Document:

QuickLinks
 -- Click here to rapidly navigate through this document
Exhibit 10.3  

BUSINESS CONSULTING AGREEMENT  

        This CONSULTING AGREEMENT (the "Agreement") is made and entered into as of July 8, 2004 by and between BPZ Energy, Inc., a Colorado corporation with
a principle address of 11999 Katy Freeway, Suite 560, Houston, Texas 77079 ("Client" or the "Company"), and Navidec Financial Services, Inc., a Colorado corporation located at 6399 South
Fiddler's Green Circle, Suite 300, Greenwood Village, Colorado 80111 ("Navidec"). 

RECITALS:  

	A.
	Client
is a publicly traded company that is engaged in oil and gas exploration (the "Business").

	B.
	Navidec
is a strategic financial communications firm focused on the development and implementation of customized communications strategies and programs designed to foster and enhance
corporate awareness within the financial markets community.

	C.
	Client
acknowledges the expertise of Navidec and desires to avail itself, for the term of this Agreement, of such expertise, and to compensate Navidec in accordance herewith. 

        NOW,
THEREFORE, in consideration of the foregoing recitals and the agreements and covenants herein set forth, the parties, agreeing to be legally bound, hereto agree as follows: 

	1)
	Retention;
Services. Client hereby retains Navidec as a consultant to Client, and Navidec agrees to render consulting services, as defined in Exhibit A attached hereto, to
Client, upon the terms and conditions set forth in this Agreement. Notwithstanding any other provision of this Agreement, Client shall have the sole right to approve any arrangements proposed by
Navidec with regard to the performance of the services Navidec is to provide hereunder.

	2)
	Time
and Resources Devoted by Navidec.

	a)
	During
the term of this Agreement, Navidec shall spend such time as may be reasonably required for the performance of the Services and Navidec shall guarantee the dedication of senior
account executives to the performance of the Services.

	b)
	Upon
reasonable notice by Client, Navidec will use reasonable efforts to accommodate requests by Client to attend and arrange specific meetings, conferences, and/or other similar
formally scheduled events.

	c)
	Upon
reasonable notice by Client, Navidec will use reasonable efforts to accommodate requests by Client for Navidec to have completed specific Services by specifically scheduled and
mutually agreed upon deadlines.

	3)
	Client
Cooperation. Client recognizes and acknowledges that the quality and accuracy of the Services, and the efficiency and timeliness of their completion, is significantly dependent
on Client's cooperation with Navidec as well as Client's available resources. Therefore, upon the reasonable request of Navidec, subject to compliance with applicable securities laws, Client shall
provide Navidec in a reasonably timely manner such information and resources that may be reasonably obtainable by Client that is/are necessary for Navidec to perform the Services completely and
accurately in all material respects. Navidec shall be entitled to rely on the completeness, correctness and accuracy of the information provided by Client to Navidec in the performance by Navidec of
the Services.

	4)
	Acknowledgement
of Publicly Trading Status.

	a)
	Navidec
and Client agree and acknowledge that the public trading status of Client's common stock necessitates adherence to various regulations and guidelines provided and enforced by
any regulatory bodies, including the NASD, SEC, NASDAQ or any other stock exchange, market or trading facility on which its shares are or have been listed. As such, Navidec and 

 

Client
each agrees and acknowledges that it shall comply at all times with all applicable federal and state securities laws and adhere to such regulations and guidelines provided and enforced by any
such regulatory bodies. 

	b)
	Navidec
owns up to two million shares of Client's Common Stock and will receive warrants to purchase an additional one million five hundred thousand shares for a purchase price of
$2.00 per share. Navidec shall have an unrestricted right to transact business with these securities subject only to limitations on assignment or transfer to comply with the BPZ insider trading and
Section 16 policies and more specifically trading windows uniformly established for all insiders of BPZ. Additionally, Navidec agrees that it will not under any circumstances engage in any
transactions involving the securities of Client when it is in possession of inside information not generally available to the public regardless of the source of that information. Client agrees that it
will not establish any limitations on trading policies for insiders that are specifically aimed to limit the ability of Navidec to engage in transactions involving the Client's securities.

	c)
	Neither
Navidec, nor any of its employees, directors, or affiliates shall discuss with or reveal information concerning this Agreement, Client or the Services to parties other than
i) representatives, affiliates, and advisors of Navidec; ii) parties to this Agreement; iii) parties whom Client has informed the Navidec are bound by nondisclosure agreements;
iv) professional service providers such as accountants and counsel with whom Client has informed the Navidec that they have a formal professional relationship; and v) appropriate legal
and regulatory persons and/or entities.

	5)
	Authorized
Representatives. Client shall be duly represented by its President, CEO, CFO or such other person as mutually designated in writing by both its President and CEO, who are
each individually authorized to commit and legally bind Client and to provide suggestions and recommendations to Navidec as needed for Navidec to provide the Services. Navidec shall be duly
represented by its President, or other person designated in writing by the President of Navidec, who is authorized to commit and legally bind Navidec.

	6)
	Compensation.
In consideration of the Services agreed to be provided and/or provided to Client hereunder, Client shall compensate Navidec in accordance with this Agreement and as set
forth on Exhibit B attached hereto.

	7)
	Additional
Expenses

	a)
	Ordinary
Operational Expenses of Navidec. In the performance of the Services, Navidec shall incur certain expenses which are considered to be ordinary internal operational expenses
(the "Ordinary Operational Expenses") and, as such, are to be paid by Navidec and not passed on to the Client in any way. The Operational Expenses include those expenses which are expected to allow
for the performance of the Services, including the following:

	i)
	Facsimile
expenses;

	ii)
	Telecommunications
expenses;

	iii)
	Printing
expenses of general communications;

	iv)
	Leasehold
expenses.

	b)
	Extraordinary
Expenses of Navidec. Client shall pay certain reasonable costs and expenses incurred by NAVIDEC, its directors, officers, employees and agents, in carrying out certain
duties and obligations pursuant to the provisions of this Agreement, excluding Ordinary Operational Expenses, but including and not limited to the following costs and expenses (the 

2

 

"Out-of-Pocket
Expenses"); provided all costs and expense items in excess of $500.00 must be approved by Client in writing prior to Navidec's incurrence of the same: 

	i)
	Travel
expenses, including but not limited to transportation, lodging and food expenses, when such travel is conducted on behalf of the Company;

	ii)
	Seminars,
expositions, money and investment shows;

	iii)
	Radio
and television time and print media advertising costs, when applicable;

	iv)
	Subcontract
fees and costs incurred in preparation of research reports, when applicable;

	v)
	Cost
of on-site due diligence meetings, if applicable;

	vi)
	Printing
and publication costs of brochures and marketing materials which are not supplied by the Company;

	vii)
	Development
of a Client corporate web site (independent of the web site components present on the Navidec home web site); and

	viii)
	Printing
and publication costs of Company annual reports, quarterly reports, and/or other shareholder communication collateral material which is not supplied by the
Company.

	8)
	Start
Date; Term; Termination.

	a)
	The
performance of the Services by Navidec shall start on August 1, 2004 (the "Start Date").

	b)
	Term.
Subject to the further provisions of this Section 8, the term of this Agreement shall be for the period of twelve months beginning on the Start Date and continuing until
5:00 PM EST on July 31, 2005 (the "Term"), unless sooner or later terminated in accordance with the further provisions of this Section 8. This Agreement may be extended by the mutual
agreement of the parties, as evidenced by an amendment pursuant to Section 14(a) of this Agreement.

	c)
	Termination
by Client. Effective at any point following the first ninety (90) days of this Agreement, Client shall have the right to terminate this Agreement with thirty
(30) days prior written notice for any reason whatsoever or for no reason (the "Early Termination"). Upon the occurrence of a Early Termination, Navidec shall be paid in cash, immediately upon
such termination, that dollar amount equal to all Out-of-Pocket Expenses paid or incurred by Navidec pursuant to Section 7(b) of this Agreement to the date of
termination, and Client shall pay Navidec that dollar amount equal to unpaid fees up to the termination, pursuant to Section 6 of this Agreement.

	9)
	Navidec
Status. Navidec is an independent contractor performing certain consulting services for Client and is not an employee, agent, representative, officer, or partner of Client.
Navidec has no power or authority to act for, represent, or bind Client or any affiliate of Client in any manner. Navidec acknowledges and agrees, and it is the intent of the parties hereto, that,
under this Agreement, Navidec receive no Client sponsored benefits (except as contemplated in Sections 6 and 7(b)) from Client, including, but not limited to, paid vacation, sick leave, medical
insurance, and 401(k) or other retirement plan participation. Nothing contained herein nor any titles held with Client shall be deemed to create any relationship between the parties other than that of
a principal and independent contractor.

	10)
	Confidentiality;
Return of Client Property.

	a)
	Navidec
Obligations:

	i)
	"Confidential
Information" of a party means and includes, but is not limited to, all information about that party, including, but not limited to, hardware, software,
screens, 

3

 

specifications,
designs, plans, drawings, data, prototypes, discoveries, research, developments, methods, processes, procedures, improvements, "know-how," trade secrets, compilations,
market research, marketing techniques and plans, business plans and strategies, customer names and other information related to customers, price lists, pricing policies and financial information or
other business and/or technical information and materials, in written, graphic, machine-readable form or in any other medium. Notwithstanding anything to the contrary contained in this Agreement,
Confidential Information shall not include any information that: (i) is in the public domain or becomes generally known to parties outside of this Agreement on a non-confidential
basis, through no wrongful act of the party to this Agreement having received such information from the disclosing party; (ii) is lawfully obtained by Client from a party outside of this
Agreement without any obligation to maintain the information as proprietary or confidential; (iii) was known to either party to this Agreement, as the case may be, prior to its disclosure by
the other party to this Agreement, without any obligation to keep it confidential as evidenced by tangible records kept in the ordinary course of business; (iv) is independently developed by
either party to this Agreement, as the case may be, without reference to any Confidential Information disclosed by the other party to this Agreement as evidenced by tangible records kept in the
ordinary course of business; (v) is the subject of a written agreement whereby Navidec or Client, as the case may be, consents to the use or disclosure of such Confidential Information by the
other party to this Agreement; or (vi) is required by applicable law to be disclosed by either Client or Navidec. 

	ii)
	Navidec
agrees that at all times during the Term of this Agreement, Navidec shall preserve as confidential all Confidential Information concerning Client, and any actual
or potential financial, strategic or operational partners that has been disclosed to the Navidec, and Navidec shall not, without the prior written consent of Client, use for Navidec's own benefit or
purposes, or disclose to any other party such Confidential Information, except as required by Navidec's engagement with Client, or as required by applicable law. These obligations with respect to
confidentiality shall continue for a period one year after the expiration or termination of this Agreement. The terms of this paragraph do not impair the right to disclose such Confidential
Information by Navidec in order to defend Navidec from any claim in any court of law once Navidec gives Client notice of such intended use.

	iii)
	All
records, business plans, financial statements, manuals, memoranda, documents, correspondence, reports, records, charts, lists and other similar data delivered to or
compiled by Navidec or by or on behalf of Client or its representatives, which pertain to the Business of Client shall be and remain the property of Client and be subject at all times to its
discretion and control. In the event of the expiration or termination of Navidec's engagement hereunder, all such materials pertaining to the Business of Client which has been obtained by Navidec
shall be delivered promptly to Client upon written request by Client once all Compensation and expenses have been paid in accordance with this Agreement; provided, however, that Navidec may retain
copies of any such documents and materials which may be reasonably necessary to maintain business, accounting, and legal records associated with this Agreement subject to the
non-disclosure provisions of Section 10(b).

	b)
	Client
Obligations:

	i)
	"Confidential
Information" with respect to information provided to Client by Navidec shall include the names, addresses and contact information with respect to all
parties, investment banking firms and others introduced to Client in performance of its duties pursuant to this Agreement by Navidec. Confidential Information with respect to Navidec 

4

 

shall
not include information that: (1) is in the public domain or becomes generally known to the parties outside of this Agreement on a non-confidential basis, through no wrongful
act of the party to this Agreement having received such information from the disclosing party; (2) is lawfully obtained by Client from a party outside of this Agreement without any obligation
to maintain the information as proprietary or confidential; or (3) was known to the client prior to its disclosure to the client by Navidec. At the termination of this Agreement, Navidec shall
provide the Client with a list of "Confidential Information" principally being contact persons Navidec believes are subject to the terms of this confidentiality agreement and the parties agree to
initial the proposed list once the parties agree to its contents which list at the termination of this Agreement shall be deemed the Navidec Confidential List. 

	ii)
	Client
agrees that at all times during the term of this Agreement and for a period of three years thereafter to treat the Confidential Information as confidential and
shall not without the prior written consent of Navidec use for Client's own purposes or disclose to any other parties such Confidential Information except as required by Navidec's engagement with
Client or as required by applicable law. Should the Client use any Confidential Information or engage any of the parties listed on the Navidec Confidential List after termination, Client shall
immediately notify Navidec and negotiate reasonable compensation payable to Navidec for the benefits received from the utilization of the Confidential Information. The terms of this paragraph do not
impair the right to disclose such Confidential Information by Client in order to defend Client from any claim in any court of law once Client gives Navidec notice of such intended use.

	11)
	Notice/Cure.
Anything contained in this Agreement to the contrary notwithstanding, neither party shall have failed to perform any material obligation or duty under this Agreement
unless and until:

	(a)
	Consideration.
In the case of a failure to pay any consideration, such failure shall not have been cured within fifteen (15) business days after receipt of written notice
thereof from the party demanding payment.

	(b)
	Non-Money.
In the case of any other failure to perform any obligation or duty under this Agreement, such failure shall not have been cured within fifteen
(15) business days after receipt of written notice from the demanding party describing in reasonable detail the failure.

	12)
	Indemnification.

	a)
	Client
shall indemnify and hold Navidec and its officers, directors, employees, agents, Navidec's affiliates, and representatives harmless from and against any and all actions, suits,
proceedings, liabilities, losses, damages, judgments, fines, amounts paid in settlement, losses, costs and expenses, including, but not limited to, reasonable attorneys' and experts' fees and court
costs, (each, a "Loss"), paid or incurred by Navidec and arising out of or in connection with any claim by a third party relating to any untrue statement of a material fact, or any omission to state a
material fact, based upon information furnished by Client to Navidec in connection with the Services or any other work performed for Client by the Navidec.

	b)
	Navidec
shall indemnify and hold Client and its officers, directors, employees, agents, consultants, affiliates, and representatives harmless from and against any and all Losses, paid
or incurred by Client and arising out of or in connection with any claim by a third party relating to Navidec's performance of the Services or any other work performed for Client by the Navidec;
provided, however, that notwithstanding the foregoing, in no event will Navidec indemnify Client for any Losses arising out of or in connection with any untrue statement of a material fact, or any
omission to state a material fact, based upon information furnished by 

5

 

Client
to Navidec in connection with the Services or any other work performed for Client by the Navidec. 

	13)
	Representations
and Warranties.

	a)
	Client
represents and warrants to Navidec that:

	i)
	Client
is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. Client is not in breach or violation of, and the
execution, delivery and performance of this Agreement by Client will not result in a breach or violation of, any of the provisions of Client's articles of incorporation, as amended to the date of this
Agreement (the "Charter"), by-laws, as amended to the date of this Agreement (the "By-laws") or any other contract to which Client is a party that is material to its business
plans or prospects.

	ii)
	Client
has the full right, corporate power and authority to execute and deliver this Agreement and to perform the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Client and the performance by Client of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action. This
Agreement has been duly executed, acknowledged, and delivered by Client and is the legal, valid and binding obligation of Client, enforceable against Client in accordance with its terms, except to the
extent that the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally or by general principles of equity.

	b)
	Navidec
represents and warrants to Client that:

	i)
	Navidec
is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. Navidec is not in breach or violation of, and the
execution, delivery and performance of this Agreement by Navidec will not result in a breach or violation of, any of the provisions of Navidec's articles of incorporation or organization, as amended
to the date of this Agreement (the "Charter") or by-laws or operating agreement, as amended to the date of this Agreement (the "By-laws").

	ii)
	Navidec
has the full right, corporate power and authority to execute and deliver this Agreement and to perform the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Navidec and the performance by Navidec of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate and member
action. This Agreement has been duly executed, acknowledged, and delivered by Navidec and is the legal, valid and binding obligation of Navidec, enforceable against Navidec in accordance with its
terms, except to the extent that the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally or by general
principles of equity.

	14)
	Miscellaneous.

	a)
	Amendments.
This Agreement may be amended, supplemented or modified only in a writing signed by the parties hereto.

	b)
	Notices.
All notices and other communications provided for or permitted hereunder shall be in writing and shall be delivered personally, by facsimile or by courier service providing
for next day service, or sent by registered or certified mail, postage prepaid, and return receipt 

6

 

requested,
or electronic mail, if confirmed by a subsequent written letter to the party at the address noted below: 

	If to Navidec:
 
	 	If to Client:

	Navidec Financial Services, Inc.

Attention: John R. McKowen

6399 South Fiddler's Green Circle

Suite 300

Greenwood Village, CO 80111

Telephone: (303) 222-1100

Facsimile: (303) 222-1001

Email: johnmckowen@navidec.com	 	BPZ Energy, Inc.

Attn: Gordon Gray

11999 Katy Freeway, Suite 560

Houston, Texas 77079

Telephone:

Facsimile:

Email:

	c)
	Governing
Law; Jurisdiction. This Agreement shall be governed by the laws of the State of Colorado without regard to conflicts of laws principles, the parties agree to submit to the
jurisdiction of the courts of the State of Colorado for all purposes, and sole and exclusive venue for any dispute or disagreement arising under or relating to this agreement shall be in a court
sitting in the City and County of Denver, Colorado.

	d)
	Waiver.
Failure or delay on the part of either party hereto to enforce any right, power, or privilege hereunder shall not be deemed to constitute a waiver thereof Additionally, a
waiver by either party or a breach of any promise hereof by the other party shall not operate as or be construed to constitute a waiver of any subsequent waiver by such other party.

	e)
	Binding
Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

	f)
	Assignability.
Neither party may assign or delegate any or all of its rights (other than the right to receive payments) or its duties or obligations hereunder without the consent of
the other party, which consent will not be unreasonably withheld or delayed; provided, however, that either party may assign this agreement, without the need to obtain consent of the other party, to
an affiliate of such party or to its successor-in-interest. An assignee will have all of the rights and obligations of the assigning party set forth in this Agreement.

	g)
	Attorneys'
and Experts' Fees; Remedies. In any action, suit or proceeding brought to enforce any provision of this Agreement, or where any provision of this Agreement is validly
asserted as a defense, the prevailing party shall be entitled to recover reasonable attorneys' and experts' fees and expenses in addition to any other available remedy. Other than the right to recover
fees in the preceding sentence, in any dispute between the parties arising out of this Agreement, neither party shall be liable to the other for any indirect, special, consequential or incidental
damages (including, without limitation, lost profits).

	h)
	No
Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereof and their respective successors or permitted assigns,
and it is not the intention of the parties to confer third-party beneficiary rights upon any other person or entity.

	i)
	Severability.
Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

	j)
	Section
Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All words used in
this Agreement will be construed to be of such gender or number as the circumstances require. 

