Document:

cak_ex107.htm

EXHIBIT 10.7

 

 

 

REPUBLIC OF KENYA

 

PRODUCTION SHARING CONTRACT

 

 

BETWEEN

 

 

THE GOVERNMENTOF THE REPUBLIC OF

 

 

KENYA

 

 

AND

 

 

CAMAC ENERGYKENYALIMITED

 

 

RELATING TO

 

 

BLOCK L28

 

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 1

  

  

  

TABLE OF CONTENTS

 

	
PART I    SCOPE ANDINTERPRETATION

	7
	  	 
	
1ASCOPE

	7
	  	 
	
The Contractorshall

	7
	  	 
	
1B INTERPRETATION

	7
	  	 
	
PART II TERM,EXPLORATION OBLIGATIONSANDTERMINATION

	14
	  	 
	
2.TERM

	14
	  	 
	
3.SURRENDER

	14
	  	 
	
4.MINIMUMEXPLORATION WORK ANDEXPENDITURE OBLIGATIONS

	15
	  	 
	
5.SIGNATURE BONUS AND SURFACE FEES

	17
	  	 
	
6.TERMINATION ANDWITHDRAWAL

	18
	  	 
	
PART IIIRIGHTSANDOBLIGATIONS OF THE CONTRACTOR

	19
	  	 
	
7.RIGHTSOF THE CONTRACTOR

	19
	  	 
	
8.GENERAL STANDARDS OF CONDUCT

	20
	  	 
	
9. JOINT LIABILITYANDINDEMNITY

	21
	  	 
	
10. WELLS ANDSURVEYS

	21
	  	 
	
11.OFFSHORE OPERATIONS

	23
	  	 
	
12.FIXTURES ANDINSTALLATIONSANDTITLETOASSETS

	23
	  	 
	
13.LOCAL EMPLOYMENT, TRAININGANDCOMMUNITYDEVELOPMENT PROJECT

	24
	  	 
	
14.DATAANDSAMPLES

	25
	  	 
	
15.REPORTS

	26
	  	 
	
PART IVRIGHTS ANDOBLIGATIONS OF THE GOVERNMENT ANDTHEMINISTER

	27
	  	 
	
16.RIGHTSOF THE GOVERNMENT

	27

 

 

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17.OBLIGATIONS OF THE GOVERNMENT

	28
	  	 
	
PART V WORK PROGRAMME,DEVELOPMENT ANDPRODUCTION

	29
	  	 
	
18.EXPLORATION WORK PROGRAMME

	29
	  	 
	
19.DISCOVERYANDEVALUATION WORK PROGRAMME

	29
	  	 
	
20.DEVELOPMENT PLAN ANDDEVELOPMENT WORK PROGRAMME

	30
	  	 
	
21.UNITISATION

	31
	  	 
	
22.MARGINAL ANDNON-COMMERCIAL DISCOVERIES

	32
	  	 
	
23.NATURAL GAS

	33
	  	 
	
24.PRODUCTION LEVELSANDANNUAL PRODUCTION PROGRAMME

	34
	  	 
	
25.MEASUREMENT OF PETROLEUM

	34
	  	 
	
26.VALUATION OF CRUDE OIL ANDNATURAL GAS

	34
	  	 
	
PART VI  COST RECOVERY,PRODUCTION SHARING,MARKETING AND PARTICIPATION

	36
	  	 
	
27.COST RECOVERY,PRODUCTION SHARING, WINDFALL ANDINCOMETAX

	36
	  	 
	
28.GOVERNMENT PARTICIPATION

	40
	  	 
	
29.DOMESTIC CONSUMPTION

	41
	  	 
	
PART VIIBOOKS,ACCOUNTS,AUDITS,IMPORTS,EXPORTSANDFOREIGN EXCHANGE

	42
	  	 
	
30.BOOKS,ACCOUNTS ANDAUDITS

	42
	  	 
	
31.PREFERENCE TOKENYAN GOODS ANDSERVICES

	43
	  	 
	
32.EXPORTSANDIMPORTS

	44
	  	 
	
33.EXCHANGE ANDCURRENCYCONTROLS

	45
	  	 
	
PART VIII GENERAL

	47
	  	 
	
34.PAYMENTS

	47
	  	 
	
35.ASSIGNMENT

	47
	  	 
	
36.MANAGER, ATTORNEYANDJOINT OPERATION AGREEMENT

	47

 

 

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	 37.CONFIDENTIALITY	47
	 	 
	 38.FORCE MAJEURE	48
	 	 
	 39. WAIVER	49
	 	 
	 40.GOVERNINGLAW	49
	 	 
	 41.ARBITRATION	50
	 	 
	 42.ABANDONMENT ANDDECOMMISSIONING OPERATIONS	51
	 	 
	 43.NOTICES	54
	 	 
	 44.HEADING ANDAMENDMENTS	56
	 	 
	 APPENDIX“A"	58
	 	 
	 THE CONTRACT AREA–BLOCK L28	 
	 	 
	 APPENDIX"B"	59
	 	 
	 ACCOUNTING PROCEDURE	 
	 	 
	 APPENDIX"C"	71
	 	 
	 PARTICIPATION AGREEMENT	72

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 4

  

  

  

 

BlockMapofKenya:ArrowShowingLocationofBlockL28

 

  

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 5

  

  

  

PRODUCTIONSHARING 

CONTRACTBETWEEN

THEGOVERNMENTOFTHEREPUBLIC OFKENYA

AND

CAMAC  ENERGYKENYA LIMITED

 

This CONTRACT is made and entered into on the 10th day of  May,  2012 by and between the Government of the Republic of Kenya (hereinafter referred to as the "Government") represented for the purpose of this Contract by the Minister for the time being responsible for energy (hereinafter referred to as the "Minister"); and CAMAC Energy Kenya Limited acompany incorporated inaccordance withthe Laws of Kenya (hereinafter referred to as "The Contractor").

The Government and the Contract or herein are referred to either individually as "Party" or collectively as "Parties".

 

WITNESSETH:

 

WHEREAS  the title to all Petroleum resources existing in their natural conditions in Kenya is vested in the Government; and

 

WHEREAS the Government wishes to promote and encourage the exploration and the development of Petroleum resources in and throughout the Contract Area, as defined here in; and

 

WHEREAS the Contractor desires to join and assist the Government in accelerating the exploration and development of the potential Petroleum resources within the Contract Area; and

 

WHEREAS the Contractor has the financial ability, technical competence and professional skills necessary to carry out the Petroleum Operations hereinafter described; and

 

WHEREAS in accordance with the Petroleum (Exploration and Production) Act (Cap308) laws of Kenya, 1986, enacted by th eParliament of the Republic of Kenya, agreements, in the form of production sharing contracts, may be entered between the Government and capital investors;

 

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

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 6

  

  

  

 

PART I  SCOPE AND INTERPRETATION

 

1A SCOPE

 

This Contract is a production-sharing contract, in accordance with the provisions herein contained and is within the meaning of the term “petroleum agreement” under section 2 of the Act, and is an enforceable contract between the Government and the Contractor.

 

The Contractor shall -

 

(a) Be responsible to the Government for the execution of the Petroleum Operations contemplated hereunder in accordance with the provisions of this Contract and is hereby appointed and constituted the exclusive legal Contractor to conduct Petroleum Operations in the Contract Area for the term hereof;

 

(b) Provide all capital, machinery, equipment, technology and personnel necessary for the conduct of Petroleum Operations;

 

(c) Bear the risk of Petroleum Costs required in carrying out Petroleum Operations and shall therefore have an economic interest in the development of the Petroleum deposits in the Contract Area. Such costs shall be included in Petroleum Costs recoverable as provided in clause 27 hereof.

 

During the term of this Contract, the total production achieved in the conduct of the Petroleum Operations shall be divided between the parties hereto in accordance with the provisions of clause 27 hereof.

 

1B INTERPRETATION

 

In this Contract, words in the singular include the plural and vice versa, and except where the context otherwise requires:

 

"Accounting Procedure" means the accounting procedures and requirements set out in Appendix "B" attached hereto and made an integral part hereof;

 

"The Act" means the Petroleum (Exploration and Production) Act (Cap 308) laws of Kenya, 1986, enacted by the Parliament of the Republic of Kenya;

 

“Additional Exploration Period” means the First Additional Exploration Period and/or Second Additional Exploration Period;

 

"Affiliate" means a Person directly or indirectly controlling or controlled by or under direct or indirect common control with another Person and "Control" means the ownership of at least fifty percent (50%) of voting rights in that Person;

 

“Appointee” means  a  body  corporate  wholly  owned  or  Controlled  by  the Government of the Republic of Kenya and appointed for the purposes of this Contract;

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 7

 

 

 

 

"Barrel" means a quantity consisting of 158.987 litres at standard atmospheric pressure of 1.01325 bars and temperature of fifteen degrees centigrade (15 C);

 

“Barrel of Oil Equivalent” means that 6000 standard cubic feet of Natural Gas at standard temperature (15oC) and pressure (1.01325 bars) is equivalent to one Barrel of Crude Oil for the purposes of volumetric calculations under this Contract;

 

“Blocks” means area covered by separate production sharing contracts between the Government and the Contractor;

 

"Calendar Quarter" or "Quarter" means a period of three (3) consecutive months commencing with the first day of January, April, July and October;

 

"Calendar Year" means a period of twelve (12) consecutive months commencing with the first day of January in any year and ending the last day of December in that year, according to Gregorian calendar;

 

“Change in Control” means any direct or indirect change in Control of a Party (whether through merger, sale of shares or other equity interests, or otherwise) through a single transaction or series of related transactions, from one (1) or more transferors to one (1) or more transferees;

 

"Commercial Discovery" means a tested and delineated accumulation of Petroleum in an Exploratory Well which has been duly evaluated in accordance with the provisions of clause 19, and whose reserves are certified by a competent 3rd party, appointed by the Contractor, as being capable of Commercial Production according to good international financial and petroleum industry practice, after the consideration of all pertinent technical and economic data;

 

"Commercial Production" means the quantity of Petroleum produced on a regular basis from a Commercial Discovery, not used in Petroleum Operations, but saved and sold at a value exceeding the combined exploring, finding, appraising, developing, producing, transporting and marketing costs of that production;

 

"Constitution" means the Constitution of the Republic of Kenya;

 

“Contract” means this agreement upon execution;

 

"Contract Area" means Block L27 the geographic area covered by this Contract, and described in Appendix "A" and any part thereof not previously surrendered;

 

"Contract Year" means twelve (12) consecutive calendar months from the Effective Date or from the anniversary thereof;

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 8

 

 

 

 

"Contractor" means the Entities and their respective successors or any assignee or assignees of any paying Participating Interest, provided that the assignment of any such paying Participating Interest is accomplished pursuant to the provisions of clauses 6(4) or 35 hereof, and such term will include the Government, or its Appointee, in those certain Development Areas in which the Government exercises its right to acquire a fully paying Participating Interest in accordance with Clause 28(2);

 

“Cost Oil” shall have the meaning set out in sub-clause 27(1);

 

"Crude Oil" means all hydrocarbons regardless of gravity that are produced at the wellhead in liquid state at atmospheric pressure, asphalt ozokerites and the liquid hydrocarbons known as distillates or Natural Gas Liquids obtained from Natural Gas by condensation or extraction;

 

“Customs Duties” means duties, levies and other taxes on imports, which are payable as a result of the importation of the item or items under consideration;

 

“Decommissioning  Plan”  means  the  plan  for  the  decommissioning, abandonment, recovery and removal, or if applicable redeployment, of wells, flow lines, pipelines, facilities, infrastructure and assets related to Petroleum Operations;

 

“Delivery Point” means the inlet flange point F.O.B. Kenya export pipeline or loading facility at which Natural Gas or Crude Oil reaches the metering station of a pipeline or the inlet flange of the lifting tank ship’s intake pipe, or such other point that may be agreed by the Parties;

 

"Development Area" means the area delimited in a Development Plan adopted under Clause 20 hereof;

 

“Development Period” means the period for the development of a Commercial Discovery, which begins on the date of the designation of a Development Area in accordance with the provisions of Clause 20 hereof and continues for the term set out in clause 2(6);

 

“Development Plan” means the programme for drilling, testing and completing all wells meant for production or pressure maintenance, installation of a gathering system between wells, and installation and commissioning of any processing and transportation facilities necessary to deliver production to the Point of Sale, all of which are contained in a plan for development that is prepared and adopted under Clause 20 hereof;

 

“Discount Rate” means the sum of one (1) and the decimal equivalent of the percentage increase in the United States Consumer Price Index, as reported for the first time in the monthly publication "International Finance Statistics" of the International Monetary Fund, between the month of the Effective Date and the month when such costs were incurred;

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 9

 

 

 

 

“Discovery” means the Discovery of Petroleum;

 

“Economic Limit” means that point in the life of field where expected Revenue to Contractor from Petroleum Operations is insufficient to cover the operating costs to continue Petroleum Operations in accordance with the requirements of the Contract. In this context “Revenue” means the expected revenues derived from the conveyance and sale of Petroleum at the Delivery Point together with any firm tariff income earned by the field facilities, if any;

 

"Effective Date" means the date falling ninety days after this Contract is executed by the Government and the Contractor;

 

“Evaluation” means the logical cataloguing, interpretation and assessment of economic and or technical data and information in order to understand the implications and impact of such data and information on technical and business decisions with respect to Petroleum Operations and shall be inclusive of logging, coring and testing an Exploratory Well, but exclusive of drilling, reaming, sidetracking or similar activities;

 

"Execution Date" means the date this Contract is signed by the Government and the Contractor;

 

"Expert Determination" means the process whereby a technical dispute is resolved by the appointment of an internationally recognized technical expert who shall be appointed  by  mutual  agreement  of  the  Government  and  the  Contractor, or,  failing mutual agreement within thirty (30) days, by the International Chamber of Commerce for the purpose of making a determination related to disputes on technical matters or technical differences under sub-clause 26(1)(b),  which  determination  shall  be  made within twenty (20) days of the appointment and shall be final and binding upon the Government and the Contractor

“Exploration Period” means the Initial Exploration Period and the Additional Exploration Period (as extended), as the case may be, during which Exploration Operations are undertaken by the Contractor;

 

"Exploration Operations" include geological, geophysical and Geochemical surveys and analyses, aerial mapping, investigations of subsurface geology, stratigraphic tests, drilling Exploratory Wells and work necessarily connected therewith;

 

"Exploratory Well" means a well drilled or to be drilled (as the case may be) in search of Petroleum to test a geological feature, which has not been determined to contain producible Petroleum sufficient for Commercial Production;

 

“First Additional Exploration Period” means the additional period of two (2) Contract Years after the Initial Exploration Period pursuant to sub-clause 2(3), as may be extended under this Contract;

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 10

 

 

 

 

"Fiscal Year" means a period of twelve (12) consecutive months corresponding to the year of income as defined in the Income Tax Act of Kenya;

 

“Government” means the Government of the Republic of Kenya;

 

"Income Tax Act" means the Income Tax Act of Kenya, as from time to time amended;

 

“Initial Exploration Period” means the period of two (2) Contract Years commencing on the Effective Date of the Contract, as defined in sub-clause 2(1);

 

“Joint Account” shall have the meaning set out in subpart 1.1.1 of the Accounting Procedure;

 

“Joint Operating Agreement” (JOA) means the operating and participating agreement between the Parties constituting the Contractor that governs their operational activities, obligations and responsibilities under this Contract,

 

"LIBOR" means London Inter-Bank Offered Rate of interest on six (6) months United States dollars deposit quoted at 11 a.m. by the National Westminster Bank Plc, or any other bank agreed by the parties on the first banking day of  each month for which interest is due;

“Lower Thermal Heat Rate” means the Btu content of a fuel by international Standards used for comparison of thermal value of a hydrocarbon;

 

“Market Evaluation Report” means a report for a potentially commercial Natural Gas Discovery by the Contractor including but not limited to identifying potential markets for the Natural Gas, expected volumes for such markets, infrastructure potentially required to access such markets and expectations of price for the Natural Gas supplied to such markets;

 

"Maximum  Efficient  Rate"  means  the  rate  at  which  the  maximum  ultimate economic petroleum recovery is obtained from a commercial field without excessive rate of decline in reservoir pressure and consistent with good international petroleum industry practice;

 

“Minimum  Expenditure”  means  the  minimum  expenditure  obligations  of  the Contractor during each of the Exploration Periods as specified in Clause 4 herein;

 

"Minister" means the Minister for the time being responsible for energy or his designated representative;

 

"Ministry" means the Ministry for the time being responsible for energy or its designated representative;

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 11

 

 

 

"Natural Gas" means hydrocarbons that are in a gaseous phase at atmospheric conditions of temperature and pressure, including wet mineral gas, dry mineral gas, casing head gas and residue gas remaining after the extraction or separation of liquid hydrocarbons from wet gas, and non-hydrocarbon gas produced in association with liquid or gaseous hydrocarbons

 

“Natural Gas Liquids” or “NGLs” means liquefiable hydrocarbons obtained from Natural Gas by condensation or extraction, including, but not limited to, ethane, propane, butane, pentanes and heavies;

 

“Normal Cubic Meter” means the volume of gas that occupies a cubic meter when this gas is at a temperature of 15 degrees Celsius and a pressure of 1013.25 millibar;

 

“Offshore” shall mean any area which lies below the elevation of the lowest tide level of the shoreline in question for the 10 years preceding this Contract;

 

“Participation Agreement” means that model agreement as set out in Appendix C between the Government and Contractor that sets guidelines with respect to the relationship between the Government and Contractor in connection with their respective activities, obligations and responsibilities and which shall only come into force after negotiation of a mutually acceptable form and on signature by the Parties upon the election of the Government to acquire, hold and execute a fully paying working Participating Interest in one (1) or more Development Areas in accordance with Clause 28 of this Contract;

 

“Participation Interest or Participating Interest” shall mean, as the context requires, the fully paying Participating Interest, expressed as a percentage, and held by the Entities in and to this Contract and the Contract Area, and will include the Government, or its Appointee, in those certain Development Areas in which the Government exercises its right to acquire such a fully paying Participating Interest in accordance with Clause 28.

 

“Person” means any legal Contractor, corporeal or otherwise; "Petroleum" means Crude Oil and Natural Gas.

 

"Petroleum Costs" means those expenditures made and obligations incurred by the Contractor in carrying out Petroleum Operations hereunder, determined in accordance with this Contract and the Accounting Procedure attached hereto in Appendix "B" and made a part hereof;

 

"Petroleum Operations" means all or any of the operations, authorised under this Contract, related to the exploration for, finding, appraisal, development, extraction, production, decommissioning, separation and treatment, storage, transportation, and sale or disposal of, Petroleum up to the point of export or the agreed Delivery Point in Kenya or the point of entry into a refinery and includes Natural Gas processing, liquefaction and compressed Natural Gas operations but does not include petroleum refining operations;

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 12

 

 

 

 

“Point of Sale” means Delivery Point unless otherwise specified; “Profit Oil” shall have the meaning set out in sub-clause 27(3);

 

"Regulations" mean the Petroleum (Exploration and Production) Regulations;

 

“Second Additional Exploration Period” means the second period of two (2) contract years after the First Additional Exploration Period pursuant to sub-clause 2(4), as may be extended under this Contract;

 

“Second Tier Amount” shall have the meaning set out in sub-clause 27(3); "Semester" means a period of six (6) consecutive months commencing with the firs day of January or the first day of July of a Calendar Year;

 

“Stub Year” shall mean that portion of the first Contract Year between the Effective Date and the last day of the Calendar Year then in progress;

 

“Threshold Price” shall have the meaning set out in sub-clause 27(3)(e).

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 13

 

 

 

 

PART II TERM, EXPLORATION OBLIGATIONS AND TERMINATION

 

2. TERM

 

	
(1)

	
The Contractor is authorized to conduct Exploration Operations in the Contract Area during an Initial Exploration Period of  Two (2) Contract Years from the Effective Date.

 

	

(2)      

	

The Contractor shall begin Exploration Operations within three (3) months of the Effective Date.

