Document:

Exhibit

Exhibit 10.07

PRODUCTION SHARING CONTRACT  
 
BETWEEN 
 
THE REPUBLIC OF EQUATORIAL GUINEA  
 
AND 
 
GUINEA ECUATORIAL DE PETROLEOS  
 
AND 
 
KOSMOS ENERGY EQUATORIAL GUINEA 
 
 
 
FOR  
 
BLOCK “W”

 

    

TABLE OF CONTENTS

	
				
	ARTICLE 1
	DEFINITIONS AND SCOPE
	2
	

	ARTICLE 2
	EXPLORATION PERIOD AND RELINQUISHMENTS
	9
	

	ARTICLE 3
	EXPLORATION WORK OBLIGATIONS
	12
	

	ARTICLE 4
	ANNUAL WORK PROGRAMS AND BUDGETS
	15
	

	ARTICLE 5
	APPRAISAL OF A DISCOVERY AND PRODUCTION PERIOD
	17
	

	ARTICLE 6
	CONDUCT OF PETROLEUM OPERATIONS
	21
	

	ARTICLE 7
	ROYALTIES, RECOVERY OF PETROLEUM OPERATIONS COSTS, AND DISTRIBUTION OF PRODUCTION
	30
	

	ARTICLE 8
	PARTICIPATION INTERESTS
	32
	

	ARTICLE 9
	TAXATION
	32
	

	ARTICLE 10
	VALUATION OF CRUDE OIL
	33
	

	ARTICLE 11
	BONUSES AND SURFACE RENTAL
	35
	

	ARTICLE 12
	OBLIGATION TO SUPPLY DOMESTIC MARKET
	37
	

	ARTICLE 13
	NATURAL GAS
	37
	

	ARTICLE 14
	CUSTOMS REGULATIONS
	40
	

	ARTICLE 15
	FOREIGN CURRENCY
	42
	

	ARTICLE 16
	BOOKS, ACCOUNTS, AUDITS AND PAYMENTS
	43
	

	ARTICLE 17
	TRANSFER, ASSIGNMENT AND CHANGE OF CONTROL
	44
	

	ARTICLE 18
	INDEMNIFICATION, LIABILITY AND INSURANCE
	47
	

	ARTICLE 19
	TITLE OF GOODS, EQUIPMENT AND DATA
	48
	

	ARTICLE 20
	CONFIDENTIALITY
	49
	

	ARTICLE 21
	TERMINATION
	50
	

	ARTICLE 22
	UNITIZATION
	52
	

	ARTICLE 23
	LOCAL CONTENT AND SOCIAL PROGRAMS
	52
	

	ARTICLE 24
	DECOMMISSIONING
	55
	

	ARTICLE 25
	APPLICABLE LAW
	57
	

	ARTICLE 26
	RESOLUTION OF CONFLICTS AND ARBITRATION
	58
	

	ARTICLE 27
	FORCE MAJEURE
	60
	

	ARTICLE 28
	ASSISTANCE AND NOTICE
	61
	

	ARTICLE 29
	MISCELLANEOUS
	62
	

	ARTICLE 30
	INTERPRETATION
	63
	

	ARTICLE 31
	EFFECTIVE DATE
	64
	

	ANNEX A
	CONTRACT AREA
	66
	

	ANNEX B
	MAP OF THE CONTRACT AREA
	67
	

	ANNEX C
	ACCOUNTING PROCEDURE
	68
	

	ANNEX D
	PARENT COMPANY GUARANTEE
	87
	

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THIS PRODUCTION SHARING CONTRACT is dated this ____ day of _______ 2017
BETWEEN:
		
	(1)
	THE REPUBLIC OF EQUATORIAL GUINEA (hereinafter referred to as the State), represented for the purposes of this Contract by the Ministry of Mines and Hydrocarbons, represented for purposes of its execution by His Excellency Mr. Gabriel Mbaga OBIANG LIMA, the Minister;

		
	(2)
	GUINEA ECUATORIAL DE PETRÓLEOS (hereinafter referred to as the National Company), acting in its own name and legal right for the purposes of this Contract and represented for purposes of its execution by Mr. Antonio OBURU ONDO, in his capacity as Director General; and

		
	(3)
	KOSMOS ENERGY EQUATORIAL GUINEA, a company organized and existing under the laws of the Cayman Islands, under company registration number WT-269135 and having its registered office at c/o Circumference (Cayman), P.O. Box 32322, 4th Floor, Century Yard, Cricket Square, Elgin Avenue, George Town, Grand Cayman, KY1-1209, Cayman Islands (hereinafter referred to as Company), represented for the purposes of this Contract by [insert name Andrew Inglis], in his capacity as [insert position President].

RECITALS:
		
	(A)
	WHEREAS, all Hydrocarbons existing within the territory of the Republic of Equatorial Guinea, as set forth in the Hydrocarbons Law, are national resources owned exclusively by the State;

		
	(B)
	WHEREAS, the State wishes to promote the development of Hydrocarbon deposits within the Contract Area and the Contractor desires to associate itself with the State with a view to accelerating the Development and Production of Hydrocarbons within the Contract Area;

		
	(C)
	WHEREAS, the Contractor has the financial ability, technical competence and professional skills necessary to carry out Petroleum Operations in accordance with this Contract and good oil field practices; and

		
	(D)
	WHEREAS, the Parties desire to enter into this Contract in accordance with the Hydrocarbons Law, which allows for agreements to be entered into between the State and foreign investors in the form of a production sharing contract, through direct negotiation or by international public tender..

NOW THEREFORE, in consideration of the undertakings and mutual covenants contained herein, the Parties agree as follows:

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Article 1
DEFINITIONS AND SCOPE
		
	1.1
	Definitions

Except where the context otherwise indicates or as defined in the Hydrocarbons Law or Petroleum Regulations, the following words and expressions shall have the following meanings:
		
	1.1.1
	Accounting Procedure means the accounting procedure set forth in ‎Annex C.

		
	1.1.2
	Affiliated Company or Affiliate of any specified Person means any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control of such specified Person or other Person.

		
	1.1.3
	Annual Budget means the expenditure of the Contractor with respect to an Annual Work Program.

		
	1.1.4
	Annual Work Program means an itemized statement of the Petroleum Operations to be carried out in the Contract Area during a Calendar Year.

		
	1.1.5
	Appraisal Area means an area within the Contract Area encompassing the geographical extent of a Discovery that is subject to an Appraisal work program and corresponding budget in accordance with Article ‎5.2.

		
	1.1.6
	Appraisal Well means a Well drilled following a Discovery, with the objective of delimiting and mapping the reservoir, and also to estimate the quantity of recoverable Hydrocarbons.

		
	1.1.7
	Associated Natural Gas means all Natural Gas produced from a reservoir the predominant content of which is Crude Oil and which is separated from Crude Oil in accordance with generally accepted international petroleum industry practice, including free gas cap, but excluding any liquid Hydrocarbons extracted from such gas either by normal field separation, dehydration or in a gas plant.

		
	1.1.8
	Barrel means a quantity or unit of Crude Oil equal to 158.9874 liters (forty-two (42) United States gallons) at a temperature of fifteen point five six degrees (15.56°) Centigrade (sixty degrees (60°) Fahrenheit) and at one (1) atmosphere of pressure.

		
	1.1.9
	BEAC means Banco de los Estados de África Central (Bank of the States of Central Africa).

		
	1.1.10
	Book Value means the value at which the asset is carried on the balance sheet prepared in accordance with generally accepted accounting practices used in the international petroleum industry.

		
	1.1.11
	Business Day means a day on which the banks are generally open for business in Equatorial Guinea and Dallas, Texas.

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	1.1.12
	Calendar Year or Year means a period of twelve (12) months commencing on 1 January and ending on the following 31 December of the same year according to the Gregorian Calendar.

		
	1.1.13
	Change in Law means, with respect to ‎Article 25, any change in the laws, decrees, regulations or standards of Equatorial Guinea, effective as of January 1, 2017, including with respect to any fiscal, taxes, Customs, or currency control, any change in the interpretation or application of, or in the customs and practices related to, such laws (the provisions of this Contract are deemed to conform to said interpretation and application from the date hereof) Decrees, regulations or rules of Equatorial Guinea and excludes all laws, decrees, regulations or standards which: (i) are related to health, safety, labor and the environment, (ii) are consistent with the international practices and standards of the oil and gas industry, and (iii) are applied on a non-discriminatory basis.

		
	1.1.14
	CIF has the meaning set out in the publication of the International Chamber of Commerce, INCOTERMS 2010.

		
	1.1.15
	Commercial Discovery means a Discovery that the Contractor has determined to be economically viable and so submits a Development and Production Plan for such Discovery for the approval of the Ministry.

		
	1.1.16
	Cost Recovery Oil has the meaning ascribed to it in Article ‎7.2.1.

		
	1.1.17
	Contractor means Company and the National Company.

		
	1.1.18
	Contract means this production sharing contract, including its Recitals and Annexes.

		
	1.1.19
	Contract Year means a period of twelve (12) consecutive months according to the Gregorian calendar, counted from the Effective Date of this Contract or from the anniversary of such Effective Date.

		
	1.1.20
	Contract Area or Area means the geographic area within the territory of Equatorial Guinea, which is the subject of this Contract. Such Contract Area shall be described in ‎Annex A and illustrated in ‎Annex B, as it may be changed by relinquishments of the Contractor in accordance with this Contract.

		
	1.1.21
	Control, when used with respect to any specified Person, means the power to direct, administer and dictate policies of such Person through the ownership of a percentage of such Person’s equity sufficient to hold a majority of voting rights in an ordinary shareholders meeting. The terms Controlling and Controlled have meanings correlative to the foregoing.

		
	1.1.22
	Crude Oil means Hydrocarbons which are produced at the wellhead in a liquid state at atmospheric pressure including asphalt and ozokerites, and the liquid Hydrocarbons known as condensate and/or Natural Gas liquids obtained from Natural Gas by condensation or extraction through field separation units.

		
	1.1.23
	Dated Brent means a quote published daily in the Crude Oil Market Plans Bulletin that reflects the price of a North Sea Brent crude oil blend charge over a given period.

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	1.1.24
	Development and Production Plan has the meaning ascribed to it in Article ‎5.5.1.

		
	1.1.25
	Delivery Point means that point located within the jurisdiction of Equatorial Guinea at which Hydrocarbons reach (i) the inlet flange at the FOB export vessel, (ii) the loading facility metering station of a pipeline or (iii) such other point within the jurisdiction of Equatorial Guinea as may be agreed by the Parties.

		
	1.1.26
	Development and Production Area means an area within the Contract Area encompassing the geographical extent of a Commercial Discovery subject to a Development and Production Plan in accordance with Article ‎5.5.

		
	1.1.27
	Development and Production Costs means all costs, expenses and liabilities incurred by the Contractor in connection with Development and Production Operations in a Development and Production Area, excluding all Exploration Costs incurred in the Development and Production Area prior to the establishment of any Field, as determined in accordance with this Contract and the Hydrocarbons Law.

		
	1.1.28
	Development and Production Operations means all operations, other than Exploration Operations, conducted to facilitate the Development and Production of Hydrocarbons from the Contract Area to the Delivery Point, but excluding the refining and distribution of Hydrocarbon products.

		
	1.1.29
	Development Well means a Well, other than an Exploration Well or an Appraisal Well, drilled with the purpose of producing or improving the Production of Hydrocarbons, including Exploration Wells and Appraisal Wells completed as production or injection Wells.

		
	1.1.30
	Discovery means the finding by the Contractor of Hydrocarbons whose existence within the Contract Area was not known prior to the Effective Date or Hydrocarbons within the Contract Area which had not been declared a Commercial Discovery prior to the Effective Date and which are measurable by generally accepted international petroleum industry practices.

		
	1.1.31
	Dividend Withholding Tax has the meaning ascribed to it in Article ‎17.1.1.

		
	1.1.32
	Dollars or $ means the legal tender of the United States of America.

		
	1.1.33
	Effective Date means the date of receipt by the Contractor of the ratification by the State of this Contract pursuant to ‎Article 31.

		
	1.1.34
	Equatorial Guinea means the Republic of Equatorial Guinea.

		
	1.1.35
	Exploration Operations include geological and geophysical studies, aerial mapping, investigations relating to subsurface geology, stratigraphic test drilling, Exploration Wells, Appraisal Wells and related activities such as drill site preparation, surveying and all work connected therewith that is conducted in relation to the Exploration for and Appraisal of Hydrocarbon deposits in the Contract Area.

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	1.1.36
	Exploration Costs means all costs, expenses and liabilities incurred by the Contractor in connection with Exploration Operations in the Contract Area, as determined in accordance with this Contract and the Hydrocarbons Law.

		
	1.1.37
	Extension Period means the First Extension Period and the Second Extension Period individually.

		
	1.1.38
	Exploration Periods means the Initial Exploration Period, an Extension Period and any further extensions thereof as set out in Article ‎2.2.1.

		
	1.1.39
	Exploration Well means any Well whose sole objective is to verify the existence of Hydrocarbons or to study all the necessary elements that might lead to a Discovery.

		
	1.1.40
	Field means a Discovery or an aggregation of Discoveries that is established as a Field in accordance with ‎Article 5 and can be developed commercially after taking into account all pertinent operational, economic and financial data collected during the performance of the Appraisal work program or otherwise, in accordance with generally accepted international petroleum practices. A Field may consist of a Hydrocarbon reservoir or multiple Hydrocarbon reservoirs all grouped on or related to the same individual geological structural or stratigraphic conditions, or areas that are not related but will be developed by using a single Development and Production Plan. All deposits superimposed, adjacent to or underlying a Field in the Contract Area shall form part of the said Field.

		
	1.1.41
	FOB has the meaning set out in the publication of the International Chamber of Commerce, INCOTERMS 2010.

		
	1.1.42
	First Extension Period means the period of one (1) Contract Year commencing immediately after the conclusion of the Initial Exploration Period.

		
	1.1.43
	First Exploration Sub-Period means the first three (3) Contract Year(s) of the Initial Exploration Period.

		
	1.1.44
	First Oil means, in respect of each Development and Production Area, the date on which production of Hydrocarbons under a program of regular production, lifting and sale commences.

		
	1.1.45
	Gross Revenues means the total income from sales of Total Disposable Production plus the equivalent monetary value of any other disposal of Total Disposable Production from the Contract Area during any Calendar Year.

		
	1.1.46
	Hydrocarbons means all natural organic substances composed of carbon and hydrogen, including Crude Oil and Natural Gas that may be found and extracted from, or otherwise produced and saved from the Contract Area.

		
	1.1.47
	Hydrocarbons Law means Law No. 8/2006 dated 3 November 2006 of Equatorial Guinea, and any law that amends it or replaces it.

		
	1.1.48
	Initial Exploration Period means a period of five (5) Contract Years from the Effective Date, subdivided into two sub-periods of three (3) Contract Years for the First 

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Exploration Sub-Period and two (2) Contract Years for the Second Exploration Sub-Period.
		
	1.1.49
	Joint Operating Agreement or JOA means the joint operating agreement that regulates the internal relations of the Parties comprising the Contractor for the conduct of Petroleum Operations in the Contract Area.

		
	1.1.50
	LIBOR means the interest rate at which Dollar deposits of six (6) months duration are offered in the London Inter Bank Market, as published in the Financial Times of London. The applicable LIBOR rate for each month or part thereof within an applicable interest period shall be the interest rate published in the Financial Times of London on the last Business Day of the immediately preceding calendar month. If no such rate is quoted in the Financial Times of London during a period of five (5) consecutive Business Days, another rate (for example, the rate quoted in the Wall Street Journal) chosen by mutual agreement between the Ministry and the Contractor will apply.

		
	1.1.51
	Market Price means the FOB price for Crude Oil calculated in accordance with ‎Article 10.

		
	1.1.52
	Material Contract means a contract with a value greater than five hundred thousand Dollars ($500,000) with respect to Exploration Operations or to one million Dollars ($1,000,000) in respect of Development Operations or Production Operations with (i) an Operator Affiliate, when the contract has not been previously and specifically approved in an Annual Budget as a contract to be carried out by an Affiliate or (ii) a non-Affiliate of the Operator. In the event that a law or regulation establishes a value higher than that stipulated in this definition for the supervision of contracts by the State, this definition will be amended to reflect the new higher limit.

		
	1.1.53
	Maximum Efficient Production Rate means the maximum efficient production rate of Hydrocarbons from a Field, that does not damage reservoir formations and does not cause excessive decline or loss of reservoir pressure in accordance with good oil field practice and as agreed in accordance with Article ‎6.4.

		
	1.1.54
	Member State of CEMAC means a country that is a member of the Central African Economic and Monetary Community.

		
	1.1.55
	Member State of the OHADA means a country that is a member of the Organization for the Harmonization of Commercial Law in Africa.

		
	1.1.56
	Minimum Retention means that the Operator and its Affiliates shall maintain a minimum deposit amount. This amount shall be measured annually and per Calendar Year, at one or more banks chosen by the Operator and operating in Equatorial Guinea. The amounts will be as follows:

		
	a)
	From the effective date until the approval of the first Development and Production Plan, a deposit amount equivalent to ten per cent (10 %) of the Annual Budget applicable to such Calendar Year;

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	b)
	From the approval of the first Development and Production Plan, and until First Oil, a deposit amount equivalent to point five per cent (0.5 %) of the Annual Budget applicable to such Calendar Year; and

		
	c)
	From First Oil until the end of Operations, a deposit amount equivalent to a five per cent (5 %) of the Annual Budget applicable to such Calendar Year; provided that

		
	d)
	If, at any time, a later Development and Production Plan is approved and should this Plan require a development operation, the deposit amount required shall return to a point five per cent (0.5 %) of the Annual Budget applicable to such Calendar Year, until the year following the year during which the development operations foreseen in such Development and Production Plan cease to exist.

		
	1.1.57
	Minimum Work Program has the meaning ascribed to it in Article ‎3.1.

		
	1.1.58
	Ministry means the Ministry of Mines and Hydrocarbons of Equatorial Guinea, the entity responsible for supervising Petroleum Operations in coordination with other Government bodies within the respective areas of their competence, and any successor.

		
	1.1.59
	National Company for the purposes of this Contract, means Equatorial Guinea of Petroleum (GEPetrol), as a national oil company of Equatorial Guinea; or any successor state company.

		
	1.1.60
	National Company’s Participation Interest means the Participation Interest of the National Company as set forth in Article ‎1.3.

		
	1.1.61
	Natural Gas means those Hydrocarbons that, at atmospheric conditions of temperature and pressure, are in a gaseous state including dry gas, wet gas and residual gas remaining after extraction, treatment, processing, or separation of liquid Hydrocarbons from wet gas, as well as gas or gases produced in association with liquid or gaseous Hydrocarbons.

		
	1.1.62
	Net Crude Oil has the meaning ascribed to it in Article ‎7.3.

		
	1.1.63
	Net Natural Gas has the meaning ascribed to in Article ‎13.3.5.

		
	1.1.64
	Parties or Party means the parties or a party to this Contract, as the context may require.

		
	1.1.65
	Participation Interest means for each Party comprising the Contractor, the undivided percentage share of such Party in the rights and obligations under this Contract, as is specified in Article ‎1.3.

		
	1.1.66
	Person means any individual, firm, company, corporation, society, trust, foundation, government, state or agency of the state or any association or partnership (whether or not having separate legal personality) or two or more of these.

		
	1.1.67
	Petroleum Operations means all operations related to Exploration, Development, Production, transportation, storage, conservation, decommissioning, sale and/or other disposal of Hydrocarbons from the Contract Area to the Delivery Point and any other 

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work or activities necessary or ancillary to such operations; these operations and activities shall be carried out in accordance with this Contract and the Hydrocarbons Law and shall not include transport outside of Equatorial Guinea.
		
	1.1.68
	Petroleum Operations Costs means Exploration Costs and/or Development and Production Costs (as the context may require) incurred by the Contractor in the carrying out of Petroleum Operations, as determined in accordance with this Contract and the Accounting Procedure.

		
	1.1.69
	Petroleum Regulations means all regulations promulgated by the Ministry pursuant to the Hydrocarbons Law.

		
	1.1.70
	Platts means Platts Crude Oil Marketwire, or if Platts Crude Oil Marketwire ceases to be published then another similar daily international publication that lists benchmark crude oil prices and which is agreed at the time between the Parties.

		
	1.1.71
	Quarter means a period of three (3) consecutive months beginning on 1 January, 1 April, 1 July or 1 October and ending on 31 March, 30 June, 30 September or 31 December, respectively.

		
	1.1.72
	Reserve Fund has the meaning ascribed to it in Article ‎24.3.1.

		
	1.1.73
	Royalties means an entitlement of the State over Hydrocarbons produced and saved from the Contract Area, and not utilized in Petroleum Operations, based on percentages calculated as a function of the daily rate of the Total Disposable Production as determined in accordance with Article ‎7.1.

		
	1.1.74
	Second Extension Period means the period of one (1) Contract Year commencing immediately after the end of the First Extension Period.

		
	1.1.75
	Second Exploration Sub-Period means the final two (2) Contract Year(s) of the Initial Exploration Period.

		
	1.1.76
	Taxes mean the coercive financial payments in accordance to the Tax Laws, that the State, local authorities and/ other public entities, demand in the exercise of their sovereign power. These taxes will be levied on each of the Parties comprising the Contractor and all other applicable Persons.

		
	1.1.77
	Tax Laws means Law No. 4/2004 dated 28 October 2004 of Equatorial Guinea, and Law No. 2/2007 dated 16 May 2007 of Equatorial Guinea, and any law that amends one or both of them or replaces one or both of them.

		
	1.1.78
	Transfer Fee has the meaning ascribed to in Article ‎17.2.1.

		
	1.1.79
	Total Disposable Production means all Hydrocarbons produced and saved from a Development and Production Area less the quantities used for Petroleum Operations.

		
	1.1.80
	Unassociated Natural Gas means all gaseous Hydrocarbons produced from Natural Gas reservoirs, and includes wet gas, dry gas and residual gas remaining after the extraction of liquid Hydrocarbons from wet gas.

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	1.1.81
	Well means any opening in the ground or seabed made or being made by drilling or boring, or in any other manner, for the purpose of exploring and/or discovering, evaluating or producing Crude Oil or Natural Gas, or for the injection of any fluid or gas into an underground formation other than a seismic hole.

		
	1.1.82
	Withholding Tax Waiver has the meaning ascribed to it in Article ‎17.1.1.

		
	1.2
	Scope

		
	1.2.1
	This Contract is a production sharing contract awarded pursuant to Chapter IV of the Hydrocarbons Law. In accordance with the provisions of this Contract and the Hydrocarbons Law, the Ministry shall be responsible for supervising Petroleum Operations in the Contact Areas.

		
	1.2.2
	The State grants to the Contractor the sole and exclusive right and charge of conducting all Petroleum Operations in the Contract Area during the term of this Contract. In consideration of this, the Contractor shall:

		
	a)
	be responsible to the State as an independent contractor, for the execution of the Petroleum Operations in accordance with the provisions of this Contract and the Hydrocarbons Law;

		
	b)
	provide all funds, machinery, equipment, technology and personnel prudent and necessary to conduct Petroleum Operations; and

		
	c)
	diligently, with due regard to good oil field practice, perform at its exclusive responsibility and risk all investments and contractual obligations necessary for conducting Petroleum Operations in accordance with this Contract.

		
	1.2.3
	All Petroleum Operations Costs shall be recoverable and deductible for tax purposes in the manner set forth in this Contract and the Hydrocarbons Law.

		
	1.2.4
	During the term of this Contract, the total Production achieved as a consequence of Petroleum Operations shall be shared between the Parties in accordance with ‎Article 7.

		
	1.3
	Participation Interests

On the Effective Date the Participation Interests of the Parties comprising the Contractor are as follows:
	
		
	Kosmos Energy
	80%

	The National Company (GEPetrol)
	20%

	Total
	100%

ARTICLE 2     
EXPLORATION PERIOD AND RELINQUISHMENTS
		
	2.1
	Initial Exploration Period

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As of and from the Effective Date, the Contractor is authorized to conduct Exploration Operations in the Contract Area during the Initial Exploration Period.
		
	2.1.1
	Upon the fulfillment by the Contractor of its Exploration obligations set forth in Article ‎3.1.1 with respect to the First Exploration Sub-Period, the Contractor may elect to enter the Second Exploration Sub-Period.

		
	2.1.2
	To elect to enter the Second Exploration Sub-Period, the Contractor shall file a request with the Ministry at least two (2) months prior to the expiry of the First Exploration Sub-Period, The Ministry shall not unreasonably withhold or delay the granting of such request; provided that the Contractor has complied with all of its obligations in the First Exploration Sub-Period and shall not be otherwise in breach of this Contract.

		
	2.2
	Extension Periods

		
	2.2.1
	Upon the fulfillment by the Contractor of its Exploration obligations set forth in Articles ‎3.1.1 and ‎3.1.2 with respect to the Initial Exploration Period, the Contractor may request up to two (2) extensions of one (1) year each of the Initial Exploration Period.

		
	2.2.2
	For each Extension Period, the Contractor shall file a request with the Ministry at least two (2) months prior to the expiry of the Initial Exploration Period, or as the case may be, the First Extension Period. The Ministry shall not unreasonably withhold or delay the granting of such Extension Period; provided that the Contractor has complied with all of its obligations in the Initial Exploration Period and the First Extension Period, as applicable, and shall not be otherwise in breach of this Contract.

		
	2.2.3
	Each request for an Extension Period shall be accompanied by a map specifying the Contract Area proposed to be retained by the Contractor, along with a report specifying any work performed in the proposed relinquished area since the Effective Date and the results obtained therefrom.

		
	2.2.4
	If upon expiry of the Initial Exploration Period, or of any Extension Period, any Appraisal work program with respect to a Discovery is still under progress or an Exploration Well is still under progress, the Contractor shall be entitled to an additional extension of the then current Exploration Period necessary to complete the work in progress. Furthermore, where Appraisal work has not yet been completed by the Contractor at the time at which a relinquishment contemplated by Article ‎2.4 is due, the requirement to relinquish shall be suspended until such time that the Contractor completes the said Appraisal work, commerciality is determined and, if applicable, the related establishment of a Field is approved or denied. Any additional extension granted under this Article ‎2.2.4 shall not exceed one (1) Contract Year, or such longer period as may be approved by the Ministry, plus the period of time established under ‎Article 5 necessary for the evaluation of a marketing plan, the preparation of a Development and Production Plan and the Ministry’s response.

		
	2.2.5
	In the event additional time is needed to complete said Appraisal work as set out in Article ‎2.2.4, the Contractor shall file a request for an extension with the Ministry at least two (2) months prior to the expiry of the current Initial Exploration Period or Extension Period, as applicable. In the event additional time is needed to complete an 

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Exploration Well still under progress, the current Initial Exploration Period or Extension Period, as applicable, upon notification to the Ministry, will be extended automatically for such time necessary to complete said Exploration Well and an additional thirty (30) days to allow for the time to deliver the notice of Discovery as required in Article ‎5.1.
		
	2.3
	Termination

Should the Contractor decide:
		
	(a)
	not to extend the Initial Exploration Period (or not to enter the Second Exploration Sub-Period) and no Field has been established during such period; or

		
	(b)
	to extend the Initial Exploration Period and no Field has been established during an Extension Period or any additional extension thereof, this Contract shall automatically terminate.

		
	2.4
	Mandatory Relinquishments

		
	2.4.1
	The Contractor must relinquish to the State thirty percent (30%) of the initial surface area of the Contract Area by the end of the Initial Exploration Period, twenty-five percent (25%) of the remaining area by the end of the First Extension Period, and the remainder of the Contract Area by the end of the Second Extension Period, or at the end of the Initial Exploration Period or the First Extension Period, if no further extension is requested by the Contractor. To determine the area or areas which the Contractor shall relinquish, the following areas shall be excluded for the purposes of such calculation:

		
	(a)
	areas designated as an Appraisal Area;

		
	(b)
	Development and Production Areas;

		
	(c)
	areas for which the approval of a Development and Production Plan is pending, until finally decided;

		
	(d)
	the area of any Field, including any Field which may be subject to unitization pursuant to ‎Article 22; and

		
	(e)
	any area reserved for a possible Unassociated Natural Gas Appraisal in relation to which the Contractor is engaged in discussions with the Ministry in accordance with Article ‎13.1.

		
	2.4.2
	Upon expiry of the applicable final extension period indicated in Article ‎2.2, and subject to the provisions of Article ‎2.2.4, the Contractor shall relinquish the remainder of the Contract Area, with the exception of:

		
	(a)
	Development and Production Areas;

		
	(b)
	those areas for which an application for a Development and Production Area is pending, until finally decided;

		
	(c)
	the area of any Field, including any Field which may be subject to unitization pursuant to ‎Article 22; and

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	(d)
	any area reserved for a possible Unassociated Natural Gas Appraisal in relation to which the Contractor is engaged in discussions with the Ministry in accordance with ‎Article 13.

		
	2.5
	Voluntary Relinquishments

		
	2.5.1
	Subject to the Contractor’s obligations under ‎Article 24 and the Hydrocarbons Law, the Contractor may at any time notify the Ministry upon three (3) months prior notice that it relinquishes all of its rights over all or any part of the Contract Area.

		
	2.5.2
	In no event shall any voluntary relinquishment by the Contractor of rights over all or any part of the Contract Area reduce the Exploration obligations of the Contractor set forth in ‎Article 3.

		
	2.6
	Involuntary Relinquishments

		
	2.6.1
	Should the Contractor, during the First Exploration Sub-Period (as may be extended), (i) be unable to fulfill its Minimum Work Program pursuant to Article ‎3.1.1(a) or (ii) be unable fulfill its Minimum Work Program pursuant to Article ‎3.1.1(b), excluding for reasons of Force Majeure or acts or failure to act by the State, including failure to deliver the data package referenced in Article 3.1.1(b), then the Contractor will relinquish all its rights on the whole of the Contract Area at the end of the First Exploration Sub-Period (as may be extended).

		
	2.7
	Relinquishments Generally

		
	2.7.1
	No relinquishment made in accordance with Articles ‎2.4 or ‎2.5 shall relieve the Contractor from its obligation to pay surface rentals accrued or make payments due and payable as a result of Petroleum Operations conducted up to the date of relinquishment.

		
	2.7.2
	The Contractor shall, in accordance with good oil field practice, propose the geographic location of the portion of the Contract Area that it proposes to retain, and which shall have a continuous geometric shape going from North to South and East to West delimited as a minimum by one minute (1’) of latitude or longitude or by natural boundaries and such area shall also be subject to the approval of the Ministry and shall be deemed approved after sixty (60) days.

ARTICLE 3     
EXPLORATION WORK OBLIGATIONS
		
	3.1
	Minimum Work Program

During the Exploration Period, the Contractor undertakes to carry out the following Minimum Work Program:
		
	3.1.1
	During the First Exploration Sub-Period, the Contractor must:

		
	(a)
	acquire, process, and interpret 2,250 square kilometers of new 3D seismic data; and 

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acquire all existing data packages over the Area for three million Dollars ($3,000,000). All costs of data acquisition shall be cost recoverable.
The minimum expenditure for this Sub-Period shall be seven million Dollars ($7,000,000).
		
	3.1.2
	During the Second Exploration Sub-Period, the Contractor must drill a minimum of one (1) Exploration Well to a minimum depth of the deepest target interval in the approved well program. The minimum expenditure for this period shall be thirty million Dollars ($30,000,000).

		
	3.1.3
	If the Contractor elects to enter the First Extension Period, the Contractor must perform technical work on geological and geophysical studies and surveys. The minimum expenditure for this period shall be seven hundred thousand Dollars ($700,000).

		
	3.1.4
	If the Contractor elects to enter the Second Extension Period, the Contractor must drill a minimum of one (1) Exploration Well to a minimum depth of the deepest target interval in the approved well program. The minimum expenditure for this period shall be thirty million Dollars ($30,000,000).

		
	3.1.5
	However, if the Contractor has performed work exceeding the Minimum Work Program required of it under any of Articles ‎3.1.1, ‎3.1.2 or ‎3.1.3, then the excess work, including Wells, is carried over to the next Sub-Period or Extension Period, and shall be deducted from the Minimum Work Program and the minimum expenditure for such next Sub-Period or Extension Period.

		
	3.1.6
	If the Contractor fulfills the Minimum Work Program (as set out in Articles ‎3.1.1, ‎3.1.2, ‎3.1.3, and ‎3.1.4) as applicable for each such Sub-Period and Extension Period, then the Contractor shall be deemed to have satisfied the minimum expenditure for each such Sub-Period and Extension Period, as applicable.

		
	3.2
	Minimum Depth of Wells

		
	3.2.1
	Each Exploration Well set forth above must be drilled to the minimum depth specified above in Article ‎3.1.2 or ‎3.1.4, as the case may be, or to a lesser depth if authorized by the Ministry in accordance with this Article or if discontinuing drilling is justified by one of the following reasons:

		
	(a)
	the economic basement is encountered at a depth less than the stipulated minimum contractual depth;

		
	(b)
	continued drilling is clearly dangerous because of abnormal pressure in the formation;

		
	(c)
	rock formations are encountered, the hardness of which makes it impracticable to continue drilling with appropriate equipment; or

		
	(d)
	Hydrocarbon bearing formations are encountered that require the installation of protective casings which excludes the possibility of reaching the minimum contractual depth.

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	3.2.2
	For the purposes of Article ‎3.2.1, economic basement means any stratum in and below which the geological structure or physical characteristics of the rock sequence do not have the properties necessary for the accumulation of Hydrocarbons in commercial quantities and which also reflects the maximum depth at which any accumulation of this type can be reasonably expected.

		
	3.3
	Cessation of Drilling

In respect of Article 3.2.1(b) and to the extent practicable where a prudent operator would immediately cease drilling operations, the Contractor shall inform the Ministry prior to the interruption or cessation of any drilling. The Ministry shall respond as soon as practicable and in any event within three (3) days counted from the date of receipt of such request.
		
	3.4
	Substitute Wells

If any obligatory Exploration Well is abandoned due to events or problems as set out in Article ‎3.2.1(a), ‎(b), ‎(c) and ‎(d) and, at the time of such abandonment, the Exploration Costs for such Well have equaled or exceeded thirty million Dollars ($30,000,000), for all purposes of this Contract, the Contractor shall be deemed to have fulfilled the Minimum Work Program obligations for the relevant period. If any obligatory Exploration Well is abandoned due to insurmountable technical problems, and if at the time of such abandonment, the Exploration Costs for such Well are less than thirty million Dollars ($30,000,000) then the Contractor shall have the option to either:
		
	(a)
	drill a substitute Exploration Well at the same or another location to be agreed with the Ministry; or

		
	(b)
	pay the Ministry an amount equal to the difference between thirty million Dollars ($30,000,000) and the amount of Exploration Costs actually spent in connection with such Exploration Well; and

		
	(c)
	such substitute well or payment per Articles ‎3.4(a) or ‎(b) shall be deemed to have fulfilled the Minimum Work Program obligations for the relevant Sub-Period or Extension Period.

		
	3.5
	Provision of Guarantee

On or prior to the Effective Date, each of the Parties comprising the Contractor (other than the National Company) shall provide to the State, at the sole discretion of the Ministry, either (i) a parent company guarantee in the form set forth in ‎Annex D from a company acceptable to the Ministry in the amount of two hundred million Dollars ($200,000,000), or (ii) an irrevocable standby letter of credit from a first class international financial institution acceptable to the Ministry in the amount of the minimum expenditure obligations of the Contractor corresponding to the Minimum Work Program of the then current Sub-Period or Extension Period, as applicable, and which shall remain valid and effective for six (6) months after the end of the relevant Sub-Period, any Extension Period and any additional extension thereof, as applicable. If the Parties comprising the Contractor (other than the National Company) fail to deliver to the Ministry the required guarantee within fifteen (15) Business Days from the Effective 

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Date, this Contract shall be considered null and void without any further procedure or notice.
		
	3.6
	Participation Interest of the National Company

For the purposes of this ‎Article 3 any expenditure of the Parties comprising the Contractor (other than the National Company) under Article ‎8.2 shall be treated as an expenditure for the purpose of satisfying the minimum expenditure obligations set out herein.
ARTICLE 4     
ANNUAL WORK PROGRAMS AND BUDGETS
		
	4.1
	Submission of Annual Work Program

No later than ninety (90) days prior to the beginning of each Calendar Year, or for the first Calendar Year no later than sixty (60) days after the Effective Date, the Contractor shall prepare and submit for approval by the Ministry a detailed and itemized Annual Work Program divided into Quarters, along with the corresponding Annual Budget for the Contract Area setting forth the Petroleum Operations the Contractor proposes to carry out during such Calendar Year. The Annual Budget shall be presented in the official format of the Ministry.
		
	4.2
	Form and Approval of Annual Work Program

Each Annual Work Program and corresponding Annual Budget shall be broken down into the various Exploration Operations and, as applicable, the Appraisal operations for each Appraisal Area and the Development and Production Operations for each Development and Production Area. The Ministry may propose amendments or modifications to the Annual Work Program and corresponding Annual Budget, by giving notice to the Contractor and including reasons for such amendments or modifications, within sixty (60) days following receipt of such Annual Work Program and Annual Budget. In such event the Ministry and the Contractor shall meet as soon as possible to review the amendments or modifications proposed by the Ministry and establish by mutual agreement the Annual Work Program and corresponding Annual Budget. The parts of the Annual Work Program for which the Ministry does not require amendment or modification will be deemed approved and must be completed by the Contractor within the stated time period, provided they may be undertaken on an individual basis. With respect to the parts of the Annual Work Program for which the Ministry proposes any amendment or modification, the date of approval of the Annual Work Program and corresponding Annual Budget shall be the date on which the Ministry and the Contractor reach the aforementioned mutual agreement. In the event the Ministry and the Contractor do not reach an agreement regarding the amendments and modifications proposed by the Ministry before the end of the Calendar Year in which the Annual Work Plan and corresponding Annual Budget were submitted, the Contractor shall continue operating pursuant to the most recent Annual Work Plan and corresponding Annual Budget approved by the Ministry until a mutual agreement is reached of Petroleum Operations.

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	4.3
	Conduct of Petroleum Operations

The Contractor shall diligently and properly perform the Petroleum Operations with diligence, efficiency and economy, in accordance with accepted international petroleum industry practices under the same or similar circumstances and the terms of this Contract and the Hydrocarbons Law.
		
	4.4
	Overexpenditures

		
	4.4.1
	It is acknowledged by the Ministry and the Contractor that the technical results acquired as work progresses or the occurrence of certain unforeseen changes in circumstances may justify modifications to an approved Annual Work Program and corresponding Annual Budget. In such circumstances, the Contractor shall promptly notify the Ministry of the proposed modifications. Such modifications are subject to review and approval by the Ministry within sixty (60) days after receipt of such notice. Failure of the Ministry to approve or reject such proposed modifications within such sixty (60) day period shall be deemed to be an approval of such proposed modifications. Notwithstanding the foregoing and in no event shall the Contractor incur any line item expenditure which exceeds an approved Annual Budget line item by more than ten percent (10%), provided that the cumulative total of all overexpenditures for a Calendar Year shall not exceed five percent (5%) of the total approved Annual Budget without the prior approval of the Ministry; otherwise such excess expenditures shall not be recoverable as a Petroleum Operations Cost or deductible for tax purposes.

		
	4.4.2
	At such time that the Contractor reasonably believes that the limits of an Annual Budget will be exceeded, the Contractor shall promptly notify the Ministry and shall provide the Ministry with full details of such overexpenditures, including reasons therefor.

		
	4.4.3
	The limitations set out in this Article ‎4.4 shall be without prejudice to the Contractor’s right to make expenditures in the event of an emergency or accident requiring urgent action under Article ‎4.5.

		
	4.4.4
	Save as otherwise provided in Article ‎4.5, should the Contractor incur any expenditure whose program and budget has not been approved within an Annual Work Program and corresponding Annual Budget or any amendment thereto approved by the Ministry, then such expenditure shall not be recoverable by the Contractor as a Petroleum Operations Cost or be deductible for tax purposes.

		
	4.5
	Emergency or Accident

		
	4.5.1
	In the event of an emergency or accident requiring urgent action, the Contractor shall take all steps and measures as may be prudent and necessary in accordance with good oil field practice for the protection of its interests and those of the State and the property, life and health of other Persons, the environment and the safety of Petroleum Operations. The Contractor shall promptly inform the Ministry of such emergency or accident.

		
	4.5.2
	All of the related costs incurred by the Contractor in accordance with this Article ‎4.5 shall be recoverable as Petroleum Operations Costs in accordance with this Contract. Notwithstanding the foregoing, all costs incurred by the Contractor in the cleaning up of pollution or damage to the environment caused by the gross negligence or willful 

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misconduct of the Contractor, its subcontractors or any Person acting on its or their behalf shall not be recoverable as a Petroleum Operations Cost.
ARTICLE 5     
APPRAISAL OF A DISCOVERY AND PRODUCTION PERIOD
		
	5.1
	Notification of Discovery

If the Contractor discovers Hydrocarbons in the Contract Area it shall notify the Ministry as soon as possible, but not later than thirty (30) days after the date of such Discovery. This notice shall include all relevant information in accordance with generally accepted practice of the international petroleum industry including particulars of any production testing program which the Contractor has carried out or proposes to carry out during drilling operations.
		