7

 

Unless
otherwise expressly provided, the word "including" does not limit the preceding words or terms. 

	k)
	Entire
Agreement. This Agreement (including all Exhibits and Appendices) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof.

	1)
	Currency.
All references to currency within this Agreement, unless otherwise stated, shall mean United States Dollars.

	m)
	Business
Day. For the purposes of this Agreement, a business day is defined as any calendar day during which the New York Stock Exchange is scheduled to be officially open for business
for any period of time.

	n)
	Counterparts.
This Agreement may be executed in one or more counterparts, by the parties hereto and any successor in interest, each of which shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other
counterpart. 

        IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers or agents as set forth below. 

	 	 	CLIENT:
	

 	
 	

BPZ ENERGY, INC.

a Colorado corporation
	

Date: July 8, 2004	
 	

By: /s/ Manuel Pablo Zuniga Pflucker
	
	 	
 Name: Manuel Pablo Zuniga Pflucker

Title: President
	

 	
 	

NAVIDEC:
	

 	
 	

NAVIDEC FINANCIAL SERVICES, INC

a Colorado corporation
	

Date: July 8, 2004
	
 	

By: /s/ John R. McKowen
 Name: John R. McKowen

Title: President and Chief Executive Officer

Navidec/BPZ
Energy, Inc. Agreement 

8

Exhibit A  

 
  Exhibit A    
    

Services Description  

        Navidec will use its best efforts in seeking to achieve the following objectives and service provisions: 

	a)
	Provide
strategic counsel, policy guidance and program execution leading to sound investor relations' performance and consistent, credible communications programs.

	b)
	Develop
customized, high-quality, high-impact and fully integrated financial communications programs and platforms, and leverage our strategic resources to
enhance general product/service marketing programs initiated by Client. Navidec will gladly serve as an extension to Client's global sales and marketing team to identify, qualify and assist in the
winning of new acquisition candidates, strategic alliance partnerships, and arrangements with other parties interested in advancing the corporate goals of Client.

	c)
	Increase
general market awareness of Client and promote understanding and appreciation for the Company's strategic direction among the retail, wholesale, institutional and individual
investing communities.

	d)
	Promote
enhanced and pervasive education of our retail broker and institutional network.

	e)
	Promote
positive awareness of Client among securities and industry analysts. Research and track analysts' perceptions and attitudes towards Client and benchmark these measurables
against realization of program objectives.

	f)
	Coordinate
all media activity to promote mass awareness of Client and material events via traditional and new media outlets—both industry-specific as well as general
financial.

	g)
	Assist
management with the development of high-impact strategic approaches to the equity and debt markets that will deliver enhanced shareholder value and lower Client's
cost of capital. 

Navidec/BPZ Energy, Inc. Agreement

Exhibit B  

 
  Exhibit B    
    

Compensation  

        B-1)
Options. Upon execution of this agreement, Client shall issue to Navidec options to purchase 1.5 million shares of Client's common stock at an exercise price of
$2.00 per share exercisable
until July 31, 2006  (the "Options"). The options are vested upon issuance and may not be cancelled even upon early termination. 

        B-2)
Monthly Retainer. Client shall pay Navidec $360,000 payable in twelve (12) monthly payments of $30,000.00 during the term of this Agreement (together referred to
as the "Base Retainer," and each a "Monthly Base Retainer Payment"). $30,000 is payable upon signing and the remaining payments shall be due and paid by Client to Navidec within ten days of the
beginning of each of the 2nd through 12th respective monthly periods. 

 
 

ADDENDUM TO BUSINESS CONSULTING AGREEMENT    
    

        The Consulting Agreement dated July 8, 2004, by and among BPZ Energy, Inc. and Navidec Financial Services, Inc. is amended as follows: 

        WHEREAS,
the parties have determined that it is in the mutual best interests to understand their mutual rights with respect to certain issues contained in the Business Consulting
Agreement (the "Agreement"). 

        NOW,
THEREFORE, in consideration of the foregoing recitals and the agreements and covenants set forth herein, the parties, agreeing to be legally bound, hereby agree as follows: 

        A.
Registration Rights. The Options described on Exhibit B under "Compensation" are to have rights of registration as follows: 

	1.
	Piggyback
Registration Rights. The Client agrees to register the Common Shares underlying the Options for the resale of the common shares underlying the Options as part of the next
registration statement filed by Client that is not either an S-4 or an S-8 Registration Statement, which forms do not permit filing piggyback registered securities. When it is
determined that the Client intends to file a registration statement, it must immediately give notice of that intent to Navidec which shall thereafter have ten days to notify Client of the
number of shares (up to the maximum number available pursuant to the option grant) which Navidec wishes to be registered in the proposed registration statement. Navidec agrees to cooperate with the
Client in all respects regarding filing of the registration statement and the information required therein.

	2.
	Demand
Registration Rights. Should the Client not have filed a registration statement, partially for the purpose of registering the Navidec option shares before the 1st of
March 2005, then Navidec may demand that the Client register the common shares or the resale of the common shares underlying the Options one time. Upon receipt of a timely demand, the Client
must file a registration statement to register the common shares or the resale of the common shares underlying the Options within 45 days of the receipt of the notice from Navidec and
use all reasonable best efforts to have said registration statement declared effective at the earliest practicable date after filing. The Client must maintain the registration statement effective for
a period of not less than two years or until all of the shares are free trading or sold. 

        B.
Other. This addendum shall amend the Agreement only with respect to the issues covered by this addendum and all other matters shall remain as set forth in the Agreement. All defined
terms shall have the meaning as defined in the Agreement. 

        Dated
this 22nd day of July 2004. 

	Navidec, Inc.	 	BPZ Energy, Inc.
	

/s/ John R. McKowen	
 	

/s/ Manuel Pablo Zuniga Pflucker
	
	 	

	John R. McKowen, President	 	Manuel Pablo Zuniga-Pflucker

QuickLinks

Exhibit A

Exhibit B

ADDENDUM TO BUSINESS CONSULTING AGREEMENTQuickLinks
 -- Click here to rapidly navigate through this document
   Exhibit 10.5  

LICENSE CONTRACT FOR THE EXPLORATION

AND EXPLOITATION OF HYDROCARBONS

BLOCK Z-1  

PERUPETRO S.A.

WITH

NUEVO PERU LTD., SUCURSAL DEL PERU /BPZ ENERGY. INC., SUCURSAL PERU  

 INDEX  

	PRELIMINARY CLAUSE: GENERAL POINTS	 	3
	CLAUSE ONE: DEFINITIONS	 	3
	CLAUSE TWO: PURPOSE OF THE CONTRACT	 	10
	CLAUSE THREE: TERM, CONDITIONS & GUARANTY	 	10
	CLAUSE FOUR: EXPLORATION	 	13
	CLAUSE FIVE: EXPLOITATION	 	17
	CLAUSE SIX: SUBMISSION OF INFORMATION & STUDIES	 	19
	CLAUSE SEVEN: SUPERVISION COMMITTEE	 	20
	CLAUSE EIGHT: ROYALTY & VALUATION	 	21
	CLAUSE NINE: TAXES	 	26
	CLAUSE TEN: CUSTOMS DUTIES	 	26
	CLAUSE ELEVEN: FINANCIAL RIGHTS	 	27
	CLAUSE TWELVE: EMPLOYEES	 	29
	CLAUSE THIRTEEN: ENVIRONMENTAL PROTECTION	 	29
	CLAUSE FOURTEEN: CONSERVATION OF HYDROCARBONS & LOSS PREVENTION	 	29
	CLAUSE FIFTEEN: TRAINING & TECHNOLOGY TRANSFER	 	30
	CLAUSE SIXTEEN: ASSIGNMENT	 	31
	CLAUSE SEVENTEEN: ACT OF GOD OR FORCE MAJEURE	 	32
	CLAUSE EIGHTEEN: ACCOUNTING	 	33
	CLAUSE NINETEEN: MISCELLANEOUS	 	34
	CLAUSE TWENTY: NOTICES & COMMUNICATIONS	 	35
	CLAUSE TWENTYONE: SUBMISSION TO PERUVIAN LAW AND DISPUTES RESOLUTION	 	36
	CLAUSE TWENTYTWO: TERMINATION	 	38
	ANNEX "A": DESCRIPTION OF CONTRACT AREA	 	40
	ANNEX "B": MAP OF CONTRACT AREA	 	41
	ANNEXES "C-1" TO "C-X": LETTERS OF GUARANTY FOR THE MINIMUM WORK PROGRAM	 	42
	ANNEX "D": CORPORATE GUARANTY	 	43
	ANNEX "E": ACCOUNTING PROCEDURE	 	44
	ANNEX "F": EXPLORATION WORKING UNITS—Table of Equivalencies	 	50

1

 

INTRODUCTORY CLAUSE—BACKGROUND  

	I.
	PERUPETRO
S.A. (PERUPETRO), Syntroleum Peru Holdings Limited, Sucursal del Peru and BPZ Energy, Inc., Sucursal Peru, entered into a License Contract for the
Exploration and Exploitation of Hydrocarbons in Block Z-1, hereinafter called the Contract, the same that according to law was approved by Supreme Decree
052-2001-EM, converted into a Public Deed on November 30, 2001 by the Notary Public of Lima, Dr. Cecilia Hidalgo Moran and recorded at Entry A00001 of the
Electronic Card No 11355079 of the Hydrocarbon Public Registry.

	II.
	According
to Clause Sixteenth of the Contract, Syntroleum Peru Holding Limited, Sucursal del Peru, notified PERUPETRO its intention to assign its whole 95% participation
in the Contract to the branch Nuevo Peru Ltd., Sucursal del Peru. Thus, Nuevo Peru Ltd., Sucursal del Peru shall then become the holder of a 95% participation in the Contract and BPZ
Energy Inc., Sucursal Peru will maintain its 5% participation.

	III.
	Nuevo
Peru Ltd., Sucursal del Peru requested to PERUPETRO qualification to take over the 95% participation in the Contract, which would be assigned by Syntroleum
Peru Holdings Limited, Sucursal del Peru, and this qualification was granted by PERUPETRO.

	IV.
	That,
in view of the latest legal modifications on royalties and other pertinent rules, PERUPETRO has deemed convenient to fully modify the Contract, in order that it
shall adopt the form of the last updated version of the License Contract for the Exploration and Exploitation of Hydrocarbons. 

ASSIGNMENT—PARTICIPACION CLAUSE  

        Syntroleum Peru Holdings Limited, Sucursal del Perú, subject to what is allowed in Clause Sixteenth of the Contract, hereby assigns totally its
rights and obligations derived from the Contract to Nuevo Peru Ltd., Sucursal del Peru, and the latter shall assume any and all rights and obligations derived from the Contract as of the date
of the Public Deed originated by this draft. 

        BPZ
Energy, Inc., Sucursal Peru, in turn, grants its consent to this Assignment of Participation in the Contract and shall maintain its five-percent (5%) participation
in such Contract. 

AMENDING CLAUSE—GENERAL  

        PERUPETRO, NUEVO PERU LTD., SUCURSAL DEL PERU and BPZ ENERGY, INC., SUCURSAL PERU have mutually agreed to include in the
Contract the following modifications that shall be hereafter reflected in the pattern Contract::

	a)
	Modify sub-section 3.2.1, which shall have a term of 30 months instead of 24 months and reduce the term of
sub-section 3.2.4 from 18 months to 12 months.

	b)
	Modify paragraph 4.3 referred to relinquishments, in the sense that there shall be a relinquishment of 25% of the Contract Area upon expiration of the
third period of the exploration phase and then keep the whole remainder of the area if, upon expiration of the fourth exploration period, it undertakes to drill 1 Exploratory Well or 10 exploratory
work units per each 10,000 has, every two years.

	c)
	Modify sub-section 4.6.2, second period of the minimum work program, in the sense that it shall be performed 300 Km2 of 3D
seismic or the drilling of 1 Exploratory Well and it will be so reflected in the Chart of paragraph 4.6 of the new pattern of the Contract.

	d)
	Modify sub-section 4.6.3—third period of the minimum work program, in the sense that it shall be hereafter performed 300 UTE or
the drilling of 1 Exploratory Well, and it will be so reflected in the Chart of paragraph 4.6 of the new pattern of the Contract.

2

 

	e)
	Modify sub-section 4.6.4—fourth period of the minimum work program, in the sense that it shall be hereafter performed
225 UTE or the drilling of 1 Exploratory Well, and it will be so reflected in the Chart of paragraph 4.6 of the new pattern of the Contract.

	f)
	Modify paragraph 4.7 establishing that the Contract Area, as a result of a geological fault, it shall be necessary to divide it in northern and southern
sectors, being the division the seismic line PC 99-13 and in the southern part, the depth of 2,400 meters is the reasonable depth to comply with the drilling of Exploratory Wells.
Furthermore, it was agreed to eliminate the reference to the cretaceous considering that it is not applicable to any certain science if the geological fault existing in the Contract Area is taken into
account.

	g)
	Modify Clause 8, in order to include the new regime for the determination of the royalty, pursuant to the provisions of Supreme Decree No
017-2003-EM.

PRELIMINARY CLAUSE—GENERALITIES  

	I.
	PERUPETRO participates in compliance with Law No26221 to enter into this License Contract for the
Exploration and Exploitation of Hydrocarbons in Block Z-1

	II.
	"In situ" hydrocarbons are property of the State. The ownership rights over extracted hydrocarbons are transferred from
PERUPETRO to the Contractor on the Signature Date, in accordance with the provisions of the Contract and under the terms of Article 8, Law No 26221. 

The
Contractor shall pay the State, through PERUPETRO, a cash royalty at the times and under the conditions set forth in the Contract. 

	III.
	In accordance with the provisions of Article 12th, Law 26221, the Contract is governed by
Peruvian private law and the provisions of Article 1357 of the Civil Code apply.

	IV.
	For all purposes relative to and derived from the Contract, the Parties agree that the headings of the clauses are
irrelevant to the interpretation of their content.

	V.
	Any reference to the Contract includes the annexes. In the event of discrepancy between the annexes and the provisions
contained in the body of the Contract, the latter shall prevail. 

CLAUSE ONE—DEFINITIONS  

        The definitions agreed by the Parties in this clause are aimed at given the required meaning to the terms used herein and these meanings shall be the only ones
accepted in interpreting the Contract, unless the Parties expressly agree otherwise in writing. 

        The
terms defined and used herein, whether singular or plural, shall be capitalized in the first letter and shall have the following meanings: 

1.1   Affiliate  

Any
entity, fifty per cent (50%) or more of voting share capital of which is owned, either directly or indirectly, by any of the Parties, or any entity or person who owns, either directly or
indirectly, fifty per cent (50%) or more of the voting share capital of one of the Parties, or any entity, fifty per cent (50%) or more of whose voting share capital of which is owned, either directly
or indirectly, by a shareholder or share holders who owns or own, either directly or indirectly, fifty per cent (50%) or more of the voting share capital of any of the Parties. 

3

 

1.2   Year  

A
period of twelve (12) consecutive months, using the Gregorian Calendar, counted from a specific date. 

1.3   Contract Area  

The
area described in Annex "A" and shown in Annex "B"; known as Block Z-1, with an extension of 299,273.111 Hectares. 

The
Contract Area shall be redefined after excluding those areas released by the Contractor under the terms of the Contract. In the event of any discrepancy between Annex "A" and
Annex "B", Annex "A" shall prevail. 

1.4   Barrel  

Is
the unit of measurement for Liquid hydrocarbons consisting of forty two (42) United States gallons at a temperature of sixty degrees Fahrenheit (60° F) at sea
level pressure, without water, mud or other sediments (BS&W). 

1.5   British Thermal Unit—BTU  

British
Thermal Unit. Is the unit of measurement of the quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit, equivalent to 1055.056 Joules. 

1.6   Act of God or Force Majeure.  

Includes,
among others: fires, earth tremors and earthquakes, tidal waves, land slides, avalanches, floods, hurricanes, storms, explosions, unforeseeable events, wars, guerrilla actions, sabotage,
civil strife, blockades, unavoidable delays in transport, strikes and stoppages, the unavailability, even when foreseen, of adequate facilities for the transport of materials, licenses and permits,
equipment and services, or any other event whether similar to or different from those specified herein, which cannot be reasonably controlled or foreseen or, when foreseen, cannot be avoided. 

1.7   Supervisory Committee  

The
entity made up by the Parties, through which PERUPETRO verifies and coordinates compliance with and execution of the Contract, whose conformation and powers are set forth in Clause Seven. 

1.8   Technical Conciliation Committee  

A
temporary body, formed to decide on discrepancies arising from the Operations, which shall be established in accordance with the provisions of section 21.2 of the Contract. 

1.9   Condensates  

Liquid
hydrocarbons formed by the condensation of Hydrocarbons separated from Natural Gas, as a result of changes in pressure and temperature when Natural Gas is extracted from the Reservoir, or in
one or more stages in the compression of Natural Gas. Remains liquid at the atmospheric temperature and pressure. 

4

 

1.10 Fiscalized Condensates  

Condensates
produced in the Contract Area and measured at the Production Fiscalization Point. 

1.11 Contractor  

NUEVO
PERU LTD., SUCURSAL DEL PERU, recorded in the Public Hydrocarbons Registry of the Book of Operations Contractors, subject to what is established for in this Contract. 

BPZ
ENERGY, INC., SUCURSAL PERU, recorded in the Public Hydrocarbons Registry under Card No 11328132 of the Book of Operations Contractors. 