 

	

(3)

	

Upon written application by the Contractor made not later than one (1) month prior to the expiry of the Initial Exploration Period, the Minister shall, if the Contractor has fulfilled his work and expenditure obligations under this Contract, grant a First Additional Exploration Period of two (2) Contract Years.

 

	

(4)

	

Upon written application by the Contractor made not later than one (1) month prior to the expiry of the First Additional Exploration Period, the Minister shall, if the Contractor has fulfilled all its work obligations under this Contract, grant a Second Additional Exploration Period of two (2) Contract Years.

 

	
(5) 

	
In  order to  enable  the  Contractor  to  complete  the  drilling  and testing of  anExploratory Well actually being drilled or tested at the end of the any  Additional Exploration Period, the Minister shall, on written application by the Contractor made not later than three (3) months before the expiry of   such Additional Exploration Period, unless another period of notice is agreed by the Parties, extend the period in which the work is to be expeditiously completed, which in any event shall not extend such period by more than four (4) months.

 

	

(6)

	

This Contract shall expire automatically at the end of the Initial Exploration Period or at the end of any Additional Exploration Period as extended in accordance with this Contract, except as to any Development Area. If the Contractor reports, pursuant to sub-clause 19(6) hereof, that a Commercial Discovery has been made before the expiry of the Initial Exploration Period stipulated in sub-clause 2(1) hereof or any  Additional Exploration Period thereof, this Contract shall not expire in respect to the relevant Development Area, but shall continue as to such Development Area for Crude Oil for a Development Period term of Twenty Five 25 years from the date the Development Plan for that Development Area is adopted under sub-clause 20(3) hereof, provided that the Development Period for a Natural Gas Development Area shall continue for a term of twenty five (35)  from the date the Development Plan for such Natural Gas Development Area is adopted under sub-clause 20(3) hereof.

 

3. SURRENDER

 

	
(1) 

	
The Contractor shall surrender: 

 

(a) Twenty Five (25 %) Percent of the original contract area at or before the end of the Initial Exploration Period;

 

(b)Twenty Five (25%) Percent of the remaining contract area at or before the end of the First Additional Exploration Period.

 

	

(2)

	

When calculating surrender under sub-clause 3(1), a Development Area shall be excluded from the original Contract Area.

 

	

(3)

	

Notwithstanding the terms of surrender set forth under sub-clause 3(1) herein the Contractor may surrender an additional part of the Contract Area and such a voluntary surrender shall be credited against the next surrender obligation of the Contractor under sub-clause 3(1).

 

	

(4)

	

The shape and size of an area surrendered shall be approved by the Minister, which approval shall not be unreasonably withheld.

 

	

(5)

	

The Contractor shall give one (1) year's written notice of surrender in respect of a Commercial Discovery, which is producing or has produced Petroleum and one (1) month written notice of surrender in respect of any other part of the Contract Area. In case of a surrender of the entire Contract Area this Contract shall terminate.

 

	

(6) 

	

No surrender shall reduce shall reduce the minimum amount of exploration work and expenditure fixed in clause 4.

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 14

 

 

 

 

4. MINIMUM EXPLORATION WORK AND EXPENDITURE OBLIGATIONS

 

	
(1)

	
The Contractor shall have the obligation to fulfil the following minimum work and expenditure obligations -

 

(a) During the Initial Exploration Period of three (3) Contract Years –

 

 

	
1.1 Minimum Work and Expenditure Obligations

 

	 
	(i)   	
Carry  out  block  wide  geological  and geophysical studies and integrate the results of these two (2) studies – US$350,000.00

	(ii)   	
Reprocess and re-interpret previous 2D seismic data in the block – US$850,000.00

	(iii)   	
Acquire, process and interpret 1,500 km2 line of 3D seismic data – US$10,500,000.00

	 	 
	
TOTAL  EXPENDITURE  FOR  THE  INITIAL  EXPLORATION PERIOD US$ 11,700,000.00

 

 

 

(b) During the First Additional Exploration Period of two (2) years Contract Years:

 

	

Minimum Work and Expenditure Obligations

 

	 
	(i)   	
Drill  one  (1)  exploratory  well  below  sea-bed  to minimum depth of 3,000m at a minimum expenditure of US$40,000,000.00

	 	 
	

TOTAL MINIMUM  EXPENDITURE FOR FIRST ADDITIONAL EXPLORATION PERIOD US$ 40,000,000.00

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 15

 

 

 

 

(c) During the Second Additional Exploration Period of two (2) years Contract Years:

 

	

Minimum Work and Expenditure Obligations

 

	 
	(i)   	

Drill one additional exploratory well below the sea- bed to a minimum depth of 3,000m at a minimum cost of – US$40,000,000.00

	 	 
	

TOTAL MINIMUM  EXPENDITURE FOR FIRST ADDITIONAL EXPLORATION PERIOD US$ 40,000,000.00

	
(2)

	
The fulfilment of all the minimum work obligations in respect of each  Exploration Period as set forth in sub-clauses 4(1) (a), 4 (1) (b) and 4 (1) (c) shall relieve the Contractor of the corresponding expenditure obligation thereto.

 

	

(3) 

	

If the drilling of an Exploratory Well is discontinued, prior to reaching the minimum depth herein specified, because that well has encountered the basement, an impenetrable substance or any condition which in accordance with the good international petroleum industry practice would make it unsafe or impractical to continue drilling, the minimum depth obligation in respect of that well shall be deemed to be fulfilled.

 

	

(4)

	

A well drilled to evaluate a Discovery under an Evaluation work programme pursuant to sub-clause 19(2) and 19(3) shall not be considered to  an Exploratory Well for the purpose of fulfilling the required number of Exploratory Wells, unless the written consent of the Minister is obtained.

 

	

(5)

	

The minimum exploration expenditure set forth in sub-clause 4(1) is expressed in U.S. dollars of the year of the Effective Date. In any Contract Year of either the Initial Exploration Period or any Additional Exploration Period, for the purpose of comparison of the actual costs incurred and paid by the Contractor with the minimum exploration expenditure, the actual costs incurred and paid by the Contractor for seismic operations and the drilling of Exploratory Wells during that Contract Year shall be converted into constant U.S. dollars by dividing the costs by the Discount Rate.

 

	

(6) 

	

If during either the Initial Exploration Period or the First Additional Exploration Period, the Contractor exceeds the minimum work obligation in accordance with sub-clause 4(4) exceeding the Minimum work obligations for such Exploration Period, then such excess may be credited toward the respective obligation of the next succeeding Additional Exploration Period or periods.

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 16

 

 

 

 

	
(7) 

	
Upon entry into each exploration period, Contractor shall provide 50% Bank and 50%   Parent Company Guarantee guaranteeing its full minimum work and expenditure obligations for each exploration period guaranteeing the Contractor's minimum work and expenditure obligations under sub-clause 4(1) hereof.

 

	

(8)

	

If at the end of either the Initial Exploration Period or of the First/Second Additional Exploration Period or upon the date of termination of this Contract, whichever occurs first, the Contractor has not fulfilled all its minimum work obligations under sub-clause 4(1) hereof, the Contractor shall pay the Government the minimum monetary obligation in respect of all the work for the expiring period multiplied by the Discount Rate and calculated on the last month of that Exploration Period, and/or the shortfall, if any, between the amount expended, in accordance with sub- clause 4(4) and the minimum monetary obligation for the expiring Exploration Period, multiplied by the Discount Rate.

 

5. SIGNATURE BONUS AND SURFACE FEES

 

	
(1) 

	
The  Contractor  shall  pay  a  Signature  Bonus  of  Three  Hundred  and  Ten Thousand United States Dollars (USD310,000) on or before the Execution Date of this contract by means of a direct bank transfer to an accepted Ministry bank account and in accordance with applicable law.

 

	

(2) 

	

The Contractor shall pay, on or before the beginning of the relevant Contract Year to the Ministry, the following surface fees;

 

(i)  Five United States Dollars (USD5.00) per square kilometre per annum during the Initial Exploration Period,

 

(ii)  Ten United States Dollars (USD10.00) per square kilometre per annum during the First Additional Exploration Period,

 

(iii)  Fifteen United Dollars (USD15.00) per square kilometre per annum during the Second Additional Exploration Period,

 

(iv)  One Hundred United States Dollars USD (USD100.00) per square kilometre per annum during the Development and Production Periods

 

	
(3) 

	
The surface fees shall be calculated on the basis of the surface area of theContract Area on the date those payments are due.

 

A fee payable under sub-clause 5(2) is not refundable and a late payment shall attract interest in accordance with sub-clause 34(2).

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 17

 

 

 

6. TERMINATION AND WITHDRAWAL

 

	
(1) 

	
The Minister may terminate this Contract by giving the Contractor written notice, if the Contractor –

 

(a) Fails to make any payment to the Government or the Minister required under this Contract for a period exceeding sixty (60) days; or

 

(b) Is in material breach of any other obligation under this Contract; or

 

(c)  becomes insolvent, makes a composition with its creditors, or goes into liquidation other than for reconstruction or amalgamation.

 

	
(2) 

	
The period of notice in respect of sub-clause 6(1)(a) hereof shall be two (2) months, and in any other case three (3) months, but if the Contractor remedies the breach within the period of notice, the Minister shall withdraw the notice.  Where the Minister reasonably believes the Contractor is using its best efforts to remedy the default, the Minister may extend the notice, accordingly.

 

	

(3) 

	

When this Contract is terminated or expires in whole or in part, the Contractor shall conclude the Petroleum Operations in the area as to which this Contract has terminated or expired in an orderly manner minimising harm to the Government and third parties.

 

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 18

 

 

 

 

PART III RIGHTS AND OBLIGATIONS OF THE CONTRACTOR

 

7. RIGHTS OF THE CONTRACTOR

 

	
(1) 

	
The Contractor shall have the right to carry out the Petroleum Operations within theContract Area, subject to the provisions of this Contract for the term hereof.

 

	

(2) 

	

The Contractor is granted the right to enter upon the Contract Area and conduct Petroleum Operations there, but permission may be granted by the Government to other Persons to search for and mine minerals, other than Petroleum, so long as they do not interfere with the Petroleum Operations, and easements and rights of way may be granted to other Persons for the benefit of land adjacent to the Contract Area.

 

	

(3) 

	

The Minister shall facilitate on behalf of the Contractor any permit necessary to enable the Contractor to use the water in the Contract Area for the purpose of the Petroleum Operations but the Contractor shall not unreasonably deprive the users of land, domestic settlement or cattle watering place of the water supply to which they are accustomed.

 

	

(4)

	

The Contractor may, for the purpose of the Petroleum Operations, use gravel, sand, clay and stone in the Contract Area but not in –

 

(a) Trust land without a licence granted under section 37 of the Trust Land Act;

 

(b) Other private land without the consent of the owner; and

 

(c) A beach, foreshore or reef without the consent of the Minister.

 

	
(5) 

	
Subject to the provisions of section 10 of the Act and of regulation 6 of the Regulations, and subject to the provisions of Chapter V and Articles 261 and 262 in the 5th schedule of the Constitution and Part IV of the Trust Land Act, the Contractor may exercise all rights granted to him by this Contract.

 

	

(6) 

	

Subject to the approval of the applicable Development Plan, the Contractor shall have the right to freely consume or re-inject, without being subject to any taxes, royalties or other payments, Crude Oil and Natural Gas from the Contract Area for the purpose of conducting the Petroleum Operations.

 

	

(7)

	

As a result of conducting the Petroleum Operations, the Contractor shall have the right, without any additional payment, except for those payments provided for in this Contract, to:

 

 

	Production Sharing Contract Block L28	Ministry of Energy Page 19

 

 

 

(a) Enter into contracts with the other Parties for the services of their personnel or to provide services in relation to the Petroleum Operations;

 

(b) Arrange financing for a portion of the capital costs of the development operations to be undertaken by the Contractor, as determined by the Contractor;

 

(c) Enter into agreements providing for the transportation and terminalling of Crude Oil and Natural Gas;

 

(d) establish a marketing agreement with one or more of the parties to market the Crude Oil and Natural Gas on behalf of the Contractor on international markets; and

 

(e) Enter into any other  agreements that may be necessary to conduct the Petroleum Operations.

 

8. GENERAL STANDARDS OF CONDUCT

 

	
(1) 

	
The Contractor shall carry out the Petroleum Operations diligently and in accordance with good international petroleum industry practice.

 

	
(2) 

	
In particular, the Contractor shall -

 

(a) Ensure that all machinery, plant, equipment and installations used by the Contractor in connection with the Petroleum Operations are of proper and accepted construction and are kept in good repair;

 

(b) Use the resources of the Contract Area as productively as possible and ensure that good international petroleum industry practice is used to prevent Petroleum discovered and produced, or mud or any other fluids or substances escaping or being wasted;

 

(c) prevent damage to adjacent strata which bear Petroleum or water, and prevent water entering through wells into strata bearing petroleum, except where water injection methods are used for secondary recovery operations;

 

(d) properly confine Petroleum in receptacles constructed for that purpose, and not place Crude Oil in an earthen reservoir except temporarily in an emergency; and

 

(e) Dispose of waste oil, salt water and refuse in accordance with good international petroleum industry practice, avoiding pollution.

 

	
(3) 

	

In conducting the Petroleum Operations, the Contractor may use any of its Affiliates, any Affiliate of the entities constituting the Contractor or independent contractors. The Contractor, however, shall remain responsible for the performance of its obligations.

 

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9. JOINT LIABILITY AND INDEMNITY

 

	
(1) 

	
Where a Contractor consists of more than one (1) Person their liability shall be joint and several.

 

	

(2) 

	

The  Contractor  shall  cause  as  little  damage  as  possible  to  the  surface  of  a Contract Area and to trees, crops, buildings and other property thereon, shall forthwith repair any damage caused, and shall pay reasonable compensation for any loss suffered, as determined by an independent Expert appointed by the parties, subject to sub-clause 9(5).

 

	

(3) 

	

The Minister may, if he has reasonable cause to believe that the Petroleum Operations may endanger persons or property, cause pollution, harm marine life or interfere with navigation and fishing, order the Contractor to take reasonable remedial measures or order the Contractor to discontinue the relevant Petroleum Operations until such measures, or mutually agreed alternatives thereto, are implemented.  If Petroleum Operations are suspended in accordance with this sub- clause 9(3) during the Exploration Period, then the Exploration Period shall be extended by the same number of days as the period of the suspension.

 

	

(4) 

	

The  Contractor shall  maintain appropriate and adequate third party  liability insurance and workmen's compensation insurance and shall provide the Minister with evidence of those insurances before the Petroleum Operations begin.

 

	

(5) 

	

The Contractor shall indemnify, defend and render the Government harmless from all and any third party claims for loss or damage which, but for the conduct of Petroleum Operations by the Contractor or sub-Contractor, would not have arisen or occurred. Under no circumstances, however, shall the Contractor be liable for indirect or consequential losses or damages, pool formation or structure damage, loss of reservoir, loss of production or loss of profits arising out of or in connection with this Contract or the Petroleum Operations. 

 

	

(6)

	

In the event of an emergency or extraordinary circumstances requiring immediate action, including the safeguarding of lives or property or protection of the environment or for health reasons, the Operator, on behalf of the Contractor, may take all such actions as it deems proper or advisable to protect the joint property, its  investments  and  its  employees,  and  shall  give  written  notice  to  the Government immediately thereafter.   Any and all costs incurred in connection with such emergency activities shall be regarded as Petroleum Costs for the purpose of cost recovery under Clause 27 and the Accounting Procedure.

 

10. WELLS AND SURVEYS

	
(1) 

	
Unless such a notice is waived, the Contractor shall not drill a well or borehole or recommence drilling after a six (6) months' cessation without thirty (30) days' prior notification to the Minister which notice shall set forth the Contractor's reasons for undertaking such well and shall contain a copy of the drilling programme.

 

 

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(2) 

	
The design of a well or borehole and the conduct of drilling shall be in accordance with good international petroleum industry practice.

 

	
(3) 

	
No borehole or well shall be drilled so that any part thereof is less than five hundred (500) metres from a boundary of the Contract Area, without the consent in writing of the Minister, which consent shall not be unreasonably withheld.

 

	
(4) 

	
The Contractor shall not, except where there is danger or a risk of significant economic loss –

(a) abandon a well or remove any permanent form of casing there from, without giving forty-eight (48) hours prior notification to the Minister, and an abandoned well shall be securely plugged to prevent pollution, sub-sea damage, or water entering or escaping from the strata penetrated; or

 

(b) Commence drilling, re-enter or plug a well unless a representative of the Minister has been given a reasonable opportunity to be present.

 

	
(5) 

	
The Contractor shall state, in its application to abandon a well on land, whether that well is capable of providing a water supply.

 

	
(6) 

	
The Contractor shall, within two (2) months of termination or expiry of this Contract or the surrender of part of the Contract Area, deliver up all productive wells, in said surrendered area, in good repair and working order together with all casings and installations which cannot be moved without damaging the well, but the Minister may require the Contractor to plug the well at the Contractor's expense by notifying the Contractor within thirty (30) days after such termination or expiry is effected or at least three (3) months prior to surrender of a Development Area.

 

	
(7) 

	
Where the Contractor applies to permanently abandon an Exploratory Well in which petroleum of potentially commercial significance has not been found, the Minister may request the Contractor to deepen or sidetrack that well and to test the formations penetrated as a result of such operations, or to drill another exploration well within the same prospect area, subject to the following provisions;

 

(a) Any such additional Petroleum Operations shall be at the sole cost, risk and expense of the Minister and shall be paid for in accordance with the Accounting Procedure.   The Government shall advance to the Contractor the funds necessary to conduct the operations.

 

(b)  The  Contractor  shall  not  undertake  such  additional  work  if  it  will interfere with the conduct of the Contractor's Petroleum Operations or if it is not commercially, technically or operationally feasible.

 

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(c) In the event that the Petroleum Operations undertaken under this sub- clause 10 (7) result in a Discovery which the Contractor elects to evaluate and/or develop as a commercial field, the Contractor shall reimburse the Government Six Hundred per cent (600%) of the costs and expenses incurred by the Government for the conduct of the operations and such sum shall be paid within thirty (30) days of the notification made by the Contractor.  If the Contractor does not make such election, the Government shall have the right to continue the Petroleum Operations on this Discovery at the sole cost, risk and expense of the Government.

 

	
(8) 

	
The Contractor shall give the Minister thirty (30) days; notice of any proposed geophysical survey of the Contract Area, which notice shall contain complete details of the programme to be conducted. At the request of the Contractor, the Minister may waive the notice period.

 

11. OFFSHORE OPERATIONS

 

	
(1) 

	
The  Contractor  shall  ensure  that  works  and  installations  erected  offshore  inKenya's territorial waters and exclusive economic zone shall be -

 

(a) Constructed, placed, marked, buoyed, equipped and maintained so that there are safe and convenient channels for shipping;

 

(b) Fitted with navigational aids approved by the Minister;

 

(c) Illuminated between sunset and sunrise in a manner approved by the managing director, Kenya Ports Authority; and

 

(d) Kept in good repair and working order.

	
(2) 

	
The Contractor shall pay reasonable compensation for any interference in fishing rights caused by the Petroleum Operations.

 

12. FIXTURES AND INSTALLATIONS AND TITLE TO ASSETS

 

	
(1) 

	
With the written consent of the Minister, which consent shall not be unreasonably withheld, the Contractor shall have the right to construct, operate and maintain roads, drill water wells and to place and/or construct fixtures and installations necessary to conduct the Petroleum Operations, including but not limited to, storage tanks, trunk pipelines, shipment installations, pipelines, cables or similar lines, liquefaction, processing and compression, located inside or outside the Contract Area, as well as construct, operate and maintain or lease facilities for the transportation of Crude Oil and Natural Gas from the Contract Area. The consent of the Minister may be conditional on the use by other producers of the excess capacity, if any, of those facilities. Where the Minister and Contractor agree that a mutual economic benefit can be achieved by constructing and operating common facilities, however, the Contractor shall use its reasonable best efforts to reach agreement with other producers on the construction and operation of such common facilities.