	5.2
	Appraisal Work Program

		
	5.2.1
	If the Contractor considers that the Discovery merits Appraisal it shall diligently submit to the Ministry a detailed Appraisal work program and corresponding budget no later than six (6) months following the date on which the Discovery was notified in accordance with Article ‎5.1. The Appraisal work program, corresponding budget and designated Appraisal Area are subject to the review and approval of the Ministry in accordance with the procedures set forth in ‎Article 4.

		
	5.2.2
	The draft Appraisal work program shall specify the estimated size of the Hydrocarbon reserves of the said Discovery, the area proposed to be designated as the Appraisal Area and shall include all seismic, drilling, testing and Appraisal operations necessary to carry out an appropriate Appraisal of the Discovery. The Contractor shall diligently undertake the approved Appraisal work program, it being understood that the provisions of Article ‎4.4 shall apply to such program.

		
	5.2.3
	The duration of the Appraisal work program shall not exceed twenty-four (24) months for Crude Oil and in the case of Natural Gas the duration of the Appraisal work program shall be determined in accordance with the provisions of ‎Article 13, unless as otherwise approved by the Ministry, such approval not to be unreasonably withheld or delayed.

		
	5.3
	Submission of Appraisal Report

		
	5.3.1
	Within six (6) months following completion of the Appraisal work program and in any event no later than thirty (30) days prior to the expiry of the Initial Exploration Period, or the First Extension Period or the Second Extension Period, including any additional extension in accordance with the provisions of Article ‎2.2, as may be the case, the Contractor shall submit to the Ministry a detailed report giving all the technical and economic information associated with the Discovery so appraised and which shall confirm, in the Contractor’s opinion, whether such Discovery is a Commercial Discovery.

		
	5.3.2
	The above-referred report shall include geological and petrophysical characteristics of the Discovery, estimated geographical extent of the Discovery, results of the production 

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tests yielded by the formation and the preliminary economic study with respect to the exploitation of the Discovery.
		
	5.4
	Determination of Commerciality

For the purposes of Article ‎5.3, the Contractor shall determine whether it considers that a Discovery or aggregation of Discoveries can be developed commercially. The 17 commercial viability of the Discovery or aggregation of Discoveries shall be determined after consideration of all pertinent operating, economic and financial data collected during the performance of the Appraisal work program and otherwise, including Crude Oil and Natural Gas recoverable reserves, sustainable Production levels and all other relevant economic factors, according to generally accepted international petroleum industry practice.
		
	5.5
	Submission and Approval of Development and Production Plan

		
	5.5.1
	If the Contractor deems the Discovery or aggregation of Discoveries to be a Field it shall submit for the approval of the Ministry a development and production plan (the Development and Production Plan) for such Discovery or aggregation of Discoveries within twelve (12) months following the remittance of the report referred to in Article ‎5.3.

		
	5.5.2
	The Ministry may propose amendments or modifications to the aforementioned Development and Production Plan, and also to the Development and Production Area subject to such Development and Production Plan, by notice to the Contractor within ninety (90) days following receipt of the relevant plan. Such notification shall set out the reasons for the amendments or modifications proposed by the Ministry. In such event the Ministry and the Contractor shall meet as soon as possible to review the proposed amendments or modifications of the Ministry and establish by mutual agreement the Development and Production Plan.

		
	5.5.3
	If (i) the Contractor and the Ministry do not reach a written agreement within one hundred eighty (180) days following the submission of amendments and modifications by the Ministry, or (ii) the Ministry notifies the Contractor that it does not approve the Development and Production Plan, within thirty (30) Business Days of the occurrence of either (i) or (ii) above, the Parties shall meet to assess the discrepancies in accordance with articles 49 and 50 of the Petroleum Regulations; if an agreement is not reached, the points of discrepancies shall be referred to and shall be determined by an internationally recognized expert appointed by the International Chamber of Commerce in accordance with its Rules for Expertise (ICC Expertise Rules). The determination of the expert shall be final and binding upon the Parties, including the Ministry, and, if should it not be complied with pursuant to Equatorial Guinea legislation, either Parties may refer the matter to arbitration under ‎Article 26 to reach a final and binding decision. .

		
	5.6
	Modifications to Development and Production Plan

		
	5.6.1
	When the results obtained during Development and Production Operations require certain modifications to the Development and Production Plan, such plan may be modified using the same procedure provided for with respect to the initial approval thereof. Subject to Article ‎4.4, the Contractor may not incur any expenditure which exceeds the approved Development and Production Plan without the prior approval of 

18
    

the Ministry; if prior approval is not obtained, such excess expenditures will not be recoverable by the Contractor as Petroleum Operations Costs or deductible for tax purposes.
		
	5.6.2
	During a period of Development and Production, the Contractor may propose to the Ministry revisions to the Development and Production Plan at any time that additional Development and Production Operations are under consideration. Such revisions shall be submitted for approval by the Ministry, using the same procedure provided for with respect to the initial approval thereof.

		
	5.7
	Number of Fields

If the Contractor discovers more than one (1) Field in the Contract Area which are not overlying, adjacent to or underlying an existing Field, each of them shall be the subject of a separate Development and Production Plan.
		
	5.8
	Extension of Field beyond Contract Area

		
	5.8.1
	If, during work performed after approval of a Development and Production Plan, it appears that the geographical extent of a Field is larger than the Development and Production Area designated pursuant to Article ‎5.5, the Ministry may grant the Contractor the additional area, on condition that it is included in the Contract Area in effect at that time, and provided that the Contractor provides supporting evidence of the existence of the additional area applied for.

		
	5.8.2
	In the event that a Field extends beyond the boundaries of the Contract Area as delimited at any particular time, the Ministry may require the Contractor to exploit such Field in association with the contractor of the adjacent area in accordance with ‎Article 22, the Hydrocarbons Law and generally accepted practice of the international petroleum industry.

		
	5.8.3
	When the area proposed to be unitized is not subject to any production sharing contract, the Ministry may grant the Contractor the additional area, on condition that it is included in the Contract Area in effect at that time, it being understood that any award of an additional area must be in accordance with the Hydrocarbons Law.

		
	5.9
	Commencement and Performance of Development and Production Operations

		
	5.9.1
	The Contractor shall commence Development and Production Operations within six (6) months from the date of approval of the Development and Production Plan and shall pursue such operations diligently.

		
	5.9.2
	The Contractor undertakes to perform all Development and Production Operations in accordance with generally accepted practice of the international petroleum industry, this Contract and the Hydrocarbons Law.

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	5.10
	Duration of Operations

		
	5.10.1
	The duration of the Development and Production period during which the Contractor is authorized to exploit a Field is twenty-five (25) Years from the date of approval of the Development and Production Plan related to such Field.

The Development and Production period defined above may be extended for an additional period of five (5) Years with prior approval of the Ministry, which approval shall not be unreasonably withheld or delayed, if the Contractor submits a request to this effect to the Ministry at least one (1) Year prior to its expiry and on the condition that the Contractor has fulfilled all of its obligations under this Contract and that it can demonstrate that commercial Production from the Field is still possible after the expiry of the initial Development and Production period.
		
	5.11
	Risk and Expense of Contractor

The Contractor undertakes to perform at its own expense and financial risk all the Petroleum Operations required to place a Field into Production in accordance with the Development and Production Plan so approved.
		
	5.12
	Mandatory Relinquishment

For the duration of the Initial Exploration Period, the Extension Periods and any additional extension thereof, the Ministry may, provided it gives at least six (6) months’ notice, require the Contractor to promptly relinquish, without any compensation or indemnification, all of its rights over the area encompassing a Discovery, including all of its rights over Hydrocarbons which may be produced from such Discovery, if the Contractor:
		
	(a)
	has not submitted, in accordance with Article ‎5.2, an Appraisal work program and corresponding budget with respect to such Discovery within six (6) months following the date on which such Discovery has been notified to the Ministry; or

		
	(b)
	subject to Article ‎13.1 regarding Unassociated Natural Gas, does not establish the Discovery as a Field within one (1) Year after completion of Appraisal work with respect to such Discovery.

		
	5.13
	Future Operations

In the event of a relinquishment under Article ‎5.12, the Ministry may perform or cause to be performed any petroleum operations with respect to any Discovery so relinquished without any compensation or indemnification to the Contractor, provided, however, that it shall not interfere with the Petroleum Operations undertaken by the Contractor in the part of the Contract Area retained by the Contractor, if any. The Ministry shall be permitted to use (free of charge) all facilities and equipment in the relinquished Discovery area of the Contractor that are not used for continuing Petroleum Operations in accordance with Article 51 of the Petroleum Regulations, Ministerial Order Number 4/2013, dated June 20 2013, as may be amended. If requested by the Ministry all 

20
    

continuing operations may be undertaken by the Contractor, if so agreed, for a fee and on terms to be agreed between the Ministry and the Contractor.
		
	5.14
	Available Facilities

In the event there are facilities and equipment in an area adjacent to or near the Contract Area which have excess capacity that could be utilized by Contractor, the Ministry may, considering the efficiency and economic management of existing resources, cause such facilities and equipment to be made available to Contractor for any Development and Production Operations, provided, however, that such Development and Production Operations shall not interfere with the ongoing operations in that area. The Ministry will then implement the process set out in Articles 50, 51, and 52 of the Hydrocarbons Law.
ARTICLE 6     
CONDUCT OF PETROLEUM OPERATIONS
		
	6.1
	Obligations of Contractor

In accordance with generally accepted practice of the international petroleum industry and the Hydrocarbons Law, the Contractor shall provide all funds necessary for the conduct of Petroleum Operations in the Contract Area including the purchase or rental of all facilities, equipment, materials and other goods required for the performance of such Petroleum Operations. It shall also supply all technical and operational expertise, including the use of foreign and national personnel required for implementing Annual Work Programs. The Contractor shall be responsible for the preparation and implementation of all Annual Work Programs which shall be performed in accordance with this Contract, the Hydrocarbons Law and generally accepted practice of the international petroleum industry.
		
	6.2
	Joint Operating Agreement

Within forty-five (45) days following the Effective Date, the Contractor shall provide the Ministry with a draft of the Joint Operating Agreement which shall be based upon the current model form operating agreement from the Association of International Petroleum Negotiators (AIPN). The Joint Operating Agreement and all amendments thereto shall be subject to the prior approval of the Ministry. The identity of the Operator and any change thereto shall be subject to the prior approval of the Ministry in accordance with the Hydrocarbons Law. The National Company shall be appointed as the administrative operator under the Joint Operating Agreement.
		
	6.3
	Conduct of Petroleum Operations

The Contractor shall diligently conduct Petroleum Operations in accordance with this Contract, the Hydrocarbons Law and generally accepted practice of the international petroleum industry.
		
	6.4
	Maximum Efficient Production Rate

The Contractor and the Ministry shall agree on the Production programs before Production begins in any Field and establish at that time the Maximum Efficient 

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Production Rate for such Field, and will determine the dates on which such levels will be reexamined and potentially revised.
		
	6.5
	Working Conditions

The Contractor shall provide acceptable working conditions and access to medical attention and nursing care for all of its local and international personnel and those of its subcontractors while undertaking Petroleum Operations. The Contractor shall also provide living accommodation for personnel based on offshore installations and an additional accommodation allowance in the remuneration of personnel based onshore.
		
	6.6
	Discovery of other Minerals    

The Contractor shall promptly notify the Ministry of the discovery of any minerals or other substances in the Contract Area. If any Persons are granted a permit or license within the Contract Area for the exploration and exploitation of any minerals or substances other than Hydrocarbons, the Ministry shall take all reasonable measures to ensure that the operations of such Persons will not obstruct the Contractor’s Petroleum Operations. The Contractor shall use all reasonable efforts to avoid any obstruction with such permit holders or licensees’ operations.
		
	6.7
	Award of Contracts

The Contractor shall award all the contracts, in accordance with the Local Content Regulation enacted by the Ministry in the Ministerial Decree N.° 1/2014, of 26th of September 2014, to the best qualified subcontractor or to other Person, including the Contractor’s affiliated Companies, on the basis of the cost and the capacity to comply with the contract’s provisions, as long as the Contractor abides by the Article ‎23.1.
		
	6.7.1
	In all the Material Contracts, the Contractor shall:

		
	(a)
	call a bid for the contract.

		
	(b)
	give preference to the national companies the Contractor thinks that are qualified;

		
	(c)
	before awarding a Material Contract, notify and inform the Ministry about the intention of the Contractor to present an offer for such contract;

		
	(d)
	include the national companies that have been included in a list provided by the Ministry and that the Contractor regard as competent, in the list of bids for such Material Contract;

		
	(e)
	include in the list of bids, any qualified Person the Ministry suggests to be included; finish the bid process within a reasonable period of time;

		
	(f)
	consider and analyze the submitted offers;

		
	(g)
	draft and send to the Ministry a competitive analysis of the offers submitted including the Contractor’s recommendation in terms of the Person that will be awarded with the contract, the underlying reasons and the technical, commercial and contractual conditions to be agreed; 

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	(h)
	obtain the Ministry’s approval, which will be regarded as awarded if there is no response to an approval application thirty (30) days after since the reception of the written application; and

		
	(i)
	Provide the Ministry with a final copy of the signed contract.

All the amendments or modifications that per se abide by the definition of the Material Contract shall require the prior approval of the Ministry, approval that will be regarded as awarded if there is if there is no response to an approval application thirty (30) days after since the reception of the written application.
		
	6.7.2
	Should the Contractor imports and/or use any service, material, equipment, consumables and other goods from a country other than Equatorial Guinea, aware of contravention of this Article or Article ‎23.1, or otherwise signs a contract aware of contravention of such Articles, their costs shall not be Petroleum Operational Costs and they shall not be recoverable costs by the Contractor.

		
	6.8
	Inspection of Petroleum Operations

		
	6.8.1
	All Petroleum Operations may be inspected and audited by the Ministry at such intervals as the Ministry deems necessary. The duly commissioned representatives of the Ministry shall have the right, among others, to monitor Petroleum Operations and inspect all equipment, facilities and materials relating to Petroleum Operations, provided that any such inspection shall not unduly delay or impede Petroleum Operations. The representatives of the Ministry inspecting and monitoring Petroleum Operations shall comply with the safety standards of the Contractor.

		
	6.8.2
	For the purposes of permitting the exercise of the above-mentioned rights, the Contractor shall provide reasonable assistance to the representatives of the Ministry, including transportation and accommodation, as set forth in Article ‎6.23.

		
	6.8.3
	All costs directly related to the technical inspection, verification and audit of Petroleum Operations or otherwise in connection with the exercise of the Ministry’s rights under this Contract or the performance of the Contractor’s obligations shall be borne by the Contractor and are recoverable as Petroleum Operations Costs in accordance with this Contract, including:

		
	(a)
	outbound and return travel expenses;

		
	(b)
	local transportation, as necessary, when there is no transportation available under Article ‎6.8.2;

		
	(c)
	accommodation, when such accommodation is necessary to perform the official duties and is not provided under Article ‎6.8.2; and

		
	(d)
	per diems, which shall be adjusted in accordance with such amounts assigned to the ranking of each agent of the Ministry as published in the general budget law of the State approved for such Calendar Year, applicable to all companies in the extraction sector of Hydrocarbons in Equatorial Guinea, as set out in Article ‎6.23 below.

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All travel expenses in (a) and (b) and accommodations in (c) above shall be arranged by Contractor and Contractor shall pay directly to the service providers such costs. As a consequence of the payment of the per diems noted above in (d), Contractor shall not make any payments to or on behalf of any Government of Equatorial Guinea travelers in relation to meals or other incidental or miscellaneous costs incurred by such travelers during such travel, and all such costs shall be for the sole account of such travelers.
		
	6.9
	Provision of Information to Ministry

		
	6.9.1
	The Contractor shall keep the Ministry fully informed on the performance and status of Petroleum Operations at reasonable intervals and as required under this Contract and of any emergencies or accidents that may have occurred during such operations. Furthermore, the Contractor shall provide the Ministry with all documentation and information that is required to be provided under this Contract and the Hydrocarbons Law and as may otherwise be requested by the Ministry from time to time.

		
	6.9.2
	The Contractor shall keep the Ministry informed on a daily basis of the volumes of Hydrocarbons produced from the Contract Area.

		
	6.10
	Production of Energy for Own Use

The Contractor shall not produce any energy for its own use unless national production is insufficient or not reliable enough for the demands of the Contractor in its conduct of Petroleum Operations. This restriction does not preclude Contractor from having appropriate and customary back-up generators to provide energy in its conduct of Petroleum Operation. In such event, the energy produced may not be sold to any Person. However, the Contractor may utilize the amounts of Crude Oil and/or Natural Gas necessary for the production of power for use in its offshore facilities.
		
	6.11
	Standard of Equipment

The Contractor shall ensure that all equipment, plants, installations and materials used by it comply with the Hydrocarbons Law and generally accepted engineering standards, and that they are duly constructed and maintained in good condition.
		
	6.12
	Care of Contractor and the Environment

		
	6.12.1
	The Contractor shall take all prudent and necessary steps in accordance with

generally accepted practice of the international petroleum industry, the Hydrocarbons Law and this Contract to:
		
	(a)
	prevent pollution and protect the environment and living resources;

		
	(b)
	ensure that any Hydrocarbons discovered or produced in the Contract Area are handled in a manner that is safe for the environment;

		
	(c)
	avoid causing damage to overlying, adjacent and/or underlying formations trapping Hydrocarbon reserves;

24
    

		
	(d)
	prevent the ingress of water via Wells into strata containing Hydrocarbon reservoirs; 

		
	(e)
	avoid causing damage to overlying, adjacent and/or underlying aquifers;

		
	(f)
	ensure that Petroleum Operations are carried out in accordance with this Contract, the Hydrocarbons Law and all other laws of Equatorial Guinea;

		
	(g)
	undertake the precautions necessary for the protection of maritime transportation and the fishing industry and to avoid contamination of the ocean and rivers;

		
	(h)
	drill and exploit each Field in such a manner that the interests of Equatorial Guinea are protected; and

		
	(i)
	ensure prompt, fair and full compensation for injury to Persons or property caused by the effects of Petroleum Operations.

		
	6.12.2
	If the Contractor’s actions result in any pollution or damage to the environment, any Person, living resources, property or otherwise, the Contractor shall immediately take all prudent and necessary measures to remedy such damages and effects thereof and/or any additional measures as may be directed by the Ministry. If the pollution or damage is caused as a result of the negligence or willful misconduct of the Contractor, its subcontractors or any Persons acting on its or their behalf all costs in relation thereof shall not be recoverable as a Petroleum Operations Cost. If the Contractor does not act promptly so as to control or clean-up any pollution or make good any damage caused, the Ministry may, after giving the Contractor reasonable notice in the circumstances, carry out the actions which are prudent or necessary hereunder and under Article ‎4.5 and all reasonable costs and expenses of such actions shall be borne by the Contractor and shall not be recoverable as a Petroleum Operations Cost.

		
	6.12.3
	If the Ministry determines that any works or installations built by the Contractor or any activity undertaken by the Contractor threatens the safety of any Persons or property or causes pollution or harm to the environment, the Ministry shall promptly advise the Contractor of its determination, and may require the Contractor to take all appropriate mitigating measures, consistent with generally accepted practice of the international petroleum industry, to repair any damage caused by the Contractor’s conduct or activities. Furthermore, if the Ministry deems it necessary, it may demand that the Contractor suspend totally or partially the affected Petroleum Operations until the Contractor has taken the appropriate mitigating measures or repaired any damage.

		
	6.12.4
	The Contractor shall undertake comprehensive environmental impact assessment studies prior to, during and after major drilling operations. The Contractor shall assume the costs of these studies and such costs shall be recoverable. This requirement is mandatory and the first study shall be presented to the Ministry before the start of the drilling of the first Well in the Contract Area. However, an environmental impact assessment must also be completed prior to undertaking any seismic work in any areas of particular environmental sensitivity specified by the State.

		
	6.13
	Re-injection and Flaring of Natural Gas

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The Natural Gas that the Contractor does not develop in accordance with this Contract and the Hydrocarbons Law or use in its own operations within the Contract Area shall be re-injected into the structure of the subsoil, and all costs of such reinjection shall be recoverable as a Petroleum Operations Cost. Notwithstanding the foregoing, the Ministry may authorize the combustion of Natural Gas for short periods of time in accordance with the Hydrocarbons Law. The Contractor shall compensate the State for the value of the gas volumes flared without authorization. All such Natural Gas not used in Petroleum Operations by the Contractor or not developed in accordance with this Contract and the Hydrocarbons Law shall remain the sole property of the State.
		
	6.14
	Design and Identification of Wells

		
	6.14.1
	The Contractor shall conform to the practices generally accepted in the international petroleum industry in the design and drilling of Wells, including their casing and cementation.

		
	6.14.2
	Each Well shall be identified by a name or number agreed with the Ministry, which shall be indicated on all maps, plans and other similar records produced by or on behalf of the Contractor.

		
	6.15
	Vertical Projection Wells

No Well may be drilled to an objective which is outside the vertical projection of the boundaries of the Contract Area. Controlled direction Wells drilled within the Contract Area from adjacent terrain not covered by this Contract will be considered for all purposes of this Contract as Wells drilled from territory included in the Contract Area, and whose drilling may only be undertaken with the prior approval of the Ministry, and on such terms and conditions as the Ministry may establish. Nothing in this Article has the intention or should be interpreted as a grant of a right of lease, license, servitude or any other right that the Contractor must obtain from the Ministry or other Persons.
		
	6.16
	Notification of Commencement of Drilling

The Contractor shall notify the Ministry at least ten (10) Business Days in advance of the commencement of any drilling of any Well set out in an approved Annual Work Program and corresponding Annual Budget or before the resumption of works on any Well whose works have been suspended for more than six (6) months.
		
	6.17
	Construction of Facilities

The Contractor shall build and maintain all facilities necessary for the proper performance of this Contract and the conduct of Petroleum Operations. In order to occupy land necessary for the exercise of its rights and obligations under this Contract, the Contractor shall request the authorization of the Ministry and/or other applicable governmental authorities, which authorization shall be subject to and granted in accordance with Article ‎6.19, the Hydrocarbons Law and other applicable laws of Equatorial Guinea. The Contractor shall repair any and all damage caused by such circumstances.

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	6.18
	Occupation of Land

		
	6.18.1
	In order to carry out Petroleum Operations, the Contractor shall have the right to:

		
	(a)
	subject to Articles ‎6.17 and ‎6.18.2, occupy the necessary land for the performance of Petroleum Operations and associated activities as set out in paragraphs ‎(b) and ‎(c) below, including lodging for personnel;

		
	(b)
	undertake or procure the undertaking of any infrastructure work necessary in normal technical and economic conditions for the carrying out of Petroleum Operations and associated activities such as transport, storage of equipment, materials and extracted substances, establishment of telecommunications equipment and communication lines necessary for the conduct of Petroleum Operations at installations located both offshore and onshore;

		
	(c)
	undertake or ensure the undertaking of works necessary for the supply of water to personnel and installation works in accordance with water supply regulations; and

		
	(d)
	extract and use or ensure the extraction and utilization of resources (other than Hydrocarbons) from the subsoil necessary for the activities stipulated in paragraphs ‎(a), ‎(b) and ‎(c) above in accordance with relevant regulations.

		
	6.18.2
	Occupation of land as mentioned in Article ‎6.18.1 shall become effective after the Ministry or other applicable governmental authority approves the request submitted by the Contractor indicating and detailing the location of such land and how the Contractor plans to use it, taking the following into consideration:

		
	(a)
	if the land belongs to the State, the State shall grant it to the Contractor for occupation and to build its fixed or temporary facilities during the term of this Contract for a fee and on terms to be agreed and such amount shall be considered a Petroleum Operations Cost;

		
	(b)
	if the land is private property by traditional or local right according to the Property Registry, then (1) if the occupation is merely temporary or transitory, or for right of way, the Contractor shall reach an agreement with the relevant property owner and the property owner shall reach an agreement with any occupant, tenant or possessor, with regard to the rental to be paid, and the resulting amounts shall be considered recoverable Petroleum Operations Costs, or (ii) if the occupation is permanent, the relevant owner and the Contractor shall reach an agreement regarding matters related to the property’s acquisition and such amounts shall be considered Petroleum Operations Costs;

		
	(c)
	if the Contractor and the relevant property owner or occupant, tenant or possessor do not reach an agreement regarding the matters mentioned in paragraph ‎(b) above, the Ministry shall act as a mediator between them and in the event that such mediation does not produce a resolution of the case the dispute shall be resolved by the courts of Equatorial Guinea unless recourse is had to the procedure described in paragraph ‎(d) below;

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	(d)
	the State may proceed to expropriate the land, subject to the prior publication of a decree of compulsory expropriation followed by a fair and reasonable valuation of the land concerned by an expert valuator. In such event the Contractor shall compensate the expropriated property owner in accordance with the value determined by such expert valuator if the State has not done so; such amounts shall be considered recoverable Petroleum Operations Costs;

		
	(e)
	the relinquishment, in whole or in part, of the Contract Area, will not affect the Contractor’s rights under Article ‎6.18.1 to carry out building works and construction of installations, provided that such works and installations are directly related to other activities of the Contractor in the remainder of the Contract Area, as in the case of partial relinquishment, and covered by other production sharing contracts.

		
	6.19
	Residence of Personnel

There shall be no restrictions imposed on the entry, residence, free circulation, employment and repatriation of the personnel of the Contractor and its subcontractors, the family of such personnel, or the personal effects of such personnel and his or her family, provided that the Contractor and its subcontractors comply with all applicable laws including employment and social legislation of Equatorial Guinea. The State agrees to grant in a timely manner the entry, work, or residence permits or other permits or authorizations that, in accordance with the Laws of Equatorial Guinea, may be required by the personnel of the Contractor, the Operator or any subcontractor.
		
	6.20
	Assistance of Ministry

The Ministry shall assist the Contractor and its subcontractors in obtaining all administrative authorizations and licenses as may be reasonably necessary for the proper execution of Petroleum Operations under this Contract.
		
	6.21
	Opening of Branch Office

The Contractor shall, to the extent that it has not already done so, open a representative branch office in Equatorial Guinea within six (6) months following the Effective Date, until such time as an Equatorial Guinean incorporated affiliate is established pursuant to Article ‎17.1. Such branch office shall always be staffed by at least one (1) representative with sufficient authority to make decisions on behalf of the Contractor.
		
	6.22
	Premises

Upon the first Commercial Discovery, the Contractor shall, to the extent that it has not already done so, construct a prestigious building for its offices in Equatorial Guinea using modern and permanent materials and of an appropriate size and design as shall be approved by the Ministry. All costs related to such construction shall be recoverable as Petroleum Operation Costs in accordance with this Contract. Once such construction costs have been recovered by the Contractor, such property shall be owned solely by the State and the Contractor shall pay rent to the State at a price and on terms to be negotiated and such rent shall be considered recoverable Petroleum Operations Costs by the Contractor.

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	6.23
	State Expenses

If, in connection with Contractor’s performance of its obligations under this Contract or for the negotiation of this Contract prior to the Effective Date, or if circumstances emerged regarding this Contract other than as provided in this Section ‎6.23 of this Contract, any employee or official of the State, including the Ministry’s personnel and GEPetrol, is required to travel to any location outside the Republic of Equatorial Guinea or as set out in Section ‎6.8.3 above, and the State agrees, through the Ministry, to permit such employee or official to travel for such purposes, Contractor agrees, subject to the prior mutual agreement of the Parties to such travel, to pay the following amounts to the Ministry, on behalf of the State, for the travel expenses related to the participation of such employees or officials:
		
	(a)
	the actual expenses incurred for travel to the location outside of the Republic of Equatorial Guinea and for travel to return to the Republic of Equatorial Guinea and lodging of such employees or officials at the foreign location, and

		
	(b)
	to pay to the Ministry, on behalf of the State, for the per diem as provided in the 2017 Budget Law. amount equal to the following for each day such employee or official is out of the Republic of Equatorial Guinea in accordance with the request of CONTRACTOR;

As requested by the Ministry, for travel approved by Company in advance, Company agrees
		
	A.
	As a consequence of the payment of the per diems noted above, Company shall not make any payments to or on behalf of any Government of Equatorial Guinea travelers in relation to meals or other incidental or miscellaneous costs incurred by such travelers during such travel, and all such costs shall be for the sole account of such travelers.

		
	B.
	The Parties agree that all payments made pursuant to this Section ‎6.23 by Company to the Ministry, on behalf of the State, and to the provider of services, shall be recoverable expenses under this Contract as Petroleum Operations Costs. The Parties further agree that in relation to all payments made pursuant to this Section ‎6.23, Company is neither seeking nor shall it gain any business or business advantage from the Ministry or the Government of the Republic of Equatorial Guinea as a result of making such payments.

The amounts contemplated pursuant to this Section ‎6.23 shall be payable by Contractor by wire transfer or check made out to the Ministry in the resulting total amount. Notwithstanding the foregoing, with respect to the actual travel and lodging expenses provided by Section ‎6.23(a), Contractor may choose to pay such amounts directly to the provider of such services for travel and lodging. The sums paid by Contractor pursuant to this Section ‎6.23 will be included as cost recoverable Petroleum Operations Costs. As a consequence of the payment of the amounts noted above, Contractor shall not make any payments to or on behalf of any Government employee or official in relation to meals or other incidental or miscellaneous costs incurred by such employee or official 

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during such travel, and all such costs shall be for the sole account of such employee or official.
ARTICLE 7     
ROYALTIES, RECOVERY OF PETROLEUM OPERATIONS COSTS, AND DISTRIBUTION OF PRODUCTION
		
	7.1
	Royalties

		
	7.1.1
	The Contractor shall pay Royalties to the State from the first day of Production based on the daily Total Disposable Production from a Development and Production Area. The calculation shall be determined according to the following table applicable for each tranche:

	
		
	Daily Total Disposable Production
	Percentage of Royalties

	0 to 40,000
	13%

	40,001 to 80,000
	14%

	80,001 to 120,000
	14.5%

	120,001 to 140,000
	15%

	Over 140,000
	16%

		
	7.1.2
	The percentage corresponding to the level of Production shall be applied directly. Thus, for example: for a Production level of ninety thousand (90,000) Barrels per day, fourteen point five percent (14.5%) would be applied and the Royalty would be thirteen thousand fifty (13,050) Barrels.

		
	7.2
	Cost Recovery Oil

		
	7.2.1
	After deducting Royalties, the Contractor shall be entitled to up to seventy percent (70%) of the Total Disposable Production remaining in any Calendar Year for recovery of its Petroleum Operations Costs (Cost Recovery Oil).

		
	7.2.2
	The value of the portion of Total Disposable Production assigned to the Contractor’s Petroleum Operations Costs recovered will be determined in accordance with ‎Article 10.

		
	7.2.3
	If, during any Calendar Year, the Petroleum Operations Costs not yet recovered by the Contractor in accordance with this Contract exceed the value of the maximum amount of available Cost Recovery Oil, the portion of Petroleum Operations Costs not recovered in the said Year will be carried forward to the following Calendar Year for recovery purposes.

		
	7.3
	Net Crude Oil

The quantity of Total Disposable Production remaining every Year after the deduction of Royalties and Cost Recovery Oil will hereafter be referred to as Net Crude Oil, which will be shared between the State and the Contractor in the following proportions:

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	Accumulated Total Production  
(Million Barrels)
	Entitlement of the State (%)
	Entitlement of the Contractor (%)

	0 – 70
	20
	80

	70 – 140
	30
	70

	140 – 200
	35
	65

	200 – 400
	40
	60

	over 400
	50
	50

		
	7.4
	Delivery of State’s Entitlement

The State’s share of Crude Oil to which it is entitled pursuant to Articles ‎7.1 and ‎7.3 shall be delivered to and accepted by the State or the Person appointed by it at the Delivery Point. The Contractor shall be free from all responsibility with respect to such Crude Oil from the time it has been delivered. However, should the State so require, the Contractor shall be obliged to purchase all or part of the State’s share of Total Disposable Production, subject to the provisions of Article ‎7.5.
		
	7.5
	Price Obtained by Contractor

		
	7.5.1
	If, pursuant to Article ‎7.4, the State requires the Contractor to purchase its share of Crude Oil, the State shall advise the Contractor of its next scheduled shipment at least three (3) months in advance, and the Ministry and the Contractor shall come to a mutual agreement as to the terms and conditions of such sale and purchase. In the event that three (3) months advance notice is not given, or they do not reach an agreement as to the terms and conditions of the sale and purchase, the Contractor shall not be obliged to purchase said Crude Oil.

		
	7.5.2
	The Ministry shall be entitled to compare the price for its Crude Oil obtained from the Contractor with similar market quotations. In the event that it is shown that the price obtained from the Contractor differs substantially from the quotations in similar markets, the Ministry shall have the right to evaluate the Contractor’s sales and marketing operations and, if justified, cancel any sales agreement between the State and the Contractor, without prejudice to any claim that the State may have against the Contractor with respect to the matters under dispute.

		
	7.6
	Export of Entitlement

Subject to ‎Article 12 and the Hydrocarbons Law, each Party comprising the Contractor has the right to take, receive and freely export its share of Net Crude Oil and Cost Recovery Oil, provided it uses the services of an Equatoguinean Crude Oil maritime transport company, an international company associated with the National Company or any other local business that is able to provide the services under conditions that are internationally competitive in terms of price, quality, terms of payment and availability in accordance with Article ‎23.1. The Contractor will have the option to hire a company of its choice, should no local company be available to deliver such service.
		
	7.7
	Title to Contractor’s Entitlement

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Title to the Contractor’s portion of Net Crude Oil and Cost Recovery Oil shall pass to the Contractor at the Delivery Point.
ARTICLE 8     
PARTICIPATION INTERESTS
		
	8.1
	Liability for Petroleum Operations Costs

Subject to Article ‎8.2, the Parties comprising the Contractor shall fund, bear and pay all costs and expenses for Petroleum Operations under this Contract and the Joint Operating Agreement in the proportions set forth in Article ‎1.3. Each of the Parties comprising the Contractor shall be represented on the operating committee under the JOA and shall have voting rights as provided therein.
		
	8.2
	Participation Interest of the National Company

		
	8.2.1
	The National Company’s Participation Interest will be carried and paid for in full by the other Parties comprising the Contractor (other than the National Company) in proportion to their respective Participation Interests (other than the National Company’s) through the Exploration Period. At approval of the Development and Production Plan, the National Company shall convert its carried Participation Interest into a full working Participation Interest in accordance with the Hydrocarbons Law. From that point on, the National Company shall be responsible for all its costs in respect of the area covered by the approved Development and Production Plan. For the avoidance of doubt, the National Company’s Participation Interest in respect of the remainder of the Contract Area shall continue to be carried and paid for by the Parties comprising the Contractor (other than the National Company) in proportion to their respective Participation Interests (not including the National Company’s) until such time as the National Company elects to convert its carried interest into a full working interest.

		
	8.2.2
	The costs, expenditures and obligations, including the costs incurred pursuant to Article ‎6.23, incurred by the Parties comprising the Contractor (other than the National Company) in relation to the National Company’s carried Participation Interest shall be recoverable by the Parties comprising the Contractor (other than the National Company) in accordance with the provisions of this Contract and the Hydrocarbons Law.

		
	8.2.3
	The Parties comprising the Contractor (other than the National Company) shall recover the costs and expenditures in relation to the National Company’s carried Participation Interest from fifty percent (50%) of the Hydrocarbons corresponding to the National Company’s total entitlement in accordance with Articles ‎7.2 and ‎7.3.

ARTICLE 9     
TAXATION
		
	9.1
	Payment of Taxes

Except as otherwise provided in this Contract, the Contractor, its subcontractors and affiliates and their respective employees, agents, consultants and other personnel shall be subject to the Tax Law, Customs Law and all regulations passed pursuant thereto, as 

32
    

well as CEMAC (Central African Economic and Monetary Community) and fiscal and customs laws of Equatorial Guinea.
		
	9.2
	Audit Rights

The provisions of ‎Article 16 shall apply to Income Tax, Royalty payments and to all other obligations under this Contract.
ARTICLE 10     
VALUATION OF CRUDE OIL
		
	10.1
	Market Price

		
	10.1.1
	The unit selling price of Crude Oil under this Contract shall be the FOB Market Price at the Delivery Point, expressed in Dollars per Barrel and calculated in accordance with this Article ‎10.1. A Market Price shall be established for each type of Crude Oil or Crude Oil blend in accordance with this Article ‎10.1.

		
	10.1.2
	The Market Price applicable to all liftings of Crude Oil sold to third Parties under market conditions during one Quarter shall be the agreed selling price, adjusted, as necessary, to reflect differentials in quality, gravity, quantity, delivery conditions and terms of payment.

		
	10.1.3
	Before the period in which a price for Crude Oil is quoted by Platts for the Field from where Crude Oil is sold, the Market Price applicable to all liftings of Crude Oil sold to a Contractor’s Affiliate and later sold to a third party, will be the value received under the Contract under market conditions with the said third party, adjusted, as necessary, to reflect differentials in quality, gravity, quantity, delivery conditions and terms of payment. Should there be no price quoted by Platts for the produced Crude Oil, the Contractor and the Ministry shall meet to establish a differential related to a crude marker quoted by Platts to reflect the differential in terms of quality and the commercial differentials. The meeting shall be held six months after the introduction in the market; all the Persons comprising the Contractor and participating in the marketing of Crude Oil during that period of six months, shall attend such meetings with the Ministry.

		
	10.1.4
	The Market Price applicable to all liftings of Crude Oil sold to a Contractor’s Affiliate after having set a quoted price during a Quarter will be calculated by summing up the average of high and low quotes for Dated Brent according to the data published in the five (5) consecutive issues of the Platts Bulletin for the Crude Oil Market (including all corrections) posterior to the lifting informed date and the differential average between the sold Crude Oil and the Dated Brent one as published in the Platts Crude for the period starting on the fifteenth day (15th) day and ends on the last day of the Month of the Load Commercialization (inclusive).

This is given by the following formula;
Price = A+ B, where:
		
	A=
	average o the high and low quotes of Brent Dating according to the according to the data published in the five (5) consecutive issues of the Platts Bulletin for the 

33
    

Crude Oil Market (including all corrections) posterior to the lifting informed date.
		
	B=
	differential average between the quality of the sold Crude Oil and the Dated Brent as published in the Plaits Crude for the period starting on the fifteenth day (15th) day and ends on the last day of the Month of the Load Commercialization (inclusive).

Should the qualities of the Crude Oil produced from the Field not correspond_ within tolerable bounds, a “C” adjustment will be created to bear in mind the differentials associated with the qualities that do not coincide with A and B. In such case, the Market Price formula will be modified as follows:
Price = A +B +C
Should the used Crude Oil stop being quoted to calculate the Market Price, the Ministry and the Contractor shall agree upon the Crude Oil which most closely resembles the Crude Oil whose prices are no longer quoted, in order to calculate the Market Price.
		
	10.1.5
	The Market Price applicable to all liftings of Crude Oil during one Quarter shall be equivalent to the weighted average of the prices obtained by the Parties comprising the Contractor, with the exception of the National Company, for all Crude Oil sold and valued in accordance with Articles ‎10.1.2, ‎10.1.3 and ‎10.1.4.

		
	10.1.6
	The following transactions shall be excluded from the calculation of the Market Price:

		
	a)
	Sales between Crude Oil providers and the national market; and

		
	b)
	Sales in which the compensation is different from a payment in a freely convertible currency, and sales totally or partially conducted due to reasons different from common commercial incentives for Crude Oil Sales in the international market (such as exchange contracts).

		
	10.2
	Disagreement of Market Price

		
	10.2.1
	The Contractor and the Ministry shall agree the Market Price in accordance with this ‎Article 10; in the event that they are unable to agree on any matter concerning the Market Price of Crude Oil, either the Contractor or the Ministry may serve on the other a dispute notice. Within seven (7) days of the date of the dispute notice the Ministry shall establish a committee of two (2) Persons of which the Minister of Mines, Industry and Energy or his delegate will be the President and the other committee member will be a representative designated by the Contractor to represent it. The committee must meet and make a decision resolving any dispute under this ‎Article 10 within thirty (30) days of the date of the dispute notice. The committee shall unanimously decide the dispute.