On
the date of execution hereof, the participation in the Contract of the companies composing the Contractor is the following: 

	NUEVO ENERGY PERU LTD., SUCURSAL DEL PERU	 	95	%
	BPZ ENERGY INC., SUCURSAL PERU	 	5	%

1.12 Contract  

This
agreement between the Parties, which stipulates the terms and conditions contained in this document and the appendices which form part thereof, including additional agreements which may be
arrived at by the Parties by virtue of this document and any modifications thereto in accordance with the law. 

1.13 Development  

The
execution of any activity appropriate to the Production of Hydrocarbons, such as: drilling, completion and deepening of wells, the design, construction and installation of equipment, pipelines,
storage tanks and other installations, including the use of artificial lift production methods and primary and enhanced recovery methods, in the Contract Area and outside it when necessary. 

This
includes the construction of the Transport and Storage Systems, facilities at the Production Fiscalization Point of the Main Pipeline and if applicable, primary distillation plants for the
manufacture of products to be used in the Operations, or Natural Gas Processing Plants. 

1.14 Commercial Discovery  

A
discovery of Hydrocarbons which, in the opinion of the Contractor, can be exploited commercially. 

1.15 Day  

A
period of twenty four (24) hours which starts at zero hours (00:00) and ends at twenty four hours (24:00). 

1.16 Business Day  

All
days from Monday to Friday, except those days declared either total or partial holidays in the city of Lima, by the competent authority. 

5

 

1.17 Dollar or US$  

The
currency unit of the United States of America. 

1.18 Main Pipeline  

A
main pipeline that the Contractor may build and operate and which, starting at the end of the Transport and Storage System, carries the Hydrocarbons produced in the Contract Area to a third party
property point, to a sale or export point or to a Production Fiscalization Point without prejudice to the approval described in section 2.3, if applicable. It may include measurement points
connected to the pipeline, any necessary storage and shipping areas, secondary pipelines, pumping or compression stations, communication systems, roads for access and maintenance and any other
installations necessary and required for the prompt and permanent conveyance of Hydrocarbons, including the design, construction, maintenance and equipment of all of the above. The open access to any
Main Pipeline will be from the beginning of the Fifth Year (as a maximum) to be counted from the Date of Commencing Commercial Production. 

1.19 Exploration  

The
planning, execution and evaluation of all geological, geophysical, geochemical and other studies, as well as the drilling of Exploratory Wells and related activities necessary to discover
Hydrocarbons, including the drilling of Appraisal Wells for evaluating the discovered Reservoirs.. 

1.20 Exploitation  

Development
and/or Production. 

1.21 Date of Commencing Commercial Production  

The
date of the first measurement of Hydrocarbons at the Production Fiscalization Point which gives rise to the payment of royalties. 

Volumes
produced for testing and other purposes agreed specifically between the Parties are not included in this definition. 

1.22 Signing Date  

The
30th day of November of 2001, on which the Parties sign the Contract. 

1.23 Effective Date  

The
date within the sixty (60) Days after the Signature Date in which the Contractor shall begin Operations. 

1.24 Fiscalization  

Activities
which, according to legal dispositions and technical standards, are carried out by the Supervisory Body of Investment in Energy (OSINERG) over the Exploration and Exploitation activities
executed by the Contractor. 

6

 

1.25 Natural Gas  

A
mixture of hydrocarbons found in a gaseous state or in solution with oil under initial reservoir conditions. Includes Associated Natural Gas and Non-associated Natural Gas. 

1.26 Associated Natural Gas  

Natural
Gas produced with the Liquid Hydrocarbons of the Reservoir. 

1.27 Fiscalized Natural Gas  

Natural
Gas produced in the Contract Area and measured at a Production Fiscalization Point. 

1.28 Non-associated Natural Gas  

Gas
occurring in a reservoir where, under initial conditions, Liquid Hydrocarbons are not present. 

1.29 Hydrocarbons  

Any
organic compound, whether gaseous, Liquid or solid, which consists principally of carbon and hydrogen. 

1.30 Fiscalized Hydrocarbons  

Hydrocarbons
produced in the Contract Area and measured at a Production Fiscalization Point. 

1.31 Liquid Hydrocarbons.  

Oil,
Condensates and generally all those Hydrocarbons that under atmospheric conditions of temperature and pressure, remain in a Liquid state at the site of their measurement, including those
Hydrocarbons that are in a Liquid state at a temperature higher than the atmospheric temperature. 

1.32 Fiscalized Liquid Hydrocarbons  

Liquid
Hydrocarbons produced in the Contract Area and measured at a Production Fiscalization Point. 

1.33 Law No 26221  

Law
No 26221—Organic Law of Hydrocarbons, extensions, regulations and amendments included. 

1.34 NGL or Natural Gas Liquids  

Liquid
Hydrocarbons obtained from Natural Gas composed by mixes of ethane, propane, butane and other heavier hydrocarbons. 

1.35 Fiscalized NGL or Fiscalized Natural Gas Liquids  

Natural
Gas Liquids measured at a Production Fiscalization Point. 

7

 

1.36 Month  

Period
counted from any Day in a calendar month which ends on the Day before the same Day of the following calendar month or, if there is no such day, the last day of said month. 

1.37 MPC  

One
thousand (1000) standard cubic feet (scf). One (1) SCF is the volume of gas necessary to fill a space of one (1) cubic foot at 14.695 pounds per square inch absolute pressure at a
temperature of sixty degrees Fahrenheit (60° F). 

1.38 Operations  

All
Exploration and Exploitation activities, as well as those related to the Transport and Storage System, and all other activities covered by the Contract or related to the performance thereof. 

1.39 Operator  

One
company composing the Contractor that has already been designated by those companies to carry out the Operations for and on behalf of the Contractor. 

On
the Signing Date, NUEVO PERU LTD., SUCURSAL DEL PERU, has been designated as Operator. 

1.40 Parties.  

PERUPETRO
and the Contractor. 

1.41 PERUPETRO  

PERUPETRO
S.A., is the Private Law State Company from the Energy and Mines Sector, created by Law No26221. 

1.42 Oil  

Hydrocarbons
which, under initial temperature and pressure conditions in the Reservoir are in the Liquid state, and which are mainly kept in a liquid state under atmospheric conditions; do not include
Condensates, Natural Gas Liquids or Liquefied Natural Gas. 

1.43 Fiscalized Oil  

Oil
produced in the Contract Area and measured at a Production Fiscalization Point. 

1.44 Heavy Oil  

Liquid
Hydrocarbons, that due to its density and viscosity require of non conventional recovery methods for its Exploitation, and for its transport require of surface heating processes, or other
procedures, excluding the mixing of oil produced in the same Field. 

8

 

1.45 Appraisal Well  

A
well drilled to evaluate the discovered Hydrocarbon Reservoirs. 

1.46 Development Well  

A
well drilled to extract the discovered Hydrocarbons. 

1.47 Exploratory Well  

A
well drilled for the purpose of discovering a new Reservoir or to determine the stratigraphy of an area, as well as the wells drilled in the structural culminations which are geologically separated
from the part of the same previously studied structured. 

1.48 Production  

All
activities in the Contract Area, or outside it if necessary, for the purpose of extracting and handling Hydrocarbons, including the operation and recompletion of wells, the installation and
operation of equipment, pipelines, Transport and Storage System, treatment and measurement of Hydrocarbons, and all methods of primary and enhanced recovery. 

1.49 Production Fiscalization Point  

Place
or places to be agreed between the Parties, located inside or outside the Contract Area, where volumetric measurements are taken, the water and sediment content determined and other measurements
made in order to determine the volume and quality of Fiscalized Hydrocarbons, in accordance with the respective API and ASTM standards. 

1.50 Reservoir  

Underground
stratum or strata, forming part of a Field, which are producing or have been defined to be capable of producing Hydrocarbons, and which have a common pressure system throughout its
extension. 

1.51 Transport and Storage System  

System
of pipelines, pumping stations, compression stations, storage tanks, river facilities, delivery systems, roads, other facilities and all other means necessary and useful for the transportation
of the Hydrocarbons produced in the Contract Area to a Production Fiscalization Point, (or to a Main Pipeline) or to a pipeline belonging to third parties, including the design, construction,
maintenance and equipment of all the above. 

1.52 Subcontractor  

Any
individual or body corporate, whether Peruvian or foreign hired by the Contractor to provide services related to the Operations. 

9

   1.53 Supervision  

Activities
carried out by PERUPETRO to verify compliance with the Contractor's obligations.. 

1.54 Taxes  

Taxes
and contributions set forth in the Tax Code. 

1.55 Term of the Contract  

Period
between the Date of Signing and the end of the term established in section 3.1 of the Contract. 

1.56 Field  

Surface
below which one or more Reservoirs exist which are producing or have been defined to be capable of producing Hydrocarbons. 

CLAUSE TWO—PURPOSE OF THE CONTRACT  

	2.1
	PERUPETRO authorizes the Contractor to carry out the Operations, in accordance with Law No 26221, the pertinent
legislation and the provisions of the Contract, with the common purpose of discovering and producing Hydrocarbons in the Contract Area

	2.2
	The Contractor shall have the rights of ownership over the Hydrocarbons produced from the Contract Area, according to the provisions of
Preliminary Clause, paragraph II.

	2.3
	The Contractor shall carry out the Operations according to the terms of the Contract, either directly or through
Sub-contractors. Field operations outside the Contract Area shall require the approval of PERUPETRO.

	2.4
	PERUPETRO shall carry out the Supervision of the Operations according to the law and in agreement with the Contract. 

Osinerg
shall carry out the Fiscalization activities according to the law. 

	2.5
	Representatives of PERUPETRO shall carry out the Supervision at any time, with prior notification, they must identify themselves and be
authorized for such a purpose by PERUPETRO. The Contractor shall provide all facilities reasonably possible in the Operations to allow the representatives to carry out their duties, which shall not
interfere with the Operations. 

Costs
and expenditures corresponding to the representatives of PERUPETRO shall be borne by PERUPETRO. 

	2.6
	The Contractor shall provide, and be responsible for, all technical, economic and financial resources required for the execution of the
Operations. 

CLAUSE THREE—TERM, CONDITIONS & GUARANTY  

	3.1
	The Hydrocarbons exploration phase shall last seven (7) years, which can be extended according to the law. This period is
counted from the Effective Date, unless this term varies in accordance with other provisions contained in the Contract. 

The
Oil exploitation phase is the term remaining after the end of the exploration phase until the completion of the term of thirty (30) years from the Effective Date unless this term varies in
accordance with other provisions contained in the Contract. 

10

 

The
exploitation phase for Non-associated Natural Gas and Non-associated Natural Gas and Condensates is the time remaining after the end of the Exploration phase until the
completion of forty (40) years, from the Effective Date unless this term varies in accordance with other provisions contained in the Contract. 

Notice:
It is possible exploitation of Oil and Non Associated Natural Gas and of Non Associated Natural Gas and Condensates. 

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

(Duration
of first and second period will depend on the agreed Work Program, the quantity and quality of available technical information, hydrological seasons, etc. For the next periods, duration
period has been fixed in 15 months, excepting the last period which shall be adjusted as to complete the exploration phase.) 

	3.2.1
	A first period lasting thirty (30) months, counted from the Effective Date.

	3.2.2
	A second period lasting twenty four (24) months, counted from the end of the period specified in
sub-section 3.2.1

	3.2.3
	A third period lasting eighteen (18) months, counted from the end of the period specified in
sub-section 3.2.2.

	3.2.4
	A fourth period lasting twelve (12) months, counted from the end of the period specified in
sub-section 3.2.3.

 

	3.3
	During the exploration phase the Contractor shall notify PERUPETRO of its intention to continue with the following period,
thirty (30) Days before the end of the period in progress. In case the Contractor has not complied with the obligations corresponding to the present period, the provisions of
sub-section 22.3.1 shall apply, and the corresponding guaranty executed.

	3.4
	If, during the periods indicated in section 3.2, the Contractor is prevented for economical or technical reasons duly
substantiated from completing the respective minimum work programs described in sub-sections 4.6. it may extend the said periods up to a maximum of six (6) Months provided that it
has requested authorization from PERUPETRO for such extension at least thirty (30) Days before the end of the period in progress, and the reasons stated in such request have been proven and
accepted by PERUPETRO. In this case, the Contractor shall, before the end of the period in progress, provide a new guaranty for the amount of US$150,000.00, or extend the existing guaranty to cover
the new term, in accordance with the provisions of section 3.10. In case these extensions result in the extinction of the term of the last exploration phase period, and the Contractor decides
to continue with the exploration works, obligations for such period shall be complied during an extension of the exploration phase to be agreed within the Parties, according to the law. 

After
the fulfillment of the minimum program obligations of the current period, with in the correspondent term established in section 3.2, and after having used the extension, referred to in
the above paragraph, if applicable, as long as that obligation has been the drilling of at least one Exploratory Well; the Contractor could request an extraordinary term up to a maximum of six
(6) months, to re-evaluate all the information and results obtained until that period, with the purpose of preparing and integral and complete survey in order to take the decision
of going through the next period. 

Approvals,
referred to in this section, shall be granted at the criteria of PERUPETRO. 

	3.5
	The exploration phase may continue, at the Contractor's discretion, after the Date of Commencement of Commercial production until the
end of that phase as indicated in section 3.1. In this case the provisions of section 10.3 shall apply until the end of the exploration phase. At the 

11

 

same
time, the straight-line method of depreciation referred to in section 9.6 shall be applied from the Date of Commencement of Commercial Extraction. 

	3.6
	If the Contractor makes one or more Hydrocarbon discoveries during any period of the exploration phase which is, or are, not commercial
solely due to r transport reasons, it may request a retention period of up to five (5) years for the Field or Fields discovered, in which to make transport of the production possible. 

The
right to that retention is subject to at least the following requirements: 

	a)
	That the Contractor can prove to the satisfaction of PERUPETRO, that the volumes of the Hydrocarbons discovered in the Contract Area are
insufficient to justify the construction of a Main Pipeline.

	b)
	That the aggregation of discoveries in adjoining areas and in that of the Contractor are insufficient to economically justify the
construction of a Main Pipeline, and;

	c)
	That the Contractor can demonstrate on economic grounds that the Hydrocarbons discovered cannot be transported from the Contract Area to
a place where they can be sold, by any means of transportation.

 

	3.7
	If the Contractor makes a discovery of Non-associated Natural Gas or Non-associated Natural Gas and Condensates
during any period of the exploration phase, it may request a retention period of up to ten (10) years for the Field or Fields discovered, in which to develop the market.

	3.8
	If the Contractor discovers Oil or Non-associated Natural Gas or Non-associated Natural Gas and Condensates
during any period of the exploration phase, and the conditions described in sections 3.6 and 3.7 apply, the Contractor may request a retention period for Oil and another for
Non-associated Natural Gas or Non-associated Natural Gas and Condensates, for the purposes indicated in the said paragraphs.

	3.9
	The retention periods referred to in sections 3.6 and 3.7, extend the term of the Contract by a period equal to the retention period
granted by PERUPETRO. 

The
retention period shall be established in writing. The Contractor shall request the retention period and submit supporting documentation to PERUPETRO, including a schedule of activities to be
carried out. The exploration phase shall terminate at the beginning of the retention period. The exploitation phase shall commence with the declaration of a Commercial Discovery during this period. 

The
granting of the retention period referred to in sections 3.6 and 3.7 and their duration shall be determined at the criteria of PERUPETRO, such not affecting or diminishing the obligation of
the fulfillment of the work minimum program of the current exploratory phase. 

	3.10
	The Contractor shall guarantee fulfillment compliance of each minimum work program for the exploration phase in accordance with the
provisions of sections 3.2 and 4.6, through a joint and several guaranty, which shall exclude the requirements that remedies be exhausted against the Contractor prior to executing on the
guarantee, and which shall be unconditional irrevocable and automatically executable in Peru. Such guaranties shall be issued by a duly qualified entity of the financial system domiciled in Peru and
accepted by PERUPETRO. PERUPETRO may request the Contractor to substitute a guaranty and the Contractor must provide a new guaranty no later than fifteen (15) Business Days after receipt of the
request from PERUPETRO. 

The
amount of the guaranty for the minimum work program for the first period as set forth in sub-section 4.6.1 is US$300,000.00. 

12

 

The
amount of the guaranty for the minimum work program for the second period as set forth in sub-section 4.6.2 is US$1'300,000.00. 

The
amount of the guaranty for the minimum work program for the third period as set forth in sub-section 4.6.3 is US$1'000,000.00. 

The
amount of the guaranty for the minimum work program for the fourth period as set forth in sub-section 4.6.4 is US$1'000,000.00. 

For
guaranties of future minimum work programs for each period, will be the result from multiplying the equivalence in dollars established in Annex "F" by the number of Exploration Unit Works
corresponding for each period, referred in sub-section 4.6 

The
guaranty for the minimum work program of the first period shall be delivered to PERUPETRO on the Signing Date. The guaranties corresponding to the work minimum program of each period, according to
period 4.6, shall be delivered to PERUPETRO before the commencement of each period. If not, the provisions of sub-section 22.3.3 shall apply. 

The
guaranty in case of extension of exploration phase period terms, shall be delivered to PERUPETRO by the Contractor, before starting the mentioned extension, on the contrary PERUPETRO shall not
approved the requested extension, independently from what is set forth in section 3.4. 

The
guaranties, following the models given in Annexes "C-1" to "C-X", shall be issued for each period of the minimum work program. 

The
guaranty for the minimum work program for each period shall remain in force for a term which exceeds that of each minimum work program by thirty (30) Business Days. 

If
any of the guaranties delivered by the Contractor are not maintained in effect for the term established, the Contractor must provide a new guaranty or extend the existing guaranty, no later than
fifteen (15) Business Days after receipt by the Contractor of PERUPETRO's notification. If not, the provisions of sub-section 22.3.3 shall apply. 

On
compliance with the obligations covered by each guaranty, PERUPETRO shall immediately return the corresponding guaranty to the guarantor through the Contractor. Execution of any guaranty shall have
the effect of discharging the Contractor from its obligation to carry out the minimum work program, without affecting application of the provisions of sub-section 22.3.1. 

	3.11
	NUEVO ENERGY COMPANY takes part hereof to grant to NUEVO PERU LTD., SUCURSAL DEL PERU, the corporate guaranty, shown in
Annex "D-1", and PBZ & ASSOCIATES, INC. takes part hereof to ratify that the corporate guaranty included in Annex "D-1" survives and has full force
and effect, the same that is in the possession of PERUPETRO, since the Date of Signing. 