 

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(2) 

	
Other producers may only use the facilities of the Contractor where there exists excess capacity and on payment of a reasonable compensation which includes a reasonable return on investment to the Contractor and provided the use does not interfere with the Contractor's Petroleum Operations.

 

	
(3) 

	
The Minister may, in consultation with the Contractor, consent to the laying of pipelines, cables and similar lines in the Contract Area by other Persons, subject to (a) the consent of the Contractor, which consent shall not be unreasonably withheld, and (b) the submission of technical data by the Government demonstrating that such lines shall not interfere with the Petroleum Operations of the Contractor.

 

	
(4) 

	
On termination or expiration of this Contract or surrender of part of the Contract Area, the Contractor shall remove the above-ground plant, appliances and installations from the Contract Area or the part surrendered other than those that are situated in or related to a Development Area or, at the option of the Minister, the Contractor shall transfer ownership thereof, at no cost, to the Government, in the condition that they are then in, in which latter case the Government shall be responsible for operating, maintaining, abandoning and decommissioning of such plants, appliances and installations.

 

	
(5) 

	
When the rights of the Contractor in respect of a Development Area terminate, expire or are surrendered, the Contractor shall transfer ownership thereof to the Government, at no cost, the plant, appliances and installations that are situated in the Development Area or that are related thereto, unless such plant, appliances and installations are or may be utilised by the Contractor in Petroleum Operations under this Contract, but the Government may require the Contractor to remove the surface installations at the cost of the Contractor.

 

  13. LOCAL EMPLOYMENT, TRAINING AND COMMUNITY DEVELOPMENT PROJECT

 

	
(1) 

	
The Contractor, its contractors and  sub-contractors  shall,  where  possible, employ Kenya citizens in the Petroleum Operations, and until expiry or termination of this Contract, shall train those citizens. The training programme shall be established with the consultation of the Minister.

 

 

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(2) 

	
In addition to the obligation under sub-clause 13(1) and commencing on the Effective  Date,  the  Contractor  shall  for  the  purposes  of  section  11  of  the Act contribute or hold to the order of the Ministry a minimum of:

 

(i)  One Hundred and Seventy Five Thousand United States Dollars (USD 175,000.00) per year during the Initial Exploration Period towards the Ministry Training Fund

 

(ii)  One Hundred and Seventy Five Thousand United States Dollars (USD 175,000.00) per year during the First Additional Exploration Period towards the Ministry Training Fund.

 

(iii)  One Hundred and Seventy Five Thousand United States Dollars (USD 175,000.00) per year during the Second Additional  Exploration Period towards the Ministry Training Fund.

 

(iv)  The Contractor's obligation hereunder shall be further increased to a minimum of Two Hundred Thousand United States Dollars (USD200,000.00) per year commencing with the adoption of the first Development Plan under sub-clause 20(3).

 

	
(3)

	
The Contractor shall by way of direct payments contribute a minimum of United States Dollars Fifty Thousand (USD 50,000.00) per year towards the local community development projects.

 

14. DATA AND SAMPLES

 

	
(1) 

	
The Contractor shall keep logs and records of the drilling, deepening, plugging or abandonment of boreholes and wells, in accordance with good international petroleum industry practice and containing particulars of -

 

(a) The strata and sub-soil through which the borehole or well was drilled;

(b) The casing, tubing and down-hole equipment and alterations thereof, inserted in a borehole or well;

 

(c) Petroleum, water, workable mineral or mine workings encountered; and

 

(d)  Any  other  matter  related  to  the  Petroleum  Operations  that  is reasonably required by the Minister.

 

	
(2) 

	
The Contractor shall record, in an original or reproducible form of good quality, and on seismic tapes where relevant, all geological and geophysical information and data relating to the Contract Area obtained by the Contractor and shall deliver a copy of that information and data, the interpretations thereof and the logs and records of boreholes and wells, to the Minister, in a reproducible form, as soon as practicable after that information, those interpretations and those logs and records come into the possession of the Contractor.

 

 

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(3) 

	
The  Contractor may remove,  for the purpose of  laboratory examination or analysis, petrological specimens or samples of petroleum or water encountered in a borehole or well and, as soon as practicable shall, without charge, give the Minister a representative part of each specimen and sample removed, but no specimen or sample shall be exported from Kenya without prior notification to the Minister.

 

	
(4) 

	
The Contractor shall keep records of any supply information concerning the Petroleum Operations, reasonably requested by the Minister, if the data or information necessary to comply with the request are readily available.

 

15. REPORTS

 

	
(1) 

	
The Contractor shall supply to the Minister daily reports on drilling operations and production operations, and weekly reports on geophysical operations.

 

	
(2) 

	
The  Contractor  shall  report  in  writing  to  the  Minister  the  progress  of  thePetroleum Operations according to the following schedule -

 

(a) Within one (1) month of the last day of March, June, September and December, covering the previous three (3) months;

(b) Within three (3) months of the last day of December, covering the previous year;

(c) Within three (3) months of the date of expiry or termination of this Contract.

 

	
(3) 

	
A report under sub-clause 15 (2) shall contain, in respect of the period which it covers -

 

(a)  Details  of  the  Petroleum  Operations  carried  out  and  the  factual information obtained;

 

(b) A description of the area in which the Contractor has operated;

 

(c)  An account  of  the  expenditure on Petroleum Operations in accordance with the Accounting Procedure;

 

 

	
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(d)  A map indicating all boreholes, wells and other Petroleum Operations;

 

(e) On expiry or termination of this Contract details of the Petroleum Operations including all the matters described in paragraphs (a) to (d); and

 

(f) All information required by clause 14 not hitherto supplied.

 

PART IV RIGHTS AND OBLIGATIONS OF THE GOVERNMENT AND THE MINISTER

 

16. RIGHTS OF THE GOVERNMENT

 

	

(1) 

	

The Government may acquire a part of the Contract Area for a public purpose other than searching for or extracting Petroleum but not to the extent that will prevent the carrying out of Petroleum Operations within the Contract Area, and the Government shall not, without good cause, acquire a part of the Contract Area on which Petroleum Operations are in progress. 

 

The Contractor shall not carry out Petroleum Operations on such an acquired part but may:-

 

(a) Enter upon that part but not materially interfere with the public purpose;

 

(b) Carry out directional drilling from an adjacent part.

 

	
(2) 

	
The Minister, or a Person authorized by him in writing, may at all reasonable times inspect any Petroleum Operations, and any records of the Contractor relating thereto, and the Contractor shall provide, where available, facilities similar to those applicable to its own or to sub-contractors' staff for transport to the Petroleum Operations, subsistence and accommodation and pay all reasonable expenses directly connected with the inspection.

 

	

(3) 

	

If there is a breach of an obligation due to be performed under this Contract, the Minister may require the Contractor to perform any obligation under this Contract  by giving reasonable  written  notice,  and if  the Contractor fails to comply with the notice, the Minister may execute any necessary works for which the Contractor shall pay forthwith. The Minister may give notice to execute works at any time but not later than three (3) months after the termination or expiry of this Contract or the surrender of a part of the Contract Area.

 

 

	
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17. OBLIGATIONS OF THE GOVERNMENT

 

	
(1) 

	
The Government may at the request of the Contractor, make available to the Contractor such land as the Contractor may reasonably require for the conduct of Petroleum Operations and -

 

(a) Where the land is Trust Land, the Government may, subject to sub- clause 17(2) set apart such Trust Land in the Contract Area or outside the Contract Area in accordance with the Trust Land Act;

 

(b) Where the land is private land, the Government may, subject to section 10 of the Act, acquire the land in accordance with the applicable laws;

 

(c) The Contractor shall pay or reimburse the Government any reasonable compensation that may be required for the setting apart, use or acquisition of any land for the Petroleum Operations as settled by an Expert Determination.

 

	
(2) 

	
Where  the  Contractor  has  occupied  Trust  Land  for  the  purpose  of  the Petroleum Operations before that land has been set apart, the Contractor shall notify the Minister in writing of the need to set apart such land.

 

	
(3)

	
The Government shall grant or cause to be granted to the Contractor, its contractors and sub-contractors such way-leaves, easements, temporary occupation or other permissions within and without the Contract Area as are necessary to conduct the Petroleum Operations and in particular for the purpose of laying, operating and maintaining pipelines and cables, and passage between the Contract Area and the Delivery Point of petroleum.

 

	
(4) 

	
The Government shall at all times give the Contractor the right of ingress to and egress from the Contract Area and the facilities wherever located for the conduct of Petroleum Operations.

 

	
(5)

	
Subject to the usual national security requirements and the Immigration Act and   Regulations   of   Kenya   in   particular,   the   Government   shall   not unreasonably refuse to issue and/or renew entry visas or work permits for employees, technicians and managers employed in the Petroleum Operations by the Contractor or its sub-contractors and their dependants.

 

 

	
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PART V WORK PROGRAMME, DEVELOPMENT AND PRODUCTION

 

18. EXPLORATION WORK PROGRAMME

 

	
(1) 

	
The Contractor shall submit and orally present to the Minister one (1) month after  the  Effective  Date,  a  detailed  statement  of  the  exploration  work programme and budget for the first Contract Year.

 

	

(2)

	

The Contractor shall submit and orally present to the Minister three (3) months before the end of each Contract Year, a detailed statement of the exploration work programme and budget for the next Contract Year.

 

	

(3) 

	

The Minister may submit to the Contractor, within thirty (30) days of the receipt of the annual exploration work programme and budget, suggested modifications and revisions thereof. The Contractor shall consider the inclusion of such suggested modifications and revisions in light of good international petroleum industry practice and shall provide the Minister with the exploration work programme and budget which the Contractor has adopted.

 

	

(4) 

	

After the adoption of the annual exploration work programme and budget, the Contractor may make changes to that annual exploration work programme and budget if those changes do not materially affect the original objectives of that exploration work programme and budget, and shall state the reasons for those changes to the Minister.

 

19. DISCOVERY AND EVALUATION WORK PROGRAMME

 

	
(1) 

	
The Contractor shall in accordance with section 9(b) of the Act, notify the Minister of a Discovery and shall report to the Minister all relevant information.

 

	

(2) 

	

If the Contractor considers that the Discovery merits Evaluation, it shall submit and orally  three (3) months present to the Minister a detailed statement of the Evaluation work programme and budget which shall provide for the expeditious Evaluation of the Discovery and the provisions of sub-clauses 18(3) and 18(4) shall apply to the Evaluation work programme and budget.

 

	

(3) 

	

After the Evaluation work programme and budget have been adopted, the Contractor shall diligently evaluate the Discovery without undue interruption.

 

	

(4) 

	

In the event of a Discovery in the last year of the Second Additional Exploration Period, the Minister shall, at the request of the Contractor, extend the term of the Second Additional Exploration Period in respect to the prospective area of the Discovery and for the period of time reasonably required to expeditiously complete the adopted Evaluation work programme and budget with respect to such Discovery and to determine whether or not the Discovery is commercial but in any event, such extension to the Second  Additional Exploration Period shall not exceed twelve (12) months.

 

 

	
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(5) 

	
The Contractor shall, not more than three (3) months after the Evaluation or Market Evaluation Report is completed, report to the Minister the commercial prospects of the Discovery, including all relevant technical and economic data.

 

	

(6) 

	

If the Contractor reports under sub-clause 19(5) that the Discovery is a Commercial Discovery, a Development Plan shall be submitted to the Minister within six (6) months of the completion of the Evaluation work programme or Market Evaluation Report unless otherwise agreed, and upon written application of the Contractor, the term of this Contract shall be extended by the Minister, if necessary, in respect of the area of that Commercial Discovery, provisionally established in accordance with the adaptation of a Development Plan.

 

20. DEVELOPMENT PLAN AND DEVELOPMENT WORK PROGRAMME

 

	

(1) 

	

The Contractor shall prepare, in consultation with the Minister, the Development Plan based on sound engineering and economic principles and in accordance with good international petroleum industry practice and considering the Maximum Efficient Rate of production appropriate to the Commercial Discovery.

 

	

(2)

	

The  Development  Plan  submitted  by  the  Contractor  to  the  Minister  shall contain 

 

(a)   Details   of   the   proposed   Development   Area,   relating   to   the Commercial Discovery which shall correspond as closely as possible to the extension of the discovered accumulation in the Contract Area, as determined by the analysis of all the relevant available information;

 

(b) Proposals relating to the spacing, drilling and completion of the wells and the facilities and installations required for the production, storage and transportation of petroleum;

 

(c) A production forecast and an estimate of the investment and expenses involved; and

 

(d) An estimate of the time required to complete each phase of the Development Plan.

 

	
(3) 

	
The Minister and the Contractor shall jointly consider the Development Plan

 

within sixty (60) days of submission thereof and the Minister may within that period, unless otherwise agreed, submit suggested modifications, justifications and revisions thereof. The Contractor shall consider the inclusion of such suggested modifications and revisions in the light of good international petroleum industry practice, and the Development Plan shall be adopted by mutual agreement.

 

Where the Minister proposes no modifications and revisions, the Development Plan of the Contractor shall be adopted sixty (60) days after its submission unless it is adopted by mutual agreement of the Parties before that period has elapsed.

 

	
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(4) 

	

After a Development Plan has been adopted, the Contractor shall use its best efforts to proceed, promptly and without undue interruption, to implement the Development Plan in accordance with good international petroleum industry practice. Development work shall commence six (6) months from the date of adoption of the Development Plan. 

 

In connection therewith, the Contractor shall submit and orally present to the Minister, prior to the first day of October of each year following the adoption of the Development Plan, a detailed statement of the annual development work programme and budget for the next Calendar Year and the provisions of sub- clauses 18(3) and 18(4) shall apply to the Development Plan and to the annual development work programme and budget.

 

	

(5) 

	

Where the development operations result in an extension to the area to which the Commercial Discovery relates within the Contract Area, the Minister shall adjust the relevant Development Area to include that extension as determined by the analysis of all the relevant available information.

 

21. UNITISATION

 

	
(1) 

	
Where the recoverable reserves of a Commercial Discovery extend into an area adjacent to the Contract Area, the Minister may require the Contractor to produce Petroleum therefore in co-operation with the Contractor of the adjacent area. Where non-commercial deposits of Petroleum in the Contract Area if exploited with deposits in an area adjacent to the Contract Area, would be commercial, the Minister may make a similar requirement to the contractor of that adjacent area.

 

	

(2) 

	

If  the  Minister  so  requires,  the  Contractor  shall  in  co-operation  with  the contractor of the adjacent area, submit within six (6) months, unless otherwise agreed by the Parties, a proposal for the joint exploitation of the deposits, for the approval of the Minister. The reasonable costs of preparing the proposal shall be divided equally between the Contractor and the adjacent contractor.

 

 

	
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(3) 

	

If the proposal is not submitted or approved, the Minister may prepare his own proposal, in accordance with good international petroleum industry practice, for the joint exploitation of the recoverable reserves. The Minister's proposal may be adopted by the Contractor, subject to sub-clause 21(4), and subject to the adjacent contractor's acceptance of the same proposal.

 

	

(4) 

	

The  provisions  of  the  proposal  for  joint  exploitation  shall  prevail  over  this Contract, where those provisions do not reduce the financial benefits to the parties under this Contract.

 

22. MARGINAL AND NON-COMMERCIAL DISCOVERIES

 

	
(1) 

	
Where the Contractor determines that oil or Natural Gas Discovery is margixal or non-commercial, the Contractor may propose a modification to this Contract, based on an alternative economic evaluation and after consideration the Minister may accept or reject the proposed modification. 

Upon making a marginal Discovery of Natural Gas, the Contractor and the Government shall commence good faith negotiations of revisions to Clause 27 that would be necessary in order to provide the Contractor with project economics that will provide a reasonable Rate of Return.

 

	
(2) 

	
The parties agree that unless otherwise agreed, if the Contractor fails to commence the Evaluation of a Petroleum Discovery within Twelve (12)  Months following the notice of Discovery, or if within Twelve (12) Months following the completion of an Evaluation work programme, and the Contractor considers the Crude Oil Discovery does not merit development, the Minister may request the Contractor to surrender the area corresponding to such Crude Oil Discovery and the Contractor shall forfeit any rights relating to any production there from. The area subject to such surrender shall not exceed the extension of the discovered accumulation as determined by the structural closure of the prospective horizon and all other relevant available information. Any such surrender by the Contractor shall be credited in accordance with sub-clause 3(3) hereof.

 

23. NATURAL GAS

	
(1) 

	
Where Natural Gas is discovered and the Contractor and the Minister agree that it may be economically processed and utilised other than in secondary recovery operations, that processing and utilisation shall follow a Development Plan approved in accordance with clause 20.

 

 

	
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(2) 

	
The Contractor shall return associated Natural Gas, not required for use in Petroleum Operations or sold, to the subsurface structure, but if such Natural Gas cannot be economically used or sold or returned to the subsurface structure, the Contractor shall, after expiry of sixty (60) days' notice to the Minister giving reasons why such Natural Gas cannot be economically used or sold or returned to the subsurface structure, be entitled to flare such associated Natural Gas in accordance to good international petroleum industry practice. Notwithstanding anything in this clause to the contrary Natural Gas may be flared at any time if necessary for the conducting of well and production tests and during any emergency.

 

	
(3) 

	
Where the Contractor does not consider that it is economical to process and utilise associated Natural Gas and where that Natural Gas is not required for use in Petroleum Operations, the Minister may at the field separator, process and utilise that Natural Gas without compensation but the Government shall pay for all costs and expenses related thereto which shall include, but not be limited to, any engineering studies, new fixtures, equipment and installations required for the gathering, transport, processing and utilisation thereof and the operation and maintenance of same shall be at the sole risk, cost and expense of the Government.

 

	
(4) 

	
Where the Contractor considers that it is economical to produce Natural Gas, the Contractor agrees to sell Natural Gas to the Government to the volume calculated in accordance with sub-clause 29(6) below with other terms of sale, including price, to be agreed.

 

24. PRODUCTION LEVELS AND ANNUAL PRODUCTION PROGRAMME

 

	
(1) 

	
The Contractor shall produce Petroleum at the Maximum Efficient Rate in accordance with good international petroleum industry practice.

 

	
(2) 

	
Prior to the first day of October of each year following the commencement of Commercial Production, the Contractor shall submit and orally present to the Minister, a detailed statement of the annual production programme and budget for the next Calendar Year, and the provisions of sub-clause 18(3) and (4) shall apply to the annual production programme and budget.

 

	
(3) 

	
The Contractor shall endeavour to produce in each Calendar Year the forecast quantity estimated in the annual production programme.

 

	
(4) 

	
The Crude Oil shall be run to storage (constructed, maintained and operated by the Contractor) and Petroleum shall be metered or otherwise measured as required to meet the purpose of this Contract in accordance with clause 25.

 

 

	
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25. MEASUREMENT OF PETROLEUM

 

	
(1) 

	
The volume and quality of Petroleum produced and saved from the Contract Area shall be measured by methods and appliances customarily used in good international petroleum industry practice and approved by the Minister.

 

	
(2) 

	
The Minister may inspect the appliances used for measuring the volume and determining the quality of Petroleum and may appoint an inspector to supervise the measurement of volume and determination of quality.

 

	
(3) 

	
Where the method of measurement, or appliances used therefore, have caused an overstatement or understatement of a share of the production, the error shall be presumed to have existed since the date of the last calibration of the measurement devices, unless the contrary is shown, and an appropriate adjustment shall be made for the period of error.

 

	
(4) 

	
The Minister and the Contractor shall determine the measurement point at which production shall be measured and the respective shares of Petroleum allocated.