		
	10.2.2
	In the event a unanimous decision is not reached by the committee within the aforementioned thirty (30) day period, the dispute shall be determined by an internationally recognized expert appointed by the International Chamber of Commerce in accordance with its Rules for Expertise (ICC Expertise Rules). The determination of the expert shall be final and binding on the Parties. The expert shall determine the Market 

34
    

Price in accordance with the provisions of this ‎Article 10 within twenty (20) days from the date of his appointment. The determination of the expert shall be final and binding upon the Parties, and, if should it not be complied with pursuant to Equatorial Guinea legislation, either Parties may refer the matter to arbitration under ‎Article 26 to reach a final and binding decision. Unless otherwise determined by the expert, the costs and expenses of such expert shall be shared proportionately by the Parties on a per capita basis and the Contractor’s share shall not be cost recoverable.
		
	10.2.3
	Pending the determination of the Market Price for a Quarter, the Market Price provisionally applicable to a Quarter shall be the Market Price of the preceding Quarter. Any necessary adjustment shall be made no later than thirty (30) days after the determination of the Market Price for the Quarter in question.

		
	10.3
	Payment Deadline to the State of the Market Price should the Contractor Commercialize the State Crude Oil.

According to Article ‎7.5, when the Contractor commercializes Crude Oil belonging to the State in favour of the State and the payment deadline has not been individually set under an Oil Commercialization Agreement with the State, within ten (10) days following every lifting, the Contractor shall provide the Ministry with full details relating to the prices resulting from the sale of each State Crude Oil lifting and Contractor shall forward the amounts resulting from such sales to the State within fourteen (14) days of receipt of such funds.
		
	10.4
	Audit of Market Price

The Ministry shall be entitled to audit and verify that the price obtained by the Contractor for each shipment of Crude Oil has been the price determined in accordance with this Contract. The Ministry has the right, during a period of two (2) Years from the transaction date, to assess the marketing practices of the Contractor and require the Contractor to pay the State for the difference between the price actually obtained and the Market Price determined in accordance with this ‎Article 10. The disagreements with regard to the Market Price will be resolved in accordance with Article ‎10.2.2.
ARTICLE 11     
BONUSES AND SURFACE RENTAL
		
	11.1
	Signature Bonus

The Contractor shall pay to the State a signature bonus of two million Dollars ($2,000,000) within thirty (30) days of the Effective Date.
		
	11.2
	Discovery Bonus

On the date the Contractor notifies the Ministry for the first time that it deems a Discovery to be a Commercial Discovery in compliance with the provisions of Article ‎5.4, the Contractor shall pay to the State the sum of two million Dollars ($2,000,000).
		
	11.3
	Production Bonuses

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The Contractor shall pay to the State the following sums as Production bonuses:
		
	(a)
	on the date of start Production of Crude Oil from a Development and Production Area, two million Dollars ($2,000,000);

		
	(b)
	two million Dollars ($2,000,000) after daily Production from a Development and Production Area first averages 20,000 Barrels per day for a period of sixty (60) consecutive days;

		
	(c)
	three million Dollars ($3,000,000) after daily Production from a Development and Production Area first averages 40,000 Barrels per day for a period of sixty (60) consecutive days;

		
	(d)
	five million Dollars ($5,000,000) after daily Production from a Development and Production Area first averages 60,000 Barrels per day for a period of sixty (60) consecutive days; and

		
	(e)
	six million Dollars ($6,000,000) after daily Production from a Development and Production Area first averages 120,000 Barrels per day for a period of sixty (60) consecutive days.

Such payments shall be made within thirty (30) days of the date that the liability accrues.
		
	11.4
	Surface Rentals

		
	11.4.1
	The Contractor shall pay to the State the following annual surface rentals:

		
	(a)
	zero point twenty five Dollars ($0.25) per hectare of the Contract Area annually, for each Calendar Year or part thereof, during the Initial Exploration Period, the Extension Periods or any extension thereof; or

		
	(b)
	two point five Dollars ($2.50) per hectare for each Development and Production Area, annually for each Calendar Year or part thereof, during the term of the relevant Development and Production period.

		
	11.4.2
	For the Year in which this Contract is signed, the surface rental set forth in Article ‎11.4.1(a) shall be prorated from the Effective Date through to 31 December of such Year and shall be paid within thirty (30) days after the Effective Date. For succeeding Years the surface rentals set forth in Article ‎11.4.1(a) and ‎(b) shall be paid in advance not less than thirty (30) days before the beginning of each Calendar Year.

For the Calendar Year in which any Development and Production Area is granted the surface rental set forth in Article ‎11.4.1(a) and ‎(b) shall be prorated from the date in which such Development and Production Plan is approved up to 31 December of said Calendar Year, and the additional sum shall be paid within thirty (30) days after the approval of the Development and Production Area. For succeeding Calendar Years the surface rental set forth in Article ‎11.4.1(b) shall be paid within thirty (30) calendar days after the beginning of each Calendar Year.

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	11.4.3
	Surface rentals shall be calculated based on the surface of the Contract Area and, where applicable, of a Development and Production Area occupied by the Contractor on the date of payment of such surface rentals. For the avoidance of doubt, this shall exclude any relinquished areas. In the event of relinquishments made during a Calendar Year, the Contractor shall have no right to be reimbursed for the surface rentals already paid.

ARTICLE 12     
OBLIGATION TO SUPPLY DOMESTIC MARKET
		
	12.1
	Obligation to Supply

In accordance with the Hydrocarbons Law, the Contractor shall meet as a priority the needs of domestic Hydrocarbon consumption, in Equatorial Guinea. For this purpose, and in accordance with the provisions of Articles 86 and 87 of the Hydrocarbons Law, if the State so requests, the Parties comprising the Contractor (other than the National Company, together with all other contractors which produce Net Crude Oil and/or Net Natural Gas, shall sell to the State, at the Delivery Point at international market price at terms to be agreed, a pro rata portion of its Net Crude Oil and/or Net Natural Gas for internal consumption in the country, provided that Contractor’s obligation to supply Net Crude Oil and/or Net Natural Gas for purposes of meeting the domestic consumption needs shall not exceed the total of Contractor’s entitlement of Gross Production of Net Crude Oil and/or Net Natural Gas after deduction of the State’s Royalty under this Contract.
		
	12.2
	Notification from Ministry

No later than the first day of October of each Calendar Year, the Ministry shall notify the Parties comprising the Contractor (other than the National Company) of the quantities of Crude Oil and/or Natural Gas which it desires to purchase under this ‎Article 12 for the subsequent Calendar Year. The Crude Oil and/or Natural Gas shall be delivered to the State or to the beneficiary designated by the State during such Calendar Year according to procedures to be agreed between the Ministry and the Contractor.
ARTICLE 13     
NATURAL GAS
		
	13.1
	Unassociated Natural Gas

		
	13.1.1
	In the event of an Unassociated Natural Gas Discovery, the Contractor shall comply with the provisions of Article ‎5.2. However, if the Appraisal work program presented by the Contractor following the Discovery of Unassociated Natural Gas has a duration exceeding that of the Initial Exploration Period or any of its extensions, the Contractor may request from the Ministry an extension of the relevant Exploration Period with respect to the Appraisal Area related to such Discovery for a period of up to four (4) Years starting from the expiry of the Initial Exploration Period or any of its Extension Periods, as appropriate. The Contractor shall request the aforementioned extension at least sixty (60) days prior to the expiry of the relevant period.

		
	13.1.2
	If the Contractor considers that the Unassociated Natural Gas Discovery does not warrant Appraisal or further Appraisal, in conformity with the provisions of Article ‎5.12, the 

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Ministry may, with ninety (90) days’ advance notice, require the Contractor to relinquish all of its rights over the Appraisal Area encompassing such Discovery.
		
	13.1.3
	In the same manner, if after completion of the Appraisal work, the Contractor considers that the Unassociated Natural Gas Discovery is not commercial, the Ministry may, with ninety (90) days’ advance notice, require the Contractor to relinquish all of its rights over the Appraisal Area encompassing such Discovery.

		
	13.1.4
	In both the above cases the Contractor shall be deemed to have waived all its rights to the Hydrocarbons produced from such Unassociated Natural Gas Discovery, and the State may then carry out, or cause to be carried out, all the Petroleum Operations relating to that Discovery, without compensation or indemnification to the Contractor, provided, however, that such work shall not prejudice the performance of other Petroleum Operations of the Contractor. The Ministry may request that the Contractor undertake all continuing operations for a fee and on terms to be agreed between the Ministry and the Contractor.

		
	13.2
	Associated Natural Gas

		
	13.2.1
	In the event that a Discovery of Crude Oil is considered to be a Commercial Discovery, the Contractor shall state in the report referred to in Article ‎5.3 whether it considers that the Production of Associated Natural Gas is likely to exceed the quantities necessary for the requirements of Petroleum Operations relating to the Production of Crude Oil (including re-injection operations), and whether it considers that such excess is capable of being produced in commercial quantities. In the event the Contractor has informed the Ministry of such an excess, the Ministry and the Contractor shall jointly assess the possible markets and uses for such excess of Associated Natural Gas, both on the local market and for export (including the possibility of joint marketing of their shares of Production of that excess of Associated Natural Gas in the event such excess would not otherwise be commercially exploitable), together with the means necessary for its marketing.

		
	13.2.2
	In the event the Ministry and the Contractor should decide that the Development of the excess Associated Natural Gas is justified, or in the event the Contractor should wish to develop and produce such excess, the Contractor shall indicate in the Development and Production Plan the additional facilities necessary for the Development and Production of such excess and its estimate of the costs related thereto. The Contractor shall then proceed with the Development and Production of such excess in accordance with the Development and Production Plan submitted and approved by the Ministry under Article ‎5.5. A similar procedure shall be applicable if the sale or marketing of Associated Natural Gas is agreed during the Production of a Field.

		
	13.2.3
	In the event the Contractor does not consider the exploitation of the excess Associated Natural Gas is justified and if the State at any time wishes to utilize it, the Ministry shall notify the Contractor of the State’s wish, in which event:

		
	(a)
	the Contractor shall put at the disposal of the State free of charge the Crude Oil and Associated Natural Gas separation facilities for all or part of such excess that the State wishes to utilize;

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	(b)
	the State shall be responsible for the gathering, treatment, compression and transportation of such excess Associated Natural Gas from the receiving point at the Contractor’s facilities and for bearing any additional costs and liabilities related thereto; and

		
	(c)
	the construction of the facilities necessary for the operations referred to in paragraph ‎(b) above, together with the recovery of that excess by the State shall be carried out in accordance with generally accepted practice of the international petroleum industry.

		
	13.2.4
	In no event shall the Operations carried out by the State in relation to such Associated Natural Gas interfere with Petroleum Operations of the Contractor.

		
	13.2.5
	Any excess Associated Natural Gas not utilized in accordance with Articles ‎13.2.1, ‎13.2.2 and ‎13.2.3 shall be re-injected by the Contractor in accordance with Article ‎6.14. Flaring will be permitted only in accordance with the Hydrocarbons Law and is subject to the approval of the Ministry. The Contractor shall be permitted to flare Associated Natural Gas without the approval of the Ministry in the event of an emergency, provided that every effort is made to diminish and extinguish such flaring of Natural Gas as soon as possible. The Ministry has the right to offtake, free of charge, at the wellhead or gas oil separator all Natural Gas that would otherwise be re-injected or flared by the Contractor.

		
	13.3
	Provisions Common to Associated and Unassociated Natural Gas

		
	13.3.1
	The Contractor shall dispose of its share of the Production of Natural Gas in accordance with this Contract and the Hydrocarbons Law. The provisions of this Contract applicable to Crude Oil shall apply mutatis mutandis to Natural Gas unless otherwise specified herein.

		
	13.3.2
	The selling price for all Natural Gas to be sold in the domestic market shall be set by the Ministry in accordance with the Hydrocarbons Law. The selling price for all Natural Gas to be sold outside of the domestic market shall be as agreed between the Ministry and the Contractor. The Ministry and Contractor shall proceed in good faith to negotiate a gas sales agreement, if required.

		
	13.3.3
	For the purposes of Articles ‎7.3 and ‎11.3, the quantities of available Natural Gas after deduction of the quantities re-injected, flared or necessary for the conduct of Petroleum Operations shall be expressed in a number of Barrels of Crude Oil on a BTU equivalent energy content basis adjusted monthly by a commercially appropriate factor relating the price of Natural Gas with the price of Crude Oil in terms of the provisions of Article ‎10.3, unless otherwise agreed between the Ministry and the Contractor.

		
	13.3.4
	The provisions of Article ‎7.2 in respect of cost recovery shall apply mutatis mutandis to the Production of Natural Gas.

		
	13.3.5
	The quantity of Natural Gas produced and saved from the Contract Area which remains after the Contractor has taken the portion for the recovery of Petroleum Operations Costs pursuant to Article ‎13.3.4 shall be referred to as Net Natural Gas.

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	13.3.6
	Subject to the Hydrocarbons Law, the Ministry and the Contractor hereby agree that, in the case of Natural Gas Production, they shall reach separate agreements and arrangements with respect to the sale and marketing of Natural Gas.

ARTICLE 14     
CUSTOMS REGULATIONS
		
	14.1
	Importation of Goods, etcetera

		
	14.1.1
	In accordance with the stipulations of Articles 63 and 64 of the Hydrocarbons Law, the Contractor shall be permitted to import into Equatorial Guinea all the goods, materials, machinery, equipment and consumer goods directly necessary to properly carry out Petroleum Operations in its own name or in the name of its sub-contractors or other Persons acting on its or their behalf.

		
	14.1.2
	For the purpose of this Contract, the Contractor shall benefit from the following advantages:

		
	(a)
	All materials, products, machinery, equipment and tools necessary for Petroleum Operations, provided that these goods, which are exclusively destined and actually dedicated directly to Petroleum Operations and that are destined to be re-exported at the end of their use, will be treated as imported under the conditions stipulated in the Customs Code, the importation in compliance with the regulations of Temporary Admission (TA) or Temporary Imports (TI), either normal or special, whichever is the case for the Contractor, for its sub-contractors and Persons acting on its or their behalf, of all materials, products, machinery, equipment and tools necessary for Petroleum Operations; and

		
	(b)
	Admission with exemption from any tax and/or duty of all materials, products, machinery, equipment and tools totally used or consumed in Equatorial Guinea, exclusively and effectively devoted to Hydrocarbon prospecting, Exploration, Development, and Production Operations subject to this Contract. This exemption applies to imports directly made by the Contractor, its subcontractors and Persons acting on its behalf, on condition that a certificate of end use is issued.

		
	14.1.3
	Apart from the exemptions established in the above paragraphs of this ‎Article 14 and the items referred to in Article ‎14.1.4, which are waivers that may be granted by the Government according to the law, all goods, materials, products, machinery and equipment imported or exported by the Contractor shall be subject to taxes and/or duties, in accordance with the customs legislation in force in Equatorial Guinea.

		
	14.1.4
	The Contractor shall follow the procedures to obtain such waivers, according to the Decree 134/2015 of 2nd of November 2015. The Government shall grant those waivers in accordance with the law to import all goods, materials, machinery, equipment and consumer goods directly needed to implement such Petroleum Operations on behalf of the Contractor or on behalf of its subcontractors or other Persons acting on behalf of the Contractor or its subcontractors in such a way that the import of these items be free and exempt from all customs duties, taxes and fees different from charges resulting from the delivery of the services needed to comply with customs legislation.

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	14.2
	Oil Export Rights

Subject to ‎Article 12, the Contractor, its purchasers and transporters will have the right to export and at any time the quantities of Cost Recovery Oil and Net Crude Oil belonging to the Contractor from the Delivery Point selected for this purpose free of taxes and/or duties and fees different from charges resulting from the delivery of the services needed to comply with customs legislation.
		
	14.3
	Export of Goods and Materials that have not been transferred to the State

In compliance with the customs obligations as set out in this Contract and regulations currently in force, the Contractor, its subcontractors and Persons acting on its or their behalf may export or re-export, free of taxes, import duties and fees different from charges resulting from the delivery of the services needed to comply with customs legislation, goods imported within the framework of this Contract when they are no longer necessary for Petroleum Operations, provided that their ownership has not been transferred to the State in accordance with the terms of this Contract. However, all goods not subject to rental, which from a financial and accounting position are already cost-recovered, will not be re-exported under any customs regime.
		
	14.4
	Customs Documentation

All imports, exports and re-exports in the framework of this Contract shall be subject to the formal procedures required by customs authorities pertaining to documentation, except in the case of an emergency requiring urgent action, in which Contractor shall submit all required documentation as soon as it reasonably can, but not later than ten (10) days after the arrival of the goods in Equatorial Guinea.
		
	14.5
	Exclusion of Penalties and Fines related to Petroleum Operations Costs

Should the Contractor or their subcontractors, representatives or agents be considered liable for the payment of fines, penalties or any other legal duties related to any non-compliance with the laws related to the use and enjoyment by the Contractor of the benefits described in ‎Article 14, such fines, penalties or other legal duties shall be excluded from the Petroleum Operational Costs of the Contractor.
		
	14.6
	Imports and Exports by Foreign Personnel

Subject to Article ‎14.5, the foreign personnel appointed to work in Equatorial Guinea on behalf of the Contractor or its subcontractors and their families, shall be permitted to import their personal belongings and household articles in bulk shipments free of any kind of customs duties, taxes or fees different from charges resulting from the delivery of the services needed to comply with customs legislation within the first year as from their initial entrance in Equatorial Guinea and, then, every two years. Any shipment for subsequent resale shall not be considered as personal belongings. The personal belongings and household articles that have been exempt from import duties and fees shall also be exempt from export duties and fees once the subsequent export has taken place.

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ARTICLE 15     
FOREIGN CURRENCY
		
	15.1
	Exchange Control Laws

The Contractor and its subcontractors and all Persons acting on its or their behalf must comply with all applicable exchange control laws of Equatorial Guinea. However, as long as they shall have met their respective payment and tax obligations under this Contract and the laws of Equatorial Guinea, they shall benefit, during the term of this Contract, from the following rights regarding Petroleum Operations:
		
	(a)
	to retain or dispose of any proceeds outside of Equatorial Guinea including any proceeds from the sale of its or their share of Hydrocarbons;

		
	(b)
	to pay foreign subcontractors and expatriate employees of the Contractor, outside of Equatorial Guinea, after deduction of the relevant taxes in Equatorial Guinea. For this purpose, the Contractor may open and use freely bank accounts in Dollars or in other currencies in banks of its choice in Equatorial Guinea and abroad. Notwithstanding the foregoing, while this Contract is in force the Contractor and each of its subcontractors shall establish and maintain a bank account in a national banking institution in Equatorial Guinea, which shall have the Minimum Retention as set out in Article ‎1.1.77, which has been approved by the Ministry and, in the case of subcontractors, the minimum amount set by the Ministry from time to time;

		
	(c)
	to transfer such funds as the Contractor or its subcontractors shall have imported into Equatorial Guinea, or earned from Petroleum Operations, or from the proceeds of the sale or lease of goods or performance of services under this Contract;

		
	(d)
	to obtain abroad loans required for the performance of their activities under this Contract, provided that the Ministry shall have approved the terms of such loan, including the rate of interest and terms of repayment, whose approval shall not be unreasonably withheld or delayed);

		
	(e)
	to collect and maintain abroad all the funds acquired or borrowed abroad, and to freely dispose thereof, limited to the amounts that exceed the requirement of funds for their operations in Equatorial Guinea; and

		
	(f)
	free movement of funds owned by them according to the laws of Equatorial Guinea.

		
	15.2
	Report on Foreign Exchange Transactions

The Contractor and its subcontractors shall submit to the Ministry of Finance and Budgets, within forty-five (45) days of the end of each Quarter, a report with details of any foreign exchange transactions made during the preceding Quarter, including any transactions directly related to Petroleum Operations on accounts opened abroad and made in accordance with the provisions of Article ‎15.1.

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	15.3
	Freedom of Exchange

The Contractor’s and its subcontractors’ expatriate employees shall be permitted, in accordance with the regulations then in effect in Equatorial Guinea, to freely exchange and to freely transfer to their country of origin any savings arising from their salaries, as well as any retirement and personal benefits paid by or for such employees, provided they have met their tax obligations in Equatorial Guinea.
ARTICLE 16     
BOOKS, ACCOUNTS, AUDITS AND PAYMENTS
		
	16.1
	Maintenance of Records and Books

		
	16.1.1
	The Contractor shall at all times maintain at its offices in Equatorial Guinea the original records and books of Petroleum Operations in accordance with all applicable regulations and the Accounting Procedure.

		
	16.1.2
	All records and books shall be maintained in the Spanish and English languages and be denominated in Dollars, or such other currency as shall be requested by the Ministry from time to time. They shall be supported by detailed documents demonstrating the expenses and receipts of the Contractor under this Contract. Such records and books shall be used to determine the Contractor’s Gross Revenues, Petroleum Operations Costs and net profits, and to establish the Contractor’s Income Tax and other payment obligations. Such records and books shall also include the Contractor’s accounts showing sales of Hydrocarbons.

		
	16.2
	Submission of Accounts

Within ninety (90) days after the end of a Calendar Year, the Contractor shall submit to the Ministry detailed accounts showing the Petroleum Operations Costs which the Contractor has incurred during such Calendar Year. The Contractor may request the approval of the Ministry for an additional extension of up to thirty (30) days; such approval shall not be unreasonably withheld or delayed. The accounts shall be certified by an independent external auditor acceptable to the Ministry and the Contractor. The expenses of such an auditor shall be met by the Contractor and shall be deemed a Petroleum Operations Cost.
		
	16.3
	Audit of Ministry

		
	16.3.1
	After notifying the Contractor, the Ministry may have experts of its choice or its own agents examine and audit any records and books relating to Petroleum Operations. The Ministry has a period of three (3) years from the date the Contractor submits to the Ministry such records and books in accordance with Article ‎16.2, to perform such examinations or audits with respect to the said Calendar Year and submit its objections to the Contractor for any contradictions or errors found during such examinations or audits.

		
	16.3.2
	The Contractor shall provide to the Persons designated by the Ministry any necessary assistance for the foregoing purpose and facilitate the performance of their duties. The Contractor shall bear all reasonable expenses incurred in such examination or audit, 

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which shall be recoverable as Petroleum Operations Costs. However, any expenses incurred for the audit and inspection of accounting books and records outside of Equatorial Guinea due to the Contractor’s non-compliance with this ‎Article 16 shall be borne by the Contractor and will not be recoverable as a Petroleum Operations Cost or deductible for tax purposes.
		
	16.3.3
	In the event of a disagreement between the Ministry and the Contractor in relation to the results of any examination or audit, the dispute shall be determined by an internationally recognized expert appointed by the International Chamber of Commerce in accordance with its Rules for Expertise (ICC Expertise Rules). The determination of the expert shall be final and binding on the Parties. Unless otherwise determined by the expert, the costs and expenses of such expert shall be met proportionately by the Parties on a per capita basis and the Contractor’s share shall not be a Petroleum Operations Cost.

		
	16.4
	Currency and Account of Payments

		
	16.4.1
	All payments between the Parties under this Contract shall, unless otherwise agreed, be in Dollars, or such other currency as shall be requested by the Ministry from time to time. Subject to Article ‎16.4.2, when the receiving Party is the State, payments shall be made to the General Treasury of the State, and when the receiving Party is the Contractor, payments shall be made to a bank account designated by the Contractor and notified to the Ministry.

		
	16.4.2
	All payments to be made to the Ministry pursuant to Article 23.2.2 shall be made to such account as shall be notified to the Contractor.

		
	16.5
	Timing and Overdue Payments

Unless otherwise agreed, all payments under this Contract shall be made within thirty (30) days following the date on which the obligation to make such payment occurs. In the event of a delay in payment the amount due shall bear interest compounded monthly at the rate of LIBOR plus two percent (2%) per annum.
ARTICLE 17     
TRANSFER, ASSIGNMENT AND CHANGE OF CONTROL
		
	17.1
	Transfer to Equatoguinean Affiliate

Within the second (2nd) Calendar Year following the Effective Date, to the extent that they have not already done so, each of the Parties comprising the Contractor (other than the National Company) shall incorporate an Affiliate under the laws of Equatorial Guinea and OHADA and shall assign all of its rights and obligations in and under this Contract, the Joint Operating Agreement and any other agreement relating to Petroleum Operations to such Affiliate. After such transfer, all of the rights and obligations of the Parties comprising the Contractor under this Contract, the Joint Operating Agreement and any other agreements relating to Petroleum Operations shall be assumed by such Affiliate(s). Any assignment or transfer under this Article ‎17.1 shall not be subject to the provisions of Articles ‎17.2 and ‎17.3. The foregoing assignment or transfer shall not affect any parent company or bank guarantee provided pursuant to this Contact.

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	17.1.1
	As to the withholding tax on dividends, pursuant to Article 237 of Law Number 4/2004 dated October 28, 2004, Regulating the Taxation System of the Republic of Equatorial Guinea (the “Dividend Withholding Tax”):

For a Field for which the Development and Production Plan has been approved by the Ministry in accordance with Article ‎5.5 above, the Dividend Withholding Tax will not accrue or be due and payable and is waived in its entirety (“Withholding Tax Waiver”) for ten (10) Calendar Years commencing with first commercial production from such qualifying Field.
		
	17.2
	Assignment, Transfer, Change of Control

		
	17.2.1
	The assignment, transfer, or other disposition of the rights and/or obligations of a Party comprising the Contractor shall require the prior consent of the Ministry. Any request for authorization shall be accompanied by all information related to the assignment, transfer, or other disposition including all legal instruments, in final draft form, to be used to carry out the proposed transaction, the identity of all parties to the transaction, the estimated value of the transaction and whether the consideration is payable in kind, securities, cash or otherwise. Such assignment, transfer, or other disposition shall be subject to the payment of a non-recoverable, non-deductible fee (“Transfer Fee”) of (i) one percent (1%) of Book Value of the assignment, transfer, or disposition when such occurs during the Exploration Periods, and (ii) two percent (2%) of Book Value of the assignment, transfer, or disposition when such occurs during Development and Production Operations, and other non-monetary requirements stipulated in the authorization issued by the Ministry. The assignee and the assignor shall be jointly and severally liable for the payment of such Transfer Fee and for the fulfillment of any other requirements. If within ninety (90) days following notification to the Ministry of a proposed assignment accompanied by the necessary information to prove the technical and financial means of the assignee as well as the terms and conditions of assignment, the Ministry has not given notice of his opposition with reasonable justification, such assignment shall be deemed to have been approved by the Ministry.

Any assignment, transfer, or other disposition of the rights and/or obligations of a Party comprising the Contractor to an Affiliate shall not be subject to the Transfer Fee.
		
	17.2.2
	All assignees must:

		
	(i)
	have the technical and financial ability to meet its obligations under this Contract;

		
	(ii)
	in relation to the interest assigned, accept and assume all of the terms and conditions of this Contract, the Joint Operating Agreement and any other agreements relating to Petroleum Operations; and

		
	(iii)
	be an entity with which the Ministry and each of the Parties comprising the Contractor can legally do transactions.

		
	17.2.3
	All profits resulting from any assignment, transfer or other disposition of any rights and/or obligations under this Contract, regardless of the type and location of the transaction, shall be subject to taxation in conformity of the Tax Law of Equatorial Guinea.

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	17.2.4
	Subject to Article 104 of the Hydrocarbon Law and Article 168 of the Petroleum Regulations, each and every one of the Parties comprising the Contractor shall have the right to sell, grant, hand over, transfer or dispose in any other manner all or part of their rights and interests in the Contract, subject to the prior written consent of the Ministry, which shall not be withheld or delayed with no justified reason:

		
	(a)
	To a wholly owned Affiliate;

		
	(b)
	To the beneficiary of the transfer as foreseen in Article ‎17.1;

		
	(c)
	To any of the other Parties comprising the Contractor; or

		
	(d)
	To third parties.

		
	17.2.5
	If there is an assignment or transfer all or part of their rights and interests in the Contract by Company to a third party, the third party assignee will purchase all existing data packages (both seismic and well) over the Area for one million five hundred thousand Dollars ($1,500,000).

		
	17.3
	Change of Control

For the purposes of this ‎Article 17, the transfer of ownership of more than fifty percent (50%) of the shares of any Party comprising the Contractor (other than the National Company) or any similar transfer that results in a change of Control shall be deemed to be an assignment of contractual rights under this Contract and consequently subject to the terms and conditions of this ‎Article 17, except for the cases of transfers to an Affiliate wholly owned by any Party comprising the Contractor (except for the National Company), in which case such transfer shall not be deemed a change of Control.
		
	17.4
	Recourse to Third Party Funding

Recourse by any Party comprising the Contractor to third party funding which involves the assignment of rights over its entitlement to Hydrocarbons under this Contract is not permitted without the prior consent of the Ministry, which consent shall not be unreasonably withheld or delayed with no justified reason.
		
	17.5
	The National Company’s Right of Preemption

When an assignment, transfer or other disposition of any rights under this Contract to a third party is anticipated, the assigning Party must notify in writing the National Company as soon as practicable. The National Company shall then have the right to purchase the assigning Party’s interest under this Contract and proposed to be assigned, transferred or otherwise disposed of on the same terms and conditions as those offered to a bona-fide assignee. This right is in addition to any right of pre-emption granted to the National Company under the Joint Operating Agreement. This right of pre-emption is not applicable to any assignment, transfer or other disposition of any rights under this Contract to an Affiliate.
ARTICLE 18     
INDEMNIFICATION, LIABILITY AND INSURANCE

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	18.1
	Liability and Indemnity

		
	18.1.1
	The Contractor shall indemnify, hold harmless and compensate any Person, including the State, for any damage or loss which the Contractor, its Affiliates, its subcontractors and their respective directors, officers, employees, agents or consultants and any other Person acting on its or their behalf may cause to such Person or their property in the conduct of Petroleum Operations. Ali costs incurred under this Article ‎18.1 caused by the negligence or willful misconduct of the Contractor, its Affiliates, its subcontractors or their respective directors, officers, employees, agents or consultants or any other Persons acting on its or their behalf shall not be cost recoverable as a Petroleum Operations Cost.

		
	18.1.2
	The Contractor shall assume all liability, and exempt the State from any liability, in respect of any and all claims, obligations, losses, expenses (including attorneys’ fees), damages or costs of any nature resulting from the violation of any intellectual property rights of any kind caused by the Contractor, its Affiliates or subcontractors as a result of or in relation to the conduct of Petroleum Operations, regardless of the nature of the violation or of the way in which it may occur.

		
	18.2
	Joint and Several Liability

Where the Contractor is comprised of more than one Person, the liabilities and obligations of such Persons under this Contract shall be joint and several, except for their obligations and liabilities in relation to all taxation assessed on their income, including capital gains tax or any other similar tax or withholding tax in lieu of income or similar tax.
		
	18.3
	Insurance

		
	18.3.1
	The Contractor shall obtain and, during the term of this Contract, maintain in full force and effect, for Petroleum Operations insurance of such type and in such amount as is customary and prudent in accordance with generally accepted practice of the international petroleum industry, and whose coverage terms and conditions shall be communicated to the Ministry within thirty (30) days after the Effective Date. The foregoing insurance shall, without prejudice to the generality of the foregoing provisions, cover:

		
	(a)
	any loss or damage to all assets used in Petroleum Operations;

		
	(b)
	pollution caused in the course of Petroleum Operations;

		
	(c)
	property loss or damage or bodily injury or death suffered by any Person in the course of Petroleum Operations;

		
	(d)
	the cost of removing wrecks and clean-up operations following an accident or upon decommissioning; and

		
	(e)
	the Contractor’s liability to its employees engaged in Petroleum Operations.

		
	18.3.2
	The Contractor shall require its subcontractors to carry insurance of such type and in such amount as is customary in accordance with generally accepted practice of the international petroleum industry.

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	18.3.3
	The Contractor shall use all reasonable endeavors to place the insurance required under this ‎Article 18 with Equatoguinean insurance brokers and insurance companies.

ARTICLE 19     
TITLE OF GOODS, EQUIPMENT AND DATA
		
	19.1
	Title and Use of Facilities, etcetera

All installations, facilities, goods, equipment, materials or land acquired by the Contractor for Petroleum Operations shall become property of the State from the point at which their costs are fully recovered by the Contractor. The Ministry shall authorize the Contractor to continue using those permanent facilities and equipment that continue to prove useful in carrying out Petroleum Operations, in accordance with Article 32 of the Hydrocarbons Law.
		
	19.1.1
	The Contractor and the Ministry shall agree the mode and conditions of such use, subject to ensuring their maintenance in good condition and good working order, normal wear and tear excepted. In any case, upon termination, rescission or cancellation of this Contract, for any reason whatsoever, in relation to all or any part of the Contract Area, the ownership of said installations, facilities, goods, equipment, materials or land, and including those whose costs have not been fully recovered, and any other items acquired and used for Petroleum Operations shall become the sole property of the State and shall be conveyed directly to it.

		
	19.1.2
	Regardless of whether or not the Contractor has recovered the relevant costs in accordance with this Contract, the State is entitled to use the said facilities, goods, equipment, materials or land for its own purposes, provided that such use does not interfere with the Contractor’s Petroleum Operations.

		
	19.1.3
	Under no circumstances may the Contractor sell, assign, transfer or otherwise dispose of any such facilities, goods, equipment, materials or land to any other Persons.

		
	19.1.4
	The provisions of this Article ‎19.1 shall not apply to any leased equipment or to the Contractor’s equipment that is not charged to Petroleum Operations as a Petroleum Operations Cost.

		
	19.1.5
	If the Ministry does not wish to use any of the facilities, goods, equipment and materials referred to in this Article ‎19.1, it has the right to request the Contractor to remove them at the Contractor’s own expense, and the Contractor will carry out any decommissioning operations of the said facilities, goods, equipment and materials in accordance with this Contract and the Hydrocarbons Law, and based on the time frame and specified conditions in the approved decommissioning plan.

		
	19.2
	Ownership of Data

All data, technical information and interpretations obtained, acquired or derived as a result of Petroleum Operations shall be the sole property of the State. However, the Contractor may retain copies of all such materials for the duration of this Contract only, including, among others, geological, geophysical, petrophysical and engineering reports, Well reports, termination reports, samples and any other information that the Contractor 

48
    

may have obtained or compiled during the term of this Contract. The Contractor shall forward such data, technical information and interpretations to the Ministry as soon as they are acquired, derived or compiled and shall also provide the Ministry on an annual basis with a report that itemizes all such data, technical information and interpretations that have been assembled during the Year. Unless previously provided, at the termination of this Contract or at any time of relinquishment, the Contractor shall return to the Ministry all original data, technical information and interpretations relating to the areas relinquished and will remove all copies of such from the Contractor’s files, archives, computers and data storage mechanisms.
ARTICLE 20     
CONFIDENTIALITY
		
	20.1
	Disclosure of Confidential Information

		
	20.1.1
	The Parties agree that for the duration of this Contract, the terms hereof and all information relating to this Contract and Petroleum Operations shall be kept strictly confidential and may not be divulged by any Party without mutual consent, except:

		
	(a)
	to an Affiliated Company;

		
	(b)
	to any governmental agency, designated by the State or other entities or consultants of the Ministry;

		
	(c)
	to the extent that such data and information is required to be furnished in compliance with any applicable laws or regulations;

		
	(d)
	in conformity with the requirements of any stock exchange having jurisdiction over a Party;

		
	(e)
	where any data or information forms part of the public domain otherwise than a result of a breach of this Contract;

		
	(f)
	to employees, directors, officers, agents, advisors, consultants or subcontractors (both actual and potential) of a Party comprising the Contractor or an Affiliate;

		
	(g)
	to any company with a bona fide interest in the carrying out of a possible assignment; and

		
	(h)
	to any bank or financial establishment with which an entity of the Contractor solicits or obtains financing,

provided that the disclosing Party shall be responsible for any and all breaches of this Article by such Persons and provided further that any disclosure to the Persons referred to in paragraphs ‎(f), ‎(g) and ‎(h) above shall be limited to those Persons who are under a duty of confidentiality similar to that contained in this Article ‎20.1.
		
	20.1.2
	For an additional period of two (2) Years after the termination of this Contract, only the Parties comprising the Contractor (other than the National Company) shall be obliged to comply with the above stated requirements.

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	20.2
	The Contractor’s Patents

The State shall not reveal to any third parties information pertinent to the Contractor’s own technology that is protected by patents or contractual agreements, or which the State has received under license for a period of two (2) Years after termination of this Contract.
		
	20.3
	Continuation of Obligations

Any Party ceasing to own a Participation Interest in this Contract during the term of this Contract shall nonetheless remain bound by the obligations of confidentiality set forth in this ‎Article 20.
		
	20.4
	Disclosure of Confidential Information by the State and Ministry

In order to explore and exploit areas adjoining or related to the Contract Area, the State and the Ministry may, notwithstanding this ‎Article 20, disclose to any third parties a limited set of data and information relating to part or parts of the Contract Area and Petroleum Operations hereunder, upon agreement with the Contractor.
ARTICLE 21     
TERMINATION
		
	21.1
	Termination by the State

Notwithstanding any other actions contemplated herein, this Contract may be terminated, without compensation to the Contractor, on any of the following grounds:
		
	(a)
	a material breach by the Contractor (not attributable to any act or omission of the State or to any Person representing the State) of any of the provisions of this Contract or the Hydrocarbons Law;

		
	(b)
	a delay by the Contractor (not attributable to any act or omission of the State or to any Person representing the State) in making any payment owed to the State that exceeds three (3) months;

		
	(c)
	the suspension of Development works on a Field for six (6) consecutive months, except when such suspension (i) has been approved by the Ministry in advance, or (ii) is due to an act or omission on the part of the State or of any Person representing the State, or (iii) is as a result of Force Majeure,

		
	(d)
	when, after the commencement of Production of a Field, its exploitation is suspended for at least three (3) consecutive months, without the prior permission of the Ministry, except when such suspension (i) is due to an act or omission on the part of the State or of a Person representing the State, or (ii) is as a result of Force Majeure; 

		
	(e)
	when the Contractor fails to comply within the prescribed time period with an arbitration award in accordance with the provisions of ‎Article 26, and the failure to comply is not attributable to any act or omission of the State or to any Person representing the State;

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	(f)
	when a Well is drilled to an objective beyond the vertical planes of the limits of the Contract Area without the prior consent of the Ministry;

		
	(g)
	a breach of this Contract arising out of activities which are illegal or contrary to national or international law (not attributable to any act or omission of the State or to any Person representing the State);

		
	(h)
	under the provisions of Article ‎2.3; or

		
	(i)
	when the Contractor is declared bankrupt, or in liquidation as a result of financial insolvency, or enters into judicial or financial arrangements on insolvency with its creditors generally, except when the Contractor can provide the State with a new financial guarantee that is acceptable to the Ministry in its sole discretion, and that guarantees the capacity of that Party to fulfill its obligations under this Contract.

		
	21.2
	Notice of Termination and Grace Period

		
	21.2.1
	The Ministry may declare this Contract terminated only after having served a formal notice on the Contractor, by registered mail, requesting it to remedy the situation or breach in question, and, if the situation or breach in question is capable of remedy, requesting it to remedy the same within five (5) Business Days from receipt of such notice regarding payments due under Article ‎21.1(b) or within three (3) months from receipt of such notice for all other situations or breaches capable of remedy. Otherwise the effective date of the termination of this Contract shall be date of receipt by the Contractor of the foregoing notice.

		
	21.2.2
	If the Contractor fails to comply with such notice within the prescribed time period or fails to show within such five (5) Business Days or three (3) month period that it has commenced and is promptly and diligently continuing to remedy the situation or breach in question, the Ministry may pronounce ipso jure the termination of this Contract.

		
	21.3
	Termination against one Party

The Ministry may terminate this Contract as to one of the Parties comprising the Contractor, if the circumstances set forth in Article ‎21.1 are applicable to only that Party in the manner set forth in Article ‎21.2.
ARTICLE 22     
UNITIZATION
		
	22.1
	Obligation to Unitize

If any Hydrocarbon bearing reservoir lying within the Contract Area extends beyond such area, the Contractor must carry out all Development and Production in respect of such Hydrocarbon bearing reservoir in accordance with the Hydrocarbons Law. The Contractor shall use all reasonable endeavors to reach a mutually acceptable unitization agreement and program with all other affected Persons.
		