The
corporate guaranty shall be effective whilst the Contractors obligations are enforceable. The provisions of sub-section 22.3.5 shall apply if, on occurrence of any event which
affects its validity or nature, the Contractor fails to provide a replacement within a period of fifteen (15) Business Days. 

	3.12
	PERUPETRO guarantees the Contractor that it shall not assume any type of responsibility regarding the existing oil platform in the
Contract Area, considering that such platforms are of the exclusive property of Petroleos del Peru S.A.—PETROPERU. 

CLAUSE FOUR—EXPLORATION  

	4.1
	The Contractor shall commence exploration activities starting on the Effective Date. 

13

 
	4.2
	The Contractor may relinquish the entire Contract Area, without penalty, by notifying PERUPETRO at least thirty (30) Days in
advance, provided that it has completed the minimum work program of the period of the exploration phase in progress. 

If
the Contractor relinquish the entire Contract Area, abandons it or fails to complete the corresponding minimum work program within the term of the period in progress, without giving technical
reasons which are approved by PERUPETRO, the latter shall execute the guaranty, without affecting application of the provisions of sub-section 22.3.3. 

The
Contractor may make partial relinquishments of the Contract Area by notifying PERUPETRO at least thirty (30) Days in advance, without incurring a fine or other penalty, but this shall not
affect or diminish its obligation to complete the minimum work program for the period of the exploration phase in progress. 

The
Parties shall leave a record of the areas relinquished by the Contractor in the form of a Minute of the Supervision Committee. 

The
Contractor may continue to make use of the surface of the areas relinquished on which facilities related to the Operations have been built. 

	4.3
	During the execution of the Contract relinquishments will be performed as follows:

	a)
	At least twenty percent (20%) of the original Contract Area at the end of the third period described in
sub-section 3.2.2

	b)
	At the end of the fourth period described in sub-section 3.2.4, the Contractor shall have relinquished at lest fifty
per cent (50%) of the original Contract Area, including for such purposes the relinquishment performed according preceding literal a); unless the Contractor pledges himself to perform
exploration activities (seismic or well drilling) additional to that of the following period, and that the activity to be performed corresponds to the respective area relinquishment. In this case, at
the end of the fourth or fifth period, Contractor shall relinquish at least fifty per cent (50%) of the original Contract Area, including for such purposes the relinquishment performed according
preceding literal a). 

At
the end of the exploration phase, Contractor shall keep the remaining Contract Area, with no need to comply with the provisions of paragraph b) above, for which he must pledge himself to
drill one (01) Exploratory Well or perform ten (10) Exploration Work Units for each ten thousand hectares (10,000.00) of Contract Area, each two (2) years. 

	c)
	In the event the Contractor decides not to continue executing the exploration activities described in literal c), or in the event he
does not fulfills such pledge, and without detriment of the application of the respective contractual provisions, he will keep only those Fields included in the Initial Development Plan, or in the
work programs referred to in section 5.3, as it may correspond, in Production or subject to a retention period plus a surrounding area of five (5) kilometers up to the boundary of the
Contract Area.

 

	4.4
	For the purposes of sections 4.2 and 4.3, Parties will opportunely coordinate, in order that PERUPETRO divides the Contract Area into
rectangular parcels, as far as possible with an area of twenty thousand hectares (20,000.00 has.) and if this is not possible, with a different area. It is not necessary for the areas released by the
Contractor to be adjoining.

	4.5
	All the areas relinquished by the Contractor, including Fields within such areas, shall revert to the State at no cost to the State or
to PERUPETRO. 

14

 
	4.6
	The minimum work program for each of the periods of the exploration phase, which the Contractor is obliged to carry out, is as follows: 

	Period
 
	 	UTE / 10 mha

(Work Exploration Units for each 10,000 ha or portion)

	1st	 	• Geological, geophysical, petrophysical and combined studies of the Contract Area.
	 	 	• Log, process and interpret two hundred fifty (250) kilometers of 2-D seismic lines or reprocess and interpret seven hundred fifty (750) kilometers of 2-D seismic lines.
	 	 	• Reprocess one thousand (1,000) kilometers of 2-D seismic lines or five hundred (500) kilometers of 2-D seismic lines, using the AVO (Amplitude vs. Offset) method.
	2nd	 	300 Km2 3-D seismic or 1 drilling of one exploratory well.
	3rd	 	300 UTE or drilling of one exploratory well
	4th	 	225 UTE or or drilling of one exploratory well

The
Minimum Work Program includes for the third and fourth period the application of 10 UTE for each 10,000 ha, and the relinquishments of minimum areas established for each period in
section 4.3, for such effect relinquishments established in section 4.2 are not considered. 

        In
order to comply with the obligations described in this paragraph, the following must be taken into account: 

	a)
	In case of the recording of seismic lines, the corresponding kilometers will be counted from the initial shot point to the final shot
point of each seismic line. In case the Contractor decided in the first period to perform the 500 kilometers of 2-D seismic lines using the AVO method above the already reprocessed
2-D seismic lines, should request Perupetro's approval supporting that such procedure is necessary for a complete understanding of the location where the wells should be drilled.

	b)
	The exploration working units referred to in this paragraph will be fulfilled according to the table of equivalencies established in
Annex "F".

	c)
	Only the exploration working units resulting from the registry of 2D or 3D seismic lines, as well as from the drilling of Exploration
Wells, performed in excess at any period of the exploration phase, in relation with what is established in paragraph 4.6, will be considered as fulfillment of the obligations of the following
periods without being necessary to deliver the guaranty corresponding to the period in which those work units are guaranteed, as long as the minimum work program has been completely executed in
advance; if not, the guaranty shall be submitted according to the terms and procedures established in paragraph 3.10. 

In
case of drilling Exploratory Wells, exploration work units effectively executed will be determined according to the table of equivalences established in Annex "F", setting the difference
with the number of exploration work units represented by the drilling obligation according to this section, the same which will be used to accredit future works, if it is pertinent, or to complete
other exploration works, as it may correspond. 

	d)
	Before the beginning of each period of the exploration phase the Contractor shall inform PERUPETRO in detail about the scheduled
exploration activities in order to fulfill the number of exploration working units committed for such period. The Contractor shall inform PERUPETRO any modification of the contents of such program
through a supporting technical report, before its execution. In case the modification refers to switching the obligation of drilling a exploratory well by other exploration activities, according the
equivalences table of Annex "F", prior approval of PERUPETRO will be necessary. 

15

 
	4.7
	The Contract Area is divided in northern and southern sector, considering that there is a geological fault and both sectors are
delimited with the seismic line PC 99-13, which is located according to the coordinates described in Annex "A". 

The
Exploratory Wells corresponding to the Minimum Work Program and referred to in section 4.6, shall be considered drilled and, therefore, the Contractor's obligations fulfilled, when a
minimum vertical depth (TVD) of four thousand one hundred (4,100) meters, measured from the surface, for the
northern sector of the Contract Area and two thousand four hundred (2,400) meters, meased from the surface for the southern sector of the Contract Area., 

If,
before starting to drill any of the Exploratory Wells corresponding to the work minimum program, referred to in section 4.6, the Contractor demonstrates to PERUPETRO's satisfaction, based
on geological and geophysical evaluations, that it cannot comply with the objective agreed in the first paragraph of this section, the Parties may agree a new geological objective and/or depth. 

Likewise,
if during drilling of any of the Exploratory Wells corresponding to the work minimum program, referred to in section 4.6, geological or mechanical problems arise which cannot be
reasonably overcome or a potential productive formation is discovered, which does not merit continuing with the drilling, the Contractor may request PERUPETRO to recognize that its obligation to drill
has been complied with, by submitting a supporting technical report for the approval of PERUPETRO. 

	4.8
	If the Contractor decides to declare a Commercial Discovery, it shall notify PERUPETRO of its declaration and submit an "Initial
Development Plan" to make viable the Exploitation of the Hydrocarbons discovered, no later than one hundred and eighty (180) Days after making the declaration. This Plan shall include the
following:

	a)
	The physical and chemical characteristics of the Hydrocarbons discovered, the percentage of associated products and the impurities they
contain.

	b)
	Estimated production profiles during the Term of the Contract for the Field or Fields.

	c)
	Estimated number of development wells and their production capacity.

	d)
	Transport and Storage System and Projected Production Fiscalization Points.

	e)
	Main Pipeline, if applicable.

	f)
	Safety measures

	g)
	Schedule of work to be carried out.

	h)
	The period which will elapse before the Date of Commencement of Commercial Production. 

The
"Initial Development Plan" must include the specific investments, costs and expenditure estimated for Exploitation of the Commercial Discovery as well as any other information considered suitable
by the Contractor. 

	4.9
	PERUPETRO must advise the Contractor of its comments on the "Initial Development Plan" within sixty (60) Days of having received
it. It may question the Date of Commencement of Commercial Production if this is not reasonable. In the event of dispute, the Technical Conciliation Committee shall be convened.

	4.10
	If the Contractor makes a declaration of Commercial Discovery, it shall be obliged to commence Development no later than one hundred
and eighty (180) Days following the expiration of the sixty (60) Days period indicated in section 4.9 of the Contract. 

A
declaration of Commercial Discovery does not imply the reduction or suspension of obligations under the minimum work program. 

16

 
	4.11
	Development of the Hydrocarbons discovered shall be carried out in accordance with the work program submitted by the Contractor to
PERUPETRO in accordance with the provisions of section 5.3. 

The
Parties agree that when appropriate and necessary, the terms for submission of the "Initial Development Plan" or the annual work program, may be adjusted, extended or modified. For this purpose,
the Contractor shall submit its proposals to PERUPETRO so that agreement on such adjustment, extension or modification can be reached. 

	4.12
	The end of the exploration phase shall not affect any of the terms and periods for the above mentioned procedures which may be in
progress at the time of produced such expiration.

	4.13
	In exceptional cases, due to technical and economic reasons, which make unfeasible the fulfillment of the obligations and/or terms of
the work minimum program periods established in sections 4.6 and 3.2 respectively, and at request of the Contractor, through the submission of a supporting report about the change, obligations
and/or terms of the work minimum program periods shall be replaced, provided that PERUPETRO accepts and approves the requested replacement. In any case, such replacement shall modify the initial
commitment of Exploration Work Units for the exploration phase, reducing obligations. 

Likewise,
when the exploration results justify a new Contract Area configuration and upon request of the Contractor, through the submission of a supporting report to PERUPETRO, the Contract Area shall
be delimited again, as well as it is complied the established in section 4.3, the Contractor submits work proposals for the new area, and PERUPETRO accepts and approves the new delimitation
requested. In any case, the new delimitation will increase the total original Contract Area. 

The
above-mentioned replacements and new delimitations accepted and approved by PERUPETRO, may originate changes in the amounts and terms of the established guaranties; if applicable, the Parties
shall calculate the new guaranties amounts and the Contractor shall comply to submit a new guaranty or shall extend the one in force, replacing it with the new amount and/or term established,
according to the requirements set forth in sections 3.4 and 3.10, likewise the Exploration Working Units for the new area will be calculated. 

CLAUSE FIVE—EXPLOITATION  

	5.1
	The exploitation phase shall commence the Day after the end of the exploration phase, provided that a declaration of Commercial
Discovery has been made during the exploration phase. However, the Contractor has the option of commencing the exploitation phase and ending the exploration phase earlier, on the Date of Commencement
of Commercial Production. If a retention period applies, the exploitation phase shall commence once the declaration of Commercial Discovery is made.

	5.2
	The Contractor is obliged that the Date of Commencement of Commercial Production must take place within the period established in
sections 4.8 and 4.9. 

17

  

	5.3
	The Contractor shall submit to PERUPETRO, no less than sixty (60) Days before the end of each calendar Year after a declaration
of Commercial Discovery, the following:

	a)
	An annual work program and detailed budget showing income, costs, expenditure and investment for the following calendar Year.

	b)
	An annual work program and detailed budget showing income, costs, expenditure and investment for Exploration aimed at discovering
additional reserves, if applicable.

	c)
	A work program and projected income, costs, expenditure and investment covering Development and/or Production for the next five
(5) calendar Years.

 

	5.4
	In carrying out each work programs, the Contractor shall use the equipment and/or methods necessary and appropriate to allow operations
evaluation and monitoring.

	5.5
	The Contractor is obliged to produce and recover the Hydrocarbon reserves in the Contract Area economically, in accordance with the
programs referred to in this Clause Five and shall carry out this work in accordance with technical and economic principles generally accepted and employed in the international hydrocarbons industry.

	5.6
	The Contractor has the right to use the Hydrocarbons produced in the Contract Area in its Operations at no cost whatever, which are not
considered in the royalty determination. At the same time, such hydrocarbons could be processed within the Contract Area to be exclusively used in the Operations. 

Notice:
Hydrocarbons processing is only accepted for remote areas. 

	5.7
	The Contractor shall have the right to recover Liquid Hydrocarbons from any Natural Gas which may be produced in the Contract Area and
extract them at any stage of handling the said Natural Gas. 

Liquids
thus separated shall be considered as Condensates for the purposes of determining the royalty, except when, for economic or operational reasons, it is not possible to collect them, in which
case they may be mixed with Oil and fiscalized together. 

	5.8
	Natural Gas not used by the Contractor in the Operations in accordance with section 5.6, may be sold, re-injected into the
Reservoir, or both, by the Contractor. Natural Gas not used, nor sold or re-injected may be flared by the Contractor after obtaining authorization from the Ministry of Energy and Mines.

	5.9
	When a commercially exploitable Field or Fields extend continuously from the Contract Area to another area or areas, the Contractor and
the contractors operating these other areas must reach agreement on a single Exploitation plan or common Exploitation plan. If agreement cannot be reached, the Ministry of Energy and Mines shall order
the differences to be submitted to the technical conciliation committee referred to in Article 32, of Law 26221. The decision of this committee shall be binding. 

If
the area adjacent to the commercially exploitable Field is not assigned to a contractor, or is not in a process of negotiation or bidding and there are no environmental constraints, the Contractor
shall have first refusal to negotiate and incorporate the said adjacent area into the Contract Area, provided that it submits its request within the Exploration phase. 

	5.10
	After drilling one (1) well, the Contractor must inform PERUPETRO when the well will be tested and, if applicable. The well
test shall be performed within the three (3) Months following to the end of drilling.

	5.11
	PERUPETRO may at any time examine and test the equipment and measuring instruments used to measure the volume and determine the
quality of Fiscalized Hydrocarbons. 

18

 

The
equipment and measuring instruments shall be periodically calibrated in accordance with applicable regulations. Representatives of PERUPETRO may be present during calibration. 

	5.12
	Before the Date of Commencing of Commercial Production and in order to determine the volume and quality of Fiscalized Hydrocarbons,
the Parties shall agree the equipment, the methods and the corresponding measuring procedures.

	5.13
	For the production of Heavy Oil in the Contract Area, it could be blended with Light Oil produced out of the Contract Area. Such Light
Oil will be measured and fiscalized by the parties in a measuring point at the entrance of the Contract Area. 

The
volume of such hydrocarbons produced out of the Contract Area will be discounted from the volume of Fiscalized Hydrocarbons in the Contract Area in order to determine the royalty to be paid by the
Contractor. 

CLAUSE SIX—SUBMISSION OF INFORMATION & STUDIES  

	6.1
	The Contractor shall keep PERUPETRO permanently, promptly and regularly informed regarding the Operations, providing all information in
the manner set forth in this clause and in any applicable legislation. It shall also provide information on other natural resources or archaeological remains found or discovered in the course of the
Operations during the term of the Contract. The technical information, studies, processed and unprocessed data as well as results provided by the Contractor to PERUPETRO in accordance with this Clause
shall be of the best quality that has been obtained by the Contractor. If when securing information and results, methods or systems are used that solely belong to him or to of any of his companies, it
will not be obliged to disclose those methods or systems when he provides the information.

	6.2
	The Contractor must provide a copy of all studies concerning the Development of the Fields, prepared from technical information
obtained in the Contract Area. 

The
Contractor shall also provide any further explanatory information regarding such studies required by PERUPETRO. 

	6.3
	Contractor must submit to PERUPETRO, the information and studies corresponding to the obligations of the minimum work program no later
than the date in which each period of the exploration phase covered in section 3.2. 

No
later than ninety (90) Days after the end of each period of the exploration phase, Contractor must submit to PERUPETRO a report containing an evaluation, including a study and interpretation
of the geological, geophysical, geochemical, petrophysical and reservoir analyses carried out in relation to the minimum work program for each period. 

	6.4
	The Contractor shall submit the to PERUPETRO a "Monthly Production Report" an a "Monthly Income and Expenditure Report". Both reports
will be submitted in the forms delivered to the Contractor by PERUPETRO for such purpose, at the latest at the thirtieth (30) calendar day of each month.

	6.5
	As PERUPETRO requires, the Contractor must provide PERUPETRO with a copy of all information supplied to the Central Reserve Bank of
Peru in accordance with the provisions of Clause Eleven..

	6.6
	Within the thirty (30) days after the end of each calendar Month, the Contractor must provide PERUPETRO with a list of the
contracts entered into with Subcontractors during that Month, as well as copies of any of these contracts which PERUPETRO may require. 

19

 
	6.7
	PERUPETRO or any of the enterprises conforming the ContractorEither Party may reveal information obtained from the Operations without
obtaining the approval of the other Party in the following circumstances:

	a)
	To an Affiliate of the Party.

	b)
	In relation to financing or insurance hiring, provided that a confidentiality agreement is obtained.

	c)
	If required by law, regulation or resolution of the competent authority including, without limitation, regulations and resolutions of
government authorities, insurance companies or the stock exchange on which the shares of the Parties or Affiliates of the Parties are registered.

	d)
	To consultants, accountants, auditors, financiers, professionals, possible purchasers or assignees of the Parties or of a share in the
Contract, as far as is necessary in relation to the Operations, provided that a confidentiality agreement is obtained. 

When
the Parties agree to communicate certain confidential or reserved information to third parties, the character of such information must be expressly stated so that it shall not be divulged by
those third parties. 

CLAUSE SEVEN—SUPERVISORY COMMITTEE  

	7.1
	The Supervisory Committee shall consist of three (3) members representing the Contractor or their substitutes, and three
(3) members representing PERUPETRO, or their substitutes. The Supervisory Committee shall be chaired by a PERUPETRO representative. 