 

26. VALUATION OF CRUDE OIL AND NATURAL GAS

 

	
(1) 

	
The  value of Crude Oil, for all purposes under this Contract, shall be denominated in United States dollars and shall be calculated each Calendar Quarter as follows-

 

(a) if there have been sales of Crude Oil produced from the Contract Area to third parties at arm's length during that Calendar Quarter, the value shall be the weighted average per unit price actually paid in those sales, at the F.O.B. point of export or at the point that title and risk pass to the buyer, adjusted for grade, gravity and quality of such Crude Oil as well as for transportation costs and other appropriate adjustments for grade, gravity, and quality of such Crude Oil transaction where the seller and the buyer are independent of one another and do not have, directly or indirectly, any common interest;

 

(b) if there have been no sales of Crude Oil produced from the Contract Area to third parties at arm's length during that Calendar Quarter, the value shall be the "fair market value" determined as the average per unit prevailing market price, actually paid during that Calendar Quarter in arm's length sales for export under term Contracts of at least ninety (90) days between unrelated purchasers and sellers, for Crude Oil produced in Kenya and for Crude Oil of comparable quality produced in the nearest major Crude Oil producing and exporting country, and adjusted for grade, gravity and quality of such Crude Oil as well as for transportation costs and any other appropriate adjustments.

 

 

	
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If necessary, a value of Crude Oil shall be determined separately for each Crude Oil or Crude Oil mix and for each point of delivery.

 

The value of Crude Oil shall be mutually agreed at the end of each Calendar Quarter and applied to all transactions that took place during the quarter.

If the Minister and the Contractor cannot reach agreement on the value of Crude Oil within thirty (30) days of the end of any Calendar Quarter, such dispute may be submitted for an Expert Determination.

 

	
(2) 

	
Pending the determination of the value of Crude Oil for a Calendar Quarter, the value of Crude Oil determined for the preceding Calendar Quarter will be provisionally applied to make calculation and payment during such Calendar Quarter until the applicable value for that Calendar Quarter is finally determined pursuant to sub-clause 26(1).  Any adjustment to provisional calculation and payment, if necessary, will be made within thirty (30) days after such applicable value is finally determined.

 

	
(3) 

	
Natural Gas shall be valued based on the actual proceeds received for sales, provided that, for sales of Natural Gas between the Contractor and any Affiliate, the value of such Natural Gas shall not be less than the then prevailing fair market value for such sales of Natural Gas taking into consideration, to the extent possible, such factors as the markets, the quality and quantity of Natural Gas and other relevant factors reflected in natural gas pricing.  For sales of Natural Gas into the domestic market, the price shall be set in accordance with the provisions of sub-clause 23(5).

 

 

	
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PART VI    COST RECOVERY, PRODUCTION SHARING, MARKETING AND PARTICIPATION

 

27. COST RECOVERY, PRODUCTION SHARING, WINDFALL AND INCOME TAX

 

	
(1) 

	
Subject to the auditing provisions under clause 30, the Contractor shall recover the Petroleum Costs, in respect of all Petroleum Operations, incurred and paid by the Contractor pursuant to the provisions of this Contract and duly entered in the Joint Account, by taking and separately disposing of an amount equal in value to a maximum of Sixty (60%) Percent of all Crude Oil produced from the Contract Area during that Fiscal Year and not used in Petroleum Operations. Such cost recovery Crude Oil is hereinafter referred to as "Cost Oil".

 

	
(2) 

	
Petroleum Costs may be recovered from Cost Oil in the following manner:

(a) Petroleum Costs, with the exception of capital expenditures, incurred in respect of the Contract Area, shall be recoverable either in the Fiscal Year in which these costs are incurred and paid or  the Fiscal Year in which Commercial Production occurs, whichever is the later; and

 

(b) capital expenditure incurred in respect of each Development Area shall be recoverable at a rate of 20%  based on amortization at that rate starting either in the Fiscal Year in which such capital expenditure are incurred and paid or the Fiscal Year in which Commercial Production from that Development Area commences, whichever is the later.

 

For the purpose of this clause, "capital expenditure" shall mean the qualifying expenditure, other than "intangible drilling costs", that is expenditure that has no salvage value, including expenditure on labour, fuel, repairs, maintenance, hauling, mobilization and supplies and materials, other than supplies and materials for well casings or other well fixtures, which is for or incidental to drilling, cleaning, deepening, completing or abandoning wells and is incurred in respect of –

 

(i) The determination of well locations, geological and geophysical studies, and topographical and geographical surveys preparatory to drilling;

 

(ii) The drilling, shooting, testing, and cleaning of wells; and

 

(iii) The clearing, draining and levelling of land, road-building and laying of foundations.

 

(c) To the extent that, in a Fiscal Year, the Petroleum Costs recoverable according to sub-clauses 27(2) (a) and 27(2)(b) exceed the value of all Cost Oil or Cost Gas for such Fiscal Year, the excess shall be carried forward for recovery by the Contractor in the next succeeding Fiscal Year or Fiscal Years until fully recovered, but in no case after the termination of this Contract.

 

(d) To the extent that, in a Fiscal Year, the Petroleum Costs recoverable according to sub-clauses 27(2)(a) and 27(2)(b) are less than the maximum value of the Cost Oil or Cost Gas as specified in sub-clause 27(1), the excess shall become part of, and be included in the Profit Oil or Profit Gas as provided for in sub-clause 27(3) hereafter.

 

(e) For the purpose of valuation of Cost Oil and Cost Gas, the relevant provisions of clause 26 hereof shall apply.

 

(3) The total Crude Oil produced and saved from the Contract Area and not used in Petroleum Operations less the Cost Oil as specified in sub-clauses 27(1) and 27(2), shall be referred to as the Profit Oil and shall be shared, taken and disposed of separately by the Government and Contractor according to increments of Profit Oil as follows:

 

 

	
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Incremental Production

Tranches

	
 

Govt. Share

	
Contractor

Share

	
0-40,000 barrels per day

	
50%

	
50%

	
Next 30,000 barrels per day

	
60%

	
40%

	
Next 25,000 barrels per day

	
65%

	
35%

	
Next 25,000 barrels per day

	
70%

	
30%

	
Above  120,000  barrels  per day

	
78%

	
22%

 

(a) For the purpose of this sub-clause, increments of Profit Oil shall be calculated by considering the total Crude Oil produced and saved from the Contract Area less the quantity of Cost Oil required to satisfy recoverable costs, expenses and expenditures according to sub-clauses 27(1) and 27(2).

 

(b) Where two (2) or more reservoirs are sufficiently close so that they utilize the same surface installation, they shall be considered, for the purposes of sub-clause 27(3) (a), as being one (1) Development Area. When making a proposal for the delineation of a Development Area and its associated Development Plan, the Contractor shall consider in priority the option which is the most favourable for the Government in terms of Profit Oil split.

 

(c)   Windfall Profits

When the value of crude oil for any calendar quarter calculated in accordance with Clause 26 of the PSC exceeds United States US$ 50 per barrel FOB Mombasa (hereinafter referred to as the (“Threshold Price”) adjusted for the United States of America’s Consumer Price Index (CPI) whose Effective Date will be from the date of the contract execution then a Second Tier Amount is payable by the Contractor to the Government.

 

 

	
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The Second Tier Amount will be calculated in respect of each Calendar Quarter according to the following formula:

 

R = CSPO x 26% x (V – Threshold Price) 

 

Where;

 

R is the Second Tier Amount in US Dollars;

 

V  is  the  value of  Crude Oil  in  U.S. dollars for  that Calendar Quarter calculated in accordance with Clause 26 and expressed in US$/bbl, provided that V exceeds the Threshold Price; and

 

CSPO  is  the  Contractor  Share  of  Profit  Oil  for  that  Calendar Quarter in bbl calculated pursuant to clause 27(3) (a).

 

(d) The Second Tier Amount will be calculated within thirty (30) days following the end of the Calendar Quarter for which it is due.  For the purposes of this Contract the Second Tier Amount will be treated as an adjustment to the amount payable as Profit Oil.

 

(e) The Threshold Price set forth in this sub-clause 27(3) (c) is US$ 50 per  barrel  F.O.B  Mombasa  as  of  Effective  Date  and  shall  be adjusted quarterly as set forth below. The Threshold Price during any Calendar Quarter shall be derived by multiplying the Threshold Price, by the number (hereinafter referred to as the "price index") which is the sum of one (1) and the decimal equivalent of the percentage increase in the United States Consumer Price Index, as reported for the first time in the monthly publication "International Finance Statistics" of the International Monetary Fund, between the month of Effective Date and the month when such valuation is calculated

 

	
(4) 

	
With respect to sub-clauses 27(1), 27(2) and 27(3), Cost Oil, Cost Gas, Profit Oil and Profit Gas calculations shall be done quarterly on an accumulative basis. To the extent that actual quantities, costs and expenses are not known, provisional estimates of such data based on the adopted annual production work programme and budget under clause 24 shall be used. Within sixty (60) days of the end of each Fiscal Year, a final calculation of Cost Oil, Cost Gas, Profit Oil and Profit Gas based on actual Crude Oil and Natural Gas production in respect of that Fiscal Year and recoverable Petroleum Costs shall be prepared and any necessary adjustments shall be made.

 

 

	
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(5) 

	
The Contractor shall be subject to and shall comply with the requirements of theincome tax laws in force in Kenya, which impose taxes on or are measured by income or profits.

 

The portion of the Profit Oil or Profit Gas which the Government is entitled to take and receive, and which is calculated under sub-clause 27(3), shall be inclusive of all taxes, present or future, based on income or profits of the Contractor, including specifically tax payable under the Income Tax Act, and dividend tax imposed by Kenya on any distribution of income or profits by the Contractor, but shall exclude the tax paid by the Contractor on behalf of petroleum service sub-contractors.

 

The Government agrees to pay and discharge as and when due such taxes for account of the Contractor and the Minister agrees to furnish the Contractor with proper receipts from the Government evidencing the payment of all such taxes on the Contractor's behalf for each Fiscal Year. Each Contractor shall prepare and file a Kenya income tax return for each Fiscal Year within four (4) months after the close of each Fiscal Year. The receipts furnished by the Minister evidencing payment of such taxes shall correspond to the amount of taxes payable on behalf of the Contractor by the Government. The receipts shall be issued by the duly constituted authority for the collection of Kenya income taxes and shall be furnished within three (3) months after the date the Contractor files its Kenya income tax return for the Fiscal Year.

 

All taxes paid by the Government in the name and on behalf of the Contractor shall be considered income to the Contractor for the Fiscal Year to which the tax payments relate.

 

	
(6) 

	
If so directed by the Minister, the Contractor shall be obligated to lift and market part or the entire Government share of Profit Oil, Profit Gas, and any Government or Appointee Participating Interest share of Petroleum in a Development Area.

 

If any Party fails to lift and market their share of Petroleum, the Contractor nominated as operator may lift and market such Party’s share on their behalf.

 

When the Minister elects not to take and receive in kind any part of the Government share of Profit Oil, the Minister shall notify the Contractor three (3) months before the commencement of each Semester of a Calendar Year, specifying the quantity of production and such notice shall be effective for the ensuing Semester. Any sale by the Contractor of the Government share of Profit Oil shall not be for a term of more than one (1) year without the Minister's consent. The Contractor shall have the right to market the Government’s share at the then prevailing “fair market price”

 

The price paid by the Contractor for the Government share of Profit Oil, shall be the price established according to clause 26. The Contractor shall pay the Government on a monthly basis, such payments to be made within thirty (30) days after the end of the month in which the production occurred.

 

 

	
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(7) 

	
At  a  reasonable  time  prior  to  the  scheduled  date  of  commencement  of Commercial Production, the parties shall agree to procedures covering the scheduling, storage and lifting of Petroleum produced from the agreed upon Point of Sale.

 

	
(8) 

	
In the event that the Contractor elects to produce a Natural Gas Discovery, the Petroleum Costs incurred by the Contractor and directly attributable to the development and production of such Natural Gas shall be recovered from part thereof.

 

28. GOVERNMENT PARTICIPATION

 

	
(1)

	
The Government may elect to participate in the petroleum operations in any Development area and acquire an interest of up twenty per cent (20%) (hereinafter referred to as "Participating Interest") of the total interest in that development area. The Government may participate either directly or through an appointee

 

	
(2) 

	
If the Government exercises its right to participate in a Development Area, the Government and the Contractor shall enter into either a Participation Agreement of an amendment and novation of the Joint Operating Agreement, to add the Government or its Appointee as a party to the Joint Operating Agreement within three (3) months after notice to the Contractor under sub-clause 28(1).

 

	
(3) 

	
The Government shall, in exercise of its right to participate in a Development Area :

 

(a) Have a right to a vote in proportion to its Participating Interest with respect to all decisions taken under this Contract and either the Participation Agreement or Joint Operating Agreement as appropriate;

 

(b) Own and separately take and dispose of its Participating Interest share in the Petroleum produced and saved to which the Contractor is entitled under this Contract, corresponding to its Participating Interest in that  Development Area;

 

(c) Assume its share of Petroleum Costs incurred in respect of that Development Area, from the Effective Date of its participation as defined in sub-clause 28(3), pro-rata to its Participating Interest;

(d)  Own  a  Participating  Interest  share  in  all  assets  acquired  for Petroleum Operations in or related to the Development Area;

 

 

	
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(4) 

	
The Government shall reimburse the Contractor, without interest, pro-rata to the Government Participating Interest, its share of all costs, expenses and expenditure incurred in respect of the Development Area from the date the Development Plan for that Development Area has been adopted to the date the Government serves notice pursuant to sub-clause 28(3) exercises its right to participate in that Development Area.  This reimbursement shall be made within three (3) months after the Government serves notice pursuant to sub-clause 28(3).

 

29. DOMESTIC CONSUMPTION

 

	
(1) 

	
The Contractor shall have the obligation to supply in priority Crude Oil for domestic consumption in Kenya and shall sell to the Government that portion of the Contractor's share of Production, which is necessary to satisfy the domestic supply requirements in accordance with the following provisions.

 

	
(2) 

	
In each Calendar Year, the Minister shall notify the Contractor not less than three (3) months prior to the beginning of that Calendar Year, of the domestic supply requirement. The maximum amount of Crude Oil that the Minister may require from the Contractor's share of production shall be calculated each Calendar Quarter, and shall be equal to the excess of total Crude Oil domestic consumption in Kenya multiplied by a fraction, the numerator of which is the average Crude Oil production from the Contract Area and the denominator of which is the total Crude Oil production from all producers in Kenya, over the amount of Crude Oil available to the Government from the Government’s share of Crude Oil from all production sharing Contracts in Kenya, including the Government’s share of production under clause 27 and in the form of Government participation share under clause 28. 

 

Forthe purpose of this sub-clause, "domestic consumption" does not include CrudeOil refined in Kenya for export.

 

	
(3) 

	
When  the  Contractor  is  obligated  to  supply  Crude  Oil  or  Natural  Gas  for domestic consumption in Kenya, the price paid by the Government shall be calculated in accordance with clause 26. Such sales to the Government shall be invoiced monthly and shall be paid within thirty (30) days of receipt of the invoice, unless other terms and conditions are mutually agreed.

 

	
(4) 

	
With the written consent of the Minister the Contractor may comply with this clause by importing Crude Oil and exporting the same amount, but appropriate adjustments shall be made in price and volume to reflect transportation costs, differences in quality, gravity and terms of sale; provided that the Contractor may  also  comply  with  this  Clause  with  respect  to  Natural  Gas  amounts required under sub-clause 29(6) by importing alternative fuels and exporting a like amount of Natural Gas.

 

	
(5) 

	
In this clause, "Government" includes an Appointee and "Contractor" does not include the Government where the Government has participated under clause 28.

  

	
(6)

	
In each Calendar Year, the Minister shall notify the Contractor not less than three (3) months prior to the beginning of that Calendar Year, of the domestic Natural Gas supply requirement. The maximum amount of Natural Gas that the Minister may require from the Contractor's share of production shall be calculated each Calendar Quarter, and shall be equal to the excess of total domestic Natural Gas consumption in Kenya multiplied by a fraction, the numerator of which is the average Natural Gas production from the Contract Area and the denominator of which is the total Natural Gas production from all producers in Kenya, over the amount of Natural Gas available to the Government from the Government’s share of Natural Gas from all production sharing contracts in Kenya, including in the form of Government’s share of production under Clause 27 and in the form of Government participation share under Clause 28 under this Contract. For the purpose of this sub-clause 29(6), "domestic consumption" does not include Natural Gas liquefied or compressed in Kenya for export.

 

 

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PART VII BOOKS, ACCOUNTS, AUDITS, IMPORTS, EXPORTS AND FOREIGN EXCHANGE

 

30. BOOKS, ACCOUNTS AND AUDITS

 

	
(1) 

	
The  Contractor  shall  keep books and accounts in accordance with the Accounting Procedure and shall submit to the Minister a statement of those accounts, not more than three (3) months after the end of each Calendar Year.

 

	
(2) 

	
At the request of the Minister, the Contractor shall appoint an independent auditor of international standing, approved by the Government to audit annually the books and accounts of the Contractor and report thereon; and the cost of such audit shall be at the charge of the Contractor and cost recoverable.

 

	
(3) 

	
The Government may audit the books and accounts in accordance with the provisions of the Accounting Procedure within two (2) Calendar Years of the period  to  which  they  relate,  and  shall  complete  that  audit  within  one  (1) Calendar Year.

 

	
(4) 

	
In the absence of an audit within two (2) Calendar Years or in the absence ofnotice to the Contractor of a discrepancy in the books and accounts within three (3) Calendar Years of the period to which the audit relates the Contractor's books and accounts shall be deemed correct.

 

 

	
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31. PREFERENCE TO KENYAN GOODS AND SERVICES

 

	
(1) 

	
The Contractor, its contractors and sub-contractors shall give preference to Kenyan materials and supplies for use in Petroleum Operations as long as their prices, quality, quantities and timeliness of delivery are comparable with the prices, quality, quantities and timeliness of delivery of non-Kenyan materials and supplies.

 

	
(2) 

	
The Contractor, its contractors and sub-contractors shall give preference to Kenyan contractors for services connected with Petroleum Operations as long as their prices, quality of performance and timeliness are comparable with the prices,  quality of  performance and timeliness of  non-Kenyan service contractors.

 

	
(3) 

	
The Contractor, its contractors and sub-contractors shall provide supplies and services from bases in Kenya where practicable.

 

	
(4) 

	
The Contractor shall –

 

(a) on or before the beginning of each Calendar Year to which it applies, submit to the Minister a tentative schedule of the contemplated service and supply contracts with an estimated value exceeding the equivalent of Five Hundred Thousand (USD 500,000) United States Dollars per contract, to be entered into during the forthcoming Calendar Year, showing the anticipated tender date and approximate value and the goods and services to be provided;

 

(b) for contracts with an estimated value exceeding the equivalent of Five Hundred Thousand (USD 500,000) United States Dollars per contract, undertake to select its contractors and sub-contractors from adequately qualified companies by means of competitive bidding or by appropriate sole sourcing in accordance with good international petroleum industry practice;

 

As soon as practicable after their execution, provide to the Minister a copy of each contract, requiring a payment in a currency other than Kenya Shillings and a brief description of the efforts made to find a Kenyan supplier or service contractor;

 

(d) The minimum amount specified under this sub-clause 31(4) may be changed from time to time by mutual agreement.

 

 

	
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32. EXPORTS AND IMPORTS

 

	
(1) 

	
Except as to the petroleum to be delivered to the Government pursuant to the terms of this Contract, the Contractor shall own and receive its share of Petroleum produced from the Contract Area and shall be entitled to lift, take, export  and  sell  or otherwise  dispose  of  such  Petroleum  outside  of  Kenya without restriction and free of taxes, charges, fees, duties or levies of any kind or to otherwise freely dispose of the same.

 

	
(2) 

	
The Contractor and its contractors and sub-contractors engaged in carrying out Petroleum Operations under this Contract shall be permitted to import into Kenya all the services, materials, equipment and supplies including but not limited to machinery, vehicles, consumable items, movable property and any other articles, to be used solely in carrying out Petroleum Operations under this Contract.

 

	
(3) 

	
Such services, materials, equipment and supplies shall be exempt from all Customs Duties, VAT and import declaration fees provided that the Contractor and its contractors and sub-contractors shall give preference to Kenyan goods and services in accordance with clause 31 hereof.