	22.2
	Suspension of Obligations

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In the event that Petroleum Operations that are the subject of this Contract are suspended by reason of negotiations arising in respect to a unitization scenario in relation to a specific Discovery, the provisions of Article ‎5.3 for such Discovery shall be extended for a period of time equal to the duration of such suspension.
ARTICLE 23     
LOCAL CONTENT AND SOCIAL PROGRAMS
		
	23.1
	Regulation of National Content

The Contractor shall comply with the Local Content Regulation enacted by the Ministry in the Ministerial Order 1/2014 of 26th of September 2014, abiding by the duties established in this ‎Article 23. For all non-Material Contracts, the Contractor, with no obligation to bid and without the Ministry’s approval (which will be regarded as granted pursuant to the Hydrocarbon Law):
		
	(a)
	before awarding a service contract, the Contractor shall notify the Ministry the need for such services;

		
	(b)
	the Ministry shall provide a list of national companies to the Contractor within fifteen (15) days of Contractor’s notice of the need for such services. The Contractor shall support the Ministry by including the national companies of the list the Contractor regards as competent in the bids required in the framework of this Contract;

		
	(c)
	When granting the contracts, the Contractor shall give preference to the national companies included in the list given by the Ministry according to Article ‎23.1(b), in agreement with the Decree 127/2004. Should the Contractor consider that such companies are not competent or not in compliance with Contractor’s compliance and financial requirements, the contract may be granted to a foreign company, according to Articles 12 and 13 of the Ministerial Order 1/2014;

		
	(d)
	The Contractor shall notify the foreign company winning the tender regarding the hire of services about the conditions specified in ‎Article 23 (1) (c);

		
	(e)
	the Contractor shall send the Ministry, at the end of July and January of every calendar year, a list of the subcontractors that have provided services in Equatorial Guinea during the previous period;

		
	(f)
	in the contracts that imply service delivery or goods supply in Equatorial Guinea, the Contractor shall include clauses that make the subcontractors to abide by the specifications of the Ministerial Order 1/2014;

		
	(g)
	the Contractor shall organize workshops to make the national companies aware of the requirements demanded by the Operator in terms of service delivery;

		
	(h)
	the Contractor shall notify the Ministry, which in turn shall inform all the additional competent authorities, of the vacancies and new jobs to implement the works in Equatorial Guinea;

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	(i)
	at the beginning of the Operations of Development and Production, the Contractor shall hand over and agree a plan with the Ministry to hire national employees and empower them; this action shall include tasks and actions for their professional development to be carried out at the offices of the Operator in Dallas with the possibility of joining the Technical Team of Operations of Equatorial Guinea to reach the reasonable and feasible nationalization targets, and shall send updated information to the Ministry with regard to the implementation of such a plan at the end of July and January of each subsequent year; and

		
	(j)
	The Contractor shall send to the Ministry a description of the tools used to evaluate the national employees.

		
	23.2
	Employment and Empowerment of Equatoguinean Personnel

		
	23.2.1
	At the beginning of the Operations of Development and Production of the EG-21 Block, the Operator shall ensure priority of employment of Equatoguinean qualified personnel at all levels of its organization, according to the following table and on the basis of the competences and skills of the employees. For the purpose of this Article, the technicians proposed by the National Company will also be taken into account as long as they have the competences and experience required; such employees will join the technical team of the operator under the personnel coverage in secondment. The Operator shall empower or contribute to the training of the aforementioned personnel so that they acquire the competences and skills required to fill any vacancy, including the supervision positions, related to Petroleum Operations. However, the Operator will only have to hire the numbers of personnel needed to implement the Petroleum Operations in a cautious and profitable manner.

	
			
	Positions
	Percentage of National Employees
	Percentage of Expatriate Employees

	Total number of employees
	75 %
	25 %

	Technical and professional positions (Geologists and engineers, legal experts, financial experts, safety, health and environment)
	60 %
	40 %

	Supervision and management positions
	50 %
	50 %

	Technicians working offshore (including Safety, Health and Environment)
	85 %
	15 %

	Support and administration services
	100 %
	0 %

		
	23.3
	Preference to Equatoguinean Services

The Contractor and its subcontractors undertake to give preference to Equatoguinean services, materials, equipment, consumables and other goods whose quality and time of delivery are comparable to those available internationally, provided that the cost in Equatorial Guinea is no more than ten percent (10%) above the cost of similar services, materials, equipment, consumables and other goods available internationally.

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	23.4
	Employment and Training of Equatoguineans

		
	23.4.1
	From the Effective Date, the Contractor shall ensure priority employment for adequately qualified Equatoguinean personnel in all levels of their organization, as the employee’s skill allows, and as provided for in Article 23.2.2, shall train or contribute in the training of such personnel to enable them to qualify for any position relating to Petroleum Operations. Expatriate personnel may only be employed if the Contractor and its subcontractors have exhausted all possibilities of recruiting adequately qualified Equatoguinean personnel in the required area of specialization.

		
	23.4.2
	During the term of this Contract, the Parties comprising the Contractor (other than the National Company), during the Exploration Period, shall spend one hundred thousand Dollars ($100,000) per Calendar Year, to provide a mutually agreed number of Ministry and National Company personnel with on-the-job training in the Contractor’s operations in Equatorial Guinea and overseas and/or practical training at institutions abroad, particularly in the areas of natural earth sciences, engineering, technology, accounting, economics and other related fields of oil and gas exploration and exploitation (“Job Training”). During the term of this Contract, the Parties comprising the Contractor (other than the National Company), during the Development and Production Period, shall spend three hundred thousand Dollars ($300,000) per Calendar Year, to provide Job Training.

The above costs will be recoverable as a Petroleum Operations Cost in accordance with the provisions of this Contract.
		
	23.4.3
	Additionally, during the term of this Contract, the Parties comprising the Contractor (other than the National Company) shall transfer to the Ministry one hundred thousand Dollars ($100,000) per Calendar Year during the Exploration Period and shall transfer to the Ministry three hundred thousand Dollars ($300,000) per Calendar Year during the Development and Production Period, which the Ministry shall use at its sole discretion to educate and train Equatoguinean personnel selected by the Ministry at universities, colleges or other training institutions selected by the Ministry and for other general training and educational purposes (“Training Funds”).

The above costs will be recoverable as a Petroleum Operations Cost in accordance with the provisions of this Contract.
		
	23.5
	Social Projects

If the Contractor funds any social projects outside of those approved in an Annual Budget such costs shall not be recoverable as a Petroleum Operations Cost.
Given that Equatoguinean civil society is a part of the local content in oil and gas contracts, the Contractor shall commit one hundred thousand Dollars ($100,000) per Calendar Year during the Exploration Period and shall commit four hundred fifty thousand Dollars ($450,000) per Calendar Year during the Development and Production Period, to cooperate with non-governmental organizations in charitable works to develop society, sport activities and health programs to fight and prevent disease, as well as other non-profit related activities. The above costs will be recoverable as a Petroleum Operations Cost in accordance with the provisions of this Contract.

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	23.6
	National Technology Institute

The Contractor shall transfer to the Ministry one hundred thousand Dollars ($100,000) per Calendar Year during the Exploration Period and shall transfer to the Ministry three hundred thousand Dollars ($300,000) per Calendar Year during the Development and Production Period, and provide other reasonable non-monetary assistance as may be requested by the Ministry from time to time with the implementation and development of the National Technology Institute to train and develop mid and upper level personnel in the petroleum industry of Equatorial Guinea and in accordance with the Hydrocarbons Law. The above costs will be recoverable as a Petroleum Operations Cost in accordance with the provisions of this Contract.
		
	23.7
	National Database of the Ministry of Mines and Hydrocarbons

The Contractor shall transfer to the Ministry one hundred thousand Dollars ($100,000) per Calendar Year during the Exploration Period and shall transfer to the Ministry three hundred thousand Dollars ($300,000) per Calendar Year during the Development and Production Period, and provide other reasonable non-monetary assistance as may be requested by the Ministry from time to time with the implementation and development of the a data base of seismic and well data in the petroleum industry of Equatorial Guinea and in accordance with the Hydrocarbons Law. The above costs will be recoverable as a Petroleum Operations Cost in accordance with the provisions of this Contract.
ARTICLE 24     
DECOMMISSIONING
		
	24.1
	Relinquishment or Decommissioning

		
	24.1.1
	Subject to Article ‎2.5.2, the Contractor may at any time relinquish and/or abandon any portion of the Contract Area or any Well not included in a Field subject to having given three (3) months prior notice to the Ministry, provided that the Contractor shall have fulfilled all of its obligations under this Contract and that it has given the Ministry full details of the state of any reservoir and the facilities and equipment in such area in addition to any plans for the removal or dismantling of such facilities and equipment including all technical and financial information. All decommissioning operations must be undertaken in accordance with the Hydrocarbons Law.

		
	24.1.2
	The decommissioning of a Field by the Contractor and its corresponding decommissioning plan shall require the prior approval of the Ministry in accordance with the Hydrocarbons Law. The Contractor shall prepare and deliver to the Ministry a plan for the decommissioning of all Wells, facilities and equipment, the rehabilitation of the landscape and the continuation of Petroleum Operations, if applicable, in accordance with the Hydrocarbons Law.

		
	24.1.3
	Unless the Ministry elects to keep the facilities and equipment in order to continue Petroleum Operations in accordance with Article ‎24.3.3, the Contractor is obligated to fully decommission all Fields within the Contract Area.

		
	24.2
	Right of Ministry

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Upon receipt by the Ministry of the notice referred to in Article ‎24.1.1 or upon the decommissioning of any Field, the Ministry shall be entitled to take over any Discovery or Field whose decommissioning is proposed by the Contractor. If the Ministry does not communicate its desire to take over Petroleum Operations within three (3) months of receipt of the relevant notice, it shall be deemed to have elected not to do so.
		
	24.3
	Reserve Fund

		
	24.3.1
	In order to implement the decommissioning of a Field, the Contractor shall contribute to a reserve fund for the estimated decommissioning costs, (the Reserve Fund) in accordance with the Hydrocarbons Law and the approved decommissioning plan, and shall be included as a recoverable cost. As for the constitution of the Reserve Fund, it will begin from the Fifth (5) year from the first production at an international bank holding at least a Standard and Poor’s A- rating to be agreed by the Parties. All contributions mentioned will be deductible for tax purposes and will be considered as a cost of Petroleum Operations in the year in which they were contributed.

		
	24.3.2
	In the event that the total amount of the Reserve Fund is greater than the actual cost of decommissioning, the account balance shall be distributed between the State and the Contractor in accordance with Article ‎7.3. In the event that the amount of the Reserve Fund is less than the actual cost of decommissioning operations, the Contractor shall be liable for the remainder.

		
	24.3.3
	In the event that the Ministry elects to keep the facilities and equipment in order to continue Petroleum Operations after the withdrawal of the Contractor, the Reserve Fund so established together with the related interest shall be put at the Ministry’s disposal to cover the later decommissioning. The Contractor shall be released from any further decommissioning liability in respect of such facilities and equipment.

		
	24.4
	Continuing Operations

The State undertakes not to interfere with the conduct of Petroleum Operations in the Contract Area retained by the Contractor in the event that the State should elect to take over a Discovery or Field pursuant to Article ‎24.2. If requested by the Ministry, the Contractor shall undertake to continue all operations for a fee and on terms to be agreed between the Ministry and the Contractor.
		
	24.5
	Protection of the Environment

The Contractor shall duly plug all the Wells and decommission all facilities and equipment in order to avoid contamination and harm to the environment and possible damage to the reservoir, in accordance with the Hydrocarbons Law, the other laws of Equatorial Guinea and generally accepted practice of the international petroleum industry.
ARTICLE 25     
APPLICABLE LAW
		
	25.1
	Applicable Law

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This Contract and all Petroleum Operations carried out hereunder shall be governed by and construed in accordance with the laws and regulations of Equatorial Guinea,
		
	25.2
	Change in Law

Should a Change in the Law occur, and if as a consequence of its implementation, such a Change in the Law caused, to the detriment of the Contractor or its shareholders, a decrease in economic rights or an increase in the economic obligations included in or resulting from this Contract, the Parties shall take the adequate measures to achieve the necessary economic balance, based on the principle that the Contractor shall be restored to the same economic status it would have if no change had occurred. Such Contractor’s restoration shall not exceed the benefits received by the State and by other third beneficiaries of the Change in the Law, as a result of such a change. This norm shall never be interpreted as if the Contractor is being denied the advantages it could benefit from as a result of the new law, decree, norm, order or regulation passed by the State.
		
	25.3
	Business Standards

Each Party represents and warrants that it did not engage any person, firm or company as a commission agent for purposes of this Contract and that it has not given or offered to give nor will it give or offer to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of significant value, as an inducement or reward for doing or forbearing to do any action or take any decision in relation to this Contract, or for showing or forbearing to show favor or disfavor to any person in relation thereto. The Contractor further represents and warrants that no loan, reward, offer, advantage or benefit of any kind has been given to any official of the State or any person for the benefit of such official or person or third parties, as consideration for an act or omission by such official in connection with the performance of such person’s duties or functions or to induce such official to use his or her position to influence any act or decisions of the administration with respect to this Contract.
ARTICLE 26     
RESOLUTION OF CONFLICTS AND ARBITRATION
		
	26.1
	Dispute Resolution and Notification

		
	26.1.1
	In the event of any dispute, claim, conflict or controversy (a Dispute) between any of the Parties arising out of, or in relation to, this Contract, including any question regarding its breach, existence, validity or termination, the Parties shall take all reasonable measures to resolve such Dispute amicably.

		
	26.1.2
	If the relevant Parties have not reached an amicable agreement after three (3) months of the date of the notice of a Dispute by one Party to another, unless the Parties to the Dispute mutually agree to an extension, any Party to the Dispute may refer the Dispute for resolution by final and binding arbitration:

		
	(a)
	to the International Centre for the Settlement of Investment Disputes (the Centre) established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, done at Washington, March 18, 1965 (the ICSID Convention);

57
    

to the Additional Facility of the Centre, if the Centre is not available; or
		
	(b)
	in accordance with the Arbitration Rules of the International Chamber of Commerce (ICC), if neither the Centre or the Additional Facility are available.

		
	26.1.3
	The Parties hereby consent to submit to the Centre any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Rules of Arbitration of the Centre. The State and the National Company agrees not to make, and hereby irrevocably waives, in relation to any Dispute, whether relating to acts of a sovereign or governmental nature or otherwise, all claims of immunity (sovereign or otherwise) by it or on its behalf from the jurisdiction of, and from the enforcement of any arbitral award rendered by, an arbitral tribunal constituted pursuant to this Contract as well as all claims of immunity from the service of process or the jurisdiction of any court in aid of the jurisdiction of such arbitral tribunal or in connection with the enforcement of any such award.

		
	26.2
	Seat and Language of Arbitration

The seat of the arbitration shall be agreed by the Parties to the Dispute and, in case of a disagreement, shall be determined by the arbitrators. The languages of the arbitration proceedings, and of all orders, decisions, and the award, shall be Spanish and English
		
	26.3
	Number and Identity of Arbitrators

The arbitral tribunal shall be constituted by three (3) arbitrators selected according to the following procedure:
		
	(a)
	The claimant and the respondent shall, within thirty (30) days from the day on which a request for arbitration has been submitted, appoint an arbitrator each (and if there is more than one claimant or more than one (1) respondent, then the claimants and/or the respondents collectively shall each appoint a single arbitrator), by giving notice in writing of such appointment to the Secretary-General of ICSID and the other Party or Parties to the Dispute.

		
	(b)
	If either the claimant or the respondent fails to comply with the time limit in the preceding paragraph, the Chairman of the Administrative Council of ICSID shall appoint the arbitrator or arbitrators that have not yet been appointed, at the request of either the claimant or the respondent and after consulting the claimant and the respondent as far as possible. The Chairman of the Administrative Council of ICSID shall give notice in writing of such appointment or appointments to the Secretary-General of ICSID and the claimant and the respondent.

		
	(c)
	The two (2) arbitrators so appointed shall, within thirty (30) days of their appointment agree upon the person to be appointed as the President of the tribunal, and give notice of such appointment to the Secretary-General of ICSID and the claimant and the respondent.

		
	(d)
	If the two (2) arbitrators fail to agree upon the person of the President of the tribunal, the Chairman of the Administrative Council of ICSID shall appoint the President, at the request of either the claimant or the respondent, and after consulting the claimant and the respondent as far as possible. The Chairman of 

58
    

the Administrative Council of ICSID shall give notice in writing of such appointment to the Secretary-General of ICSID and the claimant and the respondent.
None of the arbitrators shall be a citizen of the countries of any of the Parties to the Dispute (or in the case where the Party is a company or another entity, any country or countries of nationality of such Party, including the country of its ultimate parent).
		
	26.4
	Rules of Arbitration

The arbitration procedures initiated under this Contract shall operate under the arbitration rules in effect for ICSID, the Additional Facility or ICC, as the case may be, at the time of the filing of the request for arbitration, which rules are deemed to be incorporated herein by reference in this ‎Article 26.
		
	26.5
	Binding Nature of Arbitration

The arbitration award shall be final and binding on the Parties and shall be immediately enforceable, subject to the remedies provided for in the ICSID Convention and Arbitration Rules, in the Arbitration Rules of the Additional Facility of the Centre, or in the ICC Arbitration Rules, as appropriate. The Parties waive any right to refer any question of law, and any right of appeal on the law and/or merits to any court. It is expressly agreed that the arbitrators shall have no authority to award aggravated, exemplary or punitive damages.
		
	26.6
	Costs of Arbitration

The costs of arbitration shall be charged in accordance with the directions of the arbitration tribunal, failing which shall be borne proportionally by the Parties to the Dispute on a per capita basis. The costs of the Parties comprising the Contactor shall not be recoverable.
		
	26.7
	Payment of Awards

Any monetary award issued shall be expressed and payable in Dollars.
ARTICLE 27     
FORCE MAJEURE
		
	27.1
	Non-fulfillment of Obligations

Any obligation or condition arising or derived from this Contract which any Party is unable to perform, whether in whole or in part, shall not be considered as a breach or non-fulfillment of its obligations under this Contract if such breach or non-performance is caused by an event of Force Majeure, provided that there is a direct cause-and-effect relationship between the non-performance and the event of Force Majeure. Notwithstanding the foregoing, all payment obligations owed by any Party to another must be made when due.
		
	27.2
	Definition of Force Majeure

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For the purposes of this Contract, an event shall be considered an event of Force Majeure if it meets the following conditions:
		
	(a)
	it has the effect of temporarily or permanently preventing a Party from performing its obligations under this Contract;

		
	(b)
	it is unforeseeable, unavoidable and beyond the control of the Party which declares Force Majeure; and

		
	(c)
	it is not a result of the negligence or willful misconduct of the Party which declares Force Majeure.

Such an event shall include acts of God, earthquake, inclement weather, strike, riot, insurrection, civil unrest, blockade, sabotage and acts of war (whether declared or not). The Parties intend for the term of Force Majeure to be construed in accordance with the principles and practice of the international petroleum industry.
		
	27.3
	Notification of Force Majeure

If any Party is unable to comply with any obligation or condition provided herein due to Force Majeure, it shall notify the other Parties in writing as soon as possible, and in any event not later than fourteen (14) days after the event in question, giving the reason for its non-compliance and a detailed account of the Force Majeure, as well as the obligation or condition affected. The Party affected by the Force Majeure shall use all reasonable endeavors to remove the cause thereof, keep the other Parties fully informed of the situation and the current evolution of the Force Majeure event and shall promptly notify the other Parties as soon as the Force Majeure event is over and no longer prevents it from complying with its obligations or conditions hereunder.
		
	27.4
	Continuation of Obligations

All obligations, other than those affected by the event of Force Majeure, shall continue to be performed in accordance with this Contract.
		
	27.5
	Cessation of Force Majeure

Upon the cessation of the event of Force Majeure, the relevant Party shall undertake and complete, as soon as practicable and within a time frame to be mutually agreed by the Parties, all obligations suspended as a result thereof.
		
	27.6
	Continuation of Force Majeure

When a Force Majeure event lasts more than ninety (90) days, the Parties will forthwith consult to examine the situation and implications for Petroleum Operations, in order to establish the course of action appropriate for the fulfillment of contractual obligations under the circumstances of the said Force Majeure. In such event the term of this Contract will be extended by the same amount of time that the Force Majeure has lasted.
ARTICLE 28     
ASSISTANCE AND NOTICE

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	28.1
	Assistance of Ministry

		
	28.1.1
	The Ministry shall facilitate, within its authority and in accordance with the rules and procedures in effect in Equatorial Guinea, the performance of the Contractor’s activities by granting it all permits, licenses and access rights that are reasonably necessary for the purposes of Petroleum Operations, and by making available to it all necessary services with respect to Petroleum Operations in Equatorial Guinea.

		
	28.1.2
	The Ministry shall also facilitate and assist the Contractor in obtaining all permits, licenses or rights not directly related to Petroleum Operations, but which the Contractor may reasonably require for the purposes of fulfilling its obligations under this Contract.

		
	28.2
	Notices and Other Communications

All notices, approvals or other communications authorized or required between the Parties by any of the provisions of this Contract shall be in writing (in Spanish and English), addressed to such Parties and delivered in person by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission. For purposes of this Contract, oral communication does not constitute notice or approval, and e-mail addresses and telephone numbers for the Parties are listed below as a matter of convenience only. A notice or approval given under any provision of this Contract shall be deemed delivered only when actually received by the Party to whom such notice or approval is directed, and the time for such Party to deliver any communication in response to such originating notice or approval shall run from the date the originating notice or approval is received. Each Party shall have the right to change its address at any time and/or designate that copies of all such notices or approvals be directed to another Person at another address, by giving written notice thereof to all other Parties.
For the State:
MINISTRY OF MINES AND HYDROCARBONS 
Autovia Aeropuerto – Ela Nguema 
Malabo II, Malabo – Guinea Ecuatorial
Malabo, Bioko Norte 
Republic of Equatorial Guinea 
For the attention of: His Excellency the Minister of Mines and Hydrocarbons 
Telephone: + (240) 09 3567, 09 3405 
Facsimile: + (240) 093353
For the Contractor:
Kosmos Energy Equatorial Guinea 
c/o Circumference (Cayman), P.O.  
Box 32322, 4th Floor, Century Yard,  
Cricket Square, Elgin Avenue, 
George Town, Grand Cayman, KY1- 
1209, Cayman Islands

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For the attention of: General Counsel 
Telephone: +1 214 445 9600 
Facsimile: +1 214 445 9705
For the National Company: 
GUINEA ECUATORIAL DE PETRÓLEOS 
Tone Gepetrol 
Autovia Aeropuerto – Ela Nguema 
Malabo II, Malabo – Guinea Ecuatorial 
GEPetrol P.O. Box 965 Malabo 
Equatorial Guinea 
For the attention of: Director General 
Telephone: + (240) 096769 
Facsimile: + (240) 096692
ARTICLE 29     
MISCELLANEOUS
		
	29.1
	Amendments

This Contract may only be amended in writing and by mutual agreement between the Parties; any purported amendments in contravention of this provision shall not be effective.
		
	29.2
	No Partnership

This Contract shall not be construed to create an association, joint venture or partnership between the Parties or to impose any partnership obligation or liability upon a Party.
		
	29.3
	Hydrocarbons Law

All Petroleum Operations and the Contractor are subject to the provisions of the Hydrocarbons Law and the Petroleum Regulations in effect from time to time.
		
	29.4
	Entire Agreement

With respect to the subject matter contained herein, this Contract (i) is the entire agreement of the Parties and (ii) supersedes all prior understandings and negotiations of the Parties.
		
	29.5
	No Waiver

In the event of a waiver by any Party of one or more defaults by another Party in the performance of the provisions of this Contract, such waiver shall not operate or be construed as a waiver of any future default or defaults by the same Party, whether of a like or of a different character. Except as expressly provided in this Contract no Party shall be deemed to have waived, released or modified any of its rights under this Contract unless such Party has expressly stated, in writing, that it does waive, release or modify such right.

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	29.6
	No Conflict

		
	29.6.1
	Each of the Parties constituting the Contractor undertakes that it shall avoid any conflict of interest between its own interests (including the interests of Affiliates) and the interests of the other Parties in connection with activities contemplated under this Contract.

		
	29.6.2
	In the event of any conflict between the main body of this Contract and its Annexes, the main body shall prevail. In the event of any conflict between this Contract and the Hydrocarbons Law, the Hydrocarbons Law shall prevail.

ARTICLE 30     
INTERPRETATION
		
	30.1
	The table of contents and headings used in this Contract are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Contract relating to any topic are to be found in any particular Article.

		
	30.2
	Reference to the singular includes a reference to the plural and vice versa.

		
	30.3
	Reference to any gender includes a reference to all other genders.

		
	30.4
	Unless otherwise provided, reference to an Article or an Annex means an Article or Annex of this Contract.

		
	30.5
	The words include and including shall mean include or including without limiting the generality of the description preceding such term and are used in an illustrative sense and not a limiting sense.

		
	30.6
	Any reference to a Person shall be construed as including a reference to its successors, permitted transferees and permitted assignees.

		
	30.7
	Any reference to a statute or enactment shall be construed as a reference to such statute or enactment as it may have been or may be amended or re-enacted from time to time, or any subordinate legislation made or legal norm created, or may from time to time be done, under such statute or enactment.

		
	30.8
	Reference to this Contract or part thereof or any other document shall be construed as a reference to the same as it may be amended, supplemented, novated or replaced from time to time.

ARTICLE 31     
EFFECTIVE DATE
This Contract shall become effective upon the date the Contractor receives notification in writing of its ratification by the President of Equatorial Guinea.

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IN WITNESS WHEREOF, the Parties have executed this Contract in three (3) originals in the Spanish language and three (3) originals in the English language. In the event of any conflict, the Spanish version shall prevail.
	
			
	THE REPUBLIC OF EQUATORIAL GUINEA 
THE MINISTRY OF MINES AND HYDROCARBONS

	Signature:
	 
	/s/ Gabriel M. Obiang Lima

	Name: H.E Señor Don
	 
	Gabriel M. Obiang Lima

	Title: Minister of Mines and Hydrocarbons
	 
	 

	
			
	THE NATIONAL COMPANY

	Signature:
	 
	/s/ DON ANTONIO OBURU ONDO

	Name: Don
	 
	Antonio Oburu Ondo

	Title: Director General
	 
	 

	
			
	THE COMPANY 
 KOSMOS ENERGY EQUATORIAL GUINEA

	Signature:
	 
	/s/ Andrew Inglis

	Name:
	 
	Andrew Inglis

	Title: President
	 
	 

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ANNEX A     
CONTRACT AREA
This Annex is an integral part of this Contract between the Republic of Equatorial Guinea and the Contractor.
Upon the Effective Date, the initial Contract Area covers an area deemed equal 2,254 (two thousand two hundred fifty-four) square kilometres (km2) or 225,400 (two hundred twenty-five thousand, four hundred) hectares (Ha) for the purposes of Article ‎11.4.
The Contract Area is described on the map in ‎Annex B. The points indicated on such map are defined below, by reference to the Greenwich meridian and their geographic coordinates:
	
			
	Point
	Latitude
	Longitude

	A
	2° 00'00.00" N
	8° 45' 00.00" E

	B
	2° 00'00.00" N
	9° 15' 00.00" E

	C
	1° 38'00.00" N
	9° 15' 00.00" E

	D
	1° 38'00.00" N
	8° 45' 00.00" E

Block W 
WGS84 UTM 325 
2253.773 sqkm
	
		
	X
	Y

	472198.00
	10221063.11

	527802.00
	10221063.11

	527807.60
	10180534.63

	472192.40
	10180534.63

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ANNEX B     
MAP OF THE CONTRACT AREA
This Annex is attached to this Contract between the Republic of Equatorial Guinea and the Contractor and forms an integral part of the same.
This map is included for illustrative purposes only and in the event of any discrepancies or conflict, the Contract Area shall be defined by the geographical co-ordinates specified in ‎Annex A.

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ANNEX C     
ACCOUNTING PROCEDURE
This Annex is an integral part of the Contract between the Republic of Equatorial Guinea and the Contractor.

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ARTICLE 1 
GENERAL PROVISIONS
		
	1.1
	PURPOSE

The object of this Accounting Procedure is to establish equitable criteria and methods of calculation and accounting applicable to the provisions of the Contract, and in particular when:
		
	(a)
	classifying and defining Petroleum Operations Costs; and

		
	(b)
	prescribing the manner of preparing and submitting the financial statements of the Contractor in accordance with accounting principles in effect in Equatorial Guinea.

		
	1.2
	INTERPRETATION

For the purposes of this Accounting Procedure, the terms used herein and which are defined in the Contract shall have the same meaning when used in this Accounting Procedure. In the event of any discrepancy or conflict between the provisions of this Accounting Procedure and any other provisions of the Contract, the provisions of the Contract shall prevail.
		
	1.3
	ACCOUNTING RECORDS AND REPORTS

		
	1.3.1
	In accordance with the provisions of Article ‎16.1 of the Contract, the Contractor shall maintain in its office in Equatorial Guinea original, complete, true and correct accounts, books and records of the Production and disposition of Hydrocarbons, and all costs and expenses under the Contract, as well as all other records and data necessary or proper for the settlement of accounts in accordance with the laws of Equatorial Guinea, generally accepted accounting procedures and generally accepted practice in the international petroleum industry and pursuant to the chart of accounts agreed pursuant to Article ‎1.3.2 below.

		
	1.3.2
	Within sixty (60) days from the Effective Date, the Contractor shall submit to and discuss with the Ministry a proposed outline for the chart of accounts and the books, records and reports in accordance with generally accepted standards and consistent with normal petroleum industry practices and procedures.

Within sixty (60) days of receiving the above proposal, the Ministry shall either provide notice of its approval of the proposal, or shall request revisions of such chart of accounts in writing.
Within one hundred and eighty (180) days after the Effective Date, the Contractor and the Ministry shall agree on the outline of the chart of accounts, books, records, and reports which shall describe the basis of the accounting system and procedures to be developed and used in accordance with this Accounting Procedure. Following such agreement, the Contractor shall immediately prepare and provide the Ministry with formal copies of the detailed and complete chart of accounts and manuals related to the 

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procedures, and a list of the data and records to be accounted for, recorded, reported and to be followed under the Contract.
		
	1.3.3
	In addition to the generality of the foregoing, the Contractor shall submit to the Ministry, at regular intervals, statements relating to the Petroleum Operations, including, but not limited to, the following:

		
	(a)
	monthly statement of Production;

		
	(b)
	quarterly statement of value of Production and pricing;

		
	(c)
	statement of Petroleum Operations Costs;

		
	(d)
	annual statement of Petroleum Operations Cost not yet recovered;

		
	(e)
	statement of Production sharing;

		
	(f)
	annual end-of-year statement;

		
	(g)
	Annual Budget tracking statement;

		
	(h)
	Annual statement of tangible goods subject to depreciation; and

		
	(i)
	Quarterly, the state of goods, materials and properties which are anticipated to be transferred to the State within three months of said report, due to the full recovery of its cost.

		
	1.3.4
	All reports and statements shall be prepared in accordance with the Contract, the laws of Equatorial Guinea and any regulations thereunder and in accordance with generally accepted practice of the international petroleum industry.

		
	1.3.5
	Within sixty (60) days after the Calendar Year, the Contractor shall submit to the Ministry the execution of the budgets as well as the annual accounts (the balance sheet, the cash flow statement and the income statement) and the schedule of amortizations, attaching for the report of internal audit for reliability of said information.

		
	1.4
	LANGUAGE AND UNIT OF ACCOUNT

Unless otherwise agreed all accounts, records, books and reports shall be prepared and maintained in Spanish and English and shall be denominated in Dollars. Additionally, Contractor may maintain accounts and records in other languages and currencies for information purposes only.
		
	1.5
	VERIFICATION AND AUDIT RIGHTS OF THE STATE

		
	1.5.1
	When the Ministry exercises its right of audit under Article ‎16.3 of the Contract, it shall provide notice to the Contractor, at least sixty (60) days in advance regarding such audit, which shall take place during normal business hours. The Contractor shall make available to the Ministry all accounts, books, records, invoices, cash vouchers, debit notes, price lists or any other documentation relating to Petroleum Operations. Furthermore, the auditors shall have the right, in connection with such audit, to visit and inspect at 

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reasonable times any of the Contractor’s sites, plants, facilities, warehouses and offices which affect Petroleum Operations directly or indirectly and to question personnel associated with those Operations.
The Contractor shall endeavor to provide records and accounts from any of its 62 Affiliates or other Persons necessary to support charges from them. If an Affiliate or any other Person considers such information confidential or proprietary, the Ministry may select an internationally recognized independent firm of public accountants to carry out an audit, subject to the approval of the Affiliate or other Person, such approval not to be unreasonably withheld or delayed. If the Ministry does not conduct an audit within the time stipulated in accordance with Article ‎16.3 of the Contract, the Contractor’s accounts, books and records shall be deemed correct and final.
		
	1.5.2
	Any audit exceptions shall be made in writing and notified to the Contractor within ninety (90) days of completion of the corresponding audit. Failure to give such exception by the Ministry shall be deemed to be an acknowledgement of the accuracy of the Contractor’s books and accounts.

		
	1.5.3
	If the Contractor fails to respond to any notice of exception under Article ‎1.5.2 within ninety (90) days of receipt of such notice, the results of the audit will be considered valid and accepted by the Contractor. After the said period of time the Ministry’s exception shall prevail.

		
	1.5.4
	Any adjustments resulting from an audit shall be promptly applied to the Contractor’s accounts; any adjustments to payments due shall also be effected promptly.

		
	1.5.5
	If the Contractor and the Ministry are unable to reach final agreement on the proposed audit adjustments they shall resolve the dispute in accordance with the provisions of Article ‎16.3.3 of the Contract.

When audit related issues are still outstanding, the Contractor shall preserve any relevant documents and allow the Ministry access to them until the issue is finally resolved.
		
	1.6
	CURRENCY EXCHANGE RATES

The exchange rate shall be determined monthly, based on the arithmetic average of the closing buy and sell rates for the Dollar against the CFA (Communauté Financière Africaine or African Financial Community) currency unit for the month, as published by the Bank of Central African States (BEAC).
The exchange rate of the preceding calendar month shall be used for exchange transactions and for the purpose of determining the counter value of Dollars in the Equatoguinean currency unit for the next month.
		
	1.7
	ACCOUNTING BASIS

All books and accounts shall be prepared on an accrual accounting basis. Revenues shall be posted to the accounting period in which they were earned, without any need to recognize whether a given transaction results in a disbursement or cash receipt, Expenses and costs shall be regarded as incurred, in the case of physical items, during the 

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accounting period in which the relevant title is transferred to the Contractor and in the case of services during the accounting period in which such services are rendered. 
		
	1.8
	REVIEW OF ACCOUNTING PROCEDURE

By mutual agreement between the Ministry and the Contractor, this Accounting Procedure may be revised periodically by a document in writing executed by the Parties.

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ARTICLE 2     
GENERAL CLASSIFICATION OF PETROLEUM COSTS
All costs related to Petroleum Operations shall be classified in accordance with their end use. Classification criteria shall be included in the approved Annual Work Program and Annual Budget for the Calendar Year in which the expenditure is made. All Petroleum Operations Costs shall be classified, defined and allocated as set forth below.
		
	2.1
	EXPLORATION COSTS

Any and all direct, general and administrative costs incurred during Hydrocarbon Exploration and Appraisal activities in an area which is part of the Contract Area, including but not limited to:
		
	(a)
	aerial, geophysical, geochemical, palaeontological, geological, topographical and seismic surveys and studies and their interpretation;

		
	(b)
	core hole drilling;

		
	(c)
	any labor, materials, supplies, and services used in drilling Exploration Wells and Appraisal Wells;

		
	(d)
	any facilities used solely in support of the purposes described in paragraphs ‎(a), ‎(b) and ‎(c) above, including access roads and acquired geological and geophysical data, all separately identified;

		
	(e)
	any other cost incurred in the Exploration and Appraisal of Hydrocarbons after the Effective Date but prior to the date of approval of a Development and Production Plan with respect to the relevant Field and not covered under Articles ‎2.2, ‎2.3 and ‎2.4 below; and

		
	(f)
	the costs incurred prior to the Effective Date which both Parties have agreed to, including the cost of the Sea Bed Logging, 2D, 3D speculative data and other costs of complying with Article ‎3.1.1 of the Contract.

		
	2.2
	DEVELOPMENT AND PRODUCTION COSTS

Development and Production Costs are all approved direct, general and administrative costs incurred during Development and Production activities, including, but not limited to, the following:
		
	(a)
	Wells defined as Development Wells for purposes of producing from a Commercial Field, whether such Wells turn out to be dry or productive by nature, and drilling Wells for the injection of water or gas to enhance Hydrocarbon recovery;

		
	(b)
	completing Wells by way of installation of casing or equipment or otherwise after a Well has been drilled for the purpose of bringing the Well into use as a 

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Development Well or a Well for the injection of water or gas to enhance Hydrocarbon recovery;
		
	(c)
	transportation and installation of tank storage facilities, pipelines, flow lines, production and treatment units, wellhead equipment, subsurface equipment, enhanced recovery systems, offshore platforms, export terminals and piers, harbors and related facilities, and access roads for development activities; and

		
	(d)
	engineering and design studies for facilities referred to under paragraph ‎(c) above.

		
	2.3
	OPERATING OR PRODUCTION COSTS

Any and all general, administrative and service costs, and any other Petroleum Operations Costs incurred from the approval date of any relevant Development and Production Plan, and from the commencement of funding of the Reserve Fund.
		
	2.4
	COMMERCIALIZATION COSTS

Any and all costs incurred for exporting Hydrocarbons to the Delivery Point.
		
	2.5
	ALLOCATION OF GENERAL AND ADMINISTRATIVE COSTS

With the exception of general and administration costs incurred in Equatorial Guinea directly assignable to the Annual Budget, the general and administration expenditures incurred by the Contractor outside of national territory with respect to Petroleum Operations shall be determined in accordance with the sliding scale set out below, based on total Petroleum Operations Costs actually incurred during the Year and duly justified by the Contractor and approved by the Ministry:
		
	(a)
	Prior to First Oil (commercial Production):

Up to $5,000,000 Dollars    4%
Next $10,000,000 Dollars    3%
Next $15,000,000 Dollars    1.5%
Balance    0.5%
		
	(b)
	After First Oil (first commercial Production):

Up to $5,000,000 Dollars    5%
Next $10,000,000 Dollars    2%
Next $15,000,000 Dollars    1.5%
Balance    1%

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	2.6
	Except as provided otherwise in the Contract to the contrary, approved Petroleum Operation Costs described in Articles ‎2.1 to ‎2.5 of this Accounting Procedure, will be recoverable by the Contractor in accordance with Article ‎7.2 of the Contract.

		
	2.7
	INTEREST RECOVERY

Subject to and in accordance with the Hydrocarbons Law, any interest on loans obtained by the Contractor from Affiliated Companies or from Persons other than Affiliated Companies for investments in Petroleum Operations shall be recoverable and at a rate of interest not greater than LIBOR plus 3.5% as a Petroleum Operations Cost and shall be deductible for tax purposes, when estimating any Income Tax liabilities of the Contractor provided that the rate of interest and the terms of repayment have been approved by the Ministry in advance.
		
	2.8
	NON RECOVERABLE COSTS

Costs that are not recoverable as Petroleum Operations Costs shall include the following:
		
	(a)
	signature bonus paid by the Contractor;

		
	(b)
	any Discovery bonus paid by the Contractor;

		
	(c)
	any Production bonus paid by the Contractor;

		
	(d)
	annual surface rentals paid to the State;

		
	(e)
	interests on loans as provided by Article ‎2.7 of this Accounting Procedure;

		
	(f)
	any unapproved over-expenditures that exceed the limits of Article ‎4.4 of this Contract;

		
	(g)
	any payments made to the State for failure to fulfill the minimum Exploration work obligations pursuant to ‎Article 3 of the Contract;

		
	(h)
	any fines and sanctions incurred for infringing the laws and regulations of Equatorial Guinea;

		
	(i)
	any donation to the State or other similar expenses unless otherwise agreed;

		
	(i)
	the State’s audit and inspection expenses incurred as a result of the absence of original documents in the Contractor’s offices in Equatorial Guinea;

		
	(j)
	any sanction imposed on the Contractor under the Hydrocarbons Law or otherwise; and

		
	(k)
	costs related to the assignment from the Contractor to any of its Affiliates or other Persons.

		
	2.9
	INSURANCE AND CLAIMS

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Petroleum Operations Costs shall include premiums paid for insurance required [and approved] in accordance with the Contract. All expenses incurred and paid by the Contractor in respect of any insurance claim, less any costs recovered by the Contractor by means of insurance claims, shall be included and recoverable as Petroleum Operations Costs, provided these expenses are not incurred as a consequence of their being not recoverable under a policy of insurance of the Contractor, in which case they shall not be recoverable, provided the Contractor has duly applied the corresponding ‘withholding tax in accordance with the Tax Law.
		
	2.10
	INVENTORY ACCOUNTING

Any costs of articles bought for inventory will be recoverable as from the Calendar Year in which such materials and equipment have been used in the Petroleum Operations in the Contract Area.

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ARTICLE 3     
OTHER CLASSIFICATION OF COSTS AND EXPENDITURES
(Accounting Methods For Estimating Any Income Tax Liability)
During any Calendar Year in which commercial Production occurs, the Petroleum Operations Costs shall include the following:
		
	3.1
	CAPITAL COSTS

Any current Calendar Year capital costs shall be classified as Tangible (subject to depreciation) and Intangible.
		