The
Supervisory Committee shall be convened and shall approve up regulations governing its functioning within sixty (60) Days after the Effective Date. 

	7.2
	The Supervisory Committee shall have the following duties:

	a)
	To discuss and exchange, among its members, all information relative to the operations.

	b)
	To evaluate the execution of the Exploration minimum work program referred to in section 4.6.

	c)
	To evaluate the work programs and plans referred to in sections 4.8 and 5.3, and coordinate the execution of them.

	d)
	Verify and coordinate the execution of the Operations, for which the representatives of the Parties accredited to the Supervisory
Committee shall have available all necessary advice.

	e)
	Verify and coordinate the fulfillment of all obligations relative to the Operations set forth in the Contract or agreed by the Parties
in any other document.

	f)
	Other powers established in the Contract or agreed between the Parties.

 

	7.3
	The Committee shall meet whenever requested by either Party, and at a frequency established by its regulation. At least one
representative or each Party must be present for the Supervisory Committee to be validly constituted. 

Each
one of the Parties shall bear the costs incurred in maintaining its respective members in the Supervisory Committee. 

	7.4
	Whenever a discrepancy between the Parties arises and continues in the Supervisory Committee, each one may request any legal or
technical opinion it deems appropriate, which shall be submitted to an extraordinary meeting of the Supervisory Committee. If during the extraordinary meeting no agreement is reached, the subject
shall raised to the General Managements of the 

20

 

Parties
in order to solve it. If the discrepancy continues, the Technical Conciliation Committee shall be convened. 

CLAUSE EIGHT—ROYALTY & VALUATION  

	8.1
	The Contractor shall pay a royalty in cash, based on the Fiscalized Hydrocarbons valued at one or more Production Fiscalization Points,
in accordance with sections 8.3, 8.4 and 8.5. In the event of a loss of Hydrocarbons, the provisions of section 14.2 shall apply.

	8.2
	For the purposes of this Clause, the following terms shall have the meanings set forth below:

	8.2.1
	Transportation and Storage Cost: is the cost, expressed in Dollars per Barrel or
Dollars per MMBtu as the case may be, which includes:

	a)
	The tariff paid to third parties or the Estimated Tariff, expressed in Dollars per Barrel or Dollars per MMBtu, as the case may be, for
transportation and storage of Fiscalized Hydrocarbons from a Production Fiscalization Point to the point of sale or export.

	b)
	Costs of handling and carrying Fiscalized Hydrocarbons to a vessel's manifold or to the sale installations.

 

	8.2.2
	Valuation Period: is each fortnight of a given calendar Month, the first fortnight
being the period from the first to the fifteenth Day of that calendar Month and the second fortnight being the remainder of the said calendar Month. 

Insofar
as the relevant legislation permits, the Valuation Period may be extended or shortened by agreement between the Parties. 

	8.2.3
	Basket Price: is a price, expressed in Dollars per Barrel, representing the Peruvian
export port FOB value, based upon a basket of prices for Liquid Hydrocarbons defined in accordance with sub-section 8.4.1 for the Oil Basket Price, sub-section 8.4.3 for the Natural Gas
Liquids Basket Price and sub-section 8.4.4 for the Condensate Basket Price.

	8.2.4
	Sale Price: is the agreed price, expressed in Dollars per million BTU, effectively
paid or payable by a purchaser to the Contractor for Fiscalized Natural Gas produced in the Contract Area. This must also include other concept derived directly from the respective sales of Fiscalized
Natural Gas and from the volume of Fiscalized Natural Gas produced in the Contract Area effectively delivered, expressed in Dollars per MMBtu. 

The
following shall not be taken into account in the calculation of the Sale Price: 

	a)
	Payments resulting from the reconciliation of Natural Gas volumes contained in the respective sales/purchase contracts.

	b)
	General Sales Tax, Selective Consumption Tax, Municipal Promotion Tax and/or any other consumption tax.

 

	8.2.5
	Estimated Tariff: the cost, expressed in Dollars per Barrel or Dollars per MMBtu as
it may be applicable, of transportation from a Production Fiscalization Point to the point of sale or export or to a pipeline belonging to a third party. This cost must take into account the concepts,
methodologies and procedures referred to in the "Regulations for Hydrocarbon Transportation by Pipeline", its amendments and any regulation replacing it.

	8.2.6
	Value of Fiscalized Oil Production: is the result of multiplying the Fiscalized Oil
for a given Valuation Period by the Oil Basket Price for that period from which the corresponding Transportation and Storage Cost has been deducted, if it is pertinent. 

21

 

	8.2.7
	Value of Fiscalized Natural Gas Production: is the result of multiplying the
Fiscalized Natural Gas, in terms of its heat content in millions of BTUs for a given Valuation Period by the Sale Price for that period from which the corresponding Transportation and Storage Cost has
been deducted, if it is pertinent.

	8.2.8
	Value of Fiscalized NGL Production: is the result of multiplying the Fiscalized
Volume of Natural Gas Liquids for a given Valuation Period by the Natural Gas Liquid Basket price for the Fiscalized Natural Gas Liquids for that period, from which the corresponding Transportation
and Storage Price has been deducted, if it is pertinent.

	8.2.9
	Value of Fiscalized Condensate Production: is the result of multiplying the
Fiscalized Condensates for a given Valuation Period by the Condensate Basket Price for that period from which the corresponding Transportation and Storage Cost has been deducted, if it is pertinent.

 

	8.3
	The Contractor at the moment of declaring Hydrocarbons Commercial Discovery will choose the application of one of the two methodologies
established in paragraphs 8.3.1 and 8.3.2. Once chosen, the Contractor could not change the methodology during remaining of the Contract Period.

	8.3.1
	Methodologies based on Production Scales: It will be applied according to the Liquid Hydrocarbons and/or Natural Gas Liquids
Fiscalized Production. The Fiscalized Production levels and the royalty percentages, are the following: 

	Fiscalized Production Levels

In MBDC
	 	Royalty in

Percentage%

	< 5	 	5
	5-100	 	5-20
	> 100	 	20

MBDC:
Thousand of barrels per calendar day. 

For
a Fiscalized Production which is less than 5 MBDC a royalty percentage of 5% is applied. For a Fiscalized Production greater than 100 MBDC a royalty percentage of 20% is applied. For a Fiscalized
Production within the average of 5 MBDC to 100 MBDC the royalty percentage resulting from the calculation performed by the linear interpolation method is applied. 

For
the Natural Gas Fiscalized Production the same royalty percentages and the Fiscalized Production Levels used for Liquid Hydrocarbons will be applied, for which the following formula will be used:
Barrels shall be equivalent to the Natural Gas volume expressed in standard cubic feet divided between the factor five thousand six hundred twenty six (5,626). 

22

 

	8.3.2
	Methodology based on Economic Results (RRE): Will be applied according to the following ratio: 

	 	RRE = 5% + %t Variable Royalty
	

 	

Variable Royalty (%t) = ((Xt-1-Yt-1) / Xt-1)*(1-(1/(1+(Factor Rt-1 - 1.15)))) * 100
	

 	

It is applied when:	
 	

Rt-1 Factor 3 1.15 and the range of:
	

 	

 	
 	

0% < Variable Royalty < 20%
	

 	

 	
 	

For negative results it is considered 0% and for results the same or greater than 20% it is considered 20%

	

 	

Xt-1:	
 	
Revenue corresponding to the former annual period at the moment of executing the calculation of the Variable Royalty (%t). Include concepts applicable to Rt-1
Factor.
	

 	

Yt-1:	
 	

Expenditure corresponding to the former annual period at the moment of executing the calculation of the Variable Royalty (%t). Include concepts applicable to Rt-1 Factor.
	

 	

Factor Rt-1:	
 	

Is the quotient between the income and expenditure accumulated since the signing date up to the period t-1.

Where:

Cumulative
revenue: 

	 	Cum[PFP*(PCP-CTAP)] + Cum[PFC*(PCC-CTAC)] +
	 	Cum[PFG*(PRG-CTAG)] + Cum [PFL*(PCL-CTAL)] + Cum[OI]
	 	    PFP	 	=	 	Fiscalized Oil Production
	 	    PCP	 	=	 	Oil Basket Price
	 	    CTAP	 	=	 	Oil Transportation & Storage Cost
	 	    PFC	 	=	 	Fiscalized Condensate Production
	 	    PCC	 	=	 	Condensate Basket Price
	 	    CTAC	 	=	 	Condensate Transportation & Storage Cost
	 	    PFG	 	=	 	Fiscalized Natural Gas Production
	 	    PRG	 	=	 	Natural Gas Sale Price
	 	    CTAG	 	=	 	Natural Gas Transportation & Storage Cost
	 	    PFL	 	=	 	Natural Gas Liquids Fiscalized Production
	 	    PCL	 	=	 	Basket Price for Natural Gas Liquids
	 	    CTAL	 	=	 	Natural Gas Liquids Transportation & Storage Cost
	 	    OI	 	=	 	Other Income
	

 	

    Cum (Investment + Costs + Royalties + Other Expenditure)

Details
of revenue and expenditure and the occasions for recording the components of the "R" Factor are given in Appendix "E", Accounting Procedures. 

The
Variable Royalty Percentage calculation is performed twice a year. One during January, with Revenue and Expenditure information from January to December from the last calendar year; and the other
in July, with information from July of last calendar year to June of current calendar year. 

23

 

	8.4
	For the purposes of the Contract, the value of each class of Fiscalized Hydrocarbons shall be expressed in Dollars per Barrel or
Dollars per million Btu as the case may be, and determined as indicated below:

	8.4.1
	To determine the Value and calculate the Basket Price for Oil, the following procedure shall be used:

	a)
	At least ninety (90) Days before the Date of Commencement of Commercial Production, the Parties shall determine the quality of
Oil to be produced in the Contract Area.

	b)
	No later than thirty (30) Days after the determination referred to in a) above, the Parties shall select a basket of Oil
consisting of a maximum of four (4) components which must fulfill the following requirements:

	1.
	They should be of a similar quality like the Oil to be produced in the Contract Area.

	2.
	Their prices should appear regularly in "Platts" publication or another source recognized by the petroleum industry and agreed between
the Parties.

	3.
	They should be competitive in the market or markets in which the Oil to be produced in the Contract Area could be sold. 

Every
six (6) Months, or earlier if requested by either of the Parties, the Parties must review the basket established for the valuation of the Liquid Hydrocarbons produced in the Contract
Area, in order to verify that they still comply with the above conditions. If it is shown that any of the above conditions no longer applies, the Parties must modify the basket no later than thirty
(30) Days after the date on which the review of the basket commences. If, at the end of this period the Parties are unable to agree on a new basket, the procedures set forth in
sub-section 8.6.4 of the Contract shall be applied. 

Regarding
the quality, if it is shown that the API density (weighted average), sulphur content or other quality element of the Oil produced in the Contract Area has varied significantly from the
quality of the Oil which make up the basket (simple arithmetic average), the Parties must modify the composition of the basket to reflect the quality of the Oil in the Contract Area. 

	c)
	Once the quality of the Oil referred to in the previous paragraph has been determined, the Parties shall sign a "Valuation Agreement" in
which terms and conditions additional to those detailed in this paragraph shall be established, which are necessary for correct application. 

The
"Valuation Agreement" shall define the procedures for adjustments which may be necessary for quality reasons. Quality adjustments shall take into account awards and/or penalties for improvement
and/or deterioration of the quality of the Oil produced in the Contract Area, compared to the quality of the oils making up the basket. The "Valuation Agreement" shall also establish the in force
period and frequency when the agreed methods and procedures shall be reviewed, so as to guarantee at all times a realistic determination of the prices of the Oil produced in the Contract Area. If, at
any time, either Party considers that application of the methods and procedures established in the "Valuation Agreement" does not result in a realistic determination of the value of Oil produced in
the Contract Area, the Parties may agree to apply other methods and procedures to achieve that result. 

	d)
	If, in the future, the price of one or more of the oils making up the basket is quoted in a currency different than the Dollar, those
prices shall be converted into Dollars using the exchange rates applicable on the dates of each of the above mentioned quotations to the 

24

 

average
of the exchange rates quoted by New York Citibank N.A., New York,. In the absence of this, the Parties may agree on an adequate substitute. 

	e)
	The Basket Price used to calculate the value of the Oil produced in the Contract Area during a Valuation Period shall be determined as
follows:

	1.
	The average price of each of the Oils making up the basket shall be determined by calculating the arithmetic mean of its quotations
published during the Valuation Period. Only those Days on which all the Oils making up the basket are quoted shall be used.

	2.
	The average prices resulting from the above procedure, for each of the Oils making up the basket, shall, in turn, be averaged to obtain
the Basket Price corresponding to the value of the Oil produced in the Contract Area.

 

	8.4.2
	The Value of Natural Gas for the royalty payment shall be represented by the Sale Price, which must reflect the national market or
export price, referred to an established point within the national territory, as it may correspond. The minimum Sale Price to be applied shall be US$ 0.6 /MMBtu.

	8.4.3
	The applicable parts of the procedure laid down in sub-section 8.4.1 shall be applied in the case of Natural Gas Liquids The
Parties may agree the necessary adjustments to the Basket Price in order to establish the Natural Gas Liquids Basket Price, as to reflect as accurate as possible, the value of the Natural Gas Liquids
produced in the Contract Area.

	8.4.4
	The applicable parts of the procedure laid down in sub-section 8.4.1 shall be applied in the case of Condensates. The Parties
may agree on the necessary adjustments to the Basket Price in order to establish the Condensate Basket Price, as to reflect as accurate as possible, the value of the Condensates produced in the
Contract Area.

	8.4.5
	In case the Parties cannot reach any of the agreements considered in this section, the Technical Conciliation Committee shall be
convened.

 

	8.5
	Without detriment of what is established for in literal d) of paragraph 2.5 of "Appendix E", Accounting Procedure; if at
any moment the parties found out that a mistake in the calculation of Rt-1 Factor had produced, and that as a result of that mistake it is necessary to apply a Rt-1
factor different to the one previously applied, or that it should have been applied at a different moment to that in which it was applied, the corresponding correction will be executed affecting the
period in which the mistake occurred, readjusting the royalty percentage since that period. Every adjustment resulting from a minor royalty payment, will accrue interests in favor of the affected
Party since the moment the mistake occurred. Devolutions made to the Contractor as a result of a greater royalty payment, will be performed during the next fortnights against the balances that
PERUPETRO has to transfer to the Treasury because of the Contract, according to literal g) of article 6° of Law No 26221.

	8.6
	The amount of the royalty shall be calculated for each Valuation Period. Payment shall be made, in Dollars, no later than the second
Working Day after the end of the corresponding fortnight. The volume of Fiscalized Hydrocarbons for each fortnight shall be supported by fiscalization tickets which PERUPETRO shall provide, duly
signed in agreement, to the Contractor.

	8.7
	If the Contractor fails to pay PERUPETRO all or part of the royalty during the period stipulated in section 8.6, the Contractor
hereby makes available to PERUPETRO a sufficient quantity of Hydrocarbons extracted from the Contract Area as to cover the owed amount, incurred costs and corresponding interests according to the
provisions of section 19.6. 

25

   CLAUSE NINE—TAXES  

	9.1
	The Contractor is subject to the ordinary tax regime of the Republic of Peru, including the ordinary Income Tax regime and specific
regulations set forth in Law No 26221, in force on the Signing Date. 

The
State, through the Ministry of Economy and Finance guarantees the Contractor a tax stability during the Term of the Contract, so it shall be subject solely to the tax regime in force on the Date
of Signing, according to the provisions of the "Guaranty Tax Stability Regime and Taxation Regulations of Law No26221, Organic Law of Hydrocarbons", approved by Supreme Decree
No32-95-EF, the "Law Governing the Stability with the State under the Sector Laws.—Law No 27343", as it is applicable, the "Updated Law of
Hydrocarbons—Law No 27377", and Law 27623 and Law 27662, which rule the Return of the Sales Tax and Municipal Promotional Tax for the Hydrocarbon Exploration. 

	9.2
	Hydrocarbon Exports from the Contract Area made by the Contractor are exempted from all Taxes, including those requiring specific
mention.

	9.3
	Payments by means of "canon", "sobrecanon", and "participacion en la renta" to state entities, shall be made by
PERUPETRO.

	9.4
	Regarding the current legislation, the Contractor shall pay those taxes applicable to imports of goods and supplies
require by the Contractor to carry out the Operations, according to the law.

	9.5
	Regarding the provisions of Article 87 of the Tax Code, the Contractor may keep its accounts in Dollars and,
therefore, determination of the basis for Taxes payable by the Contractor, the amount of such Taxes and payment thereof shall be carried out according to the law.

	9.6
	It is established that the Contractor shall use the straight-line method of depreciation over a period of
five (5) Years starting from the financial year corresponding to the Date of Commencement of Commercial Production. 

This
straight-line depreciation shall be applied to all Exploration and Development expenditure and to all investments made by the Contractor from the Signature Date until the Date of
Commencement Commercial Production. 

The
above mentioned depreciation period shall be extended, without exceeding the term of the Contract, if for price reasons or due to any other factor agreed by the Parties and after applying the
linear depreciation referred to above, the Contractor's (or any of the enterprises that made up the Contractor) accounts show a loss or a fiscal loss
which, in the Contractor's judgement (or such enterprise), will not be compensated by fiscal effects according to the current tax legislation. Extensions of the depreciation period shall be made known
in advance to the National Superintendence of Tax Administration. 

CLAUSE TEN—CUSTOM DUTIES.  

	10.1
	The Contractor is authorized to import, either permanently or temporarily, according to the current legislation, all
goods necessary for the efficient and economic execution of the Operations.

	10.2
	The Contractor may import temporarily, for a period of two (2) Years, goods to be used for its activities without
paying import Duties, including those requiring specific mention. If an extension is required, a request shall be made to PERUPETRO up to two (2) times, for periods of one (1) Year each,
and PERUPETRO shall make arrangements with the General Hydrocarbons Bureau for the corresponding Directorial Resolution. With this documentation, the National Superintendence of Tax Administration
shall authorize an extension of the temporary import regime. 

26

 

The
procedure, requirements and guarantees necessary for the application of the temporary import regime shall be subject to the regulations contained in the General Customs Law, its Regulation and
Amendments. 