 

	
(4) 

	
In relation to materials, equipment and supplies imported or to be imported pursuant to sub-clause 32(2) when a responsible representative of the Ministry has certified that they are to be used solely in carrying out Petroleum Operations under this Contract, the Contractor and its contractors and sub- contractors shall be entitled to make such imports without-

 

(a) any approval of import licence, provided, however, that an application has been duly made;

 

(b) any exchange control approval, subject to the provision of clause 33 hereof; or.

 

(c) any inspection outside of Kenya by general superintendence or other inspecting body, acting for the time being, appointed by the Government.

 

The actual costs of Contracts for technical and other services entered into by the Contractor for Petroleum Operations and for materials purchased by the Contractor for use in Petroleum Operations shall be recoverable, provided that those services and materials are reasonably required for Petroleum Operations and provided further that the prices paid by the Contractor are no higher than those currently prevailing in normal arm's length transactions of the open market for comparable services and materials.

 

 

	
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(5) 

	
Each expatriate employee of the Contractor, its contractors and sub-contractors shall be permitted to import and shall be exempt from all Customs Duties with respect to the reasonable importation of household goods and personal effects, including one (1) automobile provided however that such properties are imported within three (3) months of their arrival or such longer period as the Government may in writing determine.

 

	
(6) 

	
The Contractor and its contractor and sub-contractors and their expatriate employees may sell in Kenya all imported items which are no longer needed for Petroleum Operations.  However, if such imports were exempt from Customs Duties, the seller shall fulfil all formalities required in connection with the payment of duties, taxes, fees and charges imposed on such sales.

 

	
(7) 

	
Subject to sub-clauses 12(6) and 12(7), Contractor and its contractors and sub- contractors and their expatriate employees may export from Kenya, exempt of all export duties, taxes, fees and charges, all previously imported items which are no longer required for the conduct of Petroleum Operations under this Contract.

 

	
(8) 

	
"customs duties", as that term is used herein, shall include all duties, taxes on imports (except those charges paid to the Government for actual services rendered), which are payable as a result of the importation of the item or items under consideration.

 

33. EXCHANGE AND CURRENCY CONTROLS

 

Clauses  33(1),  33(2)  and  33(3)(c)  were  deleted  following  the  repealing  of  the Exchange Control Act Chapter 113 of the laws of Kenya however clauses 33(3)(a), 33(3)(b) and 33(4) have been retained as they are still applicable.

 

	
(3)

	
Subject to the obligation to give preference to Kenyan goods and services as stipulated under clause 31, the Contractor shall have the right to enter all contracts and sub-contracts necessary to carry out Petroleum Operations, without prior approval by the Central Bank of Kenya or any other Government agency. The Government reserves the right to inspect the records or documentation related to such contracts and sub-contracts and, in accordance with clause 30, to appoint independent auditors to examine the accounts of the Contractor, and if the Government requests, the Contractor shall provide a copy of such contracts within thirty (30) days, provided however that where the Government disputes a specific substantive, material provision in the contracts, the value in dispute shall not be included, until, the dispute has been resolved, in respect of:

 

(a) the qualifying expenditure under the Income Tax Act; and

(b) the Certificate of Approved Enterprise.

 

 

	
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(4)

	
The Government shall grant to the Contractor a certificate of Approved Enterprise in accordance with the Foreign Investments Protection Act, Chapter 518 of the Law of Kenya. The amount recognized by the certificate as having been invested shall be the actual amount for the time being invested by the Contractor as set forth in its books of account maintained and audited in accordance with this Contract, provided however that the Contractor shall not repatriate any proceeds of sale of an asset forming part of either

 

(a) qualifying expenditure under the Income Tax Act; or

 

(b) any asset subject to a Certificate of Approved Enterprise; without written approval and the necessary amendments to the relevant certificate.  Proceeds arising from any other source may be repatriated after a senior Officer of the Ministry, duly authorized in that behalf, has certified that such repatriation is in order.

 

	
(5)

	
In addition to the rights expressed in sub-clause 33(3), the Contractor shall have the right to:

 

(a) retain abroad the proceeds from all sales of Petroleum to which it is entitled, and to repatriate all capital, loan principal, profits and other income or expense arising out of Petroleum Operations;

 

(b) establish and maintain interest bearing bank accounts in Kenya and in foreign countries, and to import into Kenya funds required for Petroleum Operations in foreign exchange;

 

(c) make payments outside of Kenya for goods, works and services of whatever nature in connection with the conduct of Petroleum Operations;

 

(d)  pay  wages,  salaries,  allowances  and  benefits  of  its  employees partly or wholly outside of Kenya (which shall also apply to the Contractor’s Affiliates and subcontractors).

 

 

	
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PART VIII GENERAL

 

34. PAYMENTS

 

	
(1) 

	
All sums due to the Government or the Contractor shall be paid in United States dollars or other currency agreed to by the Government and the Contractor.

	
(2) 

	
Any late payment shall attract interest at LIBOR plus 300 basis points.

 

35. ASSIGNMENT

 

	
(1) 

	
After notice to the Minister, a Contractor may assign part or all of its rights and obligations under this Contract to an Affiliate without the prior approval of the Minister, provided such assignment shall result in the assignor and the assignee being jointly and severally liable for all of the assignor's obligations hereunder.

 

	
(2) 

	
A Contractor may only assign to a Person other than an Affiliate part or all of its rights and obligations under this Contract with the consent of the Minister, which shall not be unreasonably withheld and which shall be granted or refused within thirty (30) days of receipt by the Minister of the notice from the Contractor that it intends to make such an assignment but the Minister may require such an assignee to provide a guarantee for the performance of the obligations of the Contractor.

 

	
(3) 

	
The  Contractor  shall  report  to  the  Minister  any  Change  in  Control  in  its corporate structure.

 

36. MANAGER, ATTORNEY AND JOINT OPERATION AGREEMENT

 

	
(1) 

	
The Contractor shall notify the Minister, before the Petroleum Operations begin, of the name and address of the person resident in Kenya who will supervise the Petroleum Operations, and prior notice of any subsequent change shall be given to the Minister.

 

	
(2) 

	
The Contractor shall appoint an advocate resident in Kenya with the power of representation in all matters relating to this Contract, of which appointment the Minister shall be notified before the Petroleum Operations begin, and prior notice of any subsequent change shall be given to the Minister.

 

	
(3) 

	
Where the Contractor consists of more than one Person, the Contractor shall deliver to the Minister a copy of the Joint Operating Agreement between those Persons, as soon as it is available.

 

37. CONFIDENTIALITY

 

	
(1) 

	
All the information which the Contractor may supply to the Government under this Contract shall be supplied at the expense of the Contractor and the Government shall keep that information confidential, and shall not disclose it other than to a Person employed by or on behalf of the Government, except with  the  consent  of  the  Contractor  which  consent  shall  not  unreasonably withheld

 

 

	
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(2) 

	
Notwithstanding  sub-clause  37(1),  the  Minister  may  use  any  information supplied, for the purpose of preparing and publishing reports and returns required by law, and for the purpose of preparing and publishing reports and surveys of a general nature for internal use.

 

	
(3) 

	
The Minister may publish any information, which relates to a surrendered area at any time after the surrender, and in any other case, three (3) years after the information was received unless the Minister determines, after representations by the Contractor, that a longer period shall apply.

 

	
(4) 

	
The  Government  shall  not  disclose,  without  the  written  consent  of  the Contractor, to any Person, other than a Person employed by or on behalf of the Government, know-how and proprietary technology which the Contractor may supply to the Minister.

 

	
(5)

	
Except  as  may  be  necessary  to  obtain  the  appropriate  governmental approvals, none of the Parties shall disclose the content of this Contract (except to its Affiliates, independent contractors and consultants, bona fide third party purchasers of an interest under this Contract, or as required by law) without the prior written consent of the other Parties.

 

	
(6)

	
Subject to legal or regulatory requirements applicable to the  Contractor, the Parties shall cooperate in developing joint publicity statements to be released at an agreed time.  After the Effective Date, all public announcements by the Contractor about the Petroleum Operations shall be issued through the Contractor with the approval of the Government.

 

38. FORCE MAJEURE

 

	
(1)

	
In this clause, “Force Majeure” means an occurrence beyond the reasonable control of the Minister or the Government or the Contractor which prevents any of them from performing their obligation under this Contract, including but not limited to the occurrences set out in clause 38(1).

 

	
(2)

	
“Force Majeure” shall include, among other things,  Acts of God, unavoidable accidents, acts of war or conditions attributable to or arising out of war (declared or undeclared), insurrections, riots, and other civil disturbances, hostile acts of hostile forces constituting direct and serious threat to life and property,  and  all  other  matters  or  events  of  a  like  or  comparable  nature beyond the control of the Parties  concerned.

 

  

	
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(3)

	
Where the Minister, the Government or the Contractor is prevented from complying with this Contract by force majeure, the Person affected shall promptly give written notice to the other and the obligations of the affected Person shall be suspended, provided that the Person shall do all things reasonably within its power to remove such cause of force majeure. Upon cessation of the force majeure event, the Person no longer affected shall notify the other Person.

 

	
(4) 

	
Where the Person not affected disputes the existence of force majeure, that dispute shall be referred to arbitration in accordance with clause 41.

 

	
(5) 

	
Where an obligation is suspended by force majeure for more than one (1) year, the parties may agree to terminate this Contract by notice in writing without further obligations.

 

	
(6) 

	
The term of the Contract shall be automatically extended for the period of the force majeure.

 

39. WAIVER

 

A waiver of an obligation of the Contractor shall be in writing, signed by the Minister, and no waiver shall be implied if the Minister does not exercise a remedy under this Contract.

 

40. GOVERNING LAW

 

	
(1) 

	
This Contract shall be governed by, interpreted and construed in accordance with the Laws of Kenya.

 

	
(2) 

	
The Contractor agrees that it will obey and abide by all laws, taxes, duties, levies and regulations in force in Kenya.

 

 

	
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(3) 

	
If after the Execution Date of this Contract the economic benefits of a party are substantially affected by the promulgation of new laws and regulations, or of any amendments to the applicable laws and regulations of Kenya, the parties shall agree to make the necessary adjustments to the relevant provisions of this Contract, observing the principle of the mutual economic benefits of the parties.

 

The Parties shall renegotiate and amend this Contract in good faith, so as to achieve the same economic benefits for the Contractor as would have been anticipated had there not been any adverse economic affects. The Parties shall meet within thirty (30) days after the Government’s receipt of the notice from the Contractor regarding the adverse economic affects. If the Parties are unable to agree upon the modifications that are required to this Contract in order to resolve the adverse economic impact on the Contractor within ninety (90) days after the expiration of the preceding thirty (30) day period, or within another time frame as may be agreed by the Parties, the matter may be referred to arbitration by either the Contractor or the Government in accordance with Clause 41.

 

41. ARBITRATION

 

	
(1) 

	
Except as otherwise provided in this Contract, any question or dispute arising out of or in relation to or in connection with this Contract shall, as far as possible, be settled amicably. Where no settlement is reached within thirty (30) days from the date of the dispute or such a period as may be agreed upon by the parties, the dispute shall be referred to arbitration in accordance with the UNCITRAL arbitration rules adopted by the United Nations Commission on International Trade Law.

 

	
(2) 

	
The number of arbitrators shall be three (3) and shall be appointed as follows –

 

(a) each party shall appoint one (1) arbitrator and so notify the other party of such appointment and those two (2) arbitrators shall appoint the third arbitrator.

 

(b) if any of the arbitrators shall not have been appointed within thirty (30) days, either party may request in writing the Secretary-General of the International Centre for Settlement of Investment Disputes to appoint the arbitrator or arbitrators not yet appointed and to designate an arbitrator to be the Chairman of the arbitral tribunal. The Secretary-General shall forthwith send a copy of that request to the other party.

 

The Secretary-General shall comply with the request within thirty (30) days from the receipt thereof or such longer period as the parties may agree.

 

The Secretary-General shall promptly notify the parties of any appointment or designation made by him pursuant to the aforesaid request.

 

(c) Arbitrators shall be chosen from countries other than those of which the parties are nationals.

 

(d) If an arbitrator fails or is unable to act, his successor will be appointed in the same manner as the arbitrator whom he succeeds.

 

	
(3) 

	
The arbitration shall take place in Cape Town, South Africa and shall be in English.

 

 

	
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(4)

	
The decision of the majority of the arbitrators shall be final and binding on the parties.

 

	
(5)

	
Any judgement upon the award of the arbitrators may be entered in any court having jurisdiction in respect thereof,

 

42. ABANDONMENT AND DECOMMISSIONING OPERATIONS

 

	
(1) 

	
Decommissioning Costs

 

(a) The Decommissioning Plan is to form part of the Development Plan, and shall include a schedule for the amortization of costs and cost recovery of costs, which are estimated to be incurred when the development is decommissioned.

 

(b) The Contractor shall exercise its good faith judgment to book sufficient accruals for future abandonment and decommissioning operations to cover the expenses which are expected to be incurred under the Decommissioning Plan.  The Contractor shall examine on an annual basis, the estimated costs of abandonment and decommissioning operations and, if appropriate, revise them.

 

(c) The Contractor shall commence booking accruals for abandonment and decommissioning costs in the first Calendar Quarter in which the ratio of cumulative production to overall recoverable reserves reaches sixty percent (60%), unless otherwise agreed in the Development Plan.

 

(d) All abandonment and decommissioning costs shall be recovered as Petroleum Costs at the time that the accrual is entered in the books.

 

(e) Contractor shall book an accrual on a Calendar Quarter basis for the amount of future abandonment and decommissioning costs according to the following formula:

 

FTA = (ECA – AFB) X CPP/PRR 

 

Where:

 

FTA  is  the  amount  to  be  accrued  for  future  abandonment  and decommissioning costs in respect of the relevant Calendar Quarter.

 

ECA is the total estimated cost of abandonment and decommissioning operations established pursuant to this Abandonment and Decommissioning Clause.

 

CPP is the volume of Petroleum produced during the Calendar Quarter in which the abandonment and decommissioning accrual was booked.

 

 

	
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PRR is the Contractor’s estimated remaining recoverable reserves at the end of the Calendar Quarter in which the abandonment and decommissioning accrual was booked; as such estimates may be revised by Contractor from time to time.

 

AFB is the accrued abandonment and decommissioning cost balance at the end of the previous Calendar Quarter.

 

	
(2) 

	
Commencements of Abandonment and Decommissioning Operations

 

(a) Abandonment and decommissioning will be scheduled to occur after a Discovery reaches its Economic Limit. “Economic Limit” shall mean that point in the life of field where expected Revenue to Contractor from Petroleum Operations is insufficient to cover the operating costs to continue Petroleum Operations in accordance with the requirements of the Contract. In addition, “Revenue” means the expected revenues derived from the sale of Petroleum together with any firm tariff income earned by the field facilities, if any.

 

(b) On or before the start of the 720 calendar day period prior to the expected  start  date  of  abandonment  and  decommissioning,  the Minister shall notify the Contractor which of the facilities and assets identified in the Development Plan shall not be abandoned and decommissioned, but which shall revert to the ownership of the Government in accordance with Clause 12 of this Contract. No further funds to cover abandonment and decommissioning costs shall be reserved or accrued for the facilities and assets so identified and a corresponding adjustment shall be made, if necessary, by the Contractor.

 

(c) If, the Minister decides not to use the said assets, he shall have the right to require the Contractor to remove them at the latter's expense in accordance with the said Decommissioning Plan, it being understood that the abandonment and decommissioning operations shall be carried out by the Contractor in accordance with good international petroleum industry practice, this Contract and in accordance with the time schedule and conditions defined in the Decommissioning Plan which shall have been approved.

 

	
(3) 

	
Abandonment and Decommissioning upon Termination of Development Area

 

(a) If the Contractor recommends abandonment and or decommissioning  of  facilities  assets  or  wells  belonging  to  it  in connection with a termination of an Development Area, pursuant to sub-clause 3(5) of this Contract, the Government may elect to take ownership of and continue using such facilities, assets and wells by giving the Contractor written notice of such decision within sixty (60) calendar days of the Government's receipt of the Contractor's notice of relinquishment. Upon so notifying the Contractor, which notification is effective as of the effective date of the Contractor’s relinquishment, the Government shall take ownership of, and be responsible for, abandonment and decommissioning of such facilities, assets and wells.

 

 

	
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If the Government does not elect to continue using such facilities, assets or wells, the Contractor shall be responsible for their abandonment and decommissioning upon termination of this Contract or of the Development Area within the corresponding Development area, if earlier. Contractor may in consultation with Government defer the abandonment and decommissioning operations for a reasonable length of time if this would result in operational efficiencies, which minimize the cost for all parties.

 

	
(4) 

	
Facilities, Assets and Wells, Which the Government Continues to Use With respect to any facilities, assets or wells which the Government elects to own pursuant to this Contract or pursuant to these Abandonment and Decommissioning provisions:

 

(a) The Government shall conduct such continued use and/or abandon or decommission in accordance with generally accepted international petroleum industry practice and in such a manner that does not interfere with continuing Petroleum Operations; and

(b) The Government may abandon and decommission such facilities, assets and wells as and when the Government decides.

 

	
(5) 

	
Disbursements of Funds for Abandonment and Decommissioning Costs

 

(a) The Contractor will advise the Government on an annual basis its best estimate of the projected date of abandonment and decommissioning of the Discovery based on the then current estimate of when the Economic Limit will be reached according to the then current production forecast and realized Petroleum prices.

 

(b) As and when the Contractor commences booking accruals pursuant to these provisions, the Contractor will cause the accrued costs of abandonment and decommissioning operations to be set aside in a separate US$ interest bearing escrow account in the joint names of the Contractor and the Government, established at a mutually acceptable financial institution in London, England to be used solely for paying the decommissioning costs. The account is to be funded on a quarterly basis by the    Contractor constituting the Contractor and the Government in proportion to the  Contractor’s then current Participating Interest  under this Contract and out of its share of ongoing Cost Oil, Cost Gas, Profit Oil and Profit Gas attributable to the Contractor and the   Government   entities,   or   by  cash   payment   if   production   is insufficient.  A final reconciliation shall be submitted to all Entities and the Government following completion of all abandonment and decommissioning operations and adjustments made in accordance with sub-clause 42(6) below.

 

 

	
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(6) 

	
Adjustments to Accruals for Abandonment and Decommissioning Costs

 

(a) If excess accruals which were booked for abandonment and decommissioning costs remain following completion of all abandonment and decommissioning operations, then such excess funds shall be distributed to Contractor and Government in the same proportion as the cumulative Profit Oil or Profit Gas distribution, as appropriate, to Government and Contractor under Clause 27 of this Contract during the  years  that  the  accruals  for  abandonment and  decommissioning costs were booked by Contractor.

 

(b) Any abandonment and decommissioning cost accruals which have been booked for purposes of removing facilities or assets that the Government decides should not be removed shall be paid by Contractor to Government concurrently with the transfer of ownership of such facility, asset or well to the Government. The Government represents that the transferred funds shall only be used in conjunction with its abandonment and decommissioning operations.

 

If amounts accrued for abandonment and decommissioning costs are insufficient to complete abandonment and decommissioning activities, additional funds for such activities shall be provided from a portion of Crude Oil or Natural Gas which Contractor is entitled to receive under this Contract from any Development Area, or if no production is available, by cash payment by the Entities and the Government in the same ratio as would be applicable for distribution of excess amounts under sub-clause 42(6)(a).

 

43. NOTICES

 

	
(1) 

	
Any notice and other communication under this Contract shall be in writing and shall be delivered by hand, sent by registered post, or by facsimile to the following address of the other.

 

  

	
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To the Government:

 

To the Government: Ministry of Energy:

FAO Hon. Minister of Energy

Nyayo House

Kenyatta Avenue

P O Box 30582.00100

Nairobi, Kenya

Tel: +254 20 310 112

Fax:  +254 20 228 314

 

To the Contractor:

 

CAMAC Energy Kenya Limited c/o Coulson Harney Advocates Unit A, 1st Floor

Nairobi Business Park

Ngong Road

P.O.Box 10643-00100

Nairobi, Kenya

Tel. +254-20-2899000

Fax: +254-20-2899100

 

  

	
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(2) 

	
A notice shall be effective on receipt.