	3.1.1
	TANGIBLE CAPITAL COSTS

Tangible Capital Costs are such costs that are not intangible capital costs incurred for the purchase of any assets related to the Petroleum Operations that normally have a useful life of more than one (1) Year; such assets shall be subject to annual depreciation pursuant to the provisions set forth in this Accounting Procedure. Tangible Capital Costs include the following:
		
	(a)
	for Development Wells: the costs of completion materials and equipment (downhole equipment, fixed production tubing, production packers, valves, wellhead equipment, subsoil elevation equipment, pumping rods, surface pumps, discharge cables, collection equipment, delivery lines, fixed Christmas tree and valves, oil and gas pipelines, fixed materials and equipment, piers, anchors, buoys, Hydrocarbon treatment facilities and equipment, secondary recovery systems, reinjection compressors, water pumps and their pipes);

		
	(b)
	for any purchase of goods and equipment: the actual cost of the asset (excluding transportation), the cost for construction of platforms outside of the Contract Area, the cost of power generators and facilities onshore;

		
	(c)
	for the purchase of moveable goods: automotive machinery (vehicles, tractors, tow trucks, tools, flatbeds, etc.), construction machinery and equipment (furniture, office equipment and other equipment);

		
	(d)
	for construction purposes: the building cost of housing and residential facilities, offices, warehouses, workshops, power plants, storage facilities and access roads for development activities, the cost of piers and anchors, treatment plants and machinery, secondary recovery systems, gas plants and steam systems; and

		
	(e)
	drilling and Production facilities and platforms.

With the exception of land purchased by the Contractor, all and any goods mentioned herein shall be depreciated in accordance with Article ‎3.2 of this Accounting Procedure.

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	3.1.2
	INTANGIBLE CAPITAL COSTS

Intangible capital costs shall be such ongoing costs incurred for the purchase of moveable goods and services directly related to the Petroleum Operations and they shall not be depreciated, but shall be tax deductible as incurred. Such costs/expenses shall include the: following:
		
	(a)
	costs of aerial magnetic, aerial gravimetric, topographic, geological, geophysical and geochemical surveys, interpreting and reinterpreting technical data costs, Exploration labor and similar costs;

		
	(b)
	costs of drilling Exploration Wells and Appraisal Wells: all costs of services rendered for drilling Exploration and Appraisal Wells, chemical products, rental costs (for helicopters, flatbeds, ships, tow barges, etc.) transportation, storage facilities, accommodation, technical services for mud control, Well geology, directional Well drilling, divers, mud control, well geology testing, cementing and similar costs;

		
	(c)
	costs of drilling Development Wells, such as rig and platform mobilization and demobilization, rig and platform drilling contracts and leases, platform and infrastructure installations labor, fuel, water, conductors, drill bits, drill pipe, equipment rental, production testing equipment, Christmas tree for production testing, mud and its components, chemical products, rental costs (for helicopters, flatbeds, ships, tow barges, etc.), transportation, storage facilities, accommodation, technical services for mud control, Well placement geology, directional drilling Wells, divers, production and appraisal tests, completion and supervision;

		
	(d)
	costs of acquisition or purchase of goods and services such as transportation costs, operation costs, equipment checks, costs of on-site installation, maintenance costs and fuel costs;

		
	(e)
	general services (electric logs, vertical seismic profile (VSP), mud control, core sampling, Well geology tests, cementing, production tests, supervision and similar costs), delineation services, any heavy engineering machinery leasing, and other expenses incurred abroad;

		
	(f)
	materials, reconstruction of access and other roads, and other intangible goods for construction, public services and construction support; and

		
	(g)
	other Exploration Costs, support or temporary facilities with a useful life of less than one (1) Year.

		
	3.2
	DEPRECIATION OF TANGIBLE CAPITAL COSTS

Depreciation will be estimated from the Calendar Year in which the asset is placed into service, with a full Year’s depreciation allowed for the initial Calendar Year. For the purpose of estimating responsibility regarding Income Tax, depreciation shall be determined using a five (5) Year straight-line method.

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	3.3
	NON-CAPITAL COSTS

Non-capital costs shall be classified as follows:
		
	3.3.1
	CONTRACTOR’S DEDUCTIBLE COSTS

For Income Tax purposes, the Contractor’s deductible costs shall include the following:
		
	(a)
	general and administrative expenses (personnel salaries, insurance premiums, labor, technical office services and other similar services, material services, public relations, expenses abroad related with Petroleum Operations in Equatorial Guinea, determined in accordance with Article ‎2.5 of this Accounting Procedure);

		
	(b)
	Intangible Capital Costs;

		
	(c)
	labor, materials and services indirectly used in operations of Wells, feasibility studies for production of Crude Oil or Natural Gas fields, secondary recovery operations, storage operations, handling, transportation and delivery, Natural Gas Well operations, transportation and delivery of Natural Gas, services for Natural Gas treatment, environmental protection measures and any other maintenance activities indirectly related to Petroleum Operations.

		
	(d)
	Contributions to the Reserve Fund.

		
	3.3.2
	CONTRACTOR’S NON-DEDUCTIBLE COSTS

For Income Tax purposes, the following costs of the Contractor shall be non-deductible:
		
	(a)
	signature bonus paid by the Contractor;

		
	(b)
	any Discovery bonus paid by the Contractor;

		
	(c)
	any Production bonus paid by the Contractor;

		
	(d)
	annual surface rentals paid to the State;

		
	(e)
	any unapproved over-expenditures that exceed the limits of Article ‎4.4 of the Contract;

		
	(f)
	interest on loans as provided in Article ‎2.7 of this Accounting Procedure;

		
	(g)
	any payment made to the State for failure to fulfill the minimum Exploration work obligations pursuant to ‎Article 3 of the Contract;

		
	(h)
	any fines and sanctions incurred for infringing the laws and regulations of Equatorial Guinea;

		
	(i)
	sums that exceed the set limits with regard to the depreciation of tangible assets;

		
	(j)
	any donation to the State and other similar expenses unless otherwise agreed;

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	(k)
	the State’s audit and inspection expenses incurred by the absence of original documents in the office of the Contractor in Equatorial Guinea;

		
	(l)
	any sanction imposed on the Contractor under the Hydrocarbons Law or otherwise; and

		
	(m)
	costs relating to the assignment from the Contractor to any of its Affiliates or other Persons.

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ARTICLE 4     
BASES OF INCOME TAX CALCULATION
		
	4.1
	PRACTICAL DETERMINATION OF THE TAXABLE BASE

In order to determine the taxable base and for the purposes of calculating the Contractor’s responsibility regarding annual Income Tax liability, the following will be taken into account:
Taxable base = [(1)] – {[(2)+(3)+(4)]+[(5)+(6)+(7)+(8)]}.
		
	(1)
	Annual gross revenues

		
	(2)
	Royalties

		
	(3)
	State’s share of net Hydrocarbons

		
	(4)
	State’s right to a share of Production based on its carried or paid interest in the Contract

		
	(5)
	Deductible intangible capital costs

		
	(6)
	Depreciation of tangible capital costs

		
	(7)
	Deductible non-capital costs

		
	(8)
	Losses authorized and certified by the Ministry, corresponding to previous Calendar Years

		
	4.2
	PRINCIPLE OF TAX TREATMENT OF A FINANCIAL YEAR DEFICIT

In case of any deficit during a Calendar Year, such deficit will be regarded as relating to the following Calendar Year and deducted from the profit made during said Calendar Year; if such profit is not sufficient for the deduction to be made in full, the excess (certified by the Ministry) of the deficit will be successively carried over to the profits of the following Calendar Year in accordance with the Tax Laws.

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ARTICLE 5     
RECORDS AND VALUATION OF ASSETS
		
	5.1
	RECORDS

The Contractor shall keep correct, accurate and detailed records of all property used for Petroleum Operations under the Contract in accordance with generally accepted practice of the international petroleum industry.
		
	5.2
	INVENTORIES DURING INITIAL EXPLORATION OPERATIONS

Prior to the date of approval of the first Annual Work Program and Annual Budget submitted pursuant to ‎Article 4 of the Contract, the Contractor shall prepare an initial annual schedule (to be included as part of the material statement required under ‎Article 6 of this Accounting Procedure) of all property to be used for Petroleum Operations and its value as shown in the Contractor’s books.
		
	5.3
	INVENTORIES IN SUBSEQUENT OPERATIONS

Subsequent to the date of approval of the Annual Work Program and Annual Budget pursuant to ‎Article 4 of the Contract, inventories of property used in Petroleum Operations under the Contract shall be taken at regular intervals but at least once per Calendar Year.
The Contractor shall give the Ministry at least thirty (30) days prior notice of its intention to take such inventory and the Ministry shall have the right to be represented when such inventory is taken. The Contractor shall clearly state the principles upon which valuation of the inventory has been based and shall provide to the Ministry a full report on such inventory within sixty (60) days of the completion of the inventory.

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ARTICLE 6     
STATEMENTS AND REPORTS
		
	6.1
	FINANCIAL STATEMENTS AND TAX REPORTS TO BE SUBMITTED BY CONTRACTOR

The Contractor shall present detailed accounts showing all Petroleum Operations Costs incurred by the Contractor over the last Calendar Year. Such accounts must be submitted to the Ministry within ninety (90) days from the end of such Calendar Year and shall be certified by an independent auditor accepted by the Parties. Such period may be extended by an additional thirty (30) days at the Contractor’s request and with the approval of the Ministry; such consent shall not be unreasonably delayed or withheld.
Income Tax returns shall be duly completed with enough detailed information as to allow a thorough understanding by the Tax Administration of Equatorial Guinea, including:
		
	(a)
	depreciation details;

		
	(b)
	fixed assets information;

		
	(c)
	Production and export statistics and details;

		
	(d)
	all tax related reports provided for in the Contract; and

		
	(e)
	detailed information on deductible expenses for estimating tax liabilities in accordance with the Tax Law.

		
	6.2
	PRODUCTION STATEMENT

Without prejudice to the rights and obligations of the Parties under the Contract, as from the initial date of commencement of commercial Production from the Contract Area, the Contractor shall submit a monthly Production statement to the Ministry showing the following information, which shall be separated by each Commercial Field as well as in aggregate for the Contract Area:
		
	(a)
	the quantity of Crude Oil produced and saved;

		
	(b)
	the quality characteristics of such Crude Oil produced and saved;

		
	(c)
	the quantity of Natural Gas produced and saved;

		
	(d)
	the quality characteristics of such Natural Gas produced and saved;

		
	(e)
	the quantities of Crude Oil and Natural Gas used for the purposes of carrying out drilling and Production operations;

		
	(f)
	the quantities of Crude Oil and Natural Gas unavoidably lost;

		
	(g)
	the quantities of Natural Gas flared and vented;

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	(h)
	the size of Hydrocarbon stocks held at the beginning of the calendar month in question;

		
	(i)
	the size of any Hydrocarbon stocks held at the end of the calendar month in question;

		
	(j)
	the quantities of Natural Gas re-injected into the Hydrocarbon reservoir; and

		
	(k)
	the quantities of Hydrocarbons delivered and sold.

All quantities shown in such statement shall be expressed in both volumetric terms (barrels of Crude Oil [bbls] and cubic meters of Natural Gas [M3]) and in weight (metric tons [MT] and long tons [LT]).
The Production statement for each calendar month, and the technical report on each Well shall be submitted to the Ministry no later than a period of fifteen (15) days after the end of such calendar month.
		
	6.3
	VALUE OF PRODUCTION AND PRICING STATEMENT

For the purposes of ‎Article 10 of the Contract, the Contractor shall prepare a Quarterly statement providing details of the value of Hydrocarbons produced, saved and sold during each Quarter.
The value of Production statement shall include the following information:
		
	(a)
	the quantities, prices and income received by the Contractor as a result of sales of Hydrocarbons to third parties during the Quarter in question;

		
	(b)
	the quantities, prices and income received by the Contractor as a result of sales of Hydrocarbons, other than sales to third parties, during the Quarter in question;

		
	(c)
	the value of any stocks of Hydrocarbons at the end of the Quarter preceding the Quarter in question;

		
	(d)
	the value of any stocks of Hydrocarbons at the end of the Quarter in question; and

		
	(e)
	the information available to the Contractor concerning the prices of competitive Crude Oils, insofar as required for the purposes of ‎Article 10 of the Contract.

		
	6.4
	PETROLEUM OPERATIONS COSTS STATEMENT

		
	6.4.1
	Quarterly Statement

The Contractor shall prepare a Quarterly Petroleum Operations Costs statement showing those Petroleum Operations Costs incurred by the Contractor with respect to the Contract Area, as provided under this Accounting Procedure.
Any Development and Production Costs shall be separately identified for each Commercial Field, if such is the case, and the Contractor shall specify the basis of 

83
    

allocation of shared costs. If the Ministry is not satisfied with the itemization shown within the categories, the Contractor shall provide a more detailed breakdown.
Any Exploration Costs shall be shown separately.
The Petroleum Operations Costs statement for each Quarter shall be submitted to the Ministry no later than a period of thirty (30) days after the end of each Quarter.
		
	6.4.2
	Annual Statement

The Contractor shall prepare an annual Petroleum Operations Costs Statement containing the following information for the purposes of Articles ‎9 and ‎16 of the Contract:
		
	(a)
	Petroleum Operations Costs not yet recovered and carried forward from the previous Calendar Year, if any;

		
	(b)
	Petroleum Operations Costs for the Calendar Year in question;

		
	(c)
	the quantity and value of Hydrocarbon Production taken by the Contractor as Cost Recovery Oil under the provisions of Article ‎7.2 of the Contract for the Calendar Year in question; and

		
	(d)
	Petroleum Operations Costs not yet recovered at the end of the Calendar Year in question.

The annual Petroleum Operations Costs Statement shall be submitted to the Ministry no later than a period of forty-five (45) days following the end of each Calendar Year.
		
	6.5
	PRODUCTION SHARING STATEMENT

Within sixty (60) days following the end of each Calendar Year, the Contractor shall submit to the Ministry with respect to such Calendar Year a Production sharing statement containing the following information for the purposes of ‎Article 7 of the Contract:
		
	(a)
	the value of all sales of Hydrocarbons made by the Contractor as from the Effective Date of the Contract up to the end of the previous Calendar Year;

		
	(b)
	the value of all sales of Hydrocarbons made by the Contractor during the Calendar Year in question;

		
	(c)
	the total of (a) and (b) above at the end of the Calendar Year in question;

		
	(d)
	the accumulated Petroleum Operations Costs as from the Effective Date of the Contract up to the end of the previous Calendar Year;

		
	(e)
	the Petroleum Operations Costs for the Calendar Year in question;

		
	(f)
	the total of (d) and (e) above at the end of the Calendar Year in question;

		
	(g)
	quantity and value of the ‘Contractor’s share in Hydrocarbons; and

84
    

		
	(h)
	quantity of State’s share of Hydrocarbons and its value if sold by the Contractor.

		
	6.6
	ANNUAL END-OF-YEAR STATEMENT

No later than 31 March of each Calendar Year, the Contractor shall submit to the Ministry an end-of-year statement, and statement of accounts corresponding to the previous fiscal Year, and which shall contain the following information:
		
	(a)
	accounting conciliation of the expenses against the approved Annual Budget;

		
	(b)
	accounting conciliation of the expenses with the recoverable costs; and

		
	(c)
	accounting conciliation of the expenses with the deductible costs.

		
	6.7
	ANNUAL BUDGET STATEMENT

The Contractor shall submit to the Ministry an Annual Budget Statement pursuant to the provisions of ‎Article 4 of the Contract. Such statement shall distinguish between budgeted Exploration Costs and Development and Production Costs by Quarter and shall correspond to the individual items of Petroleum Operations included in the Annual Work Program.

85
    

ANNEX D     
PARENT COMPANY GUARANTEE
This Annex is an integral part of this Contract between the Republic of Equatorial Guinea and the Contractor.
THIS GUARANTEE is made on this [insert day] of [insert month and year]
BETWEEN:
		
	(1)
	[THE GUARANTOR], a company organized and existing under the laws of [insert jurisdiction], and having its registered office at [insert address] (the Guarantor); and

		
	(2)
	THE REPUBLIC OF EQUATORIAL GUINEA (the State), represented for the purposes of this Guarantee by the Ministry of Mines and Hydrocarbons (the Ministry).

WHEREAS, the Guarantor is the parent entity of [insert name of Company] organized and existing under the laws of [insert jurisdiction], and having its registered office at [insert address] (the Company);
WHEREAS, the Company has entered into a production sharing contract (the Contract) with, among others, the State in respect of the Contract Area;
WHEREAS, the Company has a Participation Interest under the Contract;
WHEREAS, the State desires that the execution and performance of the Contract by the Company be guaranteed by the Guarantor and the Guarantor desires to furnish this Guarantee as an inducement to the State to enter into the Contract and in consideration of the rights and benefits inuring to the Company thereunder; and
WHEREAS, the Guarantor accepts that it fully understands and assumes the contractual obligations under the Contract of the Company.
NOW THEREFORE, it is hereby agreed as follows:
1.    Definitions and Interpretation
All capitalized words and expressions in this Guarantee have the same meaning as in the Contract, unless otherwise specified to herein. ‎Article 30 of the Contract is incorporated herein, mutatis mutandis, by this reference.
2.    Scope of this Guarantee
The Guarantor hereby guarantees to the State the timely payment and performance of any and all indebtedness and obligations whatsoever of the Company to the State arising under or in relation to the Contract, including the payment of any amounts required to be paid by the Company to the State when the same become due and payable; provided, however, that the liability of the Guarantor to the State hereunder shall not exceed the lesser of:

86
    

(a)    the liabilities of the Company to the State;
		
	(b)
	[insert amount] Dollars ($[insert amount]) during the Exploration Period, as may be extended in accordance with the Contract; and

		
	(c)
	[insert amount] Dollars ($[insert amount]) during the Development and Production period.

3.    Waiver of Notice, Agreement to All Modifications
The Guarantor hereby waives notice of the acceptance of this Guarantee and of the state of indebtedness of the Company at any time, and expressly agrees to any extensions, renewals, modifications or acceleration of sums due to the State under the Contract or any of the terms of the Contract, all without relieving the Guarantor of any liability under this Guarantee.
4.    Absolute and Unconditional Guarantee
The obligations of the Guarantor shall be an absolute, unconditional and (except as provided in Article 2 above) unlimited guarantee of payment and performance to be performed strictly in accordance with the terms hereof, and without respect to such defences as might be available to the Company.
5.    No Discharge of Guarantor
The obligations of the Guarantor hereunder shall not in any way be released or otherwise affected by: a release or surrender by the Company of any collateral or other security it may hold or hereafter acquire for payment of any obligation hereby guaranteed; by any change, exchange or alteration of such collateral or other security; by the taking of or the failure to take any action with respect thereto either against the Company or against the Guarantor; or by any other circumstance which might otherwise constitute a legal or equitable discharge or defence of a guarantor.
6.    No Prior Action Required
The State shall not be required to make demand for payment or performance first against the Company or any other Person or to proceed against any collateral or other security which might be held by the State or otherwise to take any action before resorting to the Guarantor hereunder.
7.    Cumulative Rights
All rights, powers and remedies of the State hereunder shall be cumulative and not alternative, and shall be in addition to all rights, powers and remedies given to the State by law or otherwise.
8.    Continuing Guarantee
This Guarantee is intended to be and shall be considered as a continuing guarantee of payment and performance and shall remain in full force and effect for so long as the 

87
    

Contract and any amendments thereto shall remain outstanding or there shall exist any liability of the Company to the State thereunder.
9.    Notice of Demand
Upon default in the performance of any of the obligations of the Company guaranteed hereunder, the State or its duly authorized attorney may give written notice to the Guarantor at its principle office in [insert jurisdiction] of the amount due, and the Guarantor, within a period of ten (10) Business Days, will make, or cause to be made, payment of such amount as notified, in Dollars, at such bank or other place in [insert jurisdiction] as the State shall designate and without set-off or reduction whatsoever of such payment in respect of any claim the Parent Company or the Company may then have or thereafter might have.
10.    Assignment
The Guarantor shall not in any way effect, or cause or permit to be effected, the assignment or transfer of any of its obligations hereunder without the express written consent of the State.
11.    Subrogation
Until all indebtedness hereby guaranteed has been paid in full, the Guarantor shall have no right of subrogation to any security, collateral or other rights which may be held by the State.
12.    Payment of Expenses
The Guarantor shall pay to the State all reasonable costs and expenses, including attorney’s fees, incurred by it in collecting or compromising any indebtedness of the Company hereby guaranteed or in enforcing the Contract or this Guarantee.
13.    Governing Law and Arbitration
This Guarantee shall be governed by and interpreted in accordance with the laws of Equatorial Guinea.
All disputes or claims arising out of or relating to this Guarantee shall be finally settled by arbitration, in accordance with the procedure set forth in the Contract; however, if in addition to the arbitration hereunder an arbitration has also been commenced under the Contract with respect to obligations hereby guaranteed, the arbitration commenced hereunder shall be consolidated with the arbitration commenced under the Contract and the arbitral body appointed hereunder shall be the same arbitral body appointed pursuant to the Contract. The arbitration shall be conducted in the Spanish and English languages and the decision shall be final and binding on the parties.
14.    Severability of Provisions

88
    

In the event that for any reason any provision hereof may prove illegal, unenforceable or invalid, the validity or enforceability of the remaining provisions hereof shall not be affected.
15.    Confidentiality
The Guarantor agrees to treat this Guarantee and the Contract as confidential and shall not disclose, willingly or unwillingly, to any third party, except to the extent required by law, the terms and conditions hereof or thereof without the prior written consent of the State.

89
    

IN WITNESS WHEREOF, the Guarantor and the Company execute this Guarantee this [insert day] day of [insert month and year],
	
		
	[GUARANTOR]

	By:
	 

	Title:
	 

	
			
	THE REPUBLIC OF EQUATORIAL GUINEA 
 
THE MINISTRY OF MINES AND HYDROCARBONS

	By:
	 
	 

	Title:
	 
	 

90Exhibit

Exhibit 10.08

PRODUCTION SHARING CONTRACT
BETWEEN

THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE 
REPRESENTED BY
 AGENCIA NACIONAL DO PETROLEO DE SAO TOME AND PRINCIPE

 BP EXPLORATION (STP) LIMITED
AND 
KOSMOS ENERGY SAO TOME AND PRINCIPE
 
 
FOR
BLOCK 10

TABLE OF CONTENTS

	
				
	Clause
	Title
	Page Number
	

	 
	 
	 

	1
	DEFINITIONS AND INTERPRETATION
	3
	

	2
	BONUSES AND SOCIAL PROJECTS
	9
	

	3
	SCOPE
	10
	

	4
	TERM
	10
	

	5
	COMMERCIAL DISCOVERY AND DECLARATION OF COMMERCIALITY
	11
	

	6
	RELINQUISHMENT OF AREAS
	12
	

	7
	MINIMUM WORK PROGRAM AND BUDGET
	13
	

	8
	STATE PARTICIPATION AND CARRY
	16
	

	9
	RIGHTS AND OBLIGATIONS OF THE PARTIES
	17
	

	10
	RECOVERY OF OPERATING COSTS AND SHARING OF PETROLEUM PRODUCTION
	20
	

	11
	VALUATION OF CRUDE OIL
	22
	

	12
	PAYMENTS
	24
	

	13
	TITLE TO EQUIPMENT / DECOMMISSIONING
	25
	

	14
	EMPLOYMENT AND TRAINING OF NATIONALS OF THE STATE
	27
	

	15
	BOOKS AND ACCOUNTS, AUDIT AND OVERHEAD CHARGES
	28
	

	16
	TAXES AND CUSTOMS
	30
	

	17
	INSURANCE
	30
	

	18
	CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
	32
	

	19
	ASSIGNMENT
	33
	

	20
	TERMINATION
	34
	

	21
	FORCE MAJEURE
	36
	

	22
	LAWS AND REGULATIONS
	36
	

	23
	NATURAL GAS
	36
	

	24
	REPRESENTATIONS AND WARRANTIES
	37
	

	25
	CONCILIATION AND ARBITRATION
	38
	

	26
	EFFECTIVE DATE
	41
	

	27
	REVIEW / RE-NEGOTIATION OF CONTRACT AND FISCAL TERMS
	41
	

	28
	OPERATOR
	41
	

	29
	CONFLICT OF INTERESTS
	42
	

	30
	NOTICES
	42
	

	31
	LIABILITY
	43
	

	32
	MISCELLANEOUS
	43
	

	
			
	SCHEDULE 1  CONTRACT AREA
	46
	

	SCHEDULE 2  ACCOUNTING PROCEDURES
	49
	

	SCHEDULE 3  ALLOCATION AND LIFTING PROCEDURES
	59
	

	SCHEDULE 4  PROCUREMENT AND PROJECT IMPLEMENTATION PROCEDURES
	62
	

	SCHEDULE 5  SALE OF ASSETS PROCEDURE
	69
	

	SCHEDULE 6  FORM OF PARENTAL GUARANTEE
	70
	

1

THIS PRODUCTION SHARING CONTRACT is made and entered into on this 9th day of March 2018 by and between: 

		
	(1)
	THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE represented by the AGÊNCIA NACIONAL DO PETRÓLEO DE SÃO TOMÉ E PRÍNCIPE; 

and

		
	(2)      
	BP EXPLORATION (STP) LIMITED, a company organized and existing under the laws of England, whose registered office is at Chertsey Road, Sunbury-on-Thames, Middlesex TW16 7LN, United Kingdom, with a branch registered at Guiché Único de São Tomé e Princípe under no 8042/20180308 and offices located at Avenida da Independência no. 392, II/III, São Tomé – São Tomé e Príncipe, hereinafter referred to as “BP” and

 
		
	(3)  
	KOSMOS ENERGY SAO TOME AND PRINCIPE, a company organized and existing under the laws of Cayman Islands, whose registered office is at c/o Circumference (Cayman), P.O. Box 32322, 4th floor, Century Yard, Cricket Square, Elgin Avenue, George Town, Grand Cayman, KY1, 1209 with a branch registered in Sao Tome and Principe with the Guiché Único under no 5492/2016 at Condomínio da Praia Lagarto C.P. 987 Distrito de Agua Grande, São Tomé - São Tomé e Príncipe, hereinafter referred to as “Kosmos” 

 
(BP and Kosmos are together the “Contractor”).

BACKGROUND:

		
	(A)
	All Petroleum existing within the Territory of Sao Tome and Principe, as set forth in the Petroleum Law, are natural resources exclusively owned by the State.

		
	(B)
	The Agência Nacional do Petróleo de São Tome e Príncipe, with the approval of the Government of Sao Tome and Principe, has the authority to enter into contracts for the conduct of Petroleum Operations in and throughout the area, whose co-ordinates are described and outlined on the map in Schedule 1 of this Contract, which area is hereinafter referred to as the Contract Area.

		
	(C)
	The State wishes to promote Petroleum Operations in the Contract Area and the Contractor desires to join and assist the State in accelerating the exploration and exploitation of potential Petroleum resources within the Contract Area.

		
	(D)
	The Contractor has the necessary financial capability and technical knowledge and ability to carry out the Petroleum Operations hereinafter described in accordance with this Contract, the Petroleum Law and Good Oil Field Practice. 

		
	(E)
	Pursuant to and in accordance with the Petroleum Law, this Contract has been entered into by and between the State and the Contractor for the purpose of Petroleum Operations in the Contract Area.

		
	(F)
	BP is hereby designated as the Operator under Clause 28 of this Contract.

IT IS AGREED as follows:

2

1.    DEFINITIONS AND INTERPRETATION

		
	1.1
	Except where the context otherwise indicates or as defined in the Petroleum Law and Petroleum Operations Regulation, the following words and expressions shall have the following meanings:

"Accounting Procedures" means the rules and procedures set forth in Schedule 2;
"Affiliate" means in respect of a Party, a Person that Controls, is Controlled by, or is under the common Control with, the Party or any such Person, as the case may be; 
"Allocation and Lifting Procedures" means the allocation and lifting procedures set forth in Schedule 3 until a lifting agreement has been agreed between the Parties pursuant to Clause 9.2(j) after which references to the "Allocation and Lifting Procedures" shall be deemed to be references to such agreement;
"Appraisal" means the activities carried out after the discovery of a Petroleum deposit with the objective of defining the parameters of the deposit in order to determine its commerciality including, but not limited to, the following:
(a)    drilling of Appraisal Wells and running tests; and
		
	(b)
	running supplementary studies and acquisition, processing and interpretation of geophysical and other data; 

"Appraisal Well" means any well whose purpose at the time of commencement of drilling such well is the determination of the extent or volume of Petroleum contained in a Discovery;
“Associate” means any Affiliate, subcontractor or other Person associated with a Contractor in the conduct of Petroleum Operations;
"Associated Natural Gas" means all Natural Gas produced from a Reservoir the predominant content of which is Crude Oil and which is separated from Crude Oil in accordance with generally accepted international petroleum industry practice, including free gas cap, but excluding any liquid Petroleum extracted from such gas either by normal field separation, dehydration or in a gas plant;
"Available Crude Oil” means the Crude Oil recovered from the Contract Area, less quantities used for Petroleum Operations;
"Barrel" means a quantity or unit of Crude Oil, equal to 158.9874 liters (forty-two (42) United States gallons) net of basic sediment and water at a temperature of fifteen point five six degrees (15.56°) Centigrade (sixty degrees (60°) Fahrenheit) at one (1) atmosphere of pressure;
"Budget" means the cost estimate of items included in an approved Work Program;

3

"Calendar Year" or "Year" means a period of twelve (12) months commencing from January 1 and ending the following December 31, according to the Gregorian calendar;
"Commercial Discovery" means any Discovery, which has been declared to be commercial by the Contractor;
"Contract" means this production sharing contract, including its Recitals and Schedules;
"Contract Area" means the geographic area within the Territory of Sao Tome and Principe which is the subject of this Contract and as described in Schedule 1, as such area may be amended in accordance with the terms herein;
"Contractor’s Intellectual Property Rights" means  any and all of Contractor’s patents, patent applications, patent disclosures, inventions and improvements (whether patentable or not), copyrights and copyrightable works (including computer programs) and registrations and applications therefor any software, firmware, or source code, trade secrets, know-how, database rights, and all other forms of intellectual property created, as well as any other data and information developed or conceived by Contractor prior to the Effective Date, but specifically excludes the National Petroleum Agency’s right to have legal title to and keep originals of all data and information resulting from Petroleum Operations including geological, geophysical, engineering, well logs, completion, production, operations, status reports and any other data and information as the Contractor may compile during the term of this Contract;
"Cost Oil" means the quantum of Available Crude Oil allocated to the Contractor for recovery of Operating Costs after the allocation of Royalty Oil to the State;
"Control" means, in relation to a Person, the power of another Person to secure:
		
	(a)
	by means of the holding of shares or the possession of voting power, directly or indirectly, in or in relation to the first Person; or

		
	(b)
	by virtue of any power conferred by the articles of association of, or any other document regulating, the first Person or any other Person,

so that the affairs of the first Person are conducted in accordance with the decisions or directions of that other Person;    
"Crude Oil" means crude mineral oil and liquid hydrocarbons in their natural state or obtained from Natural Gas by condensation or extraction;
"Decommissioning" means to abandon, decommission, transfer, remove and/or dispose of structures, facilities, installations, equipment and other property and other works used in Petroleum Operations in the Contract Area, to clean the Contract Area and make it good and safe, and to protect the environment, as further set out herein, and in the Petroleum Law and other applicable laws and regulations;
"Delivery Point" means the point located within the jurisdiction of the State at which Petroleum reaches (i) the inlet flange at the FOB export vessel, (ii) the loading facility 

4

metering station of a pipeline or (iii) such other point within the jurisdiction of the State as may be agreed between the Parties;
"Development" means activities carried out for a commercial discovery in order to achieve Production including, without limitation:
		
	(a)  
	geological, geophysical and reservoir studies and surveys;

		
	(b) 
	drilling of production and injection wells; and

		
	(c)
	design, construction, installation, connection and initial testing of equipment, pipelines, systems, facilities, machinery and related activities necessary to produce and operate said wells, to take, treat, handle, store, re-inject, transport and deliver Petroleum, and to undertake re-pressuring, recycling and other secondary and tertiary recovery projects;

"Development Area" means the extent of an area within the Contract Area capable of Production of Petroleum identified in a Commercial Discovery, and agreed upon by the National Petroleum Agency following such Commercial Discovery;
"Discovery" means any geological structure(s) in which, after testing, sampling and/or logging an Exploration Well, the existence of mobile hydrocarbons has been made probable and which structure(s) the Contractor deems worthy of evaluating further by conducting Appraisal operations;
"Effective Date" has the meaning ascribed to it in Clause 26.1;
"Exploration" means the set of operations carried out through the use of geological, geochemical and/or geophysical methods, with a view to locating Reservoirs, as well as the processing, analysis and interpretation of data so acquired as well as regional studies and mapping, in each case leaving an appraisal or better knowledge of the Petroleum potential of a given area and the drilling and testing of wells that may lead to the discovery of Petroleum;
"Exploration Period" has the meaning ascribed to it in Clause 4.1;
"Exploration Well" means a well on any geological structure(s), whose purpose at the time of commencement of such well is to explore for an accumulation of Petroleum whose existence at the time was unproven by drilling;
"Field Development Program" means the program of activities presented by the Contractor to the National Petroleum Agency for approval outlining the plans for the Development of a Commercial Discovery.  Such activities include:
		
	(a)
	Reservoir, geological and geophysical studies and surveys;

		
	(b)
	drilling of production and injection wells; and 

		
	(c)
	design, construction, installation, connection and initial testing of equipment, pipelines, systems, facilities, plants and related activities necessary to produce and operate said wells, to take, save, treat, handle, store, transport and deliver 

5

Petroleum, and to undertake re-pressurizing, recycling and other secondary or tertiary recovery projects;
"Force Majeure" has the meaning ascribed to it in Clause 21;
"Good Oil Field Practice" means the standards, methods and practices generally used in good and prudent international offshore oil and gas field practice;
"Government" means the government of Sao Tome and Principe, as provided for in article 109 of the Constitution;
"Gross Negligence" or "Willful Misconduct" means any act or failure to act (whether sole, joint or concurrent) by a person or entity which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such person or entity knew, or should have known, such act or failure would have on the safety or property of another person or entity;
"LIBOR" means the London interbank offered rate for six (6) month deposits denominated in United States dollars as published electronically by ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate). The applicable rate for each month or part thereof within an applicable interest period shall be the interest rate published on the last business day of the immediately preceding calendar month.  If no such rate is published during a period of five (5) consecutive business days, another rate chosen by mutual agreement between the National Petroleum Agency and the Contractor shall apply;
"Minimum Financial Commitment" has the meaning ascribed to it in Clause 7.3(a);
"Minimum Work Obligations" has the meaning ascribed to it in Clause 7.2;
"National Petroleum Account" means the account established in accordance with the Oil Revenue Law; 
"National Petroleum Agency" or "Agência Nacional do Petróleo" means the State regulatory agency established by the Government Decree-Law 5/2004 of the 30th of June, which is responsible for the regulation and supervision of Petroleum Operations or any agency which succeeds the National Petroleum Agency with respect to some or all of its powers;  
"Natural Gas" or “Gas” means all gaseous hydrocarbons and inerts, including wet mineral gas, dry mineral gas, gas produced in association with Crude Oil and residue gas remaining after the extraction of liquid hydrocarbons from wet gas, but not including Crude Oil;
"Oil Revenue Law" means the oil revenue law of the State, Law No. 8/2004 of the 30th of December, as amended, supplemented or replaced from time to time; 
"Operating Costs" means expenditures incurred and obligations made as determined in accordance with Article 2 of the Accounting Procedures; 

6

"Parties" or "Party" means the parties or a party to this Contract;
"Person" means any individual or legal entity, consortium, join venture, partnership, trust, heir, unincorporated or incorporated organization, or government or any agency or local entity, whether national or foreign, Resident or Non-Resident (as defined in the Petroleum Taxation Law) of Sao Tome and Principe;
"Petroleum" means:
		
	(a)
	any naturally occurring hydrocarbon, whether in a gaseous, liquid or solid state;

		
	(b)
	any mixture of naturally occurring hydrocarbons, whether in a gaseous, liquid or solid state; or

		
	(c)
	any Petroleum (as defined above) that has been returned to a Reservoir;

"Petroleum Law" means the Fundamental Law on Petroleum Operations, Law no. 16/2009 of 31 December, 2009, as amended or supplemented from time to time, and regulations made and directions provided under such law;
"Petroleum Operations" means activities undertaken in the Contract Area for the purposes of:
		
	(a)
	the Exploration, Appraisal, Development, Production, transportation, sale or export of Petroleum; 

		
	(b)
	the construction, installation or operation of any structures, facilities or installations for the Development, Production and export of Petroleum, or Decommissioning or removal of any such structure, facility or installation;

"Petroleum Operations Regulation" means the rules on petroleum operations published in the Official Journal, Supplement no 28, dated 31st December 2010; 
"Petroleum Taxation Law" means the Petroleum Taxation Law, Law no. 15/2009 of 31 December, 2009, as amended, supplemented or replaced from time to time;
"Proceeds" means the amount in United States dollars determined by multiplying the Realizable Price by the number of Barrels of Available Crude Oil lifted by a Party;
"Production" means the activities involved in the extraction of Petroleum including, without limitation, the running, servicing, maintenance and repair of completed wells, as well as of the equipment, pipelines, systems, facilities and plants completed during Development including all activities related to the planning, scheduling, controlling, measuring, testing, gathering, treating, storing and dispatching of Petroleum from the underlying Reservoir to the designated exporting or lifting locations and furthermore, the Decommissioning of wells, facilities, pipelines and Reservoirs and related activities;
"Production Period" has the meaning ascribed to it in Clause 4.6;

7

"Profit Oil" means the balance of Available Crude Oil after the allocation of Royalty Oil and Cost Oil;
"Quarter" means a period of three (3) consecutive Months starting with the first day of January, April, July or October of each Year;
"Realizable Price" means the price in United States dollars per Barrel determined in accordance with Clause 11;
"Relinquished Area" means that portion of the Contract Area that is relinquished pursuant to and in accordance with Clauses 5.1(d) and/or 6;
"Reservoir” means a porous and permeable underground formation containing an individual and separate natural accumulation of producible Petroleum that is confined by impermeable rock and/or water barriers and is characterized by a single natural pressure system;
"Retained Area" means that portion of the Contract Area that is retained after a relinquishment under Clauses 5.1(d) and/or 6;
"Royalty" or "Royalty Oil" means the quantum of Available Crude Oil allocated to the State, based on a percentage calculated as a function of daily production rates as set forth in Clause 10.1(a);
"State" means the Democratic Republic of Sao Tome and Principe;
"State Entity" means any entity or body which integrates the public administration’s structure of the State or, in any other way, an entity in which the State has a full equity or full interest ownership designated by the State under Clause 8 of this Contract; 
"Tax" means the tax payable pursuant to the Petroleum Taxation Law;
"Unassociated Natural Gas" or “Unassociated Gas” means that part of Natural Gas which is not Associated Natural Gas; and 
"Work Program" means the work commitments itemizing the Petroleum Operations to be carried out in the Contract Area for the required period as defined in Clause 7.
		
	1.2
	Unless the context otherwise requires, reference to the singular shall include the plural and vice versa and reference to any gender shall include all genders.

		
	1.3
	The Schedules form an integral part of this Contract. 

		
	1.4
	The table of contents and headings in this Contract are inserted for convenience only and shall not affect the meaning or construction of this Contract.

		
	1.5
	References in this Contract to the words "include", "including" and "other" shall be construed without limitation.

		
	1.6
	In the event of any inconsistency between the main body of this Contract and any Schedule, the provisions of the former shall prevail.

8

2.    BONUSES AND SOCIAL PROJECTS

		
	2.1
	Signature Bonus

The Contractor shall pay to the State by deposit into the National Petroleum Account a signature bonus in the amount of US$5,000,000 (five million United States dollars) within thirty (30) days after both the execution of this Contract and delivery to the Contractor of an instrument of ratification and in immediately available funds.
 
		
	2.2
	Production Bonuses

The Contractor shall pay to the State by deposit into the National Petroleum Account production bonuses based on attainment of cumulative Production of Petroleum from each Development Area as follows:

	
		
	Cumulative Production (millions of Barrels or Barrels equivalent)
	Bonus (US$ million)

	50
	7.5

	150
	10

	350
	15

	500
	20

		
	2.3
	The production bonuses provided for in Clause 2.2 shall be payable to the State by deposit into the National Petroleum Account within thirty (30) days of such Production level being first attained in immediately available funds.

		
	2.4
	The signature and production bonuses provided for in this Clause 2 shall not be recoverable as Cost Oil or deductible for Tax purposes. 