	10.3
	The importing of goods and supplies required by the Contractor for Exploration activities in the exploration phase are
exempt from all Taxes, including those requiring specific mention, provided that they are contained in the list of goods to which this entitlement applies, according to the provisions of
Article 56 of Law No 26221. This entitlement shall be applied for the duration of the said phase.

	10.4
	Taxes levied on imports of goods and supplies required by the Contractor for the Exploitation activities and Exploration
activities in the exploitation phase shall be borne by the importer.

	10.5
	PERUPETRO may inspect the goods imported either permanently or temporarily under the provisions of this Clause, for the
Exploration activities in the exploration phase, in order to verify that such goods have been imported exclusively for the Operations.

	10.6
	The Contractor must periodically inform PERUPETRO about the goods and supplies which have been exonerated from Taxes,
according to the provisions of Article 56 of Law No 26221. 

The
Contractor may not re-export or use for other purposes, the goods and supplies referred to in the previous paragraph, without the authorization of PERUPETRO. Once such authorization is
obtained, the Contractor must apply the corresponding Taxes, in accordance with the provisions of Article 57 of Law No 26221. 

CLAUSE ELEVEN—FINANCIAL RIGHTS  

11.1 State Guaranty  

The
Central Reserve Bank of Peru participates in the Contract, according to the provisions of Law No26221 and Legislative Decree No668, to grant to the Contractor on behalf
of the State the guarantees indicated in this clause, according with the regime in force on the Signing Date. 

The
guarantees mentioned in this clause also cover the assignee in the event of assignment, subject to the Organic Hydrocarbons Law and to this Contract. 

11.2 Exchange Rate Regime  

The
Central Reserve Bank of Peru, on behalf of the Peruvian State and in compliance with the legislation in force at the Signing Date, guarantees that the Contractor shall be subject to the exchange
rate regime in force on the Signing Date and, therefore, that the Contractor shall have the right to free possession, availability, use and disposal, both internally and externally, of foreign
currency, as well as the freedom to exchange local currency into foreign currency on the open market, under the terms and conditions set forth in this Clause. 

The
Central Reserve Bank of Peru, on behalf of the Peruvian State, guarantees the Contractor (or each one of the enterprises which made up the
Contractor) the following, according to with the regime in force on the Signature Date. 

	a)
	Free disposal for Contractor of up to one hundred per cent (100%) of the foreign currency generated by its exports of Fiscalized
Hydrocarbons, which may be deposited in its bank accounts in Peru or abroad.

	b)
	Free disposal of and the right to convert freely into foreign currency, up to one hundred per cent (100%) of the Local currency
generated by the sale of Fiscalized Hydrocarbons in the Peruvian market and the right to deposit directly in its bank accounts in Peru or abroad, both foreign currency and local currency. 

27

 

	c)
	The right to maintain, control and operate bank accounts in any currency, either in Peru or abroad, to exercise control over and enjoy
free use of such accounts and to maintain and freely dispose of the funds in such accounts, abroad, with no restriction whatsoever.

	d)
	Notwithstanding, the above paragraphs the Contractor's right to freely dispose, distribute, remit or retain abroad with no restriction
whatsoever, its net annual profits determined in accordance with the law. 

11.3 Availability and Conversion to Foreign Currency  

It
is agreed that the Contractor shall use the entities of the Peruvian financial system to have access to foreign currency as referred to in paragraph b) of section 11.2. 

In
case the foreign currency referred to in the previous paragraph cannot be supplied, either wholly or in part, by the said entities, the Central Reserve Bank of Peru shall guarantee the supply of
the necessary foreign currency. For this purpose, the Contractor must apply in writing to the Central Bank enclosing photocopies of communications received from at least three (3) entities of
the financial system stating that it is impossible to supply, either wholly or in part, the Contractor's foreign currency requirements. The communications referred to above shall be valid for two
(2) Business Days after the date of issue. 

Before
11:00 a.m. on the following Business Day after the above mentioned documents have been submitted, the Central Bank shall communicate the Contractor the exchange rate to be used for the
purchase, which rate shall be applied provided that the Contractor supplies the exchange value in Peruvian currency on the same day. 

If,
for any reason, the exchange value in Peruvian currency is not provided by the Contractor on the same day, the Central Reserve Bank of Peru shall inform the Contractor on the following Business
Day, with the same time limit, the exchange rate to be used if the purchase takes place on that day. 

Notwithstanding
the above, if the Central Reserve Bank of Peru finds that the foreign currency required cannot be supplied, either wholly or in part, by the above mentioned entities, it shall request
the Contractor to supply the Central Bank with the corresponding Peruvian currency so that the foreign currency purchase can be effected. 

11.4 Modification of Exchange Rate Regime  

The
Central Reserve Bank of Peru, on behalf of the Peruvian State, guarantees that the regime set forth in this clause shall continue to be applied to the Contractor for the term of the Contract. If,
for any reason, the exchange rate is not determined by supply and demand, the exchange rate applicable to the Contractor shall be: 

	a)
	If a unique official exchange rate is established having the same value for all foreign currency and related operations, this rate shall
be applied to the Contract from the date on which it takes effect.

	b)
	In case of multiple exchange rates are established, or different values are given to a unique exchange rate, the exchange rate to be
used for all the Contractor's operations shall be the highest with respect to the foreign currency. 

11.5 Application of other Legislation  

The
guarantees granted by the Central Reserve Bank of Peru to the Contractor shall apply during the Term of the Contract. 

28

 

The
Contractor shall have the right to avail itself /themselves, totally or partially when pertinent, of new exchange rate legislation or regulations issued during the Term of the Contract, including
those concerning exchange rate aspects not considered in this clause, provided that they are general in nature or apply to Hydrocarbon activities. Such a decision shall not affect the validity of the
guarantees covering aspects other than those considered in the new exchange rate legislation or regulations of which the Contractor may have availed itself. 

It
is expressly agreed that the Contractor may, at any time, revert to the guarantees it decided not to make use of temporarily and that reversion to such guarantees does not create rights or
obligations on the Contractor with respect to the period during which it availed itself of the above mentioned new legislation or regulations. 

It
is also agreed that reverting to such guarantees does not affect these or any other guarantees, nor creates additional rights or obligations on the Contractor. The Contractor's decision to avail
itself of new exchange rate legislation or regulations, as well as any decision to revert the guarantees that it/(they) decided not to make use of
temporarily, must be communicated in writing to the Central Reserve Bank of Peru and to PERUPETRO. 

The
provisions of this section do not affect the provisions of the first paragraph of section 11.4. 

11.6 Economic Information.  

The
Contractor shall provide monthly information to the Central Reserve Bank of Peru relating to its economic activity, according with Article 74 of the Organic Banking Law approved by
Legislative Decree No26123. 

CLAUSE TWELVE—EMPLOYEES  

	12.1
	The Parties agree that at the end of the fifth Year from the Date of Commencement of Commercial Production, the
Contractor shall have replaced all its foreign personnel by Peruvian personnel with equivalent professional qualifications. Foreign personnel in management positions and those necessary for
specialized t technical work related to the Operations are exempted from the above. The Contractor agrees to train Peruvian personnel in specialized technical work in order to that Peruvian personnel
may progressively replace foreign personnel in such positions.

	12.2
	At the commencement of the Operations, and at the end of each calendar Year, the Contractor shall provide PERUPETRO an
statistical chart of the personnel involved in the Operations, According to the form provided by PERUPETRO to the Contractor. 

CLAUSE THIRTEEN—ENVIRONMENTAL PROTECTION AND COMMUNITY RELATIONS  

	13.1
	The Contractor according to law, shall comply with the provisions and regulations of the "Environmental Regulations for
Hydrocarbon Activities" approved by Supreme Decree No046-93-EM and its amendments; Legislative Decree No613, the "Environment and Natural Resources
Code" and other relevant regulations. For such purpose, if pertinent, PERUPETRO will facilitate the coordinations between the Contractor and the competent authorities.

	13.2
	The Contractor in coordination with PERUPETRO, each time it is necessary, will divulge the scope of the Exploration and
Exploitation activities derived from the Contract to local authorities and native communities, located within the direct influence of Contract Area,. 

CLAUSE FOURTEEN—CONSERVATION OF HYDROCARBONS AND LOSS PREVENTION  

	14.1
	The Contractor must adopt all reasonable measures as to prevent any form of loss of Hydrocarbons on the surface or in
the subsoil, during Exploration and Exploitation activities. 

29

 
	14.2
	In the event of a spillage of Hydrocarbons on the surface either inside or outside the Contract Area, that must be
informed in accordance to the legal regulations in force, the Contractor must inform PERUPETRO immediately, indicating the estimated volume spilled and the measures taken to correct the causes
thereof. PERUPETRO has the right to verify the volume spilled and to investigate the cause of the spillage. 

If
Hydrocarbons are lost on the surface either inside or out side the Contract Area before the Production Fiscalization Point, due to serious negligence or fraud on the part of the Contractor, the
volume lost shall be valued in accordance with the provisions of Clause Eight and included in the royalty calculation, notwithstanding the provisions of section 13.1. 

In
the event of losses before the Production Fiscalization Point in circumstances other than those described in the previous paragraph and which give rise to compensation to the Contractor from third
parties, the compensation obtained for the hydrocarbons lost, multiplied by the factor resulted from dividing the amount of the paid Royalty for the Fiscalized Hydrocarbons in the Production
Fiscalization Point to which correspond the lost hydrocarbons, during the "fortnight" in which occurred the loss, between the value of such Fiscalized Hydrocarbons, established according to
section 8.2, during the same fortnight, will be the amount the Contractor shall pay for the Royalty of the loss hydrocarbons, at the latest the second working day of receiving such
compensation, without detriment of what is set forth in section 13.1. 

CLAUSE FIFTEEN—TRAINING AND TECHNOLOGY TRANSFER  

	15.1
	In compliance with the provisions of Article 29 of Law 26221, the Contractor is obliged to provide PERUPETRO with
the following sum, each calendar Year during the Term of the Contract: 

	 
	 	 
	 	ANNUAL CONTRIBUTION

	 
	 	 
	 	(US$)
 

	a)	 	Until the calendar Year of the Date of Commencement of Commercial Production	 	50,000.00
	
b)	
 	

The Year of the Date of Commercial Production onwards	
 	

 
	

 	
 	
Barrels per Day	
 	

 
	 	 	From 0 to 10,000	 	50,000.00
	 	 	From 10,001 to 30,000	 	80,000.00
	 	 	From 30,001 to 50,000	 	120,000.00
	 	 	More than 50,001	 	180,000.00

The
first payment shall be made on the Signature Date and shall be determined by multiplying the annual contribution corresponding to a) above by the fraction resulting from dividing the number
of Days remaining in the calendar Year in progress by three hundred and sixty five (365). 

The
annual training contribution for b) above shall be that corresponding to the range which includes the average daily production of fiscalized Hydrocarbons in the previous calendar Year,
which will be obtained by dividing the total volume of the Hydrocarbons that were supervised during that Year by the respective number of days. 

The
payments referred to in this section, with the exception of the first payment, shall be made during the Month of January of each calendar Year. 

To
determine the Barrels/Day equivalent for Natural Gas, the following formula shall be used: Barrels shall be equivalent to the volume of Natural gas expressed in standard cubic feet divided by a
factor of 5,626. 

30

 

	15.2
	The Contractor shall comply with its obligations set forth in section 15.1 by depositing its contributions in an
account indicated by PERUPETRO. 

PERUPETRO
shall provide the Contractor a letter establishing its conformity to the payment, within five (5) Business Days after receiving the contribution. 

	15.3
	The Contractor and PERUPETRO shall agree on the execution of technical co-operation programs for research
and development in subjects of mutual interest. 

Within
ninety (90) Days before the end of each calendar Year, the Parties shall submit to the Supervisory Committee the projects to be implemented in the following calendar Year. 

	15.4
	Training programs established by the Contractor for its personnel, whether in Peru or abroad, shall be notified to
PERUPETRO. 

CLAUSE SIXTEEN—ASSIGNMENT  

	16.1
	If the Contractor agrees to assign all or part of its share in the Contract, and is disposed to accept said offer, it
shall notify PERUPETRO about the proposal. This notification must be accompanied by a request for qualification of the assignee as well as the complementary information necessary for obtaining
qualification as a petroleum contractor, in accordance with the law. 

If
PERUPETRO grants the qualification requested, the assignment shall take place through an amendment to the Contract, carried out in accordance with the law. 

	16.2
	The Contractor shall assign, previous notification to PERUPETRO, according to the law all or part of its share in the
Contract to an Affiliate

	16.3
	The assignee shall provide all the guaranties and assume all the rights, responsibilities and obligations of the
assignor.

	16.4
	Each one of the enterprises which made up the Contractor shall be jointly responsible for all the obligations derived
from the Contract. 

Without
detriment of the above-mentioned, one of the enterprises which made up the Contractor shall be designated as the "Operator" as per an "Operations Agreement" to be signed within the Operator
and the other enterprises which made up the Contractor. 

The
Operator will represent the enterprises which made up the Contractor before PERUPETRO in the fulfillment of all the Contractor's obligations derived from the Contract, for which they are jointly
responsible before PERUPETRO, and to exercise the rights and duties granted by the Contract to the Contractor and that by its nature shall not be exercised in separate by each one of the mentioned
enterprises. 

When
a change of Operator occurs, within those enterprises conforming the Contractor, such change shall be previously approved in written by PERUPETRO, which shall not be denied without justification. 

Each
one of the enterprises which made up the Contractor are individually responsible of their tax responsibilities and for such responsibilities derived from these. At the same time, in relation to
the financial rights established in eleventh clause, those which separately and proportionally correspond to them. 

	16.5
	In all cases of partial assignment of sharing percentages, within the same enterprises which made up the Contractor,
which not imply withdrawal of one or more than one from the Contract or the partnership with third parties, Contractor shall previously notify PERUPETRO. PERUPETRO will evaluate and determine about
the qualification granted; and the Contractor shall submit 

31

 

documents
including the new sharing percentages, for PERUPETRO's approval, if it is according to law and rules. 

CLAUSE SEVENTEEN—ACT OF GOD OR FORCE MAJEURE  

	17.1
	Neither Party shall be liable for failure to comply with an obligation, or partial, later or defective compliance
therewith, during any period in which that Party is affected by Act of God or Force Majeure, provided it can prove that Act of God or Force Majeure has prevented due compliance.

	17.2
	The Party affected by Act of God or Force Majeure shall notify the other Party within five (5) Days of the event
and provide evidence of how this has affected compliance with the corresponding obligation. The other Party shall reply in writing accepting, or not, the reason no later than fifteen (15) Days
after receiving the above mentioned notification. The lack of response from the notified Party within the established term will be understood as an acceptation of the invoked reason. 

In
the event of partial, late or defective compliance with an obligation due to Act of God or Force Majeure, the Party obliged to comply shall do its utmost to comply in accordance with the common
intention of the Parties expressed in the Contract, and the Parties must continue to comply with the contractual obligations not affected by Act of God or Force Majeure. 

The
Party affected by Act of God or Force Majeure must resume compliance with its contractual obligations and conditions within a reasonable period of time, after the reason or reasons have
disappeared, and must notify the other Party within five (5) Days of disappearance of the reason. The Party not affected shall collaborate with the affected Party in this respect. 

In
the event of strikes, stoppages or similar occurrences, one Party may not impose a solution on the other against its will. 

	17.3
	The period during which Act of God or Force Majeure affects compliance with contractual obligations shall be added to
the period envisaged for compliance with those obligations and to the corresponding phase of the Contract and to the Term of the Contact, if necessary. 

If
Act of God or Force Majeure affects compliance with any of the minimum work programs referred to in section 4.6, the guaranty covering this period shall remain in force without being
executed for the period during which compliance is affected by Act of God or Force Majeure or until PERUPETRO makes a decision on the reasons invoked by the Contractor and, if any discrepancy arises
regarding the existence of Act of God or Force Majeure, until such discrepancy is resolved. To this end the Contractor must extend or replace the guaranty as applicable. 

Likewise,
until PERUPETRO makes a decision on the reasons invoked by the Contractor, or while any discrepancy on the existence of Act of God or Force Majeure remains unresolved, the period for
completion of the minimum work program shall be suspended. If PERUPETRO accepts the existence of the Act of God or Force Majeure invoked by the Contractor, the latter shall resume compliance with the
minimum work program as soon as possible after the disappearance of the Act of God or Force Majeure. 

	17.4
	PERUPETRO shall take all necessary steps to obtain the aid and co-operation of the appropriate government
authorities to ensure the continuity and safety of the activities covered by the Contract. 

It
is agreed that when either of the Parties, at its sole discretion, considers that its personnel or that of its sub-contractors cannot operate in the Contract Area because of risks to
their personal safety, the other Party shall not dispute that this constitutes Act of God or Force Majeure, provided that the provisions of Articles 1314 and 1315 of the Civil Code have been complied
with. 

32

 
	17.5
	If the Contractor is affected by Act of God or Force Majeure preventing it from complying with the minimum work program
in progress, after twelve (12) consecutive Months commencing on the date the Act of God or Force Majeure occurs, the Contractor may terminate the Contract, giving PERUPETRO a thirty
(30) Days notice before relinquishing the Contract Area.

	17.6
	The provisions of this Clause Seventeen do not apply to obligations involving the payment of sums of money. 

CLAUSE EIGHTEEN ACCOUNTING  

	18.1
	The Contractor shall keep its accounts according to the accounting principles and practices established and accepted in
Peru. It must also keep all books, detailed registers and documentation necessary to account for and control its activities in Peru and abroad, related to the purpose of the Contract, as well as to
adequately support the income, investments, costs, expenditure and Taxes incurred in each financial year. No later than one hundred and twenty (120) Days after the Signature Date,
(each company making up) the Contractor shall provide PERUPETRO with a copy of a "Manual of Accounting Procedures" which it proposes to use for
recording its operations. 

The
"Manual of Accounting Procedures" must contain, among other points, the following: 

	a)
	The language and currency in which the accounts are to be kept.

	b)
	Applicable accounting principles and practices.

	c)
	Accounts Plan and Structure, in accordance with the provisions of the Companies Supervision Commission (CONASEV).

	d)
	Mechanisms for distinguishing accounts corresponding to the Contract and other Hydrocarbons contacts from those related to other
activities.

	e)
	Mechanisms for attributing revenues, investments, common expenditures and costs to the Contracts, to other hydrocarbons contracts to
related activities and to other activities.

	f)
	Determination of income and expenditure accounts and the detailed registers for the purpose of calculating the "Rt-1"
Factor, as well as details of the procedures described in Appendix "E" herein, if pertinent.

