rights and duties of the Parties
         arising out of this Agreement shall be governed by and construed in
         accordance with the laws of England.

5.3      FURTHER ASSURANCES Each Party shall procure all acts, matters, and
         things and the execution or signature of all other and further deeds
         and documents to give full effect to the provisions of this Agreement.

5.4      ASSIGNMENT The Operating Company may assign this Agreement only with
         the consent of the Contractor. All the terms of this Agreement shall be
         binding on and inure to the benefit of the Parties, their permitted
         assigns and successors-in-interests.

5.5      ENTIRE AGREEMENT This Agreement supersedes all prior agreements and
         undertakings, oral or written, between the Operating Company on the one
         hand and the Contractor on the other with respect to the subject matter
         of this Agreement.

5.6      AMENDMENT An amendment or modification of this Agreement shall be
         effective or binding only if it is in writing and signed by the Parties
         affected.

5.7      WAIVERS Any waiver, express or implied, by any of the Parties of any
         right under this Agreement or of any breach by another Party shall not
         constitute or be deemed as a waiver of any other right or any other
         breach, whether of a similar or dissimilar nature to the right or
         breach being waived. A waiver of a Party's rights under this Agreement
         shall be effective only if that Party agrees.

5.8      LANGUAGE This Agreement has been drafted in English and Georgian; the
         English version shall prevail over any translations.

                                      191

<PAGE>

5.9      NO THIRD PARTY BENEFICIARIES This Agreement is solely for the benefit
         of the Parties and their respective successors and permitted assigns,
         and this Agreement shall not otherwise be deemed to confer upon or give
         to any other third party any remedy, claim, liability, reimbursement,
         cause of action or other right.

5.10     SEVERABILITY If any of the provisions of this Agreement are held to be
         invalid or unenforceable under the applicable law of any jurisdiction,
         the remaining provisions shall not be affected in that jurisdiction,
         and any such invalidity or unenforceability shall not invalidate or
         render unenforceable that provision in any other jurisdiction. In that
         event, the Parties agree that the provisions of this Agreement shall be
         modified and reformed so as to effect the original intent of the
         Parties as closely as possible with respect to those provisions that
         were held to be invalid or unenforceable.

5.11     COUNTERPARTS This Agreement may be executed in two or more
         counterparts, each of which shall be deemed an original, but all of
         which constitute but one agreement.

     IN WITNESS WHEREOF, the Parties have entered into this Agreement as of the
     day and year first above written.

     National Petroleum Limited.     Ioris Valley Oil & Gas Limited

     By                              By

     Name                            Name

     Title                           Title

                                      192