		
	2.5
	Social Projects

The Contractor commits to undertake social projects during the Exploration Period valued at US$17,000,000 (seventeen million United States dollars), capped at US$15,000,000 (fifteen million United States dollars) in the Exploration Phase I, US$1,000,000 (one million United States dollars) in Exploration Phase II and US$1,000,000 (one million United States dollars) in Exploration Phase III. If Petroleum is produced from the Contract Area, the Contractor shall undertake additional social projects according to the following schedule: 

	
		
	Cumulative Production (millions of Barrels or Barrels equivalent)
	Value (US$ million) of Project

	20
	2.5

	40
	5.0

	60
	7.5

9

		
	2.6
	The details of the social projects to be undertaken by the Contractor in accordance with Clause 2.5 shall be determined by agreement between the Contractor and the National Petroleum Agency.  Failing such agreement, the Contractor and the National Petroleum Agency shall each submit a proposal to an expert appointed by the World Bank and such expert shall determine which of the two (2) proposals shall be implemented.  The Contractor shall be solely responsible for any and all costs and expenses associated with the foregoing expert determination. The value of the projects provided for in Clause 2.5 above shall not be recoverable as Cost Oil or deductible for Tax purposes. 

		
	2.7
	The Contractor shall be responsible for the implementation of all agreed or chosen social projects, which shall be undertaken using all reasonable skill and care.

3.    SCOPE

		
	3.1
	This Contract is a production sharing contract awarded pursuant to the Petroleum Law and governed in accordance with the terms and provisions hereof. The conduct of Petroleum Operations and provision of financial and technical requirements by the Contractor under this Contract shall be with the prior approval of or in prior consultation with the National Petroleum Agency as required under this Contract or the Petroleum Law. The State hereby appoints and constitutes the Contractor as the exclusive company(ies) to conduct Petroleum Operations in the Contract Area. 

		
	3.2
	During the term of this Contract the total Available Crude Oil shall be allocated to the Parties in accordance with the provisions of Clause 10, the Accounting Procedures and the Allocation and Lifting Procedures.

		
	3.3
	The Contractor together with its Affiliates shall provide all funds and bear all risk of Operating Costs and the sole risk in carrying out Petroleum Operations.

		
	3.4
	The Contractor shall engage in Petroleum Operations solely in accordance with the Petroleum Law, the Petroleum Taxation Law, Good Oil Field Practice and all other applicable laws and regulations.

4.    TERM

		
	4.1
	Save as otherwise provided in Clause 4.6 and the extensions granted by the National Petroleum Agency, and subject to Clause 20, the term of this Contract shall be for a period of twenty-eight (28) years from the Effective Date, with an eight (8) year Exploration and Appraisal period, as extended pursuant to Clauses 5.1(b) and/or (c) (the "Exploration Period") and a twenty (20) year Production period, as extended pursuant to Clause 4.6.

		
	4.2
	The Exploration Period shall be divided as follows:

Phase I:    four (4) years from the Effective Date; 

		
	Phase II:
	from the end of Phase I until two (2) years after the end of Phase I; and

10

		
	Phase III:
	from the end of Phase II until two (2) years after the end of Phase II, as extended pursuant to Clauses 5.1(b) and/or (c).

    
		
	4.3
	The Contractor shall commence Petroleum Operations no later than thirty (30) days after the National Petroleum Agency has approved the first Work Program.

		
	4.4
	Provided the Contractor has fulfilled all of its obligations relative to the current phase of the Exploration Period as described in Clause 7.2, the Contractor may enter the next phase. The Contractor shall provide the National Petroleum Agency with written notice of its intention to enter the next phase of the Exploration Period at least sixty (60) days prior to the end of the relevant phase. The report shall document that the work commitments for the phase are fulfilled. The Ministry may, upon application, exempt Contractor from the work obligations.

		
	4.5
	Provided the Contractor has fulfilled all of its obligations relative to the current phase of the Exploration Period as described in Clause 7.2, the Contractor may terminate this Contract at the end of any phase during the Exploration Period in accordance with Clause 20.7.

		
	4.6
	The Contractor shall have the right to produce Petroleum from each Development Area for a period of twenty (20) years from the date of the first commercial Production in the relevant Development Area (the “Production Period”). This Contract will terminate with respect to the relevant Development Area at the end of such twenty (20) year period unless the National Petroleum Agency grants an extension on application of the Contractor.  The Contractor may, for any Development Area, be granted one (1) or more five (5) year extension periods for a Development Area until all Petroleum has been economically depleted. In connection with any such extensions, the Parties agree to engage in good faith to re-negotiate the commercial terms of this Contract governing the applicable Development Area at least five (5) years prior to the expiration of the initial twenty (20) year period and at least two (2) years prior to the expiration of any subsequent extension period.

5.    COMMERCIAL DISCOVERY AND DECLARATION OF COMMERCIALITY

		
	5.1
	The sequence of Petroleum Operations to establish a Commercial Discovery of Petroleum (other than Unassociated Natural Gas) shall be as follows:

		
	(a)
	the Contractor shall have a period of up to forty-five (45) days from the date on which the drilling of the applicable Exploration Well terminates to declare whether the Exploration Well has proven a Discovery;

		
	(b)
	the Contractor shall then have a period of two (2) years (unless otherwise agreed by the National Petroleum Agency) from declaration of a Discovery to declare the Discovery, either on its own or in aggregation with other Discoveries, a 

11

Commercial Discovery, which may be extended for one (1) year, subject to the approval of the National Petroleum Agency and observance of Clauses 2.5 (pro-rata per annum) and 14.7, if the results of those activities indicate that further Appraisal is necessary;

		
	(c)
	if the Contractor declares a Commercial Discovery it shall have a period of two (2) years (unless otherwise agreed by the National Petroleum Agency) from the time the Contractor declares a Discovery or aggregation of Discoveries to be a Commercial Discovery to submit a Field Development Program to the National Petroleum Agency for approval;  

		
	(d)
	in the event a Discovery is not determined to be a Commercial Discovery, upon expiration of the period set out in Clause 5.1(b), the State may, provided it gives at least eighteen (18) months' notice, require the Contractor to promptly relinquish, without any compensation or indemnification whatsoever, the area encompassing the Discovery, including all of its rights to Petroleum which may be produced from such Discovery;

		
	(e)   
	if a Field Development Program is approved by the National Petroleum Agency, the Contractor shall initiate field development and production according to the time schedule outlined in such Field Development Program.

		
	5.2
	Unassociated Natural Gas shall be developed in accordance with Clause 23.4.

6.    RELINQUISHMENT OF AREAS

		
	6.1
	The Contractor must relinquish the Contract Area or part thereof in accordance with the following:

		
	(a) 
	twenty-five percent (25%) of the initial surface area of the Contract Area shall be relinquished at the end of Phase I of the Exploration Period; 

		
	(b) 
	a further twenty-five percent (25%) of the initial surface area of the Contract Area shall be relinquished at the end of Phase II of the Exploration Period; and

		
	(c)
	the remainder of the Contract Area shall be relinquished at the end of Phase III of the Exploration Period less:

		
	(i)
	any area which is the subject of an approved Appraisal program         pursuant to Clause 5.1(b) or any Development Area;

    
		
	(ii)
	areas for which the approval of a Field Development Program is pending, until finally decided; and

		
	(iii)
	any area reserved for a possible Unassociated Natural Gas Appraisal in relation to which the Contractor is engaged in discussions with the State in accordance with Clause 23.4.

 

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	6.2
	Any Retained Area and Relinquished Area shall be, as far as possible, single continuous units and delimited by meridians of longitude and parallels of latitude defined in the relevant coordinate reference system using degrees, minutes and seconds to the nearest whole minute to be approved by the National Petroleum Agency. In the case where the Retained Area or Relinquished Area is aligned with an international maritime boundary the international maritime boundary shall define the relevant edges of the Retained Area or Relinquished Area.

		
	6.3
	Any Relinquished Area shall revert to the State.

		
	6.4
	Subject to the Contractor's obligations under Clause 7 and its Decommissioning obligations, the Contractor may at any time notify the National Petroleum Agency upon three (3) months prior written notice that it relinquishes its rights over all or part of the Contract Area.  In no event shall any voluntary relinquishment by the Contractor over all or any part of the Contract Area reduce the Minimum Work Obligations or Minimum Financial Commitment set out in Clause 7. 

7.    MINIMUM WORK PROGRAM AND BUDGET    

		
	7.1
	Within two (2) months after the Effective Date and thereafter at least three (3) months prior to the beginning of each Calendar Year, the Contractor shall prepare and submit for the approval of the National Petroleum Agency, a Work Program and Budget for the Contract Area setting forth the Petroleum Operations which the Contractor proposes to carry out during the ensuing Year, or in case of the first Work Program and Budget, during the remainder of the current Year.

		
	7.2
	The minimum Work Program for each phase of the Exploration Period is as follows (the "Minimum Work Obligations"):

		
	(a)
	Phase I: The Contractor shall: acquire six thousand eight hundred (6,800) square kilometres (km2) 3D seismic.

		
	(b)
	Phase II: If the Contractor elects to enter Phase II, then during such Phase II of the Exploration Period the Contractor shall drill one (1) well into the Campanian/Santonian or to a total depth of five thousand, five hundred (5,500) meters sub-sea in the Contract Area.

		
	(c)
	Phase III: If the Contractor elects to enter Phase III of the Exploration Period, then during such Phase III the Contractor shall drill one (1) well.

7.3     Minimum Financial Commitments

		
	(a)
	The Contractor shall be obligated to incur the following minimum financial commitment (the "Minimum Financial Commitment"):

		
	Phase I:
	US$15,000,000 (fifteen million United States dollars) 

Phase II:    US$30,000,000 (thirty million United States dollars)
Phase III:    US$30,000,000 (thirty million United States dollars)

13

		
	(b)
	If the Contractor fulfills the Minimum Work Obligations set forth in Clause 7.2 for each phase of the Exploration Period, then the Contractor shall be deemed to have satisfied the Minimum Financial Commitments for each such phase. 

If the Contractor fails to complete the Minimum Work Obligations for any phase of the Exploration Period and such commitment has not been moved to the next phase, if any, with the consent of the National Petroleum Agency, then the Contractor shall pay to the State by deposit into the National Petroleum Account (i) the difference between the Minimum Financial Commitment for the then current phase and the amount actually expended in Petroleum Operations for such phase and (ii) two percent 2% of the Minimum Financial Commitment for the subsequent phase that is not initiated, as liquidated damages in full and final settlement of all potential claims for breach of this Contract and, notwithstanding Clause 20, this Contract shall automatically terminate. 

		
	7.4
	The Contractor shall be excused from any delay or failure to comply with the terms and conditions of Clauses 7.2 and/or 7.3:

		
	(a)
	during any period of Force Majeure; or

		
	(b)
	if the National Petroleum Agency or any other State authority denies the Contractor any required permissions to perform the Petroleum Operations which constitute Minimum Work Obligations.

		
	7.5
	The time for performing any incomplete Minimum Work Obligations for any phase of the Exploration Period and the term of this Contract shall be extended by the following periods in the circumstances set out in Clause 7.4:

		
	(a)
	with respect to Clause 7.4(a), for the period during which Force Majeure is in existence; and 

		
	(b)
	with respect to Clause 7.4(b), for six (6) months to permit the Contractor time to make a revised drilling plan or other work which is satisfactory to the National Petroleum Agency.  

		
	7.6
	If any circumstance described in Clauses 7.4 and 7.5 is not resolved within the time periods specified above, then after consultation with National Petroleum Agency, the Contractor shall be liable to pay into the National Petroleum Account an amount corresponding to the unfulfilled work for that phase and, notwithstanding Clause 20, this Contract shall automatically terminate. 

		
	7.7 
	Any unfulfilled Minimum Work Obligation in any phase of the Exploration Period may, with the written consent of the National Petroleum Agency, be added to the Minimum Work Obligation for the next succeeding phase.

		
	7.8 
	Expenditures or work by the Contractor over and above the Minimum Work Obligations or Minimum Financial Commitment for any phase shall be credited against and reduce 

14

the Minimum Work Obligations or Minimum Financial Commitments for the next succeeding phase.

		
	7.9 
	For the purposes of determining whether an Exploration Well or an Appraisal Well has been drilled in accordance with the Minimum Work Obligations, such a well shall be deemed drilled if the minimum total depth has been reached or if any one of the following events occurs prior to reaching the minimum total depth:

		
	(a)
	a Discovery is made and further drilling may cause irreparable damage to such Discovery;

(b)    basement is encountered; 

		
	(c)
	the National Petroleum Agency and the Contractor agree the well is drilled for the purpose of fulfilling the obligation to complete the Minimum Work Obligation; or

		
	(d)
	technical difficulties are encountered which, in the judgment of the Contractor and in accordance with Good Oil Field Practice, makes further drilling impracticable, uneconomic, unsafe or a danger to the environment.

		
	7.10
	The Exploration Period provided in Clause 4.2, may be extended for an additional six (6) months to conclude the drilling and testing of any well for which operations have been commenced by the end of Phase III of such period (as extended); provided that if no Commercial Discovery has been declared by the Contractor during the Exploration Period, as may be extended, this Contract shall automatically terminate. 

		
	7.11
	Performance Bond 

		
	(a)
	Within thirty (30) days from the Effective Date, the Contractor shall submit a performance bond in a form approved by the National Petroleum Agency and from a reputable international financial institution approved by the National Petroleum Agency to cover the Minimum Financial Commitment for Phase I of the Exploration Period.

		
	(b)
	Should the Contractor satisfy in full the conditions for continuing Petroleum Operations at the end of Phase I of the Exploration Period pursuant to Clause 7.2, a replacement performance bond in the same form and from a reputable international financial institution unless otherwise agreed by the National Petroleum Agency shall be submitted within thirty (30) days from the date of the extension to cover the Minimum Financial Commitment for Phase II of the Exploration Period.

		
	(c)
	Should the Contractor satisfy in full the conditions for continuing Petroleum Operations at the end of Phase II of the Exploration Period pursuant to Clause 7.2, a replacement performance bond in the same form and from a reputable international financial institution unless otherwise agreed by the National Petroleum Agency shall be submitted within thirty (30) days from the date of the 

15

extension to cover the Minimum Financial Commitment for Phase III of the Exploration Period.

		
	7.12
	The amount of a performance bond shall be reduced annually by deducting the verified expenditures the Contractor has incurred in the previous year of each phase and shall terminate at the end of each phase, if the Minimum Work Obligations or Minimum Financial Commitment for that phase has been satisfied in full.

7.13    Guarantee

Within thirty (30) days from date of execution of this Contract, the Contractor shall submit a guarantee from a parent company approved by the National Petroleum Agency in the form of Schedule 6 which shall be valid up to four (4) years after the termination of this Contract. Wherever the Contractor is formed by more than one entity, each entity shall present a parent company guarantee approved by the National Petroleum Agency in an amount equal to its participating interest share of the amount set forth in Schedule 6. The National Petroleum Agency, or the other State Entity designated to participate in this Contract, is not subject to this obligation while its participation is a carried one, in which case the remaining parties to the Contract shall guarantee the amount which will be incumbent to the former, in the proportion of their participating interests in this Contract.  

8.    STATE PARTICIPATION AND CARRY
 
		
	8.1
	The State, either through the National Petroleum Agency or any other State Entity designated by the State, shall have as of the Effective Date a carried interest of fifteen percent (15%) of the Contractor’s rights and obligations under this Contract. The Contractor shall fund, bear and pay all costs, expenses and amounts due in respect of Petroleum Operations conducted pursuant to this Contract.  

		
	8.2
	The National Petroleum Agency or other State Entity designated by the State shall become a party to the Joint Operating Agreement in respect of its carried interest referred to in Clause 8.1.

		
	8.3
	Upon the commencement of commercial Production the Contractor shall be entitled to receive one hundred percent (100%) of Cost Oil in order to recover all costs, expenses and amounts paid in respect of Petroleum Operations pursuant to Clause 8.1 and incurred on behalf of the National Petroleum Agency or other State Entity designated by the State. 

		
	8.4
	The National Petroleum Agency or other State Entity designated by the State shall be entitled to receive fifteen percent (15%) of the Contractor's entitlement to Profit Oil as provided for in Clause 10.1(d).

		
	8.5
	The National Petroleum Agency or other State Entity designated by the State shall be entitled at any time, upon advance forty-five (45) days written notice to the Contractor, to convert its carried interest into a full working participating interest.  The National 

16

Petroleum Agency or other State Entity designated by the State shall be entitled to fifteen percent (15%) of the Cost Oil to which the Contractor is entitled pursuant to Clause 10.1 (b) and (c), after Contractor has recovered outstanding cost, expense or any other amount incurred by the Contractor pursuant to Clause 8.1.

9.    RIGHTS AND OBLIGATIONS OF THE PARTIES

		
	9.1
	In accordance with this Contract, the National Petroleum Agency shall:

		
	(a)
	pursuant to Clause 14, jointly work with the Contractor’s professional staff in the fulfillment of Petroleum Operations under this Contract; 

		
	(b)
	assist and expedite the Contractor’s execution of Petroleum Operations and Work Programs including assistance in supplying or otherwise making available all necessary visas, work permits, rights of way and easements as may be reasonably requested by the Contractor. All expenses incurred by the National Petroleum Agency at the Contractor’s request in providing such assistance shall be reimbursed to the National Petroleum Agency by the Contractor in accordance with Clause 12. Such reimbursement shall be made against presentation of invoices and shall be in United States dollars. The Contractor shall include such reimbursements in the Operating Costs;

		
	(c)
	have the right to recover from the Contractor all costs which are reasonably incurred for purposes of Petroleum Operations, duly documented and previously agreed with Contractor; 

		
	(d)
	have legal title to and shall keep originals of all data and information resulting from Petroleum Operations including geological, geophysical, engineering, well logs, completion, production, operations, status reports and any other data and information as the Contractor may compile during the term of this Contract but excluding any Contractor’s Intellectual Property Rights; provided, however, that the Contractor shall be entitled to keep copies and use such data and information during the term of this Contract; and 

		
	(e)
	not exercise all or any of its rights or authority over the Contract Area in derogation of the rights of the Contractor otherwise than in accordance with the Petroleum Law.

9.2    In accordance with this Contract, the Contractor shall:

		
	(a)
	promptly pay to the State by deposit into the National Petroleum Account all fees, bonuses, and other amounts due to the State under the terms of this Contract; 

		
	(b)
	provide all necessary funds for the payment of Operating Costs including funds required to provide all materials, equipment, facilities, supplies and technical requirements (including personnel) whether purchased or leased;

17

		
	(c)
	provide such other funds for the performance of Work Programs including payments to third parties who perform services to the Contractor in the conduct of Petroleum Operations;

		
	(d)
	prepare Work Programs and Budgets and carry out approved Work Programs in accordance with Good Oil Field Practice with the objective of avoiding waste and obtaining maximum ultimate recovery of Petroleum at a minimum cost; 

		
	(e)
	exercise all the rights and comply with all the obligations under the Petroleum Law and any other applicable laws and pay the following fees to the State by deposit into the National Petroleum Account (all expressed in United States dollars):

    
	
		
	On application for the Production Period:
	$500,000

	To assign or otherwise transfer any interest during Exploration Period
	$100,000

	To assign or otherwise transfer any interest during Production Period
	$300,000

	On application to terminate this Contract:
	$100,000

	On application for the Contractor to commence drilling:
	$25,000

		
	(f)  
	ensure that all leased equipment brought into the Territory of Sao Tome and Principe for the conduct of Petroleum Operations is treated in accordance with the terms of the applicable leases;

		
	(g)
	have the right of ingress to and egress from the Contract Area and to and from facilities therein located at all times during the term of this Contract;

		
	(h)
	promptly submit to the National Petroleum Agency for permanent custody originals of all geological, geophysical, drilling, well production, operating and other data, information and reports as it or its Associates may compile during the term of this Contract;  

		
	(i)
	prepare estimated and final tax returns and submit same to the relevant tax authority on a timely basis in accordance with the Petroleum Taxation Law;

		
	(j)
	have the right to lift Available Crude Oil in accordance with the lifting agreement to be agreed by the Parties pursuant to Schedule 3 no later than nine (9) months prior to commencement of Production, and, in the event the Parties have not agreed a lifting agreement by the commencement of Production then, in accordance with the principles set forth in Schedule 3. Contractor shall have the right to freely export Available Crude Oil allocated to it under this Contract exempt from all and any customs duties, levies or charges (excluding routine administrative fees associated with export documentation and inspection of such export, if applicable), and retain abroad the Proceeds from the sale of Available Crude Oil allocated to it under this Contract;

18

		
	(k)
	in accordance with Clause 14, prepare and carry out plans and programs of the State for industry training and education of nationals of Sao Tome and Principe for all job classifications with respect to Petroleum Operations pursuant to and in accordance with the Petroleum Law;

		
	(l)
	employ only such qualified personnel as is required to conduct Petroleum Operations in accordance with Good Oil Field Practice and in a prudent and cost-effective manner giving preference to qualified nationals of Sao Tome and Principe;

		
	(m)
	give preference to such goods, material and equipment which are available in Sao Tome and Principe or services that can be rendered by nationals of Sao Tome and Principe in accordance with the Petroleum Law and this Contract; 

		
	(n)
	the Contractor and its Associates shall, as the case may be, pay all charges and fees as are imposed by law in Sao Tome and Principe.  The Contractor and its Associates shall not be treated differently from any other Persons engaged in similar petroleum operations in the Territory of Sao Tome and Principe; 

		
	(o)
	indemnify and hold the State, including the National Petroleum Agency, harmless against all losses, damages, injuries, expenses, actions of whatever kind and nature including all legal fees and expenses suffered by the State or the National Petroleum Agency where such loss, damage, injury, expense or action is caused by the Gross Negligence or Willful Misconduct of the Contractor, its Affiliates, its sub-contractors or any other Person acting on its or their behalf or any of their respective directors, officers, employees, agents or consultants; 

		
	(p)
	not exercise all or any rights or authority over the Contract Area in derogation of the rights of the State or in breach of the Petroleum Law;

		
	(q)
	in the event of any emergency requiring immediate operational action, take all actions it deems proper or advisable to protect the interests of the Parties and any other affected Persons and any costs so incurred shall be included in the Operating Costs. Prompt notification of any such action taken by the Contractor and the estimated cost shall be given to the National Petroleum Agency within forty-eight (48) hours of becoming aware of the event; and

		
	(r)
	have, as of the date of execution of this agreement, the participating interests of:

BP –         50% (fifty percent);
Kosmos –     35% (thirty-five percent).
In accordance with Clause 8, the National Petroleum Agency has a participating interest of fifteen percent (15%).

19

		
	10.
	RECOVERY OF OPERATING COSTS AND SHARING OF PETROLEUM PRODUCTION

		
	10.1
	The allocation of Available Crude Oil shall be calculated on a Contract Area basis for Royalty Oil, Cost Oil and Profit Oil. This allocation of Available Crude Oil shall be in accordance with the Accounting Procedures, the Allocation and Lifting Procedures and this Clause 10 as follows:

		
	(a)
	Royalty Oil shall be allocated to the State from the first day of Production, based on the daily total of Available Crude Oil from the Contract Area, set at a rate of 2%; 

		
	(b)
	Cost Oil shall be allocated to the Contractor in such quantum as will generate an amount of Proceeds sufficient for recovery of Operating Costs in the Contract Area. All costs will be recovered in United States dollars through Cost Oil allocation;

		
	(c)
	Cost Oil shall be not more than eighty percent (80%) of Available Crude Oil in the Contract Area after deduction of Royalty Oil in any accounting period;

		
	(d)
	Profit Oil, being the balance of Available Crude Oil after deducting Royalty Oil and Cost Oil shall be allocated to each Party based on the pre-tax, nominal rate of return calculated on a quarterly basis for the Contract Area in accordance with the following sliding scale:

	
			
	Contractor’s Rate of Return for Contract Area (% per annum)
	Government Share of Profit Oil
	Contractor Share of Profit Oil

	<19%
	0%
	100%

	>=19 %< 22%
	10%
	90%

	>=22%<26 %
	20%
	80%

	>=26%<29%
	40%
	60%

	>=29%
	50%
	50%

		
	10.2
	Beginning at the date of Commercial Discovery, Contractor’s rate of return shall be determined at the end of each Quarter on the basis of the accumulated compounded net cash flow for the Contract Area, using the following procedure:

(a)    The Contractor’s net cash flow for the Contract Area for each Quarter is:
    
		
	(i)
	The sum of Contractor’s Cost Oil and share of Contract Area Profit Oil regarding the Petroleum actually lifted in that Quarter at the Realizable Price;

		
	(ii)
	Minus Operating Costs.

20

		
	(b)
	For this computation, neither any expenditure incurred prior to the date of Commercial Discovery for the Contract Area nor any Exploration Expenditure shall be included in the computation of the Contractor’s net cash flow.

		
	(c)
	The Contractor’s net cash flows for each Quarter are compounded and accumulated for the Contract Area from the date of the Commercial Discovery according to the following formula:

ACNCF (Current Quarter) = 
(100% + DQ) x ACNCF (Previous Quarter) + NCF (Current Quarter) 100%

where:

ACNCF = accumulated compounded net cash flow
NCF = net cash flow
DQ = quarterly compound rate (in percent)

The calculation will be made using quarterly compound rates (in percent) of 4.44%, 5.09%, 5.95%, and 6.57%, which correspond to annual compound rates (“DA”) of 19%, 22%, 26%, and 29%, respectively.

		
	(d)
	The Contractor’s rate of return in any given Quarter for the Contract Area shall be deemed to be between the largest DA which yields a positive or zero ACNCF and the smallest DA which causes the ACNCF to be negative.

		
	(e)
	The sharing of Profit Oil from the Contract Area between the State and the Contractor in a given Quarter shall be in accordance with the scale in Clause 10.1(d) above using the Contractor’s deemed rate of return as per paragraph (d) in the immediately preceding Quarter.

		
	(f)
	In the Contract Area, it is possible for the Contractor’s deemed rate of return to decline as a result of negative cash flow in a Quarter with the consequence that Contractor’s share of Profit Oil from the Contract Area would increase in the subsequent Quarter.

		
	(g)
	Pending finalization of accounts, Profit Oil from the Contract Area shall be shared on the basis of provisional estimates, if necessary, of deemed rate of return as approved by the National Petroleum Agency. Adjustments shall be effected with the procedure subsequently to be adopted by the National Petroleum Agency.

		
	10.3
	The quantum of Available Crude Oil to be allocated to each Party under this Contract shall be determined at the Delivery Point. 

		
	10.4
	Each Party shall lift and dispose of its allocation of Available Crude Oil in accordance with the Allocation and Lifting Procedures. In the event of any reconciliation, the records of the National Petroleum Agency shall be the official, final and binding records.

21

		
	10.5
	Allocation of Royalty Oil and the State’s Profit Oil shall be in the form of delivery of Production of Petroleum to the National Petroleum Agency and the National Petroleum Agency or other appropriate authority shall issue receipts for such delivery within thirty (30) days of lifting such Royalty Oil and Profit Oil. These receipts are issued by the National Petroleum Agency or other appropriate authority on behalf of the Government of Sao Tome and Principe.

		
	10.6
	Any Party may, at the request of any other Party, lift such other Party’s Available Crude Oil pursuant to Clause 10.3 and the lifting Party within thirty (30) days from the end of the month in which the lifting occurred shall transfer to the account of the non-lifting Party the Proceeds of the sale to which the non-lifting Party is entitled.  Overdue payments shall bear interest at the rate of LIBOR plus two percent (2%). 

		
	10.7
	The State may sell to the Contractor all or any portion of its allocation of Available Crude Oil from the Contract Area under mutually agreed terms and conditions. 

		
	10.8 
	The Parties shall meet as and when agreed in the Allocation and Lifting Procedures to reconcile all Petroleum produced, allocated and lifted during the period in accordance with the Allocation and Lifting Procedures. 

		
	10.9 
	Notwithstanding the above, in lieu of lifting the State's Profit Oil and/or Royalty Oil, the State, upon one hundred eighty (180) days advance notice to the Operator issued by the National Petroleum Agency, may elect to receive the State’s allocation of Profit Oil and/or Royalty Oil in cash based on the Realizable Price rather than through lifting regardless of whether or not the Contractor sells the State's Profit Oil and/or Royalty Oil to a third party. If the State elects to receive cash in lieu of lifting, the Operator shall lift the State's allocation of Profit Oil and/or Royalty Oil and pay into the National Petroleum Account cash in respect of such lifting within thirty (30) days from the end of the month in which the lifting occurred. Every one hundred eighty (180) days, the State may elect to have an entity designated by the State to resume lifting the State’s allocation of Profit Oil and/or Royalty Oil upon one hundred eighty (180) days' notice to the Operator prior to the date the State elects to have an entity designated by the State to resume lifting.

11.    VALUATION OF CRUDE OIL

		
	11.1
	Unless a pre-marketing plan is agreed, and save as otherwise provided in this Contract, Crude Oil shall be valued in accordance with the following procedures:

		
	(a)
	On the attainment of commercial production of Crude Oil, each Party shall engage the services of an independent laboratory of good repute to undertake a qualitative and quantitative analysis of such Crude Oil.

		
	(b)
	A trial marketing period shall be designated which shall extend for the first six (6) month period during which a new stream is lifted or for the period of time required for the first ten (10) liftings, whichever is longer. During the trial marketing period the Parties shall:

22

		
	(i)
	collect samples of the new Crude Oil upon which the qualitative and quantitative analysis shall be performed as provided in Clause 11.1(a);

		
	(ii)
	determine the approximate quality of the new Crude Oil by estimating the yield values from refinery modeling;

		
	(iii)
	market in accordance with their entitlement to the new Crude Oil and to the extent that one Party lifts the other Party’s allocation of Available Crude Oil, payments therefor shall be made by the buyers to the Operator which will be responsible for distributing to the other Parties in accordance with their entitlement, and Cost Oil and Profit Oil and the Contractor's accounting shall reflect such revenues, in accordance with Clause 10;

		
	(iv)
	provide information to a third party who shall compile the information and maintain all individual Party information confidential with regard to the marketing of the new Crude Oil including documents which verify the sales price and terms of each lifting; and 

		
	(v)    
	apply the actual F.O.B. sales price to determine the value for each lifting   which F.O.B. sales pricing for each lifting shall continue, as the Realizable Price, after the trial marketing period until the Parties agree to a valuation of the new Crude Oil but in no event longer than ninety (90) days after conclusion of the trial marketing period.

		
	(c)     
	As soon as practicable but in any event not later than sixty (60) days after the end of the trial marketing period, the Parties shall meet to review the qualitative and quantitative analysis, yield and actual sales data. The Realizable Price shall be based on a single weighted average price for all Available Crude Oil in the month, based on the international FOB market price at the Delivery Point. It is the intent of the Parties that such price shall reflect the true market value based on arm’s length transactions for the sale of the new Crude Oil to independent parties. 

		
	(d)
	Upon the conclusion of the trial marketing period, the Parties shall be entitled to lift their allocation of Available Crude Oil pursuant to Clause 10.3 and the Allocation and Lifting Procedures.

		
	(e)
	When a new Crude Oil stream is produced from the Contract Area and is commingled with an existing Crude Oil produced which has an agreed Realizable Price basis then such basis shall be applied to the extent practicable for determining the Realizable Price of the new Crude Oil. The Parties shall meet and mutually agree on any appropriate modifications to such agreed Realizable Price, which may be required to reflect any change in the market value of the Crude Oils as a result of commingling.

		
	11.2
	If the National Petroleum Agency or the Contractor are unable to agree the valuation of Crude Oil produced in the Contract Area for a particular month, then such Party may propose its alternative valuation to the other Parties. The Parties shall then meet within thirty (30) days of such proposal and mutually agree on such valuation with or without 

23

any appropriate modifications within thirty (30) days from such meeting, failing which the issue shall be referred to a mutually agreed independent expert who shall have the appropriate international oil and gas experience and who will resolve and settle the matter in a manner as he shall in his absolute discretion think fit and the decision of the expert shall be final and binding on the Parties.  If after a period of thirty (30) days, the Parties are unable to agree on the identity of the expert, such expert shall be appointment by the International Centre for Expertise in accordance with the provisions for the appointment of experts under the Rules for Expertise of the International Chamber of Commerce. 

		
	11.3
	Segregation of Crude Oils of different quality and/or grade shall, by agreement of the Parties, take into consideration, among other things, the operational practicality of segregation and the cost benefit analysis thereof. If the Parties agree on such segregation the following provisions shall apply:

		
	(a)
	any and all provisions of this Contract concerning valuation of Crude Oil shall separately apply to each segregated Crude Oil produced; and

		
	(b)
	each grade or quality of Crude Oil produced and segregated in a given year shall contribute its proportionate share to the total quantity designated in such year as Royalty Oil, Cost Oil and Profit Oil.

    

12.    PAYMENTS

		
	12.1
	The Contractor shall make all payments to the State for which it is liable under this Contract in United States dollars or such other currency agreed between the Contractor and the National Petroleum Agency. Payments shall be made into the National Petroleum Account in accordance with the Oil Revenue Law. Where a payment is made in currency other than United States dollars, the exchange rate used to convert the United States dollars liability into that currency shall be the exchange rate published on the date of payment by the Central Bank of Sao Tome and Principe for Dobras, and the Financial Times of London for other currencies. Overdue payments shall bear interest at the annual rate of LIBOR plus two percent (2%) from the due date until the date of actual payment. 

		
	12.2
	The State shall make all payments to the Contractor for which it is liable under this Contract in United States dollars or such other currency agreed between the Contractor and the National Petroleum Agency. Where a payment is made in a currency other than United States dollars, the exchange rate used to convert the United States dollar liability into that currency shall be the exchange rate published on the date of payment by the Central Bank of Sao Tome and Principe for Dobras, and the Financial Times of London for other currencies. Overdue payments shall bear interest at the annual rate of LIBOR plus two percent (2%) from the due date until the date of actual payment.

		
	12.3
	Any payments required to be made pursuant to this Contract shall be made within twenty (20) days following the end of the month in which the obligation to make such payments is incurred. 

24

		
	12.4 
	The Contractor shall have the right to pay their subcontractors and their expatriates, in currencies they have agreed, either in Sao Tome and Principe or abroad.

13.    TITLE TO EQUIPMENT / DECOMMISSIONING

		
	13.1
	The Contractor shall finance the cost of purchasing or leasing all materials, equipment and facilities to be used in Petroleum Operations in the Contract Area pursuant to approved Work Programs and Budgets and such materials, equipment and facilities, if purchased, shall become the sole property of the State when the Contractor has recovered the cost of such materials, equipment and facilities (as the case may be) in accordance with this Contract and free of all liens and other encumbrances. Except as otherwise provided for in the Petroleum Law, the Contractor shall have the right to use, free of any additional charge, all of materials, equipment and facilities exclusively for Petroleum Operations in the Contract Area during the term of this Contract and any extensions thereof.  The State, including the National Petroleum Agency, shall have the right to use all such materials, equipment and facilities in the Contract Area during the term of this Contract and any extensions thereof and such use shall be subject to terms and conditions agreed by the Parties, provided that it is understood that Petroleum Operations in the Contract Area hereunder shall take precedence over such use by the State or the National Petroleum Agency.

 
Should the State or the National Petroleum Agency desire to use such materials, equipment and facilities outside the Contract Area, such use shall be subject to terms and conditions agreed by the Parties, provided that it is understood that Petroleum Operations in the Contract Area hereunder shall take precedence over such use by the State or the National Petroleum Agency. The Contractor shall only lease materials, equipment and facilities with the approval of the National Petroleum Agency, such approval not to be unreasonably withheld. 

		
	13.2
	The Contractor’s right to use such cost recovered purchased materials, equipment and facilities shall cease with the termination or expiration (whichever is earlier) of this Contract, including any extensions hereof.

		
	13.3
	The provisions of Clause 13.1 with respect to the title of property passing to the State shall not apply to leased equipment belonging to local or foreign third parties, and such equipment may be freely exported from the Territory of Sao Tome and Principe in accordance with the terms of the applicable lease.

		
	13.4
	Subject to Clause 13.1, all fixed assets purchased or otherwise acquired by the Contractor for the purposes of Petroleum Operations hereunder shall become the property of the State when the Contractor has recovered the cost of such materials, equipment and facilities (as the case may be) in accordance with this Contract. Upon termination of this Contract, the Contractor shall hand over possession of such fixed assets to the State in good working order and free of all liens and other encumbrances.

		
	13.5
	During the term of this Contract, any agreed sales of equipment, land, fixed assets, materials and machinery acquired for the purpose of Petroleum Operations shall be 

25

conducted by the Contractor on the basis of the procedure for sale of assets as set forth in Schedule 5, subject to the consent of the National Petroleum Agency.
		
	13.6
	Decommissioning

The expenditure for Decommissioning will be estimated on the basis of technical studies undertaken by the Contractor to be agreed by the National Petroleum Agency as part of each Field Development Program and revised as necessary.

		
	13.7
	Unless otherwise agreed with the National Petroleum Agency, the procedure for the Contractor providing funds to meet its Decommissioning obligations shall be as follows:

		
	(a)
	an amount shall be established on a Contract Area basis, commencing with effect from the fourth (4th) anniversary after the start of commercial production, on a unit of production basis as follows:

DP =        (PVDC – DF) * (P / RP), where:

		
	DP =
	Decommissioning provision for the period (millions of US dollars)

		
	PVDC =
	Present Value of Decommissioning costs (millions of US dollars)

		
	DF =
	Balance of Decommissioning fund at the start of the period (millions of US dollars)

P =        Crude Oil production in the period (millions of Barrels)
		
	RP =
	Estimated remaining recoverable Crude Oil (millions of Barrels) from the Contract Area

		
	(b)
	All Decommissioning provisions shall be held in a Decommissioning reserve fund, which shall be an interest bearing escrow account jointly established by the Parties at a first class commercial bank or other financial institution in accordance with the Petroleum Law (the “Decommissioning Reserve Fund”).  The bank or financial institution shall have a long term rating of not less than "A minus" by Standard and Poor’s Corporation or an "A3" rating by Moody’s Investor Service or a comparable rating by another mutually agreed rating service.

		
	(c)
	For the purposes of calculating the present value of Decommissioning costs, the following formula shall be used:

PVDC =     EDC / (1 + i) n, where:

PVDC =    present value of Decommissioning costs
		
	EDC = 
	estimated value of Decommissioning costs in nominal terms at the expected date of Decommissioning

		
	i = 
	interest rate applicable to the escrow account in the current period

		
	n = 
	number of Years between current period and expected date of Decommissioning

26

		
	13.8
	The Decommissioning Reserve Fund shall be used solely for the purposes of paying for Decommissioning activities. No Party may mortgage, pledge, encumber or otherwise use such Decommissioning Reserve Fund for any purpose whatsoever except as expressly provided herein or in the Petroleum Law.  The Decommissioning Reserve Fund may be invested in investments approved in advance by the Contractor and the National Petroleum Agency.

		
	13.9
	The Contractor shall annually meet any shortfall between the actual Decommissioning costs and the Decommissioning Reserve Fund for the Contract Area, such amount to be deposited into the escrow account within thirty (30) days after the end of each Calendar Year.

    
		
	13.10
	Any balance remaining in the Decommissioning Reserve Fund after all Decommissioning costs in the Contract Area have been met shall be distributed between the National Petroleum Agency and the Contractor in the same proportion as the allocation of Available Crude Oil at the time of Decommissioning operations.

		
	13.11
	Decommissioning expenditures incurred under these Decommissioning provisions are both cost recoverable as Contract Area non-capital costs under the Accounting Procedures and deductible for Tax purposes under the Petroleum Taxation Law.

14.    EMPLOYMENT AND TRAINING OF NATIONALS OF THE STATE

		
	14.1
	Each Calendar Year, the Contractor shall submit a detailed program for recruitment and training for the following Calendar Year in respect of its personnel from Sao Tome and Principe in accordance with the Petroleum Law.

		
	14.2
	Qualified nationals from Sao Tome and Principe shall be employed in all non-specialized positions.

		
	14.3
	Qualified nationals from Sao Tome and Principe shall also be employed in specialized positions such as those in exploration, drilling, engineering, production, environmental safety, legal and finance. The Contractor shall have the right, subject to applicable laws, rules and regulations, to employ non-nationals of Sao Tome and Principe in such specialized positions where qualified individuals from Sao Tome and Principe are not available, provided that the Contractor shall recruit and train nationals from Sao Tome and Principe for such specialized positions, such that the number of expatriate staff shall be kept to a minimum.

		
	14.4 
	Pursuant to Clause 9.2(k), qualified competent professionals of the National Petroleum Agency shall be assigned to work with the Contractor and such personnel and the Contractor's national personnel from Sao Tome and Principe shall not be treated differently with regard to salaries and other benefits. The Contractor and the National Petroleum Agency shall mutually agree on the numbers of National Petroleum Agency's staff to be assigned to Petroleum Operations. The costs and expenses of such National Petroleum Agency personnel shall be included in Operating Costs. The Contractor shall not be liable for any damages resulting from the Gross Negligence or Willful Misconduct of any National Petroleum Agency employees assigned to work for the Contractor. 