 

	18.2
	If what is established in the preceding literal f) is included in the "Manual of Accounting Procedures",
PERUPETRO, no later than thirty (30) Days after receiving it, shall inform the Contractor of its approval of the "Rt-1" Factor accounting procedure referred to in such literal,,or,
of its suggestions for improving and/or extending this procedure. If no notification is received from PERUPETRO within the said period, the procedure referred to in literal f) of
section 18.1 shall be considered as approved in its entirety. 

Within
the same period of thirty (30) Days after receiving the "Manual of Accounting Procedures", PERUPETRO may make suggestions and/or observations to improve, extend or eliminate one or more
of the other accounting procedures set forth in the Manual. All changes to the approved "Rt-1" Factor accounting procedure shall previously be submitted to PERUPETRO for approval and for
this purpose the procedure set forth in the first paragraph of this section shall be followed. 

In case of modifications in the sharing of the enterprises which made up the Contractor, the new enterprises shall be obliged to submit its corresponding "Manual of Accounting
Procedures". The enterprises which, after modifying the participation, continue to be constituent part of the Contractor shall submit a modification of their "Manual of Accounting
Procedures".

33

 

	18.3
	The Contractor accounts, financial statements and their support documentation shall be made available to the authorized
representatives of PERUPETRO for inspection after prior notice has been given.

	18.4
	The Contractor shall carry out records of the assets, used in the Contract Operations, according to the Peruvian
accounting regulation in force and to the accounting practices generally accepted within the world oil industry. 

PERUPETRO
may, at its own criteria, request the Contractor information about its properties. At the same time, PERUPETRO may request the Contractor its physical inventories schedule of the goods
inherent to the Operations, classifying them according to their ownership, the Contractor or third parties. PERUPETRO may also request to take part in the inventories if considered convenient. 

	18.5
	The Contractor shall submit within thirty (30) Days of publication, a copy of the external auditors' report on
the financial statements corresponding to the previous financial year. In case the Contractor has entered into more than one contract with PERUPETRO, or performs activities different than those of the
Contract, it is obliged to carry out separated accounts with the purpose of formulating financial statements for each contract and/or activity, and as a consequence, the report executed by its
external auditors shall include also financial statements by each contract and/or activity.

	18.6
	Contractor shall submit, within the fifteen (15) Days of having submitted before the National Superintendence of
Tax Administration or any entity replacing it, copy of all the documents enclosed to the income tax affidavit.

	18.7
	The agreement entered into the enterprises which made up the Contractor, governing the relations between them and the
capacities, rights and obligations of the Operator, named "Operations Agreement", amendments or extensions or new "Operations Agreements" shall be delivered to PERUPETRO in Spanish language, within
the thirty (30) days following the Signing Date. 

The
enterprise designated as Operator will keep a special accounts system in which shall be registered everything related to Operations. 

CLAUSE NINETEEN—VARIOUS  

	19.1
	If, on one or more occasions, either Party fails to invoke or insist on compliance with any of the provisions of the
Contract, or on exercising any of the rights granted under this Contract, this shall not be construed as waiving such provision or right.

	19.2
	In carrying out the Operations, the Contractor shall comply with all the resolutions issued by the competent authorities
in the exercise of their legal powers. The Contractor is also obliged to comply with all the dispositions of the competent authorities relating to defense and national security.

	19.3
	The Contractor has the right to free entry to and exit from the Contract Area.

	19.4
	In accordance with current legislation, the Contractor shall have the right to use for the Operations timber, water,
gravel and other construction materials found in the Contract Area, respecting the rights of third parties if applicable.

	19.5
	Technical information from the Contract Area or other areas which the Contractor wishes to acquire must be requested
from PERUPETRO, which will provide it in accordance with its Use and Transference Policy for PERUPETRO's technical information. For this purpose the Parties shall sign a "Letter of Agreement". 

34

  

	19.6
	If either Party fails to make payments within the agreed period, the amount of the payment shall be subject to the
following rates of interest commencing on the Day after the date on which it should have been paid:

	a)
	For accounts expressed and payable in Peruvian currency, the applicable rate shall be the local currency lending rate (TAMN) for loans
of up to three hundred and sixty (360) Days, published by the Banking and Insurance Superintendent, or that which replaces it, applicable to the period between the due date and the effective
date of payment.

	b)
	For accounts expressed in Dollars, and payable in local currency or Dollars, the applicable rate shall be the Prime Rate plus three
(3) percentage points, published by the Federal Reserve of the United States of America, applicable to the period between the due date and the effective date of payment or, failing this, the
Parties shall agree another adequate replacement rate.

 

	19.7
	The provisions of section 19.6 shall apply to all accounts between the Parties arising from the Contract or any
other agreement or transaction between the Parties. Different arrangements for the payment of interest may be established by written agreement between the parties. The provisions contained herein for
the application of interest shall not modify in any way the Parties' legal rights and means to ensure payment of sums owed.

	19.8
	In the event of a national emergency decreed by law, in virtue of which the State must acquire Hydrocarbons from local
producers, these shall be acquired at prices according to the provisions of Clause Eight and payment shall be made thirty (30) Days after delivery.

	19.9
	The Peruvian State, through the Ministry of Defense and Ministry of the Interior, shall provide the Contractor, as far
as possible, with all necessary security measures for the Operations.

	19.10
	The Contractor shall release and, if necessary, compensate PERUPETRO and the Peruvian State as the case may be, from
any third party claim, legal action, charge or lien resulting from the Operations and relations covered by the Contract, and arising from any contractual or non-contractual relationship,
except those arising from the actions of PERUPETRO or the Peruvian State.

	19.11
	Contractor shall have free availability of the Hydrocarbons corresponding to it, according to the Contract.

	19.12
	In the event of variation in the participation percentages of natural persons or legal entities constituting the
Contractor, and as long as there is no assignment of contractual position, the Contractor shall notify PERUPETRO, before performing the mentioned variation, in order that PERUPETRO evaluates and
declares itself about the qualification granted to the Contractor. If the participation variation proceeds, Contractor shall enclose the documents reflecting the new variation percentages. 

(Se
eliminó de está cláusula pero se puso en la 18) 

CLAUSE TWENTY—NOTICES AND COMMUNICATION  

	20.1
	All notices and communications related to the Contract shall be considered validly delivered if in writing and with
proof of delivery, or received by means of register post or facsimile or other method agreed between the Parties on a Business Day at the following addresses: 

PERUPETRO:

PERUPETRO
S.A.

General Management

Av. Luis Aldana No 320

Lima 41—Peru.Fax: 475 7722 / 475 9644 

35

 

Contractor:

Fax:

Corporate Guarantor:

Fax:

	20.2
	Either Party shall have the right to change its address or facsimile number for the purposes of notices and
communications, through a notice to the other Party at least five (5) Business Days before the change takes effect. 

The
provisions of the first paragraph of this section also apply to the Corporate Guarantor. 

CLAUSE TWENTY ONE—SUBMISSION TO PERUVIAN LAW AND SETTLEMENT OF DISPUTES  

21.1 Submission to Peruvian Law  

The
Contract has been negotiated, drafted and signed in accordance with the laws of Peru, and its content, execution and other consequences arising therefrom are governed by the domestic legislation
of the Republic of Peru. 

21.2 Technical Conciliation Committee  

The
Technical Conciliation Committee shall meet no later than fifteen (15) Business Days after being called by either Party and shall consist of three.(3) members qualified in the subject under
discussion. Each of the Parties shall select one (1) member and the third by the members appointed by the Parties. If either Party fails to nominate its representative within the time allowed,
or if the members nominated by them cannot agree on the third member within the time allowed, or if the Technical Conciliation Committee fails to reach a decision within the time allowed, either Party
may submit the discrepancy to arbitration as set forth in section 21.3 of the Contract. 

The
Parties shall agree on the procedures which are to govern this Committee no later than sixty (60) Days after the Signature Date. 

The
decisions of the Technical Conciliation Committee shall be published no later than thirty (30) Days after it has been installed and shall be binding until an arbitration tribunal, if
applicable, arrives at a final decision. Without affecting compliance with the decision of the Technical Conciliation Committee, either Party may resort to arbitration in accordance with the
provisions of section 21.3, within sixty (60) Days after the date of receipt of the above mentioned decision. 

21.3 Arbitration Agreement  

Any
lawsuit, controversy, dispute or claim between the Contractor and PERUPETRO arising from the Contract or concerning the interpretation, compliance, resolution, termination, effectiveness or
validity thereof, which cannot be resolved by mutual agreement between the Parties must be resolved through international arbitration, in accordance with the provisions of Article 68 of Law
No26221. 

Arbitration
shall take place in Spanish, in accordance with the provisions of this clause. The arbitration shall be administered by the International Chamber of Commerce, hereinafter referred to as
ICC. In all matters not considered in this clause, the arbitration shall be organized and carried out in accordance with the ICC Arbitration Regulations in force on the Signature Date. In addition to
this clause and the said Regulation, the regulations contained in Law No 26572, General Arbitration Law, or any legislation which may replace it, shall apply. 

36

 

Three
(3) arbitrators shall be appointed, one by each of the Parties and the third by the arbitrators appointed by the Parties. If, after thirty (30) Days from the appointment of the
arbitrators by the Parties, these have not appointed the third, either Party may request the ICC to make the appointment. 

The
matter in dispute shall be determined by the petition, its plea and eventually, if applicable, by the counterclaim and its plea. At request of any of the Parties, after fifteen (15) Working
Days counted upon the corresponding summons, if there is no reply to the petition or counterclaim, the arbitrators are empowered to precise the dispute if any of the Parties denies to do it. 

The
arbitrators shall apply the domestic law of the Republic of Peru in arriving at a solution to the lawsuit, controversy, dispute or claim submitted to arbitration. 

Arbitration
shall take place in the city of Lima, Peru, unless the Arbitral Court could not meet in this city due to circumstances foreign to the will of its members. Under these circumstances, the
Parties shall agree other place to carry out the arbitration. If after fifteen (15) Days, counted upon the summons of the arbitrators impediment to the Parties, these would not reach an
agreement about the new place to carry out the arbitration, the CCI will establish the place. 

If
the amount at issue exceeds five hundred thousand and 00/100 Dollars (US$500,000.00) and one of the Parties considers that the arbitration should take place in another city and country, it shall be
sufficient to state this and propose another city and country in the first written communication notifying the other Party of the decision to resort to arbitration. If the Parties have not reached
agreement on an alternative location for the arbitration after fifteen (15) Days from the above mentioned notification, the ICC shall decide where the arbitration is to be held. 

If
there is a discrepancy over the amount at issue, or if the amount cannot be determined, it is the responsibility of the ICC to fix the place where the arbitration is to be held, taking into account
the provisions of the previous paragraph. 

The
Parties waive all rights of appeal, annulment or protest against the decision of the arbitrators. An appeal for annulment against the decision shall only be allowed under those circumstances
envisaged by law. The Parties declare that the arbitrators' decision is final and binding and shall be acted upon immediately. 

The
Parties bind themselves to do everything necessary to ensure that the arbitration process is carried to completion and execution. 

The
maximum duration of the arbitration process shall be one hundred and eighty (180) Business Days, commencing on the date of the Act of installation of the arbitration tribunal, or other
similar Act. If an extension to this period is required, the provisions of the ICC Arbitration Regulations shall apply. 

If
the arbitrators' decision is reached outside Peru, acknowledgement and execution thereof shall be governed by the "Convention on the Acknowledgement and Execution of Foreign Arbitration
Decisions—New York 10th June 1958" (the New York Convention) or the "Interamerican Convention on International Commercial Arbitration—Panama, 30th January 1975"
(the Panama Convention), or the provisions concerning this matter of Law No 26572, General Arbitration Law, or any legislation which may replace it, as determined by the Party requesting
acknowledgement and execution of the decision. 

Whilst
arbitration is taking place, the Parties shall continue to comply with their contractual obligations, as far as possible, including those subject to the arbitration process. If the arbitration
concerns compliance with the contractual obligations covered by the guaranties referred to in section 3.10, these guaranties cannot be executed and must be maintained in force in a period that
exceeds in thirty (30) during the arbitration process. 

37

 

During
the development of the arbitration the Parties shall continue fulfilling their contractual obligations, as it may be possible, including those which are matter of arbitration. 

Without
detriment of the above-mentioned, if the arbitration matter is related to the fulfillment of the contractual obligations guaranteed with the guaranties to which are referred to in
section 3.10, the calculation of the respective term will remain in suspense, and the guaranties could not be executed. Those guaranties shall be maintained un force during the arbitration
proceeding. For such purpose the Contractor shall extent or replace such guaranties, as it may be necessary. 

	21.4
	The Parties waive the right to claim through diplomatic channels.

	21.5
	This Contract is drafted and interpreted in Spanish, and the Parties agree that this is the only and the official
version. 

CLAUSE TWENTY TWO—TERMINATION.  

	22.1
	Termination of this Contract is governed by the provisions contained herein and, additionally, by the regulations
contained in Law No 26221; and, regarding anything not envisaged therein, by the regulations contained in the Civil Code. 

Except
in the cases envisaged in section 22.3, when either Party fails to comply with any of the obligations set forth in the Contract for reasons other Act of God or Force Majeure, the other
Party may notify said Party of the failure to comply and its intention to terminate the Contract after sixty (60) Days if the non compliance is not made good within this period or the first
Party cannot show that it is making good the non compliance to the satisfaction of the other Party. 

If
the Party which receives a notification of non compliance questions or denies the existence of such non compliance, that Party may refer the matter to arbitration in accordance with the provisions
of Clause Twenty One, within a period of thirty (30) Days after receiving the notification. In this case, the above mentioned period of sixty (60) Days shall be suspended until the
arbitrators' decision has been communicated to the Parties; the Contract shall be terminated if the non compliance is confirmed and is not made good within the said period. 

The
Contract may terminate before the end of its Term, by express agreement between the Parties. 

	22.2
	On termination of the Contract, all rights and obligations of the Parties specified in the Contract shall cease entirely
and the following shall be taken into account:

	a)
	The rights and obligations of the Parties derived from this Contract before the date of termination should be respected; including,
within others, the right of the Contractor over the hydrocarbons extracted and the guaranties established in the Contract; and

	b)
	In the event of non compliance with and responsibility for any of the obligations specified in the Contract, incurred before the date of
termination by either Party these shall be made good by the infringing Party, with the exception of the obligations specified in the Contract which cease on termination thereof.

 

	22.3
	The Contract shall terminate as by operation of law and without prior proceedings in the following cases:

	22.3.1
	If the Contractor has failed to comply with the execution of the minimum work program for any period of the
exploration phase after making use of the extensions contemplated in section 3.4, if appropriate, and without giving satisfactory reasons to PERUPETRO, unless the provisions of sections 4.7 and
4.13 apply.

	22.3.2
	If at the end of the exploration phase, or retention period, whichever occurs last, no declaration of Commercial
Discovery has been made. 

38

 

	22.3.3
	In the specific cases set forth in sections 3.10, 4.2 and 17.5.

	22.3.4
	If the Contractor has been declared insolvent, bankrupt, dissolved or Liquidated, and the other enterprise or other
enterprises that are part of the Contractor, or a third party duly qualified by PERUPETRO do not take over the participation in the Contract of the enterprise dissolved, liquidated or bankrupted
within the fifteen business days.

	22.3.5
	If the corporate guaranty(ies) referred to in section 3.11 are not in force or should the insolvency,
dissolution, Liquidation or bankruptcy of any entity that granted the guarantee mentioned in section 3.11 have been declared and said guarantee has not been assumed by a third party and
accepted by PERUPETRO.

	22.3.6
	By order of an arbitration tribunal declaring, in the cases set forth in section 22.1, non compliance and this
is not made good in accordance with the provisions of that section, or by order of an arbitration tribunal which declares the Contract terminated.

	22.3.7
	At the end of the Contract Term.

 

	22.4
	In accordance with the provisions of Article 87 of Law No 26221, the Contract may also be
terminated when activities cease permanently as a result of applying the "Environmental Regulations for Hydrocarbons Activities" approved by Supreme Decree No
046-93-EM and its modifications.

	22.5
	If the Contractor or any of the entities providing the guaranty referred to in section 3.11 seeks judicially
protection through the Courts against the actions of creditors, PERUPETRO may terminate the Contract if it deems that its rights under the Contract are not duly protected.

	22.6
	At the termination of the Contract, the Contractor shall return to the Peruvian State, through PETROPERU, at no charge
whatsoever to the latter, unless it does not require them, the buildings, energy installations, encampments, means of communication, pipelines and other production assets belonging to the Contractor,
which will allow the Operations to continue. Such assets must be returned in good condition, well maintained and in working order, taking into account fair wear and tear. 

If
joint Oil Production, Non-associated Natural gas and/or Non-associated Natural gas and Condensates is taking place, at the end of the period established in
section 3.1 for the Petroleum exploration phase, the Contractor shall return to the Peruvian State, through PETROPERU, at no charge whatsoever to the latter, unless it does not require them,
the assets and installations used for Oil Production which are not necessary for the Production of Non-associated Natural gas and/or Non-associated Natural gas and Condensates.
Such assets must be returned in good condition, well maintained and in working order, taking into account fair wear and tear. 

The
assets and installations retained by the Contractor for the Production of Non-associated Natural gas and/or Non-associated Natural gas and Condensates which have also been
utilized in Oil Production, even when these continue as the Contractor's property, shall be used in the production of both products and an agreement shall be entered into between the Parties to this
effect. 

If
the Contractor has been using the assets and installations described in the first paragraph of this section, but they are not devoted exclusively to the Operations, that is, they have also been
used for operations in other areas covered by a current contract for the Exploration and Exploitation of Hydrocarbons in Peru, the Contractor shall continue to own and make use of such assets. 

	22.7
	For the purpose of complying with the provisions of section 22.6, during the last Year of the Contract Term, the
Contractor shall carry out those actions and enter into those agreements required by PERUPETRO and aimed at ensuring an ordered and uninterrupted transition of the Operations being carried out at the
date of termination of the Contract. 