 

	
(3) 

	
Any notice, if sent by facsimile, shall be deemed to be received by the party to whom it was addressed on the first business day after the day upon which the facsimile was received.  Any notice, if by personal delivery to any party, shall be deemed to be received by the addressee on the date of delivery, if that date is a business day, or otherwise, on the next business day following.  In the event that a notice sent by facsimile includes a request for confirmation of the receipt thereof, such a confirmation shall be sent no later than one (1) business day after receipt of the notice. The Government and the Contractor may at any time and from time to time change its authorized representative or its address herein on giving the other ten (10) days notice in  writing to such effect.

44. HEADING AND AMENDMENTS

 

	
(1) 

	
Headings are inserted in this Contract for convenience only and shall not affect the construction or interpretation hereof.

 

	
(2) 

	
This Contract shall not be amended, modified or supplemented except by an instrument in writing signed by the duly authorized representatives of the parties, and constitutes the entire agreement among the Parties.

 

	
(3) 

	
In  the  event  of  a conflict  between  the provisions  of  this Contract  and itsAppendices, the provisions of this Contract shall prevail.

 

	
(4) 

	
In the event one of the provisions of this Contract is or becomes invalid, illegal or unenforceable, such provision shall be deemed to be severed from this Contract and the remaining provisions of this Contract shall continue in full force and effect.

 

	
(5) 

	
This  Contract  shall  be  executed  in  eight  (8)  originals, four  (4)  for  the Government and four (4) for the Contractor. 

 

Signed on the day and year first before written:

 

For the Government

The Minister

 

	 	 	 
	
Signature

	/s/ Hon. Kiraity Murnal	 
	Name 	Hon. Kiraity Murnal	 
	Title 	MINISTER	 

 

In the Presence of:

Witness

 

	 	 	 
	
Signature

	/s/ Partick M. Nyolke	 
	Name 	PATRICK M. NYOLKE	 
	Title 	PERMANENT SECRETARY	 

 

 

	
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For the Contractor:

	 	 	 	 
	 	 	 	 	 	 
	Signature:	
/s/ Kase Lawal

	 	Signature:	
/s/ Ogunjimi Olusegun

	 
	Name:	
Dr. Kase Lawal

	 	Name:	
Ogunjimi Olusegun

	 
	Title:	
Director

	 	Title:	

Director

	 

 

 

In the Presence of: 

Witness

 

	
Signature

	/s/ Kerubo Ombati	 
	Name 	KERUBO OMBATI	 
	Title 	ADVOCATE	 

 

 

	
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APPENDIX “A”

 

THE CONTRACT AREA – BLOCK L27

(The Area to which the Petroleum Agreement relates)

 

BLOCK CORNER COORDINATES

 

	Point	Longitude	Latitude
	 °	 	 	 °	 	 
	L105a	43	20	30.912 E	3	36	35.964 S
	L110	41	45	0 E	3	36	36 S
	L105	43	20	32.244 E	4	8	57.876 S
	L109	41	45	0 E	4	9	1.3 S

 

Area =10585.62km2

 

 

	
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APPENDIX "B"

 

 

ACCOUNTING PROCEDURE

 

TABLE OF CONTENTS

 

	PART I - GENERAL PROVISIONS	60
	 	 	 
	 	
1.1 - Interpretation.

	60
	 	
1.2 - Accounting obligations of the Contractor.

	60
	 	
1.3 - Language and units of accounts.

	61
	 	
1.4 - Audits.

	61
	 	
1.5 - Revision of Accounting Procedure.

	61
	 	  	 
	PART II - COSTS, EXPENSES, EXPENDITURE AND CREDITS OF THE CONTRACTOR	62
	 	  	 
	 	
2.1 - Surface rights.

	62
	 	
2.2 - Labour and related costs.

	62
	 	
2.3 - Materials.

	63
	 	
2.4 - Transportation and employee relocation costs.

	64
	 	
2.5 - Services.

	64
	 	
2.6 - Damage and losses to joint property.

	65
	 	
2.7 - Insurance.

	65
	 	
2.8 - Legal expense.

	65
	 	
2.9 - Duties and taxes.

	65
	 	
2.10 - Offices, camps and miscellaneous facilities.

	66
	 	
2.11 - General and administrative expenses.

	66
	 	
2.12 - Other expenditure.

	67
	 	
2.13 - Credits under the Contract.

	67
	 	
2.14 - No duplication of charges and credits.

	67

 

 

	
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PART III – FINANCIAL REPORTS TO THE MINISTER

PART I - GENERAL PROVISIONS

 

The purpose of this Accounting Procedure is to establish methods and rules of accounting for Petroleum Operations and the principles set forth herein shall apply to Petroleum Operations pursuant to the production sharing contract (hereinafter referred to as the "Contract"), to which this Appendix is attached.

 

1.1 - INTERPRETATION

 

1.1.1 - DEFINITIONS

 

"Controllable Material" means material which the Operator subjects to record control and inventory. A list of types of such material shall be furnished to the Government and non-Operator(s);

 

"Joint Account" means the set of accounts maintained by the Operator to record all expenditure and other transactions under the provisions of the Contract. Such accounts will distinguish between exploration, evaluation, development and production costs. After adoption of a Development Plan a separate Joint Account shall be maintained for each Development Area.

 

"Joint Property" means all property where legal title is acquired and held in connection with Petroleum Operations under the Contract;

 

"Material" means personal property, including supplies and equipment, where legal title is acquired and held for use in Petroleum Operations;

 

"Non-Operator"  means  the  entities  constituting  the  Contractor other than the Operator, and the Government when it participates.

 

“Operator” means the party designated to conduct the Petroleum Operations;

 

Words not defined herein, but which are defined in the Contract, shall have the meanings ascribed to them therein.

 

1.1.2 - PRECEDENCE OF DOCUMENT

 

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

 

1.2 - ACCOUNTING OBLIGATIONS OF THE CONTRACTOR

 

1.2.1. The Contractor shall maintain financial accounts necessary to record in reasonable detail the transactions relating to Petroleum Operations which shall be prepared in accordance with generally accepted standards of the international petroleum industry, as more particularly, but not exclusively set out in this Accounting Procedure.

 

 

	
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1.2.2. The Contractor shall provide the Government with a description of its accounting classifications and the Contractor shall use such classifications when preparing its accounts.

 

1.2.3. The Contractor shall provide details of the financial accounts in the form of monthly statements which shall -

 

(a) Reflect all charges and credits related to Petroleum Operations;

(b) Be prepared on accrual basis so that expenditure is - recorded as incurred when title to goods passes or when work is executed; and

(c)  Present  the  total  accounts  for  the  Contract  Area  and  each Development Area and the share of the Operator and each Non-Operator.

 

1.3. - LANGUAGE AND UNITS OF ACCOUNTS

 

1.3.1. All books of account shall be maintained in the English language and in United States dollars. Where necessary for clarification, the Contractor may also maintain accounts and records in other language and currencies, provided that such accounts and records shall be prepared in accordance with US GAAP accounting rules and shall be consistent with the generally accepted standards of the international petroleum industry.

 

1.3.2. It is the intent of this Accounting Procedure that neither the Government nor the Contractor should experience an exchange gain or loss at the expense of, or to the benefit of, the other. However, should there be any gain or loss from exchange of currency, it will be credited or charged to the accounts under the Contract.

 

1.4. - AUDITS AND INSPECTION RIGHTS OF THE GOVERNMENT

 

1.4.1. The Government, upon at least thirty (30) days' advance written notice to the Contractor, shall have the right at its sole expense to audit the Joint Account and related records for any Calendar Year or portion thereof within the twenty-four (24) month period following the end of such year. Notice of any exception to the Contractor's accounts of any Calendar Year must be submitted to the Contractor within three (3) years from the end of such year.

 

1.4.2. For the purposes of auditing, the Government may examine and verify, at reasonable times, all charges and credits relating to the Petroleum Operations such as books of account, accounting entries, Material records and inventories, vouchers, payrolls, invoices and any other documents, correspondence and records necessary to audit and verify the charges and credits. Furthermore, the auditors shall have the right in connection with such audit, to visit and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of the Contractor in Kenya directly or indirectly serving the Petroleum Operations in Kenya, including visiting personnel associated with those operations.

 

1.4.3. All adjustments resulting from an audit agreed shall be rectified promptly in the Contractor's accounts. Any unresolved dispute arising in connection with an audit shall be referred to arbitration in accordance with clause 41 of the Contract.

  

1.4.4. At the request of the Minister, the Contractor shall appoint an independent auditor of international standing approved by the Minister to audit annually the accounts and records of the Petroleum Operations and report thereon, and the cost of such audit and report shall be chargeable to the Joint Account and cost recoverable.

 

1.5. - REVISION OF ACCOUNTING PROCEDURE

 

1.5.1. By mutual agreement between the Government and the Contractor, this Accounting Procedure may be revised from time to time by an instrument in writing signed by the parties.

 

1.5.2. The parties agree that if any procedure established herein proves unfair or inequitable to any party, the parties shall meet and in good faith endeavour to agree on the changes necessary to correct that unfairness or inequity.

 

 

	
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PART II - COSTS, EXPENSES, EXPENDITURE AND CREDITS OF THE CONTRACTOR

 

Subject to the provisions of the Contract, the Contractor shall bear and pay the following cost and expenses necessary to conduct Petroleum Operations. Such Petroleum Costs are recoverable by the Contractor in accordance with the provisions of the Contract.

 

2.1. - SURFACE RIGHTS

 

2.1.1. All direct costs necessary to acquire and to maintain surface right to the Contract area when such costs are paid by the Contractor according to the provisions of the Contract.

 

2.2. - LABOUR AND RELATED COST

 

2.2.1. Salaries and wages of employees of the operate and its Affiliate(s) for portion of their time spent performing management, administrative, legal, accounting, treasury, tax, employee relations, computer services, engineering, geological, and all other functions for the benefit of Petroleum Operations, whether temporarily or permanently assigned to the Contract Area, as well as the cost of employee benefits, customary allowances and personal expenses incurred under the usual practice of the Operator and its Affiliate(s) and amount imposed by governmental authorities, which are applicable to such employees.

 

 

	
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2.3. - MATERIAL

 

2.3.1. Value of Material charged to the accounts Contract. The cost of Material, equipment and supplies purchased or furnished by the Operator for use in Petroleum Operations shall be charged to the Joint Account on the basis set forth below. So far as it is reasonably practical and consistent with efficient and economical operations, only such Material shall be purchased for or transferred to the Joint Property as may be required for immediate use and /or for approved work programmes and the accumulation of surplus stock shall be avoided.

 

2.3.1.1. Except as otherwise provided in sub-part 2.3.1.2 below, Material purchased, leased or rented shall be charged at the actual net cost incurred by the Operator. "Net cost" shall include, but shall not be limited to, such items as vendor's invoice price, transportation, duties, fees and applicable taxes less all discounts actually received.

 

2.3.1.2. Material purchased or transferred from the Contractor or its Affiliate(s) shall be charged at the prices specified here below:

 

(a) New Material (condition "A") shall be valued at the current international net cost which shall not exceed the price prevailing in normal arm's length transactions on the open market.

 

(b) Used Material (conditions "B", "C" and "D").

 

(i) Material which is in sound serviceable condition and is suitable for reuse without reconditioning shall be classified as condition "B" and priced at seventy-five percent (75%) of the current price of new Material defined in (a) above.

 

(ii) Material which cannot be classified as condition "B" but which after reconditioning will be further serviceable for its original function shall be classified as condition "C" and priced at fifty per cent (50%) of the current price of new Material as defined in (a), above. The cost of reconditioning shall be charged to the reconditioned Material provided that the value of condition "C" Material plus the cost of reconditioning do not exceed the value of condition "B" Material.

 

(iii)   Material which cannot be classified as condition "B" or condition "C" shall be classified as condition "D" and priced at a value commensurate with its use.

 

 

	
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2.3.2. - INVENTORIES

 

2.3.1.1. At reasonable intervals, inventories shall be taken by the Operator of all Controllable Material. The Operator shall give ninety (90) days' written notice of intention to take such inventories to allow the Minister and non-Operator(s) to be represented when any inventory is taken. Failure of any party to be represented after due notice given shall bind such party to accept the inventory taken by the Operator.

 

2.3.2.2. The Operator shall clearly state the principles upon which valuation of the inventory has been based.

 

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

 

2.4. - TRANSPORTATION AND EMPLOYEE RELOCATION COSTS

 

2.4.1. Transportation of Material and other related costs such as origin services, expediting, crating, dock charges, forwarder's charges, surface and air freight, and customs clearance and other destination services.

 

2.4.2. Transportation of employees as required in the conduct of Petroleum Operations, including employees of the Operator’s Affiliate(s) whose salaries and wages chargeable under subparts 2.2.1 and 2.5.2.

 

2.4.3. Relocation costs of the Contract Area vicinity of employees permanently or temporarily assigned to Petroleum Operations. Relocation costs from the Contact Area vicinity, except when an employee is reassigned to another location classified as a foreign location by the Operator. Such costs include transportation of employee' families and their personal and household effects and all other relocation cost in accordance with the usual practice of the Operator and its Affiliate(s).

 

2.5. - SERVICES

 

2.5.1. The actual cost of contract services, professional consultants, and other services performed by third parties other service provided by the entities constituting the Contractor or their Affiliate(s), but the prices paid by the Contractor shall not be higher than those generally charged for comparable services.

 

2.5.2. Costs of technical services, such as but not limited to, engineering, and related data processing, performed by the Contractor and its Affiliate(s) for the direct benefit of Petroleum Operations, engineering, and related data processing, performed by the Contractor provided such cost shall not exceed those currently prevailing if performed by third parties in normal arm's length transaction for like services.

 

 

	
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2.5.3. Costs of use of equipment and facilities for the direct benefit of the Petroleum Operations, furnished by third parties, Contractor or its Affiliate(s) at rate commensurate with the costs of ownership, or rental, and the cost of operation thereof, but such rates shall not exceed those currently prevailing in the general vicinity of the Contract Area in normal arm's length transactions on the open market for like services and equipment.

 

2.6. - DAMAGES AND LOSSES TO JOINT PROPERTY

 

2.6.1. All costs or expenses necessary for the repair or replacement of Joint Property resulting from damages or losses incurred by fire, flood, storm, theft, accident, or any other cause, except insofar as those costs and expenses are caused by the wilful misconduct of the Operator. The Operator shall furnish the Government and non-Operator(s) written notice of damages or losses for each damages or loss in excess of United States Dollars Fifty Thousand (U.S 50,000.00.) as soon as after the loss as practicable.

 

2.7. – INSURANCE

 

2.7.1. Premium for insurance required under the Contract, provided that a party not participating in such insurance shall not share in the cost unless such insurance is compulsory under the laws of Kenya    and provided further that if such insurance is wholly or partly paced with an Affiliate of the Contractor such premium shall be recoverable only to the extent generally charged by competitive insurance companies other than an Affiliate of the Contractor.

 

2.7.2. Actual expenditure incurred in the settlement of all losses, claims, damages, judgments, and other expenses for the benefit of the Petroleum Operations.

 

2.8. - LEGAL EXPENSES

 

2.8.1. All costs or expenses of litigation, or legal service otherwise necessary or expedient for the protection of the Joint Property or other interest in the Contract Area, including but not limited to legal counsel's salaries and fees, court costs, cost of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or  claims.  These services may be performed by the Operator's legal staff or an outside firm as necessary.

 

2.9. - DUTIES AND TAXES

 

2.9.1. All duties, taxes (except taxes based on income), fees, and governmental assessments of every kind and nature which have been paid by the Entities with respect to the Contract.

 

 

	
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2.10. - OFFICE, CAMPS AND ADMINISTRATIVE EXPENSES

 

2.10.1. Cost of establishing, maintaining and operating any offices, sub offices, camps, warehouse, housing and other facilities directly serving Petroleum Operations. The cost shall be allocated to the operations served on an equitable basis.

2.11. - GENERAL AND ADMINISTRATIVE EXPENSES

 

2.11.1. These charges shall be made monthly for services of all personnel and offices of the Operator and its Affiliate(s) outside Kenya and those not otherwise provided herein. It shall include service and related office cost of personnel performing management, administrative, legal, accounting, treasury, tax, employee relations, computer service, purchasing, engineering, geological, geophysical, and all other functions for the direct benefit of Petroleum Operations. The charge shall be made as follows:

 

This charge will be at the rate of Three Percent ( 3%) of total costs per months during any period in which exploration operation are being conducted. For the period commencing on the date that the contractor reports a commercial discovery to the Government to the discovery to Government as required in clause 19(5) of the contract is terminated the provisional rates shall be Three Percent ( 3%) of total costs.

The charge shall be as follows:

The provisional charges for such costs are based upon operator's cost experience and estimates of cost to be incurred in conduct of the petroleum operations, and are subject to quarterly adjustment as operator’s costs indicate are necessary and equitable. Within ninety (90) days following the end of each quarter, the operator shall determine the actual cost incurred in performing such services, and shall charge or credit the joint account for the difference between the actual cost incurred for the quarter and the provisional rate charge during the quarter.

 

On request of the Government, the operator shall make available at its home offices all supporting documents used for the determination of the charges. Such documents shall include but shall not be limited to time allocation reports prepared by employees providing services described in subpart 2.11.1., cash vouchers supporting cash expenses included in overhead pool, inter- company billing supporting charges for services provided by operator's affiliates (e.g. building rentals, telecommunications paid   by the operator's parent company),  summary  or  impersonalized  computer  run  supporting  salaries, wages and employee benefits and other such documents as may be mutually agreed.

 

 

	
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2.12. - OTHER EXPENDITURE

 

2.12.1. Other reasonable expenditure not covered or dealt with in the forgoing provisions, which are incurred by the Operator and/or the other entities constituting the Contractor and their respective Affiliate(s) for the necessary, proper, economical and efficient conduct of Petroleum Operations.

 

2.12.2. Interest incurred on loans raised by the Contractor for capital expenditure in Petroleum Operations under the Contract at rate not exceeding prevailing commercial rates may be recoverable as Petroleum Costs.

 

2.13. - CREDITS UNDER THE CONTRACT

 

The net proceeds of the following transaction will be credited to the account under the Contract -

 

(a) The net proceeds of any insurance or claim in connection with the Petroleum Operations or any assets charged to the accounts under the Contract;

 

(b) Revenue received from outsiders for the use of property or assets charged to the accounts under the Contract;

 

(c) Any adjustment received by the Contractor from the suppliers/manufactures or their agents in connection with defective equipment or Material the cost of which was previously charged by the contractor under the Contract;

 

(d) Rentals, refunds or other credits received by the Contractor which apply to any charge which has been made to the accounts under the Contract;

 

(e) Proceeds from all sales of surplus Material or assets charged to the account under the Contract; and

 

(f) The prices originally charged to the accounts under the Contract for inventory Materials subsequently exported from Kenya.

 

2.14. - NO DUPLICATION OF CHARGES AND CREDITS

 

Notwithstanding any provision to the contrary in this Accounting Procedure, it is the intention that there shall be no duplication of charges or credits in the accounts under the Contract.

 

 

	
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PART III - FINANCIAL REPORTS TO THE MINISTER

 

3.1. The reporting obligations provided for in this Part III shall, unless the contrary is stated, apply to the Operator.

 

3.2. The Operator shall submit annually to the Minister the following:

 

3.2.1. The annual work programme and budget three(3) months before the beginning of the year to which they apply and the budget shall be analyzed by item within the exploration programme, Evaluation programme, development programme and production programme and show for each major budget item, with reasonable detail, the following:-

 

(a) Latest forecast cumulative costs anticipated at the start of the budget year;

(b) Cumulative expenditure anticipated at the end of each quarter of the budget year; and

 

(c) Expenditure anticipated in future years to complete the budget item.