27

		
	14.5
	The Parties shall mutually agree on the organizational chart of the Contractor which shall include nationals of Sao Tome and Principe in key positions.

		
	14.6
	No Sao-Tomean who is employed by the Contractor shall be dismissed without the prior written approval of the National Petroleum Agency, except in the case of a serious misbehavior on the part of such employee, in which case a prior notice of the dismissal to the National Petroleum Agency will be required. For the purposes of this clause, a serious misbehavior means serious inadequate conduct of the employee which corresponds to a violation of the employee’s duties under the applicable Sao Tome and Principe labor legislation, which has been investigated and proved by documentary evidence.

		
	14.7
	The Contractor shall spend point twenty-five percent (0.25%) of the Operating Costs in each Year of the Exploration Period subject to a minimum of US$250,000 (two hundred and fifty thousand United States dollars) and a maximum of US$300,000 (three hundred thousand United States dollars) in any Calendar Year on scholarships for the training of nationals of Sao Tome and Principe at institutions to be selected by the National Petroleum Agency subject to compliance with the laws applicable to each Party and appropriate due diligence by the Parties. In connection with the review of the annual Work Program and Budgets, the National Petroleum Agency may propose additional budgets for training and the National Petroleum Agency and the Contractor shall mutually agree to such proposal.

		
	14.8
	The Contractor shall spend US$500,000 (five hundred thousand United States Dollars) in each Calendar Year during the Production Period on scholarships for the training of nationals of Sao Tome and Principe at institutions to be selected by the National Petroleum Agency subject to compliance with the laws applicable to each Party and appropriate due diligence by the Parties. In connection with the review of the annual Work Program and Budgets, the National Petroleum Agency may propose additional budgets for training and the Parties may mutually agree to such proposal.

		
	14.9
	Amounts payable under Clauses 14.7 and 14.8 shall be recoverable as Contract Area non-drilling exploration costs under the terms of the Accounting Procedures.

15.    BOOKS AND ACCOUNTS, AUDIT AND OVERHEAD CHARGES

15.1    Books and Accounts

		
	(a)
	The Contractor shall be responsible for keeping complete books of accounts consistent with Good Oil Field Practice and modern petroleum industry accounting practices and procedures. The books and accounts maintained under and in accordance with this Contract shall be kept in United States dollars. All other books of accounts as the Operator may consider necessary shall also be kept in United States dollars. Officials of the National Petroleum Agency and the 

28

Contractor shall have access to such books and accounts at all times upon reasonable notice. 

		
	(b) 
	All original books of account shall be kept at the registered address or principal place of business of the Contractor in Sao Tome and Principe.

		
	15.2
	Audits

		
	(a)
	The National Petroleum Agency shall have the right to inspect and audit the accounting records relating to this Contract or Petroleum Operations for any Calendar Year by giving thirty (30) days advance written notice to the Operator. The Operator may request additional time. The Operator shall facilitate the work of such inspection and auditing; provided, however, that such inspection and auditing shall be carried out within three (3) Calendar Years following the end of the Calendar Year in question.  If not, the books and accounts relating to such Calendar Year shall be deemed to be accepted by the Parties. Any exception must be made in writing within ninety (90) days following the end of such audit and failure to give such written notice within such time shall establish the correctness of the books and accounts by the Parties. 

		
	(b) 
	The National Petroleum Agency may undertake the inspection and audit in Clause 15.2(a) either through its own personnel or through a qualified firm of chartered accountants appointed for such purpose by the National Petroleum Agency; provided, that transportation and per diem, in accordance with Sao-Tomean legislation, are borne by the Contractor. The National Petroleum Agency’s own personnel shall be borne by the Contractor as a general administrative cost, as long as these are reasonable and are duly documented and shall be cost recoverable. Costs for the qualified firm of chartered accountants shall be borne by the National Petroleum Agency.

		
	(c) 
	Notwithstanding that the said period of three (3) Calendar Years may have expired, if the Contractor or any of its employees or any Person acting on its behalf has acted with Gross Negligence or engaged in Willful Misconduct, the National Petroleum Agency shall have the right to conduct further audit to the extent required to investigate such Gross Negligence or Willful Misconduct in respect of any earlier periods and all costs of such investigation shall be for the account of the Contractor and shall not be cost recoverable. 

15.3    Materials

The Contractor shall maintain physical and accounting controls of all materials and equipment in stock in accordance with Good Oil Field Practice. The Contractor shall make a total inventory at least once in a Calendar Year and shall give the National Petroleum Agency four (4) weeks’ advance written notice prior to the taking of such inventory. The National Petroleum Agency and/or its external auditors shall be entitled to observe such inventory taking.  The National Petroleum Agency may also carry out a 

29

partial or total check of such inventories at its own expense, whenever it considers it necessary, provided such exercise does not unreasonably disrupt Petroleum Operations.

		
	15.4
	Home Office Overhead Charges

The Contractor shall include the following percentages of total annual recoverable expenditures as overhead charges in calculating total Operating Costs.

	
		
	Expenditure Tranche (USD million)
	% of Recoverable expenditures

	< 200
	1.00%

	the next 200   OR >200 and<400
	0.75%

	the next 100 OR >400 and<500
	0.50%

	≥ 500
	0.00%

    

16.    TAXES AND CUSTOMS

		
	16.1
	Tax

The Contractor shall be subject to Tax on income derived from Petroleum Operations in accordance with the Petroleum Taxation Law.  Such Tax shall be payable by the Contractor in accordance with the Petroleum Taxation Law, except as otherwise provided in this Contract.

		
	16.2
	The Realizable Price established in accordance with Clause 11 shall be used in determining the amount of profits of a Contractor Party and its resulting Tax liability under the Petroleum Taxation Law.

		
	16.3
	Customs

In accordance with the Petroleum Law, the Contractor, in its own name or in the name of its sub-contractors or other Persons acting on its or their behalf, are entitled to import and export all goods, materials and equipment destined exclusively and directly for the execution of Petroleum Operations.  Such goods, materials and equipment shall be exempt from all and any customs duties, notwithstanding the terms and conditions set out in the Petroleum Law or other applicable laws and regulations. 

17.    INSURANCE

		
	17.1
	The Contractor shall obtain and maintain such insurance as is customarily obtained in accordance with Good Oil Field Practice with respect to Petroleum Operations with an insurance company of good repute approved by the National Petroleum Agency, in the names of the Parties and with limits of liability not less than those required in accordance with Good Oil Field Practice. The premium for such policies shall be included in Operating Costs. All policies shall name the National Petroleum Agency as a co-insured 

30

with a waiver of subrogation rights in favor of the Contractor.  Without prejudice to the generality of the foregoing, such insurance may cover:

(a)    any loss or damage to all assets used in Petroleum Operations;

		
	(b)
	pollution caused in the course of Petroleum Operations for which the Contractor or the Operator may be held responsible;

		
	(c)
	property loss or damage or bodily injury suffered by any third party in the course of Petroleum Operations for which the Contractor, the Operator, the State or the National Petroleum Agency may be held liable;

		
	(d)
	the cost of removing wrecks and cleaning up operations following an accident in course of Petroleum Operations; and

		
	(e)
	the Contractor's and/or the Operator's liability to its employees and other persons engaged in Petroleum Operations.

		
	17.2
	In case of any loss or damage to property, all amounts paid by an insurance company shall be received by the Contractor for the conduct of Petroleum Operations. The Contractor shall determine whether the lost or damaged property should be repaired replaced or abandoned. If the decision is to repair or replace the property in question, the Contractor shall immediately take steps to replace or repair such lost or damaged property. Any excess cost of repair or replacement above the amount reimbursed by the insurance company shall be regarded as an Operating Cost. If the cost of repair is less than the amount reimbursed by the insurance company, the difference shall be deducted from Operating Costs.  If the decision is to neither repair nor replace then the proceeds of any coverage shall be credited to Operating Costs. In the event that the loss or damage is attributable to the Contractor’s Gross Negligence or Willful Misconduct, the excess cost of replacement or repair shall not be reimbursed as an Operating Cost.

		
	17.3
	The Contractor shall obtain and maintain an insurance policy covering damage caused to third parties as provided in Clause 17.1(c) as a direct or indirect result of Petroleum Operations under this Contract.

		
	17.4
	All insurance policies obtained and maintained pursuant to this Clause 17 shall be based upon Good Oil Field Practice and shall be taken out in Sao Tome and Principe, except for those concerning risks for which the Contractor cannot obtain local coverage with an insurance company holding a long term rating not inferior to A minus by Standard and Poor’s Corporation or an A3 rating by Moody’s Investor Service or an equivalent rating by any other mutually agreed rating service, in which case it shall be taken out outside of the Territory of Sao Tome and Principe.

		
	17.5
	In entering into contracts with any sub-contractor or other Person for the performance of Petroleum Operations, the Contractor shall require, whenever reasonably practicable, such sub-contractor or other Person to take out adequate insurance in accordance with this Clause 17 and to properly indemnify the State and its organs and agencies and the 

31

Contractor for any damage done and to fully indemnify and hold the State and its organs and agencies and the Contractor harmless against claims from any third parties.

		
	17.6
	The Contactor shall also maintain all other insurance policies required under the laws of Sao Tome and Principe.

18.    CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

		
	18.1
	Subject to Clauses 18.4 and 18.5, the Contractor and the National Petroleum Agency shall keep information furnished to each other in connection with Petroleum Operations and all plans, maps, drawings, designs, data, scientific, technical and financial reports and other data and information of any kind or nature relating to Petroleum Operations including any discovery of Petroleum as strictly confidential and shall ensure that their entire or partial contents shall under no circumstances be disclosed in any announcement to the public or to any third party without the prior written consent of the other.  With regard to data about aspects of geology, reservoir engineering or production engineering, reports or other material submitted to public authorities, the confidentiality obligations shall have the duration specified in Clause 18.3.  

The provisions of this Clause 18 shall not apply to disclosure to:

		
	(a)
	Affiliates;

		
	(b)
	sub-contractors, auditors, financial consultants or legal advisers, provided that such disclosures are required for the effective performances of the aforementioned recipients’ duties related to Petroleum Operations and provided further that they are under a similar undertaking of confidentiality as that contained in this Clause 18;

		
	(c)
	comply with statutory obligation or the requirements of any governmental agency or the rules of a stock exchange on which a Party’s or its Affiliates’ stock is publicly traded in which case the disclosing Party will notify the other Party of any information so disclosed prior to such disclosure;

		
	(d)
	financial institutions involved in the provision of finance for the Petroleum Operations hereunder provided, in all such cases, that the recipients of such data and information agree in writing to keep such data and information strictly confidential; 

		
	(e)
	a bona fide third party purchaser provided that such third party executes an undertaking similar to the undertaking contained in this Clause 18 to keep the information disclosed to it strictly confidential; and

		
	(f)
	in accordance with and as required by the Oil Revenue Law.

		
	18.2
	The Parties shall take necessary measures in order to make their directors, officers, employees, agents and representatives comply with the same obligation of confidentiality provided for in this Clause 18.

32

		
	18.3
	The provisions of this Clause 18 shall terminate five (5) years after the termination or expiration of this Contract. 

		
	18.4
	Subject to Clause 18.1(c), the Contractor shall use best endeavors to ensure that it, its Affiliates and Associates and each of their respective directors, officers, servants, employees and agents shall not make any reference in public or publish any notes in newspapers, periodicals or books nor divulge, by any other means whatsoever, any information on the activities under the Petroleum Operations, or any reports, data or any facts and documents that may come to their knowledge by virtue of this Contract, without the prior written consent of the National Petroleum Agency. 

		
	18.5
	No announcement of a Discovery or Commercial Discovery may be made by the Contractor otherwise than in accordance with this Clause 18 and unless and until the Government has made a prior announcement of such Discovery or Commercial Discovery in the national and international media.

19.    ASSIGNMENT

		
	19.1
	Subject to Clause 19.5, the Contractor may not sell, assign, transfer, encumber, convey or otherwise dispose of part or all of its rights, interest and/or obligations under this Contract to any third party without the prior written consent of the National Petroleum Agency.  

		
	19.2
	All changes in Control of a Contractor Party shall be subject to the prior approval of the Government.  Where a change in Control occurs without the prior approval of the Government, the Government may terminate this Contract in respect of such Contractor Party.  This Clause 19.2 does not apply if the change of Control is the direct result of an acquisition of shares or other securities of a publicly traded company on a recognized stock exchange.  Change of Control includes a Person ceasing to be Controlled (whether or not another Person becomes in Control), and a Person obtaining Control (whether or not another Person was in Control).

		
	19.3
	When an assignment, transfer or other disposition of any rights under this Contract, other than a transfer pursuant to Clause 19.5, is anticipated, the assigning Contractor Party must notify in writing the National Petroleum Agency as soon as practicable. The Government, acting through the National Petroleum Agency or other nominee, shall then have the right to purchase the assigning Contractor Party's interest under this Contract proposed to be assigned, transferred or otherwise disposed of on the same terms and conditions as those offered to a bona fide transferee provided that it gives notice to the Contractor Party of its decision  to  exercise  such right within thirty (30) days of the Contractor Party’s notice pursuant to the first sentence above. This right is in addition to any right of pre-emption granted under an applicable Joint Operating Agreement.

		
	19.4
	If the written consent by the National Petroleum Agency is granted, the assigning Contractor Party shall be relieved of its obligation and liabilities under this Contract to 

33

the extent that the assignee or transferee accepts the assumption of such obligations and liabilities under this Contract.  

		
	19.5
	The Contractor may sell, assign, transfer, convey or otherwise dispose of part or all of its rights and interest under this Contract to an Affiliate with a prior written notice to the National Petroleum Agency, provided that the relevant Contractor Party and the Affiliate shall remain jointly and severally liable for all obligations and liabilities under this Contract notwithstanding such assignment, transfer, conveyance or other disposal.  If the Affiliate shall cease at any time to be an Affiliate of the transferring Contractor Party, the Affiliate shall immediately re-assign or re-transfer to the original Contractor Party all rights and obligations transferred to it under this Contract.  Transfers of interests to an Affiliate of a Contractor Party shall not change the nationality of the Contractor Party for the purpose of determining jurisdiction of any arbitration tribunal.

		
	19.6
	Any request for consent pursuant to Clause 19.1 made by the Contractor to the National Petroleum Agency shall include the assignment agreement and other relevant information relating to financial and corporate standing of the assignee, and its capability to contribute to the Petroleum Operations under this Contract as required under the Petroleum Law.

20.    TERMINATION

		
	20.1
	The State, by decision of the Government, shall be entitled to terminate this Contract with the Contractor (or in respect of any Party making up the Contractor) if any of the following events occur:

		
	(a)
	the Contractor defaults in the performance of any of its material obligations set forth in Clause 9;  

		
	(b)  
	the Contractor fails to execute the Minimum Work Obligations;

 
		
	(c)
	the Contractor assigns, transfers, conveys, encumbers or other disposes of its rights, interests and/or obligations under this Contract otherwise than in accordance with Clause 19 and/or the Petroleum Law; 

		
	(d)
	the Contractor is adjudged insolvent or bankrupt by a court of competent jurisdiction or acknowledges or claims that it is unable to pay its debts or makes an application for bankruptcy protection that is not discharged within thirty (30) days; 

		
	(e)
	the Contractor ceases to carry on its business as carried on at the date of this Contract or liquidates or terminates its corporate existence;

		
	(f)
	the warranties made by the Contractor under Clause 24 are found to have been untrue when made;

		
	(g)  
	the Contractor fails to make any payment to the State when due;  

34

		
	(h)  
	the Contractor fails to submit the performance bond or guarantee when due;

		
	(i)
	the Contractor fails to initiate field development and production in accordance to the time schedule outlined in the approved Field Development Program (Clause 5.1 (e)), except if that occurs for acceptable and duly demonstrated reasons; or if, after production of Petroleum is initiated in the Contract Area, production of Petroleum ceases for a period of more than four (4) months for causes which are not acceptable, not attributable to Force Majeure or without the consent of the National Petroleum Agency; and

		
	(j)
	the events provided for in the articles 34, 35 or 36 of the Petroleum Law.

		
	20.2
	If the cause for termination is an event specified in Clause 20.1(a), (b), (f), (g), (h), (i) and/or (j) above, the National Petroleum Agency shall give written notice thereof to the Contractor requiring it to remedy such default within a period not more than thirty (30) days of receipt of the National Petroleum Agency’s notice or such additional days as the National Petroleum Agency deems appropriate in the circumstances in its sole discretion. If upon the expiration of the said period such default has not been remedied or removed, the Government may, by written notice issued by the National Petroleum Agency to the Contractor, declare this Contract terminated.

		
	20.3
	Termination for any of the events specified in Clause 20.1(c), (d) and/or (e) above, shall be with immediate effect and the Government may, by written notice to the Contractor issued by the National Petroleum Agency, declare this Contract terminated. Termination as to one Contractor Party shall not constitute termination as to the other Contractor Party(ies).

		
	20.4
	Where this Contract is terminated with respect to only one Contractor Party, the State shall have the option to assume the interests, rights and obligations of such defaulting Contractor Party under this Contract.   If the State elects not to exercise this option, the interests, rights and obligations shall be assigned to the remaining Contractor Parties who shall be liable jointly and severally.

		
	20.5
	In the event that any other Contractor Party(ies) fail to meet any and all liabilities of the terminated Contractor Party as provided in Clause 20.4, the State reserves the right to terminate this Contract, in respect of all other Contractor Parties upon written notice. 

		
	20.6
	Without prejudice to all other rights of the State, the Contractor shall upon the termination of this Contract permit inspection, copying and auditing of its accounts and records for the Petroleum Operations by the National Petroleum Agency and/or its agents.

    
		
	20.7
	The Contractor shall have the right, at its sole discretion, to relinquish its rights and to terminate this Contract without further obligations or liabilities, upon completion of the stipulated Minimum Work Obligations and Minimum Financial Commitment at the end of any phase of the Exploration Period, upon giving a thirty (30) day advance notice to the National Petroleum Agency.  This Clause 20.7 shall not release the Contractor from any unfulfilled obligations incurred prior to the termination of this Contract nor from 

35

any liabilities arising from acts or omissions taking place prior to the termination of this Contract. 

		
	20.8
	This Contract shall automatically terminate if no Commercial Discovery is made in the Contract Area at the end of Exploration Period, as extended. 

21.    FORCE MAJEURE

		
	21.1
	Any failure or delay on the part of any Party in the performance of its obligations or duties (other than the obligation to pay money) under this Contract shall be excused to the extent attributable to Force Majeure. A Force Majeure situation includes delays, defaults or inability to perform under this Contract due to any event beyond the reasonable control of the Party claiming Force Majeure. Such event may be, but is not limited to, any act, event, happening or occurrence due to natural causes and acts or perils of navigation, fire, hostilities, war (whether declared or undeclared), blockade, labor disturbances, strikes riots, insurrection, civil commotion, quarantine restrictions, epidemics, storms, floods, earthquakes, accidents, blowouts and lightning.

		
	21.2
	If Petroleum Operations are delayed, curtailed or prevented by an event of Force Majeure, then the time for carrying out the obligation and duties thereby affected, and rights and obligations hereunder, shall be extended for a period equal to the period of such delay. 

		
	21.3
	The Party who is unable to perform its obligations as a result of the Force Majeure shall promptly notify the other Parties not later than five (5) days after the establishment of the commencement of the event of Force Majeure, stating the cause, and the Parties shall do all that is reasonably within their powers to remove such cause.

		
	21.4
	The Contractor’s failure or inability to find Petroleum in commercial quantities for reasons other than as specified in Clause 21.1 shall not be deemed an event of Force Majeure.

22.    LAWS AND REGULATIONS

		
	22.1
	This Contract shall be governed by and construed in accordance with the laws of the Democratic Republic of Sao Tome and Principe.

		
	22.2
	Subject to Clause 25.8 and to the principles of public international law, no term of this Contract shall prevent or limit the State from exercising its sovereign rights. 

23.    NATURAL GAS

		
	23.1
	If the Contractor discovers a commercially viable quantity of Natural Gas, the Contractor shall have the right to develop, commercialize, recover the costs and share in the profits of a development of such Natural Gas under this Contract on terms to be mutually agreed. Such terms when agreed shall become an integral part of this Contract. 

36

		
	23.2
	Notwithstanding Clause 23.1, the Contractor may utilize, at no cost, Natural Gas required as fuel for Petroleum Operations such as gas recycling, gas injection, gas lift or any other Crude Oil enhancing recovery schemes, stimulation of wells necessary for maximum Crude Oil recovery in the field discovered and developed by the Contractor and such usage shall be with prior written consent of the National Petroleum Agency, which consent shall not be unreasonably withheld. This shall be included in a Field Development Program.

		
	23.3
	The attainment of recovery of Crude Oil through an efficient, economic and technically acceptable method shall always be paramount in all decisions regarding Associated Natural Gas. However, prior to the commencement of Production of Crude Oil from the Contract Area, the Contractor shall submit to the National Petroleum Agency, a program for the utilization of any Associated Natural Gas that has been discovered in the Contract Area, which shall be subject to the approval of the National Petroleum Agency.

		
	23.4
	If the Contractor discovers sufficient volumes of Unassociated Natural Gas that could justify commercial development, the Contractor shall immediately report the volume of potentially recoverable Natural Gas to the National Petroleum Agency and shall promptly investigate and submit proposals to the National Petroleum Agency for the commercial development of such Natural Gas taking in consideration local strategic needs as may be identified by the National Petroleum Agency, within two (2) years of the date of the relevant discovery. Any cost in respect of such proposals or investigation presented by the Contractor to the National Petroleum Agency shall be included in Operating Costs. The Contractor and the National Petroleum Agency will determine the plan and time needed, which shall be no more than five (5) years, unless otherwise agreed by the National Petroleum Agency, to progress a commercial development project, which shall include the terms for recovery of Operating Costs and sharing of Natural Gas production, which terms when agreed shall form an integral part of this Contract. If the Contractor fails to justify a commercial development within the agreed timeframe and if the National Petroleum Agency determines that a sufficient volume of Unassociated Natural Gas exists, the National Petroleum Agency shall have the right to propose to the Contractor a commercial development of such Natural Gas. The Contractor shall have the right to participate in the commercial development under terms pursuant to Clause 23.1. If the Contractor declines to participate in the commercial development of such Natural Gas as presented by the National Petroleum Agency and if the Field Development Program does not hinder or jeopardize current Petroleum Operations, the National Petroleum Agency may develop the Natural Gas in the manner presented to the Contractor.

24.    REPRESENTATIONS AND WARRANTIES

		
	24.1
	In consideration of the State entering into this Contract, the Contractor hereby represents and warrants to the State as follows:

37

		
	(a)
	The Contractor has the power to enter into and perform this Contract and has taken all necessary action to execute, deliver and perform this Contract in accordance with the terms herein contained.

		
	(b)
	The execution, delivery and performance of this Contract by the Contractor will not contravene, any of the provisions of:

		
	(i)
	any law or regulations or order of any governmental authority, agency or court applicable to or by which the Contractor may be bound; and 

		
	(ii)
	any mortgage, contract or other undertaking or instrument to which the Contractor is a party or which is binding upon it or any of its respective revenues or assets.

		
	(c)
	Full disclosure has been made to the National Petroleum Agency.

		
	(d)
	As of the Effective Date all facts in relation to the Contractor and its financial condition and affairs as are material and ought properly to be made known to the National Petroleum Agency and have been made so known in full.

		
	(e)
	The Contractor, together with its Affiliates, has sufficient funds both in foreign and local currencies to carry out Petroleum Operations under this Contract.

		
	(f)
	The representations and warranties set out in this Clause 24 shall remain in full force and effect for the duration of this Contract. 

		
	24.2
	In consideration of the Contractor entering into this Contract, the State hereby represents and warrants to the Contractor as follows:

The State warrants the Contract Area that is the subject matter of this Contract is within the territorial jurisdiction of the Democratic Republic of Sao Tome and Principe.

25.    CONCILIATION AND ARBITRATION  

		
	25.1
	Should there be a difference or dispute between the Parties concerning the interpretation or performance of this Contract (a "Dispute") such that the Dispute cannot be resolved by mutual agreement, the Parties may refer the matter to an independent expert for an opinion to assist the Parties in reaching a mutual agreement. 

		
	25.2
	Where an independent expert is used, the National Petroleum Agency and the Contractor shall furnish the expert with all written information which he may reasonably require. The cost of the services of the expert, if appointed, shall be shared equally between the National Petroleum Agency and each Contractor Party. 

		
	25.3
	If the Dispute cannot be settled by amicable agreement or through an independent expert or if a Party does not agree to the use of an independent expert, then either the National Petroleum Agency or the Contractor may serve on the other a demand for arbitration in 

38

accordance with this Clause 25.  The procedures set forth in this Clause 25 shall be the exclusive procedures for arbitration of any and all Disputes arising under or involving the interpretation of this Contract.  No other arbitration tribunal under any other procedure, agreement or international treaty shall have jurisdiction over such disputes between the Parties.  

		
	25.4
	If the relevant Parties have not reached a mutual agreement after three (3) months of the date of a notice of a Dispute by one Party to another, unless the Parties to the Dispute mutually agree to an extension, any Party to the Dispute may refer the Dispute for resolution by final and binding arbitration to the International Centre for the Settlement of Investment Disputes (the "Centre" or “ICSID”) established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, done at Washington, March 18, 1965 (the "ICSID Convention");  to the Additional Facility of the Centre, if the Centre is not available; or in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), if neither the Centre nor the Additional Facility are available.

25.5    Seat and Language of Arbitration

The seat of the arbitration shall be Geneva, Switzerland. The languages of the arbitration proceedings, and of all orders, decisions, and the award, shall be Portuguese and English.  

25.6    Number and Identity of Arbitrators

The arbitral tribunal shall be constituted by three (3) arbitrators selected according to the following procedure:

		
	(i)
	The claimant and the respondent shall, within thirty (30) days from the day on which a request for arbitration has been submitted, appoint an arbitrator each (and if there is more than one claimant or more than one (1) respondent, then the claimants and/or the respondents collectively shall each appoint a single arbitrator), by giving notice in writing of such appointment to the Secretary-General of ICSID and the other Party or Parties to the Dispute. 

		
	(ii)
	If either the claimant or the respondent fails to comply with the time limit in the preceding paragraph, the Chairman of the Administrative Council of ICSID shall appoint the arbitrator or arbitrators that have not yet been appointed, at the request of either the claimant or the respondent and after consulting the claimant and the respondent as far as possible.  The Chairman of the Administrative Council of ICSID shall give notice in writing of such appointment or appointments to the Secretary-General of ICSID and the claimant and the respondent.

		
	(iii)
	The two (2) arbitrators so appointed shall, within thirty (30) days of their appointment, agree upon the person to be appointed as the President of the tribunal, and give notice of such appointment to the Secretary-General of ICSID and the claimant and the respondent.

39

		
	(iv)
	If the two (2) arbitrators fail to agree upon the person to be the President of the tribunal, the Chairman of the Administrative Council of ICSID shall appoint the President, at the request of either the claimant or the respondent, and after consulting the claimant and the respondent as far as possible.  The Chairman of the Administrative Council of ICSID shall give notice in writing of such appointment to the Secretary-General of ICSID and the claimant and the respondent.

		
	(v)
	None of the arbitrators shall be a citizen of the countries of any of the Parties to the Dispute (or in the case where the Party is a company or another entity, any country or countries of nationality of such Party, including the country of its ultimate parent).

25.7    Rules of Arbitration

The arbitration procedures initiated under this Contract shall operate under the arbitration rules in effect for ICSID, the Additional Facility or UNCITRAL, as the case may be, at the time of the filing of the request for arbitration, which rules are deemed to be incorporated herein by reference in this Clause 25.

25.8    Binding Nature of Arbitration

The arbitration award shall be final and binding on the Parties and shall be immediately enforceable, notwithstanding the remedies provided for in the ICSID Convention and Arbitration Rules, in the Arbitration Rules of the Additional Facility of the Centre, or in the UNCITRAL Arbitration Rules, as appropriate.  The Parties waive any right to refer any question of law, and any right of appeal on the law and/or merits to any court.  It is expressly agreed that the arbitrators shall have no authority to award aggravated, exemplary or punitive damages. The Parties acknowledge that the rights and obligations hereunder are imminently of a commercial nature. The Parties waive any defense grounded on sovereign immunity regarding the validity of this arbitration clause or any decision issued in the arbitration. 

25.9    Costs of Arbitration

The costs of arbitration shall be charged in accordance with the directions of the arbitration tribunal, failing which they shall be borne equally by the Parties to the Dispute. The costs of the Parties comprising the Contactor shall not be recoverable.

25.10    Payment of Awards

Any monetary award issued shall be expressed and payable in United States dollars.

40

26.    EFFECTIVE DATE

		
	26.1
	This Contract shall come into force on the date (the “Effective Date”) of the instrument of ratification executed by the Prime-Minister on behalf of the Government. Record of such ratification shall be annexed to this Contract as proof of the Effective Date. 

  
		
	26.2
	Failure by the Contractor to meet its obligation to pay the signature bonus in accordance with the terms of Clause 2.1 shall mean that this Contract shall be null and void.

27.    REVIEW / RE-NEGOTIATION OF CONTRACT AND FISCAL TERMS

		
	27.1
	The Parties agree that the commercial terms and conditions of this Contract have been negotiated and agreed having due regard to the existing fiscal terms in accordance with the provisions of the Petroleum Law and the Petroleum Taxation Law in force at the time of the Effective Date. If such fiscal terms are materially changed to the detriment of the Contractor, the Parties agree to review the terms and conditions of this Contract affected by such changes and to align such terms and conditions with the fiscal terms as at the Effective Date.

		
	27.2
	If at any time or from time to time, there is a change in legislation or regulations, or a change to the interpretation of such legislation or regulations, which materially affect the commercial benefit afforded to the Contractor under this Contract, the Parties will consult each other and shall agree to such amendments to this Contract as are necessary to restore as near as practicable such commercial benefits which existed under this Contract as of the Effective Date. 

		
	27.3
	Where the parties cannot agree on new terms within one hundred and twenty (120) days of the Contractor’s request for review of the terms and conditions of the Contract affected by the changes, the matter may be submitted to arbitration pursuant to Clause 25.

28.    OPERATOR

		
	28.1
	BP is hereby designated as the Operator under this Contract to execute, for and on behalf of the Contractor, all Petroleum Operations in the Contract Area pursuant to and in accordance with this Contract and the Petroleum Law. 

		
	28.2
	The Operator, for and on behalf of the Contractor, shall have the exclusive control and administration of Petroleum Operations under this Contract.  The Operator, for and on behalf of the Contractor, and within the limits defined by the National Petroleum Agency, this Contract and the Petroleum Law, shall have the authority to execute all contracts, incur expenses, make commitments, and implement other actions in connection with the Petroleum Operations.

41

29.    CONFLICT OF INTERESTS

		
	29.1
	Each Party represents and warrants that it did not engage any person, firm or company as a commission agent for purposes of this Contract and that it has not given or offered to give nor will it give or offer to give to or to accept from (directly or indirectly) any person any bribe, gift, gratuity, commission or other thing of significant value, as an inducement or reward for doing or forbearing to do any action or take any decision in relation to this Contract, or for showing or forbearing to show favor or disfavor to any person in relation thereto.

		
	29.2
	The Contractor further represents and warrants that no loan, reward, offer, advantage or benefit of any kind has been given to any public official or any person for the benefit of such public official or person or third parties, as consideration for an act or omission by such public official in connection with the performance of such person's duties or functions or to induce such public official to use his or her position to influence any act or decisions of the Administration with respect to this Contract.  Any breach of this representation shall cause this Contract to be declared invalid and voidable by the State Administration.

30.    NOTICES

		
	30.1
	Any notice or other communication required to be given by a Party to another shall be in writing (in Portuguese and English) and shall be considered as duly delivered if given by hand delivery in person, by courier or by facsimile at the following addresses:

Agência Nacional do Petróleo de São Tomé e Príncipe (ANP-STP)
Avenida Nações Unidas, 225
C.P.1048
Sao Tome, Sao Tome and Principe

Attention: Executive Director
Fax: +239-226937
            Tel: +239-226940

THE CONTRACTOR

BP Exploration (STP) Limited
Chertsey Road
Sunbury-on-Thames
Middlesex TW16 7LN
United Kingdom

Attention: Vice President, African New Ventures and General Manager, BP Exploration (STP) Limited

42

Kosmos Energy Sao Tome and Principe
c/o Circumference (Cayman)
P.O. Box 32322
4th floor, Century Yard
Cricket Square
Elgin Avenue
George Town
Grand Cayman, KY1, 1209

Attention: General Counsel
Fax: +1 214 445 9705

		
	30.2
	All notices and other communications shall be deemed to have been duly delivered upon actual receipt by the intended recipient.

		
	30.3.
	Each Party shall notify the other promptly of any change in the above address.

31.    LIABILITY    

Where the Contractor is comprised of more than one Party, the liabilities and obligations of such Parties under this Contact shall be joint and several.

32.    MISCELLANEOUS

		
	32.1
	No supplement or modification of any provision of this Contract shall be binding unless executed in writing by all Parties.

		
	32.2
	No waiver by any Party of any breach of a provision of this Contract shall be binding unless made expressly in writing.  Any such waiver shall relate only to the breach to which it expressly relates and shall not apply to any subsequent or other breach.

		
	32.3
	The validity and effectiveness of this Contract shall be subject to the full compliance with all applicable administrative procedural rules relating to State contracting.

		
	32.4
	This Contract is prepared and filed in the Portuguese and English languages. In case of non-conformity, the Portuguese language version shall prevail.

		
	32.5
	This Contract shall be made public and a copy hereof shall be provided to the Public Registration and Information Office within ten (10) days from its execution. 

43

IN WITNESS WHEREOF the Parties have caused this Contract to be executed the day and year first above written.

SIGNED AND DELIVERED for and on behalf of:
THE STATE represented by the
AGÊNCIA NACIONAL DO PETRÓLEO DE SÃO TOMÉ E PRÍNCIPE 

By: /s/ Orlando Sousa Pontes

Name: Orlando Sousa Pontes

Designation: Executive Director

In the presence of:

Name: Alvaro Silva

Signature: /s/ Alvaro Silva

Designation: Legal and Economic Director

SIGNED AND DELIVERED for and on behalf of:
BP EXPLORATION (STP) LIMITED

By: /s/ I. J. Evans

Name: I. J. Evans

Designation: VP Africa New Ventures

In the presence of:

Name: P. D. Garforth-Bles

Signature: /s/ P. D. Garforth-Bles

Designation: Solicitor

44

SIGNED AND DELIVERED for and on behalf of:
KOSMOS ENERGY SAO TOME AND PRINCIPE

By: /s/ John W. Cappon

Name: John W. Cappon

Designation: VP and Country Manager

In the presence of:

Name: Alissa Eason

Signature: /s/ Alissa Eason

Designation: VP Legal

45

SCHEDULE 1

CONTRACT AREA 
Block 10

Coordinate Reference System

The coordinate reference system (CRS) shall be defined as WGS 84 / UTM zone 32N (EPSG code 32632).

The Well Know Text (WKT) for WGS 84 / UTM zone 32N (EPSG code 32632) is as follows –

PROJCRS["WGS 84 / UTM zone 32N",
  BASEGEODCRS["WGS 84",
    DATUM["World Geodetic System 1984",
      ELLIPSOID["WGS 84",6378137,298.257223563,LENGTHUNIT["metre",1.0]]]],
  CONVERSION["UTM zone 32N",
    METHOD["Transverse Mercator",ID["EPSG",9807]],
    PARAMETER["Latitude of natural origin",0,ANGLEUNIT["degree",0.01745329252]],
    PARAMETER["Longitude of natural origin",9,ANGLEUNIT["degree",0.01745329252]],
    PARAMETER["Scale factor at natural origin",0.9996,SCALEUNIT["unity",1.0]],
    PARAMETER["False easting",500000,LENGTHUNIT["metre",1.0]],
    PARAMETER["False northing",0,LENGTHUNIT["metre",1.0]]],
  CS[cartesian,2],
    AXIS["easting (E)",east,ORDER[1]],
    AXIS["northing (N)",north,ORDER[2]],
    LENGTHUNIT["metre",1.0],
  ID["EPSG",32632]]

Boundary Definition

The boundary turning/corner points shall be defined by geographic coordinates (latitude and longitude) in the defined CRS.

The lines between the turning/corner points shall be defined on the ellipsoid as a projected curve including parallels (line of equal latitude), meridians (line of equal longitude) and geodesic (shortest distance on the ellipsoid).

46

Boundary Turning/Corner Point Coordinates

	
							
	Block 10

	WGS 84 / UTM zone 32N (EPSG code 32632)

	Point
	DMS Latitude
	DMS Longitude
	DD Latitude
	DD Longitude
	Easting (X)
	Northing (Y)

	1
	01° 10' 00.000"N
	06° 40' 00.000"E
	1.1666666667
	6.6666666667
	240,339.676
	129,059.597

	2
	01° 10' 00.000"N
	06° 52' 45.967"E
	1.1666666667
	6.8794352778
	264,028.631
	129,040.841

	3
	01° 10' 00.000"N
	07° 03' 14.854"E
	1.1666666667
	7.0541261111
	283,475.668
	129,026.784

	4
	01° 10' 00.000"N
	07° 13' 01.000"E
	1.1666666667
	7.2169444444
	301,599.199
	129,014.771

	5
	01° 10' 00.000"N
	07° 22' 30.099"E
	1.1666666667
	7.3750275000
	319,194.095
	129,004.114

	6
	01° 10' 00.000"N
	07° 30' 00.000"E
	1.1666666667
	7.5000000000
	333,102.747
	128,996.389

	7
	01° 10' 00.000"N
	07° 40' 00.000"E
	1.1666666667
	7.6666666667
	351,650.464
	128,987.049

	8
	01° 00' 00.000"N
	07° 40' 00.000"E
	1.0000000000
	7.6666666667
	351,642.355
	110,560.290

	9
	00° 52' 06.901"N
	07° 40' 00.000"E
	0.8685836111
	7.6666666667
	351,636.841
	96,030.833

	10
	00° 45' 47.831"N
	07° 40' 00.000"E
	0.7632863889
	7.6666666667
	351,632.983
	84,389.130

	11
	00° 40' 00.000"N
	07° 40' 00.000"E
	0.6666666667
	7.6666666667
	351,629.880
	73,706.820

	12
	00° 40' 00.000"N
	07° 33' 42.659"E
	0.6666666667
	7.5618497222
	339,963.727
	73,710.104

	13
	00° 40' 00.000"N
	07° 26' 13.388"E
	0.6666666667
	7.4370522222
	326,073.027
	73,714.338

	14
	00° 40' 00.000"N
	07° 20' 00.000"E
	0.6666666667
	7.3333333333
	314,527.871
	73,718.125

	15
	00° 40' 00.000"N
	07° 14' 27.448"E
	0.6666666667
	7.2409577778
	304,244.850
	73,721.703

	16
	00° 40' 00.000"N
	07° 08' 28.088"E
	0.6666666667
	7.1411355556
	293,132.307
	73,725.786

	17
	00° 40' 00.000"N
	07° 00' 00.000"E
	0.6666666667
	7.0000000000
	277,419.540
	73,731.945

	18
	00° 35' 26.807"N
	07° 00' 00.000"E
	0.5907797222
	7.0000000000
	277,416.324
	65,339.001

	19
	00° 30' 00.000"N
	07° 00' 00.000"E
	0.5000000000
	7.0000000000
	277,412.986
	55,298.949

	20
	00° 30' 00.000"N
	06° 50' 00.000"E
	0.5000000000
	6.8333333333
	258,855.507
	55,304.840

	21
	00° 30' 00.000"N
	06° 40' 00.000"E
	0.5000000000
	6.6666666667
	240,295.972
	55,311.204

	22
	00° 40' 00.000"N
	06° 40' 00.000"E
	0.6666666667
	6.6666666667
	240,303.620
	73,748.284

	23
	00° 50' 00.000"N
	06° 40' 00.000"E
	0.8333333333
	6.6666666667
	240,313.454
	92,185.374

	24
	00° 58' 06.768"N
	06° 40' 00.000"E
	0.9685466667
	6.6666666667
	240,323.037
	107,143.027

	25
	01° 05' 04.382"N
	06° 40' 00.000"E
	1.0845505556
	6.6666666667
	240,332.405
	119,975.688

	1
	01° 10' 00.000"N
	06° 40' 00.000"E
	1.1666666667
	6.6666666667
	240,339.676
	129,059.597

	DMS – Degrees, Minutes and Seconds and DD – Decimal Degrees

47

Map (for purposes of illustration only)

48

SCHEDULE 2

ACCOUNTING PROCEDURES

1.    GENERAL PROVISIONS

1.1    Definitions

These Accounting Procedures attached to and forming a part of the Contract are to be followed and observed in the performance of the Parties’ obligations thereunder. The defined terms appearing herein shall have the same meaning as is ascribed to them in the Contract.