39

   ANNEX "A"

BLOCK            DESCRIPTION

LOCATION  

LOCATION  

        Block            is located offshore, Pacific Ocean, in front
of                        Department, and its boundaries are shown in Annex "B" (map) and described as
follows: 

REFERENCE POINT  

        The Reference Point (P.R.) is the Geodesic Station            ,known
as            located in the Province of                        ,
Department of 

DEPARTURE POINT  

        From Station            (P.R.),
measure                        m. West and
then                        m. North to arrive at Point            ,
which is the Departure
Point (P.P.) on the perimeter of the Block. 

CONFIGURATION OF THE BLOCK

Description of each corner 

ADJOINING AREAS  

To
the North,

To the South,

To the West,

To the East, 

LIST OF COORDINATES OF REFERENCE POINT AND CORNERS OF BLOCK  

	POINT
 
	 	GEOGRAPHICAL

COORDINATES
	 	PLANE U.T.M.COORDINATES

	    	 	 	 	 
	

    	
 	

 	
 	

 

EXTENSION

40

   ANNEX "B"  

 BLOCK MAP  

41

   ANNEX "C-1", "C-X",

LETTER OF GUARANTY FOR THE            PERIOD OF THE MINIMUM WORK PROGRAM  

LETTER
OF GUARANTY No

Lima

Messrs. 

PERUPETRO S.A.

Dear
Sirs, 

        We,            (entity of the financial system)             hereby stand as joint and several guarantors
with                        .,
hereinafter referred to as the Contractor, to PERUPETRO S.A., hereinafter referred to as PERUPETRO, for the sum of            and 00/100 Dollars
(US$            ) in order to guarantee
faithful compliance of the Contractor's obligation to                        under the minimum work program for
the            period, contained in sub-section 4.6            of
Clause Four of the License Contract for the Exploration and Exploitation of Hydrocarbons in the Block            , entered into with PERUPETRO, (hereinafter referred to as the Contract).

        The
obligation assumed by            (entity of the financial system)             under
this Guaranty is limited to paying
PERUPETRO the sum of                        and 00/100 Dollars
(US$            ) against their request for payment. 

	1.
	This
is an irrevocable, unconditional, joint and several guaranty, without excussio, automatically executable and payable, whilst it is in force, against presentation of a notarial
letter sent by PERUPETRO to            (entity of the financial system)    , requesting payment
of                        and 00/100 Dollars
(US$ )

	2.
	This
guaranty shall expire on the                        ,
unless            (entity of the financial system)             has received,
prior to this date, a letter from PERUPETRO, absolving            (entity of the financial system)
             and the Contractor from all
responsibility under this guaranty, in which case this guaranty shall cease to be effective from the reception date of the said letter from PERUPETRO.

	3.
	Any
delay on our part in honouring this guaranty in your favor shall accrue interest equivalent to the Foreign Currency Lending Rate (TAMEX), used by financial institutions and
published by the Banking and Insurance Superintendent, applicable during the period of the delay, or any rate which may replace it. Interest shall be calculated from the reception date of the notarial
request sent by PERUPETRO to            (entity of the financial system)

No
claim whatsoever regarding this guaranty may be made after the date of expiry, or the date on which it ceases to be effective, and            (entity of the financial
system)             and the Contractor shall be absolved of all responsibility and obligation arising from this guaranty. 

	Yours faithfully,	 	 
	

    
(entity of the financial system)	
 	

 

42

   ANNEX "D"

CORPORATE GUARANTY  

Messrs.

PERUPETRO S.A.

Luis Aldana 320

Lima 41

PERU 

        In
accordance with the provisions of section 3.11 of the License Contract for the Exploration and Exploitation of Hydrocarbons in Block 70, to be entered into between PERUPETRO
S.A. ("PERUPETRO") and                        ("Contractor"), we,
            , hereby stand as joint and several guarantors with            , to PERUPETRO, in order to guarantee compliance with
all
its obligations assumed under the minimum work program described in section 4.6 of the Contract of each one of the annual Exploration programs, however amended or changed, submitted by the
Contractor to PERUPETRO in compliance with section 5.3 of the Contract. 

        This
guaranty shall remain in force while the obligations derived from the Contract are enforceable. For the purposes of this Guaranty,
                        , submits itself to the laws of the
Republic of Peru, expressly waives all claims through diplomatic channels and submits itself to the arbitration procedure for the solution of disputes set forth in Clause Twenty One of the Contract. 

	

Yours faithfully,	
 	

 
	
Company
 (Authorized Officer).	
 	

 

43

   ANNEX "E"

ACCOUNTING PROCEDURES  

	1.
	GENERAL PROVISIONS

	1.1
	PURPOSE

The
purpose of this Annex is to establish accounting rules and procedures enabling the Contractor's income, investments, expenditure and operating costs to be determined for the purposes of
calculating the "Rt-1" Factor referred to in Clause Eight of the Contract. 

	1.2
	DEFINITIONS

The
terms used in this Annex which have been defined in Clause One of the Contract shall have the meaning assigned to them in that clause. The accounting terms included in this Annex shall have the
meanings given to them by the accounting rules and practices accepted in Peru and in the international Petroleum industry. 

	1.3
	ACCOUNTING RULES

	a)
	The Contractor shall keep its accounts in accordance with current legislation and the accounting principles and practices established
and accepted in Peru and in the international Petroleum industry, and in accordance with the provisions of these Accounting Procedures.

	b)
	The "Accounting Procedures Manual" referred to in section 18.1 of the Contract must take into account the stipulations of this
Appendix.

 

	2.
	ACCOUNTS LEDGERS, INSPECTION AND ADJUSTMENTS

	2.1
	SYSTEM OF ACCOUNTS

In
order to determine the "Rt-1" Factor, the Contractor shall keep a special system of accounts to record, in Dollars, income and expenditure related to the Contract Operations. This
system shall consist of two main accounts: the "Rt-1" Factor Income Account, and the "Rt-1" Factor Expenditure Account. 

	2.2
	EXCHANGE RATE

Transactions
carried out in Peruvian currency shall be recorded using the sales exchange rate current on the Day in which the expenditure was effected or the income received. Transactions carried out
in Dollars and valuation of the production shall be recorded in accordance with the provisions of point 3.3 herein. 

	2.3
	SUPPORT DOCUMENTATION

The
Contractor shall keep the original documentation supporting the charges made to the "Rt-1" Factor accounts. 

	2.4
	"Rt-1" FACTOR STATEMENT OF ACCOUNT

During
the exploration phase, the Contractor shall submit to PERUPETRO, no later than thirty (30) Days after the end of each period, a Month per Moth Statement of Account for the
"Rt-1" corresponding to such period. 

If
Contractor chooses to apply the methodology described in section 8.3.2, for the royalty calculation, he shall submit PERUPETRO, within thirty (30) Days following the date of Declaring
Commercial Discovery, a detailed statement Month per Month of Accounts for the 

44

 

R
t-1 Factor Income and Expenditure corresponding to the period elapsed since last statement submitted until July or December of the preceding year, as it may correspond. 

Henceforth,
Contractor shall submit to PERUPETRO, within the fifteen (15) Days following the end of January and July of each calendar year, a detailed month per month Statement of Accounts for
the Rt-1 Factor Income and Expenditure, corresponding to the preceding semester. 

	a)
	Statement of Account of "Rt-1" Factor Income 

The
Month per Month Statement of Account of the "Rt-1" Factor Income includes the valuation of Fiscalized Production corresponding to the reported semester. It shall also include, in
detail and classified according to nature, all transactions by which the Contractor has received income, including the dates on which this income was effectively received, a short description of the
transaction, the number of the accounts receipt, amount in Dollars or in local currency and in Dollars if the income is received in local currency, and the corresponding exchange rate. 

	b)
	Statement of Account of "Rt-1" Factor Expenditure 

The
Statement of Account of the "Rt-1" Factor Expenditure shall contain, in detail and classified by nature, all transactions by which the Contractor has made payments including the dates
on which these
payments were effectively made, a short description of the transaction, the number of the accounts receipt, amount in Dollars or in local currency and in Dollars if the income is received in local
currency, and the corresponding exchange rate. 

	2.5
	INSPECTION OF THE ACCOUNTS AND ADJUSTMENTS

	a)
	The account ledgers and original documentation supporting the transactions included in each Monthly Statement shall be placed at the
disposal of authorized representatives of PERUPETRO, during office hours, for inspection, whenever required. 

Inspections
of the account ledgers and supporting documentation shall be carried out in accordance with generally accepted auditing rules, including sampling procedures if necessary. 

	b)
	The Statements of Account of the "Rt-1" Factor shall be considered to have been accepted if PERUPETRO makes no written
objection within a maximum period of twenty four (24) Months commencing on the date they were submitted to PERUPETRO. 

The
Contractor must reply, providing documents, to comments made by PERUPETRO no later than three (3) Months after receipt of the communication in which PERUPETRO states its comments. If the
Contractor fails to do so within the above mentioned period, PERUPETRO's comments shall be taken as accepted. 

	c)
	Any discrepancy arising from an inspection of the accounts must be resolved by the Parties within a maximum period of three
(3) Months commencing on the date on which PERUPETRO receives the Contractor's reply. At the end of this period, the discrepancy shall be put to the Supervisory Committee which shall proceed in
accordance with the provisions of section 7.4 of the Contract. If the discrepancy persists, the Parties may agree that it be examined by a firm of external auditors previously accepted by
PERUPETRO, or that the procedures set forth in section 21.3 of the Contract be followed. The decision of the external auditors or arbitration tribunal shall be final. 

45

 

	d)
	If an inspection of the accounts establishes that in a given Month a different "Rt-1" Factor to that which was actually used
should have been applied, every adjustment shall accrue interests as it is set forth in section 8.5 of the Contract.

 

	3.
	REVENUES AND EXPENDITURES IN THE "Rt-1" FACTOR ACCOUNTS

	3.1
	REVENUES

The
following shall be recognized as revenues and recorded in the "Rt-1" Factor Revenue Account: 

	a)
	The valuation of Fiscalized Hydrocarbon Production in accordance with Clause Eight of the Contract.

	b)
	Sales of assets acquired by the Contractor for Contract Operations, the cost of which was recorded in the "Rt-1" Factor
Expenditure Account.

	c)
	Services rendered to third parties involving personnel whose remuneration and benefits are recorded in the "Rt-1" Factor
Expenditure Account and/or involving goods whose acquisition cost has been recorded in the "Rt-1" Factor Expenditure Account.

	d)
	Revenues from letting assets belonging to the Contractor, whose acquisition cost has been recorded in the "Rt-1" Factor
Expenditure Account or sub-letting of goods whose hire is charged to the "Rt-1" Factor Expenditure Account.

	e)
	Compensation received from insurance policies taken out in relation to Contract activities for damaged goods, including compensation for
loss of profits. The income obtained as a result of a Hedging is not considered.

	f)
	Other revenues representing credits applicable to charges to the "Rt-1" Factor Expenditure Account.

 

	3.2
	EXPENDITURES

From
the Date of Signing, all investments, expenditures and operating costs which are duly supported by a corresponding receipt shall be recognized. This recognition shall nevertheless be subject to
the following limitations: 

	a)
	Regarding personnel: 

The
remuneration and benefits granted to Contractor's personnel assigned permanently or temporarily to the Operations. For such purpose the Contractor shall put at disposal of PERUPETRO, as it may
deem convenient, the payroll and the internal personnel policy of the enterprise. 

In
general, all remuneration and benefits of the Contractor's operations and administrative personnel incurred in the execution of the Operations shall be recorded, classified according to their
nature. 

If
the Contractor carries out activities other than those of the Contract, the cost of personnel assigned temporarily or partially to the Operations shall be charged to the Expenditure Account in
accordance with the provisions of line h) of this point 3.2. 

	b)
	Regarding services of Affiliates: 

When
services are provided by Affiliates, the prices charged shall be competitive with those of other companies. 

46

 

	c)
	Regarding materials and equipment: 

Materials
and equipment acquired by the Contractor shall be recorded in the "Rt-1" Factor Expenditure Account in accordance with the following points: 

	•
	New
materials and equipment (condition "A")

Condition "A" includes new materials and equipment which can be used without any reconditioning whatsoever and they shall be recorded at the price appearing on the corresponding commercial invoice
plus those costs generally accepted in accounting practice, including additional importing costs if applicable.

	•
	Used
materials and equipment (condition "B")

Condition "B" includes those materials and equipment which, although not new, can be used without any reconditioning whatsoever and they shall be recorded at seventy five per cent (75%) of the prices
being quoted at that time for new materials and equipment, or at the purchase price shown on the corresponding commercial invoice, whichever value is lower.

	•
	Materials
and equipment (condition "C")

Condition "C" includes those materials and equipment which can be used for their original function after adequate reconditioning and they shall be recorded at fifty per cent (50%) of the prices being
quoted at that time for new materials and equipment, or at the purchase price shown on the corresponding commercial invoice, whichever value is lower.

	d)
	Regarding
freight and transport costs: 

Only
travel expenses for Contractor's personnel and their families shall be recognized, as well as transport costs for personal and household effects, according to the internal policy of the
enterprise. 

In
transport of equipment, materials and supplies necessary for the Operations, the Contractor shall avoid payment of "false freights". If this occurs, recognition of such payments shall require
PERUPETRO's express acceptance in writing. 

	e)
	Regarding insurance: 

Premiums
and net costs of insurance taken out wholly or partially with Affiliates of the Contractor shall be recognized only insofar as they are competitive compared to insurance companies which are
unconnected to the Contractor. It shall not be considered payments performed as a results of Hedging contracts. 

	f)
	Regarding taxes: 

Only
taxes paid in relation to activities inherent in the Contract shall be recognized. 

	g)
	Regarding expenditure on research: 

Research
expenditure for the development of new equipment, materials, procedures and techniques to be used in the search for, development and production of Hydrocarbons, as well as expenditure on
improvement to these, shall be recognized after approval in writing has been obtained from PERUPETRO. 

	h)
	Regarding the proportional assignment of general expenditure: 

If
the Contractor is carrying out activities other than those of the Contract or has entered into more than one contract with PERUPETRO, a proportion of the costs of technical and administrative
personnel, the costs of maintaining administrative offices, warehousing 

47

 

costs
and expenditure as well as other indirect costs and expenditure shall be charged to the "Rt-1" Factor Expenditure Account in accordance with a policy previously proposed by the
Contractor and accepted by PERUPETRO. 

	3.3
	TIME OF RECORDING

	a)
	Income corresponding to the valuation of Fiscalized Hydrocarbons Production in a given calendar Month, shall be recorded as income for
the calendar Month in which it was monitored.

	b)
	The income referred to in lines b), c), d), e) and f) of point 3.1 herein, shall be charged to the Income Account at the
moment at which it is effectively received.

	c)
	Expenditures shall be recorded at the moment at which the corresponding payments are made.

 

	4.
	UNRECOGNISED INCOME AND EXPENDITURE

	4.1
	UNRECOGNISED INCOME

The
following shall not be recognized as income for the purposes of calculating the "Rt-1" Factor: 

	a)
	Financial income in general.

	b)
	Income received for services rendered by the Contractor or sales of Contractor's assets occurring before the Signing Date of the
Contract.

	c)
	Income received for activities not related to the Contract Operations.

 

	4.2
	UNRECOGNISED EXPENDITURE

Payments
made for the following concepts shall not be recognized as expenditures for the purposes of calculating the "Rt-1" Factor: 

	a)
	Investments, expenditure and costs incurred by the Contractor before the Signature Date.

	b)
	Interest paid on loans, including interest on suppliers' credit.

	c)
	Financial costs in general.

	d)
	The cost of inventories in the event of a transfer of Contractor's rights in virtue of the Contract.

	e)
	Depreciation and amortization of assets.

	f)
	Amounts payable as a result of failing to comply with contractual obligations, as well as fines, penalties and compensation payments
imposed by the authorities.

	g)
	Fines, surcharges and adjustments derived from failure to comply with prompt payment of taxes currently in force in Peru.

	h)
	Income Tax applicable to the Contractor and Tax on to profits available to the parent company abroad, if applicable.

	i)
	Value Added Tax and Municipal Promotion Tax, unless it is an expenditure according to Income Tax Law.

	j)
	Donations in general, except those approved by PERUPETRO.

	k)
	Publicity expenses, except those approved by PERUPETRO. 

48

 

	l)
	Costs and expenditures incurred for transport and sale of Hydrocarbons beyond the Production Fiscalization Point.

	ll)
	Investment in facilities for the transportation and storage of Hydrocarbons produced in the Contract Area, after the Production
Fiscalization Point.

	m)
	Other investments and expenditures not connected with the Contract Operations.

 

	5.
	REVIEW OF THE ACCOUNTING PROCEDURES

The
provisions of these Accounting Procedures may be modified by agreement between the Parties, indicating the date on which such modifications take effect, without detriment of the corresponding
regulations. 

49

  

 
 

ANEXO "F"    
    
    EXPLORATION WORKING UNITS
  Table of Equivalencies    
    
    TABLE OF EQUIVALENCIES OF THE
  EXPLORATORY WORKING UNITS - UTE
  Geophysics    
    

	Activity
 
	 	UTE Jungle
	 	UTE Northwest
	 	UTE Offshore

	Seismic 2D – Km-Onshore	 	1,00	 	0,50	 	0,20
	Seismic 3D – Km2-Onshore	 	3,00	 	1,30	 	1,00
	Reprocessing 2D – Km	 	0,02	 	0,02	 	0,02
	Gravimetry – Km	 	0,02	 	0,02	 	0,02
	Magnetometry – Km	 	0,02	 	0,02	 	0,02
	Studies per period	 	20	 	20	 	20

 
 

Explratory Wells    
    

	Depth in meters – m
 
	 	 
	 	 
	 	 

	0 – 1000	 	0,10 × m	 	0,045xm	 	0,10 × m
	1001 – 2000	 	0,13 × m	 	0,050xm	 	0,13 × m
	2001 – 3000	 	0,18 × m	 	0,055xm	 	0,18 × m
	3001 – 4000	 	0,22 × m	 	0,065xm	 	0,22 × m
	4001 upwards	 	0,25 × m	 	0,075xm	 	0,25 × m

Notice:
To the effect of valuation of the guaranties established in section 3.10, it shall be used the following equivalence: 1UTE = US$ 5,000 

50

QuickLinks

ANEXO "F" EXPLORATION WORKING UNITS Table of Equivalencies TABLE OF EQUIVALENCIES OF THE EXPLORATORY WORKING UNITS - UTE Geophysics

Explratory Wells

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00078-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00078-of-00352.parquet"}]]