 

3.2.2. A schedule of the service and supply contracts, to be entered into  during the forthcoming year exceeding the equivalent of Five Hundred Thousand  U.S. Dollars (U.S. $500,000.00) per contract, showing the anticipated tender date and approximate value and the goods or services to be provided;

 

3.2.3. The audit report required by sub-part 1.4.4 of this Accounting Procedure, stating whether in the opinion of the auditors of the Contract-

 

(a) The last annual expenditure report records the expenditure of the Contractor truly and fairly in accordance with the provisions of the Contract;

 

(b)  The  reports  on  petroleum  revenue  submitted  truly  and  fairly determined the arm's length value of disposals of petroleum during the year.

 

3.3. the Operator shall submit quarterly within thirty (30) days of each quarter to the Minister:

 

3.3.1. a report of expenditure and receipts under the Contract analyzed by budget item showing-

 

(a) Actual expenditure and receipts for the quarter in question;

 

(b) Actual cumulative cost to date;

 

 

	
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(c) Latest forecast cumulative cost at the year end;

 

(d) Variations between budget costs and actual costs, and explanations thereof; and

 

(e) With effect from adoption of the Development Plan, the total payroll costs segregated between Kenyan and non-Kenyan personnel and the total expenditure segregated between Kenyan and non-Kenyan goods and services.

 

3.3.2. A cost recovery statement containing the following information-

 

(a) Recoverable Petroleum Costs carried forward from the previous quarter, if any;

 

(b) Recoverable Petroleum Costs incurred and paid during the quarter; (c) Total recoverable Petroleum Costs for the quarter (a) plus (b) above); (d) Quantity and value of Cost Oil taken and separately disposed of by

the Contractor for the quarter;

 

(e) Amount of Petroleum recovered for the quarter;

 

(f) Amount of recoverable Petroleum Costs to be carried forward into the next quarter, if any; and

 

(g) Value of Government's share of production taken by the Contractor pursuant to clause 27 of the Contract.

3.4. A copy of each contract for goods or services valued in excess of Five Hundred Thousand U.S. Dollars (U.S. $500,000.00) shall be provided to the Minister as soon as practicable after its execution.

 

3.5. After the commencement of production the Operator shall, within fifteen (15) days after the end of each month, submit a production report to the Minister showing for each Development Area the quantity of Petroleum -

 

(a) Held in stocks at the beginning of the month

 

(b) Produced during the month

 

(c) Lifted, and by whom;

 

(d) Lost and consumed in Petroleum Operations; and

 

 

	
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(e) Held in stocks at the end of the month.

 

3.6. A lifting party shall submit, within fifteen (15) days after the end of each month, a report to the Minister stating-

 

(a) The quantities and sales value of arm's length petroleum sales made in that month;

(b) The quantities, sales value and arm's length value of disposals of petroleum other than by sale at arm's length during the month; and

 

(c) The total Petroleum revenue for that month.

 

 

	
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APPENDIX "C" 

 

PARTICIPATION AGREEMENT 

 

TABLE OF CONTENTS

 

	
1 - Interpretation

	72
	
2 - Participation interests and commencement

	73
	
3 - Operator and duties of operator

	74
	
4 - Operating committee and work programmes

	77
	
5 - Costs and expenses

	79
	
6 - Payments to operator

	80
	
7 - Material and equipment

	81
	
8 - Relationship of the parties and tax provisions

	82
	
9 - Surrenders and transfers

	82
	
10 - Disposal of production

	85
	
11 - Sole risk operations

	86
	
12 - Confidentiality

	89
	
13 - Liability

	89
	
14 - Governing law

	90
	
15 - Arbitration

	90
	
16 - Force majeure

	90
	
17 - Notices

	91
	
18 - Term

	92
	
19 - Final provisions

	92

 

Exhibit "A"-Accounting procedure.

 

 

	
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PARTICIPATION AGREEMENT

 

This Participation Agreement, made and entered into on this ...................... day of ......................... by and between the Government of the Republic of Kenya (hereafter referred to as the "Government") represented for the purpose of this agreement by the Minister for the time being responsible for energy (hereinafter referred to as the "Minister") and ........................   (hereinafter referred to as the "Contractor").

 

WHEREAS the Government and the Contractor have entered into a production-sharing contract (referred to as the "Contract"), to which this Appendix is attached;

 

WHEREAS the Government may decide to exercise its option under clause 28 of the Contract; and

 

WHEREAS the Parties wish to set forth the terms and conditions under which the Government has agreed to participate in the Petroleum Operations in the event such an option is exercised;

 

NOW, THEREFORE, the Parties agree as follows:

 

1 - INTERPRETATION

 

1. In this participation Agreement, words in the singular includes the plural and vice versa, and except where the context otherwise requires:

 

"AFE" means an authorization for expenditure;

 

"Government" includes an appointee as defined in sub clause 28 (2) of the Contract;

 

"Joint account" means the accounts maintained by the operator to record all transactions related to operations in the participation area under this Participation Agreement;

 

"Joint property" means all property acquired and held for use in connection with operations under this Participation Agreement;

 

"Non-operator" means a party other than the operator;

 

"Operating committee” means the committee established by Article 4 hereof;

 

 

	
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"Operator"  means  the  party  designated  to  conduct  the  petroleum operations, pursuant to Article 3 hereof and its successors;

 

“Participating interest" means the respective undivided interest of each of the parties as it may exist at any given time in the participation area and under this Participation Agreement;

 

"Participation area" means a development area in which the Government elects to participate under the Contract;

 

"Participation dates" means the effective date of participation by the Government as defined in sub clause 28 (3) of the Contract;

 

"Participation work programme" means a programme of the petroleum operations under this Participation Agreement;

 

"Parties" means, collectively, the Government and the entities consulting the Contractor, their respective successors or assignees.” party" means anyone of the parties;

 

"Year" means calendar year.

 

2. Words not defined in this Participation Agreement but which are defined in the Contract have the meanings given to the in the Contract.

 

3. In the event of any conflict between the Contract and this Participation Agreement, Contract shall prevail and this Participation Agreement shall be deemed amended accordingly.

 

2. PARTICIPATING INTERESTS

 

1. When and if the Government elects, pursuant to clause 28 of the contract, to participate in petroleum operations in a participation area, the Contractor constituting the contractor shall assign proportionately to the Government a part of its interest in the development area so that the rights, interest and obligations of the contractor and the Government in such area shall be owned and borne as of the participation date in undivided interests as follows:

 

Government............ ( .....%) or such lesser amount as may be elected in accordance with clause 28 of the Contract;

 

Contractor............(....... %) or such greater amount as may remain after the Government's election.

 

2. In the event a party shall transfer in whole or in part its Participating interest pursuant to clause 35 of the Contract and Article 9 of this Participation Agreement, the participating interest of the parties therein shall be revised accordingly

 

 

	
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3. OPERATOR AND DUTIES OF OPERATOR

 

1. The operator shall be the party acting as operator on the participation date and the operator shall have the rights and obligations of a non-operator in respect of its participating interest.

 

2. The operator shall serve as operator until it resigns or is removed pursuant to the provisions of this Article, or until it ceases to hold a participating interest hereunder.  In the event that an operator assigns the whole of its participating interest hereunder to one of its affiliates, such affiliate shall become operator hereunder in the former's place.

 

3. Upon the affirmative vote of all the non-operators, the operator shall be removed as operator in case of any one of the following-

 

(a) Bankruptcy of the operator or its parent company;

 

(b) Assignment for the benefit of the operator's creditors;

 

(c) Appointment of a receiver or manager with respect to the whole or any part of the property or assets of the operator;

 

(d) entitlement of any person other than an affiliate of the operator to appoint a majority of the members of the board of directors of the operator by the reason of any act, default or neglect of the operator;

 

(e) Failure without justification by the operator to pay a sum due to or in the name of the joint account for more than sixty (60) days;

 

(f) the operator's material breach of this Participation Agreement which remains un remedied for more than thirty (30) days after the operator is notified by non-operators of such breach; or

 

(g) Reduction in the operator's participating interest to...............per cent (........ %) or less.

 

4. An operator may at any time resign as operator by giving to the other parties notice in writing of such resignation.  Such resignation shall be effective one hundred-eighty (180) days after the date of notice thereof or on the date on which a successor operator appointed by the parties (other than the operator) shall be ready and able to assume the obligations of operator in accordance with all the provisions of this Participation Agreement, whichever shall first occur.

 

5. Should an operator so resign or be removed, a successor operator shall immediately be appointed by the operating committee.  A party having been removed as operator may not vote to succeed itself as operator.  Such appointment parties holding not less than the percentage figure of the remaining participating interests set out in Article 4 (6).  For the purpose of this Article, operator includes any of its affiliates holding a participating interest in this Participation Agreement.

 

 

	
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6. Removal or resignation of an operator shall not in any way affect its rights or obligations as non-operator party to this Agreement.   On the effective date of removal or resignation, the operator shall deliver to the successor operator any and all funds, equipment, materials, appurtenances, books, records, data, interpretations, information and rights acquired by and in the custody of the operator for the joint account of the parties (including available petroleum not delivered to the parties), shall, with the successor or operator, prepare an inventory of joint property, adjusting the joint account accordingly, and shall co-operate as far as possible in effecting a smooth transfer of operating responsibilities.

 

7. An operator that is removed under Article 3 (3) (g) hereof may charge to the joint account all reasonable and necessary expenditure incurred in demobilizing and repatriating personnel and equipment.

 

8. The operator shall have control of the petroleum operations in the participation area and shall have exclusive custody of all materials; equipment and other property acquired therefore, and shall perform the duties under this Participation Agreement diligently and in accordance with good international petroleum industry practice, and sound and accepted engineering, management and accounting principles.

 

The operator shall not be liable to any non-operator for any acts or omissions, claims, damages, losses or expenses, in connection with or arising out of this Participation Agreement or the contract or petroleum operations save those caused by gross negligence or wilful misconduct of the operator.

 

9. The operator shall-

 

(a) Consult with non-operators and advise them of all matters arising from the petroleum operations;

 

(b) Comply with the decisions of the operating committee;

 

(c) Keep the participating interests and all property acquired or used free from liens, except for those authorized by Article 6 hereof; and

 

(d) Pay the costs of the petroleum operations under this Participation Agreement promptly and make proper charges to non-operators.

 

10. The operator shall submit a copy of an AFE to the non-operators for each budget item of capital expenditure in the approved participation work programme and budget that costs more than .................U.S. dollars (U.S $............).

 

 

	
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Where it is necessary to complete an expenditure in a budget item in the approved participation work programme, the operator may exceed the budget for the budget item by the lesser of ten per cent (10%) thereof or.................U.S.D................) and shall report promptly such excess expenditure to the non-operators.

 

The operator may spend not more than ............................U.S. dollars (USD......................................) on petroleum operations in the participation area not included in an approved participation work programme, provided that such expenditure shall not be for items previously rejected by the operating committee.  The operator shall report promptly that expenditure to the non-operators and, if it is approved in accordance with Article 4 (6), the operator may make further expenditure thereon or on other items not exceeding U.S. dollars (U.S.$...........) in that year.

 

The limits in this Article 3(10) may be changed from time to time by the operating committee.

 

In the case of emergency, the operator may make such immediate expenditure and take such immediate action as may seem necessary for the protection of life or property or the prevention of pollution and such emergency expenditure shall be reported promptly to the parties by the operator.

 

11. A non-operator may inspect the participation area, the petroleum operations, and the books, records and other information of the operator pertaining thereto.

 

The operator shall supply to a non-operator by telephone, telefax, telegraph or telex, daily reports on drilling and such other reports in writing normally provided by an operator to a non-operator in the international petroleum industry, including but not limited to reports on well tests and core analysis, and copies of drilling logs, well surveys and velocity surveys.   The operator shall furnish any other information reasonably requested by non-operator, if such information is readily available.

 

12. The operator shall obtain and maintain all insurance required by law and such other insurance as the operating committee may from time to time determine, provided that, in respect of such other insurance, any party may elect not to participate provided such party gives notice to that effect to the operator. The cost of insurance in which all the parties are participating shall be for the joint account and the cost of insurance in which less than all the parties are participating shall be charged to such parties individually. The operator shall, in respect of any insurance-

 

(a) Promptly inform the parties participating therein when it is taken out and supply them with copies of the relevant policies when the same are issued;

 

(b)  arrange  for  the  parties  participating  therein,  according  to  their respective participating interests, to be named as co-insureds on the relevant policies with waiver of subrogation in favour of the parties; and

 

 

	
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(c) Duly file all claims and take all necessary and proper steps to collect any proceeds and, if all the parties are participating therein, credit them to the joint account or, if less than all the parties are participating therein, credit them to the participating parties.

 

Subject as stipulated above, any of the parties may obtain such insurance as it deems advisable for its own account at its own expense provided such insurance is acceptable under the applicable law.

 

If the operator is unable to obtain such other insurance required by the operating committee, it shall so advise the parties and thereafter, it shall be discharged of its obligation to obtain such insurance.

 

The operator shall take all reasonable steps to ensure that all contractors (including sub-contractors) performing work in respect of the petroleum operations and the joint property obtain and maintain all insurance required by the law and obtain from their insurers a waiver of subrogation in favour of the parties.

 

13. The operator may prosecute, defend and settle claims and litigations arising out of the petroleum operations and may compromise or settle such claims or litigations which involve an amount not exceeding the equivalent of one hundred thousand U.S. dollars (U.S. $100,000) without the approval of the operating committee. Any claim or litigation involving an amount in excess of the equivalent of one hundred thousand U.S. dollars (U.S. $100,000) shall be reported promptly to the non-operators and a non-operator shall have the right to be represented by its own counsel at its expense in the compromise, settlement or defence of such claims or litigation.

 

14. The operator shall fulfil the reporting obligations of the Contractor as specified in the [Contract] unless otherwise stipulated in this Participation Agreement and the Contract.

 

4. - OPERATING COMMITTEE AND WORK PROGRAMMES

 

1. The parties shall establish an operating committee to supervise and control the petroleum operations.   The operating committee shall consist of one representative appointed by each of the Parties provided always that more than one of the Parties may appoint the same representative who shall represent them separately.

 

Each party shall, as soon as possible after the date of this Participation Agreement, give notice to all the other parties of the name of its representative and of an alternate on the operating committee.  Such representative may be replaced, from time to time, by like notice.  Representatives may bring to meetings of the operating committee such advisers as they consider necessary.  The representative of a Party or, in the absence of the representative, his alternate, shall be deemed authorized to represent and bind such party with respect to any matter which is within the powers of the operating committee.  The representative of the party, which is the operator, shall be the chairman of the operating committee and shall report the proceedings.

 

 

	
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2. Except as otherwise provided in this Participation Agreement the powers and duties of the operating committee shall include-

 

(a) The consideration and determination of all matters relating to general policies, procedures and methods of operation hereunder;

 

(b) The approval of any public announcement or statement regarding this Participation Agreement or the petroleum operations;

 

(c) The consideration, revision and approval or disapproval, of all proposed participation work programmes, budgets and AFE's prepared and submitted to it pursuant to the provisions of this Participation Agreement;

 

(d) The determination of the timing and location of all wells drilled under this Participation Agreement and any change in the use or status of a well;

 

(e) the determination of whether the operator will represent the parties regarding any matters or dealings with the Minister, any other governmental authorities or third parties in so far as the same relate to the petroleum operations, provided that there is reserved to each party the unfettered right to deal with Minister or any other government authorities in respect of matters relating to its own participating interest; and

 

(f) the consideration and, if so required, the determination of any other matter relating to the petroleum operations which may otherwise be designated under this Participation Agreement for reference to it.

 

3. The operator shall, when requested by a representative of any party, call a meeting of the operating committee.  The operator may do so at any time to keep the parties informed on the petroleum operations.

 

4. A request to call a meeting of the operating committee shall state the purpose of that meeting and, except in an emergency, the operator shall give the parties at least fifteen (15) days' written notice with an agenda of the meeting, but where a meeting is called in an emergency, the operator shall give as much notice thereof as possible by telephone, telex or telegraph and except with the consent of all the parties, the business of a meeting shall be only that for which it was called.

 

 

	
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5. The operator may, instead of calling a meeting, submit matters to the parties by written notice, upon which each party may vote within the period prescribed in the notice which shall not be less than three (3) days or more than fifteen (15) days from the date notice is received.  Failure of a party to vote within the above time limits shall be deemed a negative vote.

 

6.  Each  party  shall  have  a  voting  interest  equal  to  its  participating interest. Unless otherwise provided in this Participation Agreement, all decisions of the operating committee shall be made by the affirmative vote of at least two (2) parties holding not less than ............per cent (.......%) of the participation interests.

 

7. The operator shall, at least four (4) months before the end of each year, submit to the parties for approval a participation work programme and budget, which shall contain details of the petroleum operations to be carried out in the next year and allocation of funds therefore including administrative overheads and third party expenditure, in accordance with the accounting procedure attached to this Participation Agreement as exhibit "A".

 

8. Unless unanimously agreed at least sixty (60) days prior to the beginning of the year, the operator shall call a meeting of the operating committee to discuss and approve a participation work programme and budget for the ensuing year and such work programme and budget shall be approved not later than thirty (30) days prior to the commencement of such year and the decision of the operating committee shall bind the parties.   Upon approval of such work programme and budget the operator is hereby authorized and obliged to proceed with it in accordance with such approval.

 

9. Such approved participation work programme and budget may be reviewed and revised from time to time by the operating committee.  Any party may in writing request a review of an approved participation work programme or budget, or of a project within a programme, if that project costs more than ...............U.S. dollars (U.S. $.............), and the request shall state the objections of the party, which shall be considered by the operating committee, who may amend the participation work programme or budget.

 

5. - COST AND EXPENSES.

 

1. Except as otherwise specifically provided in the Contract and this Participation Agreement, all costs and expenses incurred by the operator in the conduct of operations hereunder shall be borne by the parties in proportion to their respective Participating Interests set forth in Article 2.

 

2. All costs and expenses incurred by the operator in the conduct of petroleum operations hereunder shall be determined and settled in accordance with internationally accepted accounting practice consistent with the provisions of the Contract and its accounting procedure as complemented by the provisions of exhibit "A" to this Participation Agreement, and the operator shall keep its records of costs and expenses in accordance therewith.

 

 

	
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6. PAYMENTS TO OPERATOR

 

1. A non-operator shall pay its share of an expenditure relating to the petroleum operations, within fifteen (15) days of receipt of the account of the operator.

 

2. The operator may, upon twenty (20) days' written notice, request a non-operator to advance a share of the estimated expenditure for the following month, stipulating the due date of payment, provided however that such due date of payment shall not be before the first banking day of that month and the operator shall include with such notice an estimate of the cash calls for the next three (3) months.  The operator's estimate of expenditure shall not exceed the approved year's budget.  The operator may, at any time upon fifteen (15) days' written notice, request additional advances to cover unforeseen expenditure.

 

3. Cash requirements shall be specified by the operator in the currencies required for the petroleum operations and the non-operators shall advance their shares in the currencies so specified.

 

4. If any non-operator's advances for a given month exceed its share of cash disbursements for the same month, the next succeeding cash advance, after such determination, shall be reduced accordingly.

 

However, non-operator(s) may request that excess advances be refunded. The operator shall make such refund within fifteen (15) days after date of such notice.

 

5. Where a party is in default of payment, the operator and the non- defaulting parties shall have, as security for amounts due hereunder from a defaulting non-operator, a lien on the participating interest share, the interest in material and equipment acquired for the petroleum operations and upon the proceeds from the sale of petroleum, of that non-operator, and a non-operator shall have for amounts due hereunder, a similar lien on the same interests and property of the operator.

 

6. A lien may be exercised by a non-defaulting party by collecting the amount due from a purchaser of petroleum and the statement of the operator of the amount due shall be proof thereof.

 

7. A late payment shall attract interest at LIBOR plus...............per cent (...... %) or...........per cent (....... %), whichever is the greater, compounded monthly and calculated from the due date of payment.  A payment not received within seventy- two (72) hours of the due date shall accrue interest from the due date and the non- paying party shall be deemed to be in default from the due date of the payment.