1.2    Accounts and Statements

The Contractor’s accounting records and books shall be kept as provided under Clause 15 of the Contract in accordance with generally accepted and internationally recognized accounting standards, consistent with modern petroleum industry practices and procedures and in accordance with Good Oil Field Practice. 

		
	1.3
	In the event of a conflict between the terms of these Accounting Procedures and the Contract, the terms of the Contract shall apply.

		
	1.4
	These Accounting Procedures may be amended from time to time by the mutual agreement of the Parties.

2.    Operating Costs

		
	2.1
	Operating Costs shall be defined as all costs, expenses paid and obligations incurred in carrying out Petroleum Operations and shall consist of:

(a)    Contract Area Non-capital Costs;
(b)    Contract Area Capital Costs;
(c)    Contract Area Non-Drilling Exploration Costs; and
(d)    Contract Area Unsuccessful Exploration and Appraisal Costs.

Operating Costs shall be recorded separately for each Development Area and calculated on the basis of the Contract Area.

49

2.2    Contract Area Non-capital Costs
    
Contract Area Non-capital Costs means those Operating Costs incurred that are chargeable to the current year’s operations. Contract Area Non-capital Costs include the following:

		
	(a)
	General office expenses - office, services and general administration services pertaining to Petroleum Operations including services of legal, financial, purchasing, insurance, accounting, computer, and personnel department; communications, transportation, rental of specialized equipment, scholarships, charitable contributions and educational awards.

		
	(b)
	Labor and related costs - salaries and wages, including bonuses, of employees of the Contractor who are directly engaged in the conduct of Petroleum Operations, whether temporarily or permanently assigned, irrespective of the location of such employee including the costs of employee benefits, customary allowance and personal expenses incurred under the Contractor’s practice and policy, and amounts imposed by applicable governmental authorities which are applicable to such employees.

These costs and expenses shall include:

		
	(i)
	cost of established plans for employee group life insurance, hospitalization, pension, retirement, savings and other benefit plans;

		
	(ii)
	cost of holidays, vacations, sickness and disability benefits;

		
	(iii)
	cost of living, housing and other customary allowances;

		
	(iv) 
	reasonable personal expenses, which are reimbursable under the Contractor's standard personnel policies;

(v)    obligations imposed by governmental authorities;

		
	(vi)
	cost of transportation of employees, other than as provided in paragraph (c) below, as required in the conduct of Petroleum Operations; and

		
	(vii)
	charges in respect of employees temporarily engaged in Petroleum Operations, which shall be calculated to reflect the actual costs thereto during the period or periods of such engagement.

		
	(c)
	Employee relocation costs - costs for relocation, transportation and transfer of employees of the Contractor engaged in Petroleum Operations including the cost of freight and passenger service of such employees’ families and their personal and household effects together with meals, hotel and other expenditures related to such transfer incurred with respect to:

50

		
	(i)
	employees of the Contractor within Sao Tome and Principe including expatriate employees engaged in Petroleum Operations;

		
	(ii)
	transfer to Sao Tome and Principe for engagement in Petroleum Operations;

		
	(iii)
	relocation costs and other expenses incurred in the final repatriation or transfer of the Contractor's expatriate employees and families in the case of such employees’ retirement, or separation from the Contractor, or in case of such employees’ relocation to the Contractor’s point of origin, provided that relocation costs incurred in moving an expatriate employee and his family beyond point of origin, established at the time of his transfer to Sao Tome and Principe, will not be recoverable as Operating Costs; and

		
	(iv)
	Sao-Tomean employees on training assignments outside the Contract Area.

		
	(d)
	Services provided by third parties - cost of professional, technical, consultation, utilities and other services procured from third party sources pursuant to any contract or other arrangements between such third parties and the Contractor for the purpose of Petroleum Operations.

		
	(e)
	Legal expenses - all costs or expenses of handling, investigating, asserting, defending and settling litigation or claims arising out of or relating to Petroleum Operations or necessary to protect or recover property used in Petroleum Operations including, but not limited to, legal fees, court costs, arbitration costs, cost of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation, arbitration or claims in accordance with the provisions hereof.

		
	(f)
	Head office overhead charge – parent company overhead in the amount specified in Clause 15.4 of the Contract.

		
	(g)
	Insurance premiums and settlements - premiums paid for insurance normally required to be carried for the Petroleum Operations together with all expenditures incurred and paid in settlement of any and all losses, claims, damages, judgments, and other expenses, including fees and deductibles relating to the Contractor's performance under the Contract.

		
	(h)
	Duties and taxes - all duties and taxes, fees and any Government assessments, including gas flare charges, license fees, custom duties, other than Royalty and Tax.

		
	(i)
	Operating expenses - labor, materials and services used in day to day oil well operations, oil field production facilities operations, secondary recovery 

51

operations, storage, transportation, delivering and marketing operations; and other operating activities, including repairs, well workovers, maintenance and related leasing or rental of all materials, equipment and supplies.

		
	(j)
	Successful Exploration drilling - all expenditures incurred in connection with the drilling of any Exploration Well which results in a Commercial Discovery.

		
	(k)
	Successful Appraisal drilling – all expenditures incurred in connection with the drilling of Appraisal Wells on a Commercial Discovery.

		
	(l)
	Unsuccessful Development drilling - all expenditures incurred in connection with drilling of development wells which are dry, including costs incurred in respect of casing, well cement and well fixtures. 

		
	(m)
	Successful Development drilling - all intangible expenditures incurred in connection with labor, fuel, repairs, maintenance, hauling, and supplies and materials (not including, casing and other well fixtures) which are for or incidental to drilling, cleaning, deepening or completion wells or the preparation thereof incurred in respect of:

		
	(i)
	determination of well locations, geological, geophysical, topographical and geographical surveys for site evaluation preparatory to drilling including the determination of near surface and near sea bed hazards;

		
	(ii)
	cleaning, draining and leveling land, road-building and the laying of foundations;

		
	(iii)
	drilling, shooting, testing and cleaning wells; and

		
	(iv)
	erection of rigs and tankage assembly and installation of pipelines and other plant and equipment required in the preparation or drilling of wells producing Crude Oil.

		
	(n)
	Decommissioning provisions - any deposits in the Decommissioning Reserve Fund set aside for the purposes of Decommissioning pursuant to Clause 13 of the Contract.

		
	(o)
	Affiliate services – professional, administrative, scientific and technical services provided by Affiliates of the Contractor for the direct benefit of Petroleum Operations including services provided by the Exploration, Production, legal, financial, purchasing, insurance, accounting and computer services departments of such Affiliates.  Charges for providing these services shall reflect costs only, and must be consistent with international market practices and shall not include any element of profit.

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	(p)
	Pre-production Contract Area Non-capital Costs – all recoverable Contract Area Non-capital Costs incurred before first production from the Contract Area are accumulated and treated as if they had been incurred on the first day of production from the Contract Area.

		
	2.3
	Contract Area Capital Costs

Contract Area Capital Costs mean those Operating Costs incurred that are subject to depreciation. Contract Area Capital Costs includes the following:

		
	(a)
	Plant expenditures – expenditures in connection with the design, construction, and installation of plant facilities (including machinery, fixtures, and appurtenances) associated with the production, treating, and processing of Crude Oil (except such costs properly allocable to intangible drilling costs) including offshore platforms, secondary or enhanced recovery systems, gas injection, water disposal, expenditures for equipment, machinery and fixtures purchased to conduct Petroleum Operations such as office furniture and fixtures, office equipment, barges, floating crafts, automotive equipment, petroleum operational aircraft, construction equipment, miscellaneous equipment.

		
	(b)
	Pipeline and storage expenditure - expenditures in connection with the design, installation, and construction of pipeline, transportation, storage, and terminal facilities associated with Petroleum Operations including tanks, metering, and export lines.

		
	(c)
	Building expenditure - expenditures incurred in connection with the construction of buildings, structures or works of a permanent nature including workshops, warehouses, offices, roads, wharves, furniture and fixtures related to employee housing and recreational facilities and other tangible property incidental to construction.

		
	(d)
	Successful Development drilling - all tangible expenditures incurred in connection with drilling development wells such as casing, tubing, surface and sub-surface production equipment, flow lines and instruments.

		
	(e)
	Material inventory - cost of materials purchased and maintained as inventory items solely for Petroleum Operations subject to the following provisions:

		
	(i)
	the Contractor shall supply or purchase any materials required for the Petroleum Operations, including those required in the foreseeable future. Inventory stock levels shall take account of the time necessary to provide the replacement, emergency needs and similar considerations;

		
	(ii)
	materials purchased by the Contractor for use in the Petroleum Operations shall be valued so as to include invoice price (less prepayment discounts, cash discounts, and other discounts if any) plus freight and forwarding 

53

charges between point of supply and point of destination but not included in the invoice price, inspection costs, insurance, custom fees and taxes, on imported materials required for the Contract;

		
	(iii)
	materials not available in Sao Tome and Principe supplied by the Contractor or from its Affiliates stocks shall be valued at the current competitive cost in the international market; and 

		
	(iv)
	the Contractor shall maintain physical and accounting controls of materials in stock in accordance with Good Oil Field Practice. The Contractor shall make a total inventory at least once a year to be observed by the National Petroleum Agency and its external auditors. The National Petroleum Agency may however carry out partial or total inventories at its own expense, whenever it considers necessary, provided such exercise does not unreasonably disrupt Petroleum Operations.

		
	(f)
	Pre-production Contract Area Capital Costs – all recoverable Contract Area Capital Costs incurred before first production from the Contract Area are accumulated and treated as if they had been incurred on the first day of production from the Contract Area.

2.4    Contract Area Non-Drilling Exploration Costs

Contract Area Non-Drilling Exploration Costs mean those Operating Costs incurred anywhere in the Contract Area on Exploration or related activity not directly connected with the drilling of an Exploration Well. Contract Area Non-Drilling Exploration Costs are chargeable to the current year’s operations and may be added to the Operating Costs of the Contract Area. Contract Area Non-Drilling Exploration Costs include the following:

		
	(a)
	Geological and geophysical surveys - labor, materials and services used in aerial, geological, topographical, geophysical and seismic surveys incurred in connection with Exploration excluding however the purchase of data from the National Petroleum Agency.

		
	(b)
	Pre-Contract seismic costs – reasonable costs associated with the acquisition of seismic data covering the Contract Area, including third party processing but not interpretation of the data by the Contractor or its Affiliates, which were incurred prior to the Effective Date.

(c)    Annual scholarship payments as described under Clause 14 of the Contract.

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2.5    Contract Area Unsuccessful Exploration and Appraisal Costs

Contract Area Unsuccessful Exploration and Appraisal Costs mean those Operating Costs incurred anywhere in the Contract Area in connection with the drilling of any Exploration Well or Appraisal Well in the Contract Area which does not result in a Commercial Discovery. Contract Area Unsuccessful Exploration and Appraisal Costs are subject to depreciation over a five (5) year period in equal installments of twenty percent (20%) per annum or the remaining life of the Contract Area whichever is less, commencing with production. Unsuccessful Exploration and Appraisal Costs in any period shall be allocated to the Operating Costs of the Contract Area, subject to the following restrictions: 

		
	(a)
	to the extent that the Contract Area has Available Cost Oil after recovering the Operating Costs (other than Unsuccessful Exploration and Appraisal Costs) related to that Contract Area; and

		
	(b)
	if there is insufficient Available Cost Oil in the Contract Area in any period to fully recover Unsuccessful Exploration and Appraisal costs the unrecovered amount may be carried forward and included in the next period’s Unsuccessful Exploration and Appraisal costs account.

2.6    Non-Recoverable Costs

The following costs are not recoverable as Operating Costs:

		
	(a)
	bonuses and expenditure incurred by the Contractor in carrying out any obligation to fund social projects as defined in Clause 2 of the Contract;

		
	(b)
	interest incurred under loans taken to finance Petroleum Operations from either inter-Affiliate loans or loans from third parties; and

		
	(c)
	costs incurred in excess of five percent (5%) above costs budgeted for in a Work Program and Budget, unless such costs are approved in advance by the National Petroleum Agency, which shall not be denied in cases where costs reflect fair market conditions or are technically supported.  

3.    Computation of Royalty and Tax

		
	3.1
	The Contractor shall compute the amount of Royalty and Tax payable to the State pursuant to and in accordance with the Contract. Such amounts shall be computed in the manner 

55

set forth in the Petroleum Law, the Petroleum Taxation Law and the provisions hereof as stated in Article 4 of this Schedule 2.  

		
	3.2
	The Contractor shall compute the Royalty to be paid to the State in a given month based on the Realizable Price of the Crude Oil produced during the second preceding month. Tax payments shall be calculated and remitted in accordance with the Petroleum Taxation Law.

4.    Accounting Analyses

		
	4.1
	The Contractor and the National Petroleum Agency shall agree within three (3) months on a format for monthly accounting analysis reflecting the volumes lifted in terms of Royalty Oil, Cost Oil, and Profit Oil, and Proceeds received by each Party.

		
	4.2
	The Realizable Price and the quantities actually lifted by the Parties shall be used to compute the Proceeds as reflected in the agreed monthly accounting analysis format in Article 4.1 above and the allocation of such Proceeds in the categories described under Clause 10 of the Contract shall be reflected.

		
	4.3
	The allocation of the quantity of Available Crude Oil to each Party pursuant to Clause 10 of the Contract shall be according to and governed by provisions of the Allocation and Lifting Procedures.

		
	4.4
	The priority of allocation of the total Proceeds for each period shall be as follows:

		
	(a)
	Royalty Oil;

		
	(b)
	Cost Oil; and

		
	(c)
	Profit Oil.

		
	4.5
	The amount chargeable to and recoverable as Royalty Oil, and Cost Oil shall be determined as follows:

		
	(a)
	Royalty Oil - The sum of royalties payable during such month.

		
	(b)
	Cost Oil - The Operating Costs applicable to such month for the purposes of Cost Oil are as follows:

		
	(i)
	Contract Area Non-Capital Costs shall be the amount recorded in the books and accounts of the Contractor for such month in accordance with these Accounting Procedures and shall be recoverable in full in the period incurred.

		
	(ii)
	Contract Area Capital Costs shall be the amount recorded in the books and accounts of the Contractor for such month in accordance with these Accounting Procedures and shall be recoverable over the depreciation period as provided in Article 6.1 below or the remaining life of the Contract, whichever is less.

56

		
	(iii)
	Contract Area Non-Drilling Exploration Costs shall be the amount recorded in the books and accounts of the Contractor for such month in accordance with these Accounting Procedures and shall be recoverable in full in the period incurred.

		
	(iv)
	Contract Area Unsuccessful Exploration and Appraisal Costs shall be the amount recorded in the books and accounts of the Contractor for such month in accordance with these Accounting Procedures and shall be recoverable over the depreciation period of five (5) years in equal installments of twenty percent (20%) per annum or the remaining life of the Contract Area, whichever is less, commencing with production from the Contract Area which costs are allocated to the Contract Area in accordance with Article 2.5 of this Schedule 2.

		
	(c)
	Any carryover from previous months as provided under Article 4.6 of this Schedule 2.

		
	4.6
	Any amounts chargeable and recoverable in excess of the allocation of Proceeds for the month to Royalty Oil and Cost Oil shall be carried forward to subsequent months. Carryovers shall be determined as follows:

		
	(a)
	A Royalty Oil carryover results when the Proceeds for such month are insufficient for allocation of the Royalty Oil due for the month, as described in Clause 10 of the Contract.

		
	(b)
	A Cost Oil carryover results when the Proceeds remaining, after allocating a portion of the Proceeds to Royalty Oil, are insufficient for allocation of Cost Oil due for the month, as described in Clause 10 of the Contract.

		
	4.7
	Profit Oil is available where Proceeds remain after allocations to Royalty Oil and Cost Oil pursuant to Articles 4.5 and 4.6 above. Profit Oil shall be allocated as described in Clause 10 of the Contract.

5.     Other Provisions

		
	5.1
	The Contractor shall open and keep bank accounts in United States dollars where all funds remitted from abroad shall be deposited for the purpose of meeting local expenditures. For purposes of keeping the books of accounts, any foreign currency remitted by the Contractor shall be converted at the monthly exchange rates published on the date of payment by the Central Bank of Sao Tome and Principe for Dobras, and the Financial Times of London for other currencies. The Contractor shall have the right to convert any currency into United States dollars and transfer any funds irrespective of currency into or outside of Sao Tome and Principe, free of any tax imposed by the State. It is understood that commercial banks may apply routine charges or fees on such transactions. 

		
	5.2
	The Contractor shall prepare financial accounting and budget statements in accordance with the National Petroleum Agency’s prescribed reporting format.

57

		
	5.3
	With respect to any agreed sum arising out of the Contract owing between the Parties that is past due, any set-off pursuant to Clause 12 of the Contract shall be exercised by giving the other Party written notice thereof accompanied by sufficient description of the offsetting sums to allow the Parties to properly account thereof.

    
The Contractor shall report on the cumulative production in the Contract Area in a format to be agreed with the National Petroleum Agency.

6.    Depreciation Schedule

		
	6.1
	Any Operating Costs, which are to be depreciated, shall be depreciated according to the following schedule:

	
		
	Year
	Depreciation Rate (%)

	1
	20%

	2
	20%

	3
	20%

	4
	20%

	5
	20%

58

SCHEDULE 3

ALLOCATION AND LIFTING PROCEDURES 

59

		
	1.
	If Crude Oil is to be produced from the Contract Area, the Parties shall, in good faith and not fewer than twelve (12) months before the commencement of Production, as promptly notified by the Operator, negotiate and agree the terms of a lifting agreement based on the 2001 version of the AIPN Model Lifting Agreement to cover the offtake of Available Crude Oil produced under the Contract. Consistent with the Field Development Program and subject to terms of the Contract, the lifting agreement shall make provision for:

		
	i)
	The Delivery Point;

		
	ii)
	Operator’s regular periodic advice to the Parties of estimates of Available Crude Oil for succeeding periods, quantities of each type and/or grade of Crude Oil forecast to be produced consistent with the projected production schedule approved as part of the approved Work Program and each Party’s entitlement for as far ahead as is necessary for Operator and the Parties to plan lifting arrangements, taking into account each such Party’s entitlement at the beginning of, and scheduled liftings during, each period.  Such advice shall also cover, for each type and/or grade of Crude Oil, the Available Crude Oil and deliveries for the preceding period, and overlifts and underlifts;

		
	iii)
	Nomination by the Parties to Operator of acceptance of their entitlements for the succeeding period, with such nominations in any one period being for each Party’s entire entitlement during that period, subject to overlifting limits, underlifting limits, operational tolerances and minimum economic cargo sizes or as the Parties may otherwise agree;

		
	iv)
	Timely mitigation of the effects of overlifts and underlifts;

		
	v)
	If offshore loading or a shore terminal for vessel loading is involved, vetting procedures relating to risks regarding tankers and procedures for demurrage and (if applicable) availability of berths;

		
	vi)
	Procedures to make available to each Party its nominated quantities of each type and grade of Crude Oil, and to ensure that each Party takes delivery as it is made available in each period of its respective entitlement of grades, gravities and qualities of Crude Oil from the Contract Area;

		
	vii)
	To the extent that distribution of entitlements on such basis is impracticable due to availability of facilities and minimum cargo sizes, a method of making periodic adjustments; and

		
	viii)
	The right of the other Parties to sell an entitlement that a Party fails to nominate for acceptance under paragraph (iii) above or of which a Party fails to take delivery, in accordance with applicable agreed procedures, provided that such failure either breaches Operator’s, or such Party’s, obligations under the Contract, or is likely to result in the curtailment or shut-in of production.  Such sales shall be made only to the limited extent necessary to avoid disruption in Petroleum Operations.  Operator shall give all Parties as much notice as is practicable of such situation and that a right of sale option has arisen.  Any sale shall be of the un-nominated or undelivered entitlement (as applicable) and for reasonable periods of time (in 

60

no event to exceed twelve (12) Calendar Months).  Payment terms for production sold under this option shall be established in the lifting agreement.
		
	2.
	If a lifting agreement has not been agreed before the commencement of Production, the Operator shall act as lifting coordinator and the Parties shall be obligated to take and separately dispose of their entitlement to such Crude Oil (taking overlifts and underlifts into account) and in addition shall be bound by the principles set forth in this Schedule 3 until a lifting agreement is agreed by the Parties.

    

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SCHEDULE 4

PROCUREMENT AND PROJECT IMPLEMENTATION PROCEDURES

1.    Application

		
	1.1
	These Procurement Procedures form part of the Contract and shall be followed and observed in the performance of a Party’s obligations under the Contract.

		
	1.2
	These Procurement Procedures shall be applicable to all contracts and purchase orders whose values exceed the respective limits set forth in Article 1.5 below and which, pursuant thereto, require the prior approval of the National Petroleum Agency.

		
	1.3
	In the event of a conflict between the terms of these Procurement Procedures and the Contract, the terms of the Contract shall prevail.

		
	1.4
	These Procurement Procedures may be amended from time to time by the mutual agreement of the Parties.

		
	1.5
	The Contractor shall have the authority to enter into any contract or place any purchase order in its own name for the performance of services or the procurement of facilities, equipment, materials or supplies, provided that:

		
	(a)
	prior approval of the National Petroleum Agency shall be obtained for all foreign contracts and foreign purchase orders awarded to third parties where the cost exceeds $2,000,000 or in another currency equivalent during the Exploration Period and $3,000,000 or in another currency equivalent during the Production Period;   

		
	(b)
	prior approval of the National Petroleum Agency shall be obtained for all local contracts and purchase orders where the cost exceeds $1,000,000 or in other currency equivalent in utilization at the location of the contract or purchase; 

		
	(c)
	the amount set forth in paragraphs (a), (b) and (h) of this Article 1.5 will be reviewed by the  Parties whenever it becomes apparent to a Party that such limits create unreasonable constraints on Petroleum Operations or are no longer appropriate. In the event of a significant change in the exchange rate of local currencies to United States dollars compared to that which existed on the Effective Date, the Parties shall review the limits set forth in paragraphs (a), (b) and (h) of this Article 1.5;

		
	(d)
	such contracts shall be entered into and such purchase orders shall be placed with third parties, which in the Contractor’s opinion are technically and financially able to properly perform their obligations;

62

		
	(e)
	procedures customary in the oil industry for securing best total value shall be utilized at all times;

		
	(f)
	the Contractor shall give preferences to sub-contractors that are companies organized under the laws of Sao Tome and Principe to the maximum extent possible and in accordance with the Petroleum Law;

		
	(g)
	the Contractor shall give preference to such goods which are manufactured or produced in Sao Tome and Principe or services rendered by nationals of Sao Tome and Principe in accordance with the Petroleum Law; and

		
	(h)
	the above limits and these procedures shall not apply to purchases made for warehouse replenishment stock not exceeding $1,500,000 or in another currency equivalent nor shall they apply to the purchase of tubulars of less than $1,500,000 or in another currency equivalent made in furtherance of planned drilling programs. Where there are United States dollars and other currency components of such purchases the total shall not exceed the equivalent of $1,500,000.

2.    Project Implementation Procedure

		
	2.1
	The Contractor, realizing the need for a project or contract to which these Procurement Procedures apply pursuant to Article 1.5, shall introduce it as part of the proposed Work Program and Budgets to be developed and submitted by the Contractor to the National Petroleum Agency pursuant to Clause 7 of the Contract.

		
	(a)
	The Contractor shall provide full information with respect to a project including the following:

(i)    a clear definition of the necessity and objectives of the project;

		
	(ii)
	the scope of the project; and

(iii)     the cost estimate thereof.

		
	(b)
	The Contractor shall transmit the project proposal along with the relevant related documentation to the National Petroleum Agency for consideration.

		
	(c)
	The National Petroleum Agency shall consider the proposal and the recommendation of the Contractor and whether to proceed with the Contractor’s proposal. If the National Petroleum Agency does not object to the project or any part thereof within thirty (30) days of the submission of the project, the project as proposed by the Contractor shall be deemed to have been approved.

		
	2.2
	The project as approved pursuant to Article 2.1 shall form part of the Work Program and Budget for Petroleum Operations. Such approval shall also constitute all authorizations by the National Petroleum Agency to the Contractor to initiate contracts and purchase 

63

orders relevant to the project proposal, subject to the provisions of Articles 1.5 and 3 of this Schedule 4.

		
	2.3
	The resources for the project design, supervision, and management shall first be drawn from the Contractor’s available in-house expertise. If the National Petroleum Agency approves the foregoing under the approved budget for the project it may be performed by the Contractor. Competent Sao-Tomean engineering and design companies shall be given priority over other third parties by the Contractor for such projects in accordance with the Petroleum Law. Staff of the National Petroleum Agency who shall be seconded pursuant to Clause 14 of the Contract shall be fully involved in the project design, supervision and management.

		
	2.4
	After approval of the project and its budget, the Contractor shall prepare and transmit to the National Petroleum Agency complete details of the project including the following:

(a)    project definition;

		
	(b)
	project specification;    

(c)    flow diagrams;

		
	(d)
	projects implementation schedule showing all phases of the project including engineering design, material and equipment procurement, inspection, transportation, fabrication, construction, installation, testing and commissioning;

(e)    major equipment specifications;

		
	(f)
	cost estimate of the project;

(g)    an activity status report; and

		
	(h)
	copies of all approved authorization for expenditure (AFEs).

3.    Contract Tender Procedure

		
	3.1
	The following tender procedure shall apply to works contracts and contracts for the supply of services and supply contracts not directly undertaken by the Contractor or an Affiliate:

		
	(a)
	The Contractor shall maintain a list of approved sub-contractors for the purpose of contracts for Petroleum Operations, (the "Approved Contractors’ List"). The National Petroleum Agency shall have the right to nominate sub-contractors to be included in and excluded, for good cause, from the list. The National Petroleum Agency and the Contractor shall be responsible for pre-qualifying any sub-contractor to be included in the Approved Contractors’ List.

64

		
	(b)
	Sub-contractors included in the Approved Contractors’ List shall be both local and/or overseas sub-contractors and entities.  Where required by law, they shall be registered with the National Petroleum Agency.

		
	(c)
	When a contract is to be bid, the Contractor shall present a list of proposed bidders to the National Petroleum Agency for concurrence not less than fifteen (15) working days before the issuance of invitations to bid to prospective sub-contractors. The National Petroleum Agency may propose additional names to be included in and excluded, for good cause, from the list of proposed bidders. Contract specifications shall be in Portuguese and/or English and in a recognized format used in the international petroleum industry.

		
	(d)
	If the National Petroleum Agency has not responded within fifteen (15) working days from the date of the official receipt following the presentation of the list of proposed bidders as aforesaid, the list shall be deemed to have been approved.

		
	3.2
	The Contractor shall, for contracts above the limits set forth in Article 1.5, establish a Tender Committee who shall be responsible for pre-qualifying bidders, sending out bid invitations, receiving and evaluating bids and determining successful bidders to whom contracts shall be awarded.

		
	3.3
	Before a contract is signed, the Contractor shall send analysis and recommendations of bids received and opened by the Tender Committee to the National Petroleum Agency for approval within thirty (30) days from the date of the official receipt. Approval of the Contractor’s recommendations shall be deemed to have been given if the National Petroleum Agency has not responded within such period.

		
	3.4
	Prospective vendors and/or sub-contractors for work estimated in excess of $2,000,000 for the Exploration Period and $3,000,000 for the Production Period or their equivalent shall submit the commercial summary of their bids to the Contractor in two (2) properly sealed envelopes, one addressed to the Contractor and one addressed to the National Petroleum Agency. The Contractor shall retain one and send one to the National Petroleum Agency properly enveloped, sealed and addressed to National Petroleum Agency, together with the recommendation provided for in Article 3.3.

		
	3.5
	In all cases, the Contractor shall make full disclosure to the National Petroleum Agency of its relationship, if any, with any sub-contractors.

		
	3.6
	These Procurement Procedures may be waived and the Contractor may negotiate directly with a sub-contractor:

		
	(a)
	in emergency situations provided that it promptly informs the National Petroleum Agency of the outcome of such negotiations; and

		
	(b)
	in work requiring unusually specialized skills or when special circumstances warrant, upon the approval of the National Petroleum Agency, which approval shall not be unreasonably withheld. 

    

65

4.    General Conditions of Contracts

		
	4.1
	The payment terms, to the extent viable, shall provide that:

		
	(a)
	Contractor is required to include in the services contracts, terms and condition  that guarantees the appropriate security for the sub-contractor’s performance, including but not limited to for example, industry standard warranties, retention fees or other guarantees; and 

		
	(b)
	a provision shall be made for appropriate withholding tax as may be applicable.

		
	4.2
	The governing law of all agreements signed with sub-contractors shall be, to the extent feasible, Sao-Tomean law. 

		
	4.3
	Sao-Tomean law shall apply to all sub-contractors performing work in the Territory of Sao Tome and Principe. In as far as practicable, they shall use Sao-Tomean resources both human and material in accordance with the Petroleum Law. 

		
	4.4
	Each contract shall provide for early termination where necessary and the Contractor shall use all reasonable endeavors to obtain a termination provision with minimal penalty.

		
	4.5
	Sub-contractors shall provide, in the case of a foreign sub-contractor, that the local part of the work, in all cases, shall be performed by the sub-contractor’s local subsidiary whenever possible. 

5.    Materials and Equipment Procurement

		
	5.1
	The Contractor may, through itself or its Affiliates, procure materials and equipment subject to conditions set forth in this Article 5 and these Procurement Procedures. 

		
	5.2
	The provisions of this Article 5 shall not apply to lump sum or turnkey contracts/projects.

		
	5.3
	In ordering the equipment or materials, the Contractor shall obtain from vendors / manufacturers such rebates and discounts and such warranties and guarantees that such discounts, guarantees and all other grants and responsibilities shall be for the benefit of Petroleum Operations.

		
	5.4
	The Contractor shall:

		
	(a)
	by means of established policies and procedures ensure that its procurement efforts provide the best total value, with proper consideration of safety, quality, services, price, delivery and Operating Costs to the benefit of Petroleum Operations;

		
	(b)
	maintain appropriate records, which shall be kept up to date, clearly documenting procurement activities;

		
	(c)
	provide quarterly and annual inventory of materials and equipment in stock;

66

		
	(d)
	provide a quarterly listing of excess materials and equipment in its stock list to the National Petroleum Agency; and

		
	(e)
	check the excess materials and equipment listings from other companies operating in the Territory of Sao Tome and Principe, to identify materials available in the country prior to initiating any foreign purchase order.

		
	5.5
	The Contractor shall initiate and maintain policies and practices, which provide a competitive environment and climate amongst local and overseas suppliers. Competitive quotation processes shall be employed for all local procurement where the estimated value exceeds the equivalent of $1,000,000 as follows:

		
	(a)
	fabrication, wherever practicable shall be done locally. To this effect, the Petroleum Operations recognize and shall accommodate local offers at a premium not exceeding ten percent (10%); and

		
	(b)
	subject to Article 3.1, the Contractor shall give preferences to Sao-Tomean indigenous sub-contractors in the award of contracts. Contracts within the agreed financial limit of the Contractor shall be awarded to only competent Sao-Tomean indigenous sub-contractors possessing the required skill/capability for the execution of such contracts and the Contractor shall notify the National Petroleum Agency accordingly.

		
	5.6
	Analysis and recommendation of competitive quotations of a value exceeding the limits established in Article 1.5 shall be transmitted to the National Petroleum Agency for approval before a purchase order is issued to the selected vendor/manufacturer. Approval shall be deemed to have been given if a response has not been received from the National Petroleum Agency within thirty (30) days of receipt by the National Petroleum Agency of the said analysis and recommendations.

		
	5.7
	Pre-inspection of rig, equipment and stock materials of reasonable value shall be jointly carried out at the factory site and/or quay before shipment at the request of either Party.

6.    Project Monitoring

		
	6.1
	The Contractor shall provide a project report to the National Petroleum Agency.

		
	6.2
	For major projects exceeding $5,000,000 or its equivalent, the Contractor shall provide to the National Petroleum Agency a detailed quarterly report which shall include:

		
	(a)
	approved budget total for each project;

		
	(b)
	expenditure on each project;

		
	(c)
	variance and explanations;

		
	(d)
	number and value of construction change orders;

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	(e)
	bar chart of schedule showing work progress and work already completed and schedule of mile-stones and significant events; and

		
	(f)
	summary of progress during the reporting period, summary of existing problems, if any, and proposed remedial action, anticipated problems, and percentage of completion,

provided that the National Petroleum Agency shall have the right to send its own representatives to assess the project based on the report.

		
	6.3
	In the case of an increase in cost in excess of five percent (5%) of the project, the Contractor shall promptly notify the National Petroleum Agency and obtain necessary budget approval, in accordance with Article 2.6 (c) of Schedule 2. 

		
	6.4
	Not later than six (6) months following the physical completion of any major project whose cost exceeds $5,000,000 or its equivalent, the Contractor shall prepare and deliver to the National Petroleum Agency a project completion report which shall include the following:

		
	(a)
	a cost performance of the project in accordance with the work breakdown at the commencement of the project; 

		
	(b)
	the significant variation in any item or sub-item;

		
	(c)
	a summary of problems and unexpected events encountered during the project; and

		
	d)
	a list of excess materials.

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SCHEDULE 5 

SALE OF ASSETS PROCEDURE

Upon the agreement of the National Petroleum Agency that identified assets are to be sold, the following procedure shall apply:

		
	1.
	The Contractor shall call for a bid duly advertised, for example, online, in a national newspaper, national radio station or national television station for all assets not directly related to Petroleum Operations whose book values are $10,000 and over, irrespective of length of ownership of such assets.

		
	2.
	All assets as described in paragraph 1 above, with book values of $10,000 and over shall be sold with proof of highest bid, subject to the highest bidder not being related to the Contractor.

		
	3.
	Sale of assets to the Contractor's Affiliate shall be brought to the express attention of the National Petroleum Agency and only with the written consent given by the National Petroleum Agency.

		
	4.
	The Contractor may dispose of all assets as described in paragraph 1 above, with book values less than $10,000 in the best manner available to the Contractor on the basis of the highest price available.

		
	5.
	The Contractor shall sell, in customary industry manner, all assets directly related to Petroleum Operations, irrespective of length of ownership of such assets.

		
	6.
	This Sale of Assets Procedure may be amended from time to time by the mutual agreement of the Parties.

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SCHEDULE 6

FORM OF PARENTAL GUARANTEE 

THIS GUARANTEE is made on this [INSERT DAY] of [INSERT MONTH AND YEAR] 
BETWEEN:
		
	(1)
	[THE GUARANTOR], a company organized and existing under the laws of [insert JURISDICTION], and having its registered office at [INSERT ADDRESS] (the Guarantor); and 

		
	(2)
	THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE (the "State"), represented for the purposes of this Guarantee by the National Petroleum Agency.

WHEREAS, the Guarantor is the parent entity of [INSERT NAME OF COMPANY] organized and existing under the laws of [INSERT JURISDICTION], and having its registered office at [INSERT ADDRESS] (the "Company");
WHEREAS, the Company has entered into a production sharing contract (the Contract) with, among others, the State in respect of the Contract Area;
WHEREAS, the State desires that the execution and performance of the Contract by the Company be guaranteed by the Guarantor and the Guarantor desires to furnish this Guarantee as an inducement to the State to enter into the Contract and in consideration of the rights and benefits inuring to the Company thereunder; and
WHEREAS, the Guarantor accepts that it fully understands the contractual obligations under the Contract of the Company.
NOW THEREFORE, it is hereby agreed as follows:
		
	1. 
	Definitions and Interpretation

All capitalized words and expressions in this Guarantee have the same meaning as in the Contract, unless otherwise specified herein.  
		
	2. 
	Scope of this Guarantee

The Guarantor hereby guarantees to the State the timely payment of any and all indebtedness and the procurement of the timely performance of all obligations whatsoever of the Company to the State arising under or in relation to the Contract, including the payment of any amounts required to be paid by the Company to the State when the same become due and payable; provided, however, that the liability of the Guarantor to the State hereunder shall not exceed the lesser of:

70

		
	(a)
	the liabilities of the Company to the State;

		
	(b)
	Company’s paying interest share of ten million Dollars ($10,000,000) during the Exploration Period, as may be extended in accordance with the Contract; and

		
	(c)
	Company’s paying interest share of two hundred and fifty million Dollars ($250,000,000) during the Production Period.

		
	3. 
	Waiver of Notice, Agreement to All Modifications

The Guarantor hereby waives notice of the acceptance of this Guarantee by the State and of the state of indebtedness of the Company at any time, and expressly agrees to any extensions, renewals, modifications or acceleration of sums due to the State under the Contract or any of the terms of the Contract, all without relieving the Guarantor of any liability under this Guarantee.
		
	4. 
	Absolute and Unconditional Guarantee

The obligations of the Guarantor shall be an absolute, unconditional and (except as provided in Article 2 above) unlimited guarantee of payment and procurement of performance to be performed strictly in accordance with the terms hereof, and without respect to such defences as might be available to the Company.
		
	5. 
	No Discharge of Guarantor

The obligations of the Guarantor hereunder shall not in any way be released or otherwise affected by: a release or surrender by the Company of any collateral or other security it may hold or hereafter acquire for payment of any obligation hereby guaranteed; by any change, exchange or alteration of such collateral or other security; by the taking of or the failure to take any action with respect thereto either against the Company or against the Guarantor; or by any other circumstance which might otherwise constitute a legal or equitable discharge or defence of a guarantor.
		
	6. 
	No Prior Action Required

The State shall not be required to make demand for payment or performance first against the Company or any other Person or to proceed against any collateral or other security which might be held by the State or otherwise to take any action before resorting to the Guarantor hereunder.
		
	7. 
	Cumulative Rights

All rights, powers and remedies of the State hereunder shall be cumulative and not alternative, and shall be in addition to all rights, powers and remedies given to the State by law or otherwise. 

71

		
	8. 
	Continuing Guarantee

This Guarantee is intended to be and shall be considered as a continuing guarantee of payment and performance and shall remain in full force and effect for so long as the Contract and any amendments thereto shall remain outstanding or there shall exist any liability of the Company to the State thereunder. In any event this Guarantee shall terminate no later than 2068.
		
	9.
	Notice of Demand

Upon default in the performance of any of the obligations of the Company guaranteed hereunder, and provided that the State has communicated to the Company such default and the latter has not remedied or taken the necessary steps to remedy such default within a reasonable period of time, the State or its duly authorized attorney may give written notice to the Guarantor at its principal office in [INSERT JURISDICTION] of the amount due, and the Guarantor, within a period of ten (10) business days, will make, or cause to be made, payment of such amount as notified, in United States dollars, at such bank or other place in [insert jurisdiction] as the State shall designate and without set-off or reduction whatsoever of such payment in respect of any claim the Guarantor or the Company may then have or thereafter might have.
		
	10.
	Assignment

The Guarantor shall not in any way effect, or cause or permit to be effected, the assignment or transfer of any of its obligations hereunder without the express written consent of the State.  
		
	11.
	Subrogation

Until all indebtedness hereby guaranteed has been paid in full, the Guarantor shall have no right of subrogation to any security, collateral or other rights which may be held by the State.
		
	12.
	Payment of Expenses

The Guarantor shall pay to the State all reasonable costs and expenses, including attorney's fees, incurred by it in collecting or compromising any indebtedness of the Company hereby guaranteed or in enforcing the Contract or this Guarantee.
		
	13.
	Governing Law and Arbitration

This Guarantee shall be governed by and interpreted in accordance with the laws of the State.
All disputes or claims arising out of or relating to this Guarantee shall be finally settled by arbitration, in accordance with the procedure set forth in the Contract; however, if in addition to the arbitration hereunder an arbitration has also been commenced under the 

72

Contract with respect to obligations hereby guaranteed, the arbitration commenced hereunder shall be consolidated with the arbitration commenced under the Contract and the arbitral body appointed hereunder shall be the same arbitral body appointed pursuant to the Contract.  The arbitration shall be conducted in the Portuguese and English languages and the decision shall be final and binding on the parties.
		
	14.
	Severability of Provisions

In the event that for any reason any provision hereof may prove illegal, unenforceable or invalid, the validity or enforceability of the remaining provisions hereof shall not be affected.
		
	15.
	Confidentiality

The Guarantor agrees to treat this Guarantee and the Contract as confidential and shall not disclose, willingly or unwillingly, to any third party, except to the extent required by law or the requirements of any court or stock exchange on which a Party’s or its Affiliate’s stock is publicly traded, the terms and conditions hereof or thereof without the prior written consent of the State.
IN WITNESS WHEREOF, the Guarantor and the Company execute this Guarantee this [INSERT DAY] day of [INSERT MONTH AND YEAR].

[GUARANTOR] 

By: ___________________________
Title: __________________________

THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE
BY THE AGENCIA NACIONAL DO PETROLEO DE SAO TOME AND PRINCIPE 

By: ___________________________
Title: __________________________

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