 

8. A party which remains in default for five (5) days shall have no right to vote at any operating committee meeting held during the period of the default but shall be bound by all decisions of the operating committee made during such period, and the defaulting party's participating interest shall be deemed to be vested pro-rata in the non-defaulting parties for voting purpose during the continuation of the default.

 

 

	
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9. Where a party fails to pay an amount required to be paid hereunder, and remains in default for ninety (90) days, the participating interest share of the defaulting party may be declared forfeit by the non-defaulting parties, unless the amount due is an advance and the defaulting party provides an irrevocable letter of credit or other security, acceptable to the operator, for the amount due.

 

10. When the participating interest share of a defaulting party is declared forfeit, the operator shall give notice thereof to all the parties, and that share shall vest rateably, unless otherwise agreed, in the non-defaulting parties without payment of compensation and the defaulting party shall at its sole expense take all steps necessary to vest that share accordingly, and the defaulting party hereby appoints the operator to act as its attorney to execute any and all documents required to effect such transfer. Notwithstanding the transfer of a defaulting party's participating interest share in accordance with the foregoing, the defaulting party shall remain liable for its proportionate share of the commitments incurred before its rights lapsed.

 

11. Where a party is in default of payment, the remaining parties shall advance the operator on demand a share of that payment, in proportion to the participating interests of those parties.  Any payments received from a defaulting party shall be credited to the accounts of the non-defaulting parties who advanced funds on behalf of the defaulting party.

 

7. - MATERIAL AND EQUIPMENT

 

1. All material and equipment acquired by the operator for petroleum operations hereunder shall be owned by the parties in undivided shares in the proportion of their respective participating interests.

 

2. Except as may be otherwise approved by the operating committee, the operator shall purchase for the joint account of the parties only such material and equipment as are reasonably required in the conduct of operation provided for in approved participation work programmes or revisions thereof, the operator shall not stockpile material or equipment for future use without the approval of the operating committee.

 

 

	
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4. Subject to the provision of clause 12 of the Contract, upon termination of this Participation Agreement the operator shall salvage for the jointly-owned material and equipment which can reasonably be salvaged, to be disposed of as provided in Article 7 (3) hereof.

 

8. - RELATIONSHIP OF THE PARTIES AND TAX PROVISIONS

 

1. The parties declare that it is not their intention by entering into this Participation Agreement to create or be considered as a partnership or any other similar Contractor.

 

2. Each party shall be responsible for and shall pay its own taxes to the Kenyan authorities on its operations hereunder.

 

3. It is recognized that a party hereunder may be subject to the laws of its place of incorporation in addition to the laws of Kenya. For United States Federal income tax purposes, each of the parties hereto which is subject to United States Income Tax laws ("U.S. Party") hereby elects to be excluded from the application of all of the provisions of Sub-chapter "K", chapter 1, Sub-title "A", of the United States Internal Revenue Code of 1954, as permitted and authorized by Section 761 of that Code and the regulations promulgated there under. Should there be any requirement that each U.S. Party evidence this election, each U.S. Party agrees to execute such documents and furnish such other evidence as may be required by the United States Federal Internal Revenue Service. Upon the request of any U.S. Party, the Operator shall provide data necessary for filing United States tax returns.

 

9. - SURRENDERS AND TRANSFERS

 

1. Any party desiring that all of the participation area be surrendered voluntarily shall notify the other parties in writing accordingly, specifying its reasons thereof, and thereafter:

 

(a) Each party shall within thirty (30) days after receipt of the notice inform the other parties in like manner whether it concurs in or opposes the proposed surrender;

 

(b) If all the parties concur in the proposed surrender, the participation area shall be surrendered as soon as possible under the Contract;

 

(c) If one or more of the parties shall oppose the proposed surrender, the party or parties desiring to surrender shall, upon request by the opposing parties,  transfer and convey without warranty of title-free and clear of all liens, charges and encumbrances and without right to compensation, all of its or their interest(s) in the participation area and material left thereon to said opposing party or parties, each in the proportion that its or their participating interest(s) hereunder bear to the sum of the participating interests of all the opposing parties, or as otherwise agreed by the opposing parties. The transferring party or parties shall bear-

 

 

	
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(i) Its or their participating interest share(s) of costs, expenses and liabilities incurred hereunder which are attributable to the participation area for the period prior to the effective date of such transfer of interest;

 

(ii) Its or their participation interest share(s) of all costs and expenses incurred by the operator after such date under any contracts entered into by the operator in execution of a participation work programme theretofore approved by the operating committee; and

 

(iii) Its or their participating interest share(s) of any accrued obligations under the contract which are not included rights or other obligations in connection therewith.

 

(d) A transfer under paragraph (c) above shall be effective as among the parties thirty (30) days after the opposing parties' receipt of the transferring party's first mentioned notice proposing surrender. Thereafter until such transfer has received whatever approvals may be necessary under the provisions of the Contract or applicable law, the transferring Party or parties shall hold at most legal, but not equitable, title to the interest (s) transferred for the benefit of the opposing party or parties. The transferring party or parties receiving the interest(s) transferred shall execute and deliver such documents and do such other acts as may be necessary to give legal effect to such transfer, to obtain all approvals thereof as may be required from the Minister, and otherwise to effectuate the purpose of this paragraph.

 

(e) Notwithstanding the foregoing, if the operating committee determines that .................per cent (.............%) or more of the estimated, discovered and recoverable reserves under the participation area have been produced, no party shall be allowed to surrender or required to transfer interest in this Participation Agreement and the Contract without the unanimous consent of all parties.

 

2. No transfer of any interest under this Participation Agreement and the Contract shall be made by any party otherwise than in respect of an undivided interest in all or part of its participating interest in this participation Agreement and the Contract, and in accordance with the following provisions of this Article 9.

 

3. If any party shall receive a bona fide offer for the purchase of all or a portion of an offeree party's participation interest in this Participation Agreement and the participation area which the offeree party is willing to accept, the offeree party shall give notice thereof in writing to the other parties:

 

 

	
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(a) Such notice shall set forth the identity  of the offeror, the terms and conditions (including monetary and other considerations) offered in good faith, and all other relevant particulars.

 

(b) For a period of thirty (30) days next following the receipt of such notice, the other parties shall have an option to purchase the entire interest proposed to be sold on the same terms offered by the offeror, as set forth in the respective offer.

 

(c) If more than one of the parties should exercise its right to purchase said interest, each shall have the right to acquire such interest in the proportion that the Participating Interest hereunder of such party bears to the sum of the Participating interests of all the parties exercising such right except as they may otherwise agree.

 

(d) If within such a period of thirty (30) days, none of the other parties shall exercise its rights to purchase said interest, the sale to said offeror may be made under the terms and conditions set forth in the notice given; provided that the sale shall be consummated within six (6) months from the date of such notice and that the sale and any transfer shall be in accordance with the Contract and applicable law.

 

(e) For the purpose of this paragraph, an offer to purchase shall also include an acceptance of a Contractor's offer to sell.

 

4. The limitations of Article 9 (3) shall not apply to transfer of a participating interest by a party to an affiliate of such party, or by the Contractor to an acceptable assignee as defined in the Contract, or by the Government to an appointee, or from an appointee to another appointee, nor shall they apply to a transfer of a participating interest effected as a result of merger, consolidation, re-organization or sale of capital stock of the parent company of a Party.

 

5. Every transfer of a participating interest in the participation area shall be made expressly subject to this Participation Agreement and shall include a corresponding interest in jointly acquired equipment and facilities.  No transfer of an interest hereunder shall be effective unless made by an instrument in writing duly executed by the parties thereto in accordance with applicable law, and until the same has received all consents required under this Participation Agreement and the Contract.  A transfer shall provide that the transferor remains liable for obligations incurred before the date of transfer and such obligations shall in addition become the obligations of the transferee.   Where after the transfer, the transferee or transferor owns a participating interest of less than five per cent (5%), they shall be jointly represented.

 

6. A transfer other than to an affiliate on an appointee shall be of sufficient financial standing to meet its participating interest share of its obligations under the Contract and this Participation Agreement. In the event of a transfer of a participating interest to an affiliate of a party the transferor party shall remain responsible for the full performance by the affiliate of the obligations undertaken by said party under this Participation Agreement and the Contract, and if such affiliate ceases to be an affiliate, the participating interest shall be transferred back to the party.

 

	
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7. In this Article, transfer means a transfer, assignment, sale or other disposal of the interest of a party.

10. DISPOSAL OF PRODUCTION

 

1. Each party shall separately own, take in kind and dispose of its participating interest share of that portion of the petroleum produced and saved from the participation area to which the Contractor is entitled under clause 27 of the Contract.

 

2. Within six (6) months following the signing of this Participation Agreement, the parties shall, in accordance with the provisions of the Contract and in light of the gathering and transportation facilities available under the adopted development plan, in good faith establish a set of rules governing the scheduling, lifting and other necessary provisions for the crude oil offtakes of the parties, consistent with good  international  petroleum industry  practice,  which  shall  provide,  among  other things, such detailed terms and procedures as required for-

 

(a) Short-term production forecasts;

 

(b) Nomination and calculation of entitlements; 

 

(c) Scheduling of deliveries;

 

(d) Lifting tolerances;

 

(e) Under lift, over lift and make-up provisions; 

 

(f) Passage of title and risk;

 

(g) Penalties assessable to the Parties which cause shut-in or reductions of production; and

 

(h) Other related matters.

 

Whatever is mutually agreed by the Parties shall be deemed to form part of this Participation Agreement.

 

The above terms and procedures shall apply separately to each grade of crude oil that is segregated and separately stored for off take.

 

 

	
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3. The Government may request from time to time that the Contractor purchase all or part of the Government's participating interest share of crude oil.  The Contractor shall use its best efforts to comply with this request but in the event that the Contractor is not able to take such crude oil, then the Contractor will assist the Government in good faith to market such crude oil at the best price, terms and conditions available in the international market for the sale of such crude oil.

 

4.  In  the  event  of  production  of  associated  natural  gas  or  of  any discovery of natural gas, the parties shall agree upon appropriate procedures for disposal of any natural gas available under this Participation Agreement and the Contract.

 

11. SOLE RISK OPERATIONS

 

1. Any party may undertake petroleum operations at sole risk (hereinafter referred to as "sole risk project") in a participation area, subject to the provisions of this Article.

 

2. The following types of sole risk project may be proposed-

 

(a) the drilling of a well or the deepening, side-tracking, completing, plugging back, testing or reworking of an existing well drilled for the joint account of the parties, in order to test a formation in which no jointly-owned well has been completed as a well producing or capable of producing petroleum;

 

(b) The installation of production and transportation facilities.

 

3. The conduct of a project in a development area may not be the subject of a sole risk notice under this Article until after it has been proposed in complete form to the operating committee for consideration pursuant to Article 4 hereof and has not been approved within the period therein provided.

 

In the event that such project fails to obtain the requisite approval of the operating committee, then any party may serve notice on the other parties of its intention to carry out that project at sole risk.   The other parties may give counter- notice that they wish to participate in the project within sixty (60) days after receipt thereof but, where a drilling rig is on the location and has not been released, the period is reduced to seventy-two (72) hours after receipt thereof.  The periods set forth in this Article 11 (3) shall be extended for any period of time mutually agreed by the parties as necessary or desirable for acquiring or developing additional information on the sole risk project.

 

4. If all the other parties elect to participate in the project identified in the proposing party's notice within the period thereof provided, such project is considered as being approved by the operating committee and the provisions of Article 4 (8) of this Participation Agreement shall apply.

 

 

	
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5. In the event that less than all the parties elect to participate in the project, the parties which elected to participate (hereafter referred to as "sole risk parties") shall be entitled to have the sole risk project carried out.

 

The interest of each sole risk party in a sole risk project shall be in proportion to its participation interest in this Participation Agreement, or in such other proportion as the sole risk parties may agree.  Any sole risk project shall be carried out at the sole risk, cost and expense of the sole risk parties in the proportion of their respective interests.

 

6. A sole risk project shall be carried out by the operator on behalf of the sole risk parties under the provisions of this participation agreement.  No sole risk project may be commenced after one hundred and eighty (180) days following the expiration of the notice period prescribed in Article 11 (3), but the operator shall commence work as promptly as reasonably possible if the notice period of seventy two (72) hours, set forth in Article 11 (3), applies. The operator shall complete the sole risk project with due diligence provided that it does not jeopardize, hinder or unreasonably interfere with petroleum operations carried out under the Contract and adopted by the operating committee pursuant to Article 4 of this Participation Agreement.

 

The sole risk parties may use for the sole risk project any production, handling, processing and/or transporting facilities, which are joint property, subject to a determination by the operating committee as to usage fees, availability of capacity and production compatibility.

 

7. In connection with any sole risk project-

 

(a) the sole risk project will be carried out under the overall supervision and control of the sole risk parties in lieu of the operating committee;

 

(b) the computation of costs and expenses of the sole risk project incurred by the sole risk parties shall be made in accordance with the principles set out in exhibit “A" attached hereto;

 

(c) the operator carrying out the sole risk project shall maintain separate books, records and accounts  (including bank accounts) for the sole risk project which shall be subject to the same right of examination and audit by the sole risk parties;

 

(d) the costs and expenses of the sole risk project shall not be reflected in the statements and billing rendered by the operator for petroleum operations under the Participation Agreement; and

 

 

	
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(e) if the operator is carrying out a sole risk project on behalf of the sole risk parties, the operator shall be entitled to request the sole risk parties in connection with the sole risk project to advance their share of the estimated expenditure and shall not use joint account funds or be required to use its own funds for the purpose of paying the costs and expenses of the sole risk project; furthermore the operator shall not be obliged to commence or, having commenced, to continue the sole risk project unless and until relevant advances have been received from the sole risk parties.

 

8. The sole risk parties shall indemnify and hold harmless the other parties against all actions, claims, demands and proceedings whatsoever brought by any third party arising out of or in connection with the sole risk project and shall further indemnify the other parties against all damages, costs, losses and expenses whatsoever directly or indirectly caused to or incurred by them as a result of anything done or omitted to be done in the course of carrying out such sole risk project.

 

9. Subject to the provision of Article 11 (10) below, the sole risk project, including data and information, is wholly owned by the sole risk parties in accordance with the provisions of the Contract, but the sole risk parties shall keep the other parties informed about the project.

 

In the event that such project results in an increase of production of petroleum from the participation area, the portion of such increase, which is available to the Contractor, shall be owned solely by the sole risk parties.  Each of them shall have the right and obligation to take in kind, and separately dispose of its proportional share of supplementary petroleum production.

 

10. Any party or parties which are not participating in the sole risk project may, by giving thirty (30) days' notice to the sole risk parties, become participants in such project, at any time after the sole risk parties have recovered from the supplementary petroleum production the following sums of money to which they are entitled on the project:

 

In the case of a project under Article 11 (2) (a) hereof........per cent (........%) of the Sole Risk cost of such project, plus one hundred  per cent (100%) of the cost of operating such well incurred by the Sole Risk Parties.

 

In the case of a project under Article 11 (2) (b) hereof..........per cent (.......%) of the Sole Risk cost of such project, plus one hundred per cent (100%) of the cost of operating such facilities.

 

The value of the supplementary production to which a Sole Risk Party is entitled shall be the market value in sales at arm's length, determined in accordance with clause 26 of the Contract.

 

From and after the election of any party or parties to become participants in such project, all relevant wells, facilities, equipment and other property appurtenant thereto shall be owned jointly by the participating parties and each of the participating parties shall be entitled to receive its proportional share of the supplementary petroleum production.

 

 

	
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12. CONFIDENTIALITY

 

1. All information related to the petroleum operations shall be confidential and shall not be disclosed to a person other than a party except to-

 

(a) An affiliate;

 

(b) the Government and other public authorities to the extent necessary for the purpose of any applicable law;

 

(c) a stock exchange to which a party is obliged to make disclosure;

 

(d) Contractors, consultants, legal counsels or arbitrators of a Party, where disclosure is essential;

 

(e) a bona fide prospective purchaser of an interest of a Party in the Contract, but that purchaser shall undertake to treat that information as confidential; (f) a lender, where disclosure is essential; or

 

(g) a person to whom disclosure has been agreed by the Parties.

 

2. A party making a disclosure to a person described in paragraph (1) (e) or (f) shall give ten (10) days' written notice thereof to the other parties.

 

3. The parties shall consult with each other prior to the release of any public statement or press release, and except to the extent required by law, rule or regulation of any government authority or stock exchange, no party shall make any public statement or press release without the approval of all the other parties, which shall not be unreasonably withheld. The operator shall utilize its best efforts to co- ordinate all such public statements to the end that all Parties may effect simultaneous press releases.

 

4. The obligations of the parties under this Article 12 are continuing obligations and any party ceasing to be a party to this Agreement shall remain bound by this Article until this Agreement is no longer in force between any remaining parties and the Contract has expired.

 

13. LIABILITY

 

1. The parties shall be severally liable in accordance with their respective participating interest to third parties.

 

 

	
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2. Where the Government has nominated an Appointee, as defined in clause 28 (1) of the Contract, and the appointee defaults the Government shall be liable.

 

3. If because of the operation of the joint and several liability provisions contained in the Contract, any one of the Parties hereto shall be required to pay in full to the Government or any other party, any sum which, if the liability were several, would be required separately from each of the Parties or from one other party only, then the Party(ies) shall notify forthwith and request immediate payment of the Party(ies') proportionate share according to its Participating interest.  If within ten (10) days from receipt of said notice, the other Party(ies) shall fail to make payment as provided above such Party(ies) shall be in default and the provisions of Article 6 above shall apply, this being without prejudice to any other legal remedies available to the non-defaulting Party(ies) against the defaulting Party(ies).

 

14. GOVERNING LAW

 

This Participation Agreement shall be governed by and be construed in accordance with the laws of Kenya.

 

15. ARBITRATION

 

A dispute under this Participation Agreement shall be referred to arbitration in accordance with clause 41 of the Contract.

 

16. FORCE MAJEURE

 

1. In this Article 16, , “Force Majeure” shall include Acts of God, unavoidable accidents, acts of war or conditions attributable to or arising out of war (declared or undeclared), laws, rules, regulations, and orders by any government or governmental agency strikes, lockouts, or other labour or political disturbances, insurrections, riots, and other civil disturbances, hostile acts of hostile forces constituting direct and serious threat to life and property, and all other matters or events of a like or comparable nature beyond the control of the Party concerned, other than rig availability which prevents any of them from performing their obligations under this Participation Agreement.

 

2. In this clause, Force Majeure means an occurrence beyond the reasonable control of the Minister or the Government or the contractor which prevents any of them from performing their obligation under this contract

 

3. Where a party is prevented from performing an obligation under this Participation Agreement by force majeure, that party shall give written notice to the other Parties, and the obligation of the affected Party shall be suspended for the period of the force majeure.

 

 

	
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4. The affected party shall promptly notify the other parties when the period of force majeure terminates.

 

5. No Party may claim force majeure as a reason for the failure to timely pay any monies pursuant to this Participation Agreement.

 

6. Where any Party disputes the existence of force majeure, that dispute may be referred to arbitration as provided in clause 44 of the Contract.

 

17. NOTICES

 

1. All notices and other communications provided for in this Participation Agreement shall be made in writing and shall be delivered by hand or sent by registered airmail, as appropriate, return receipt requested, or by telegram or telex (with confirmation by mail) to the Parties at the following addresses:

 

 

To the Government:

 

Ministry of Energy: FAO Hon. Minister of Energy

Nyayo House

Kenyatta Avenue

P O Box 30582.00100

Nairobi, Kenya

Tel 00254 20 310 112

Fax 00254 20 228 314

 

To the Contractor:

FAO__________

______________

______________

 

2. Notices given by registered airmail shall be deemed received on the date shown on the return receipt.   Notices given by telegram or telex shall be presumed received on the working day at the place of receipt following the time of transmission.

 

3. Any party may at any time and from time to time change its authorized representative or its address herein on giving the other Parties ten (10) days notice in writing to such effect to the Contract.

 

	
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18. TERM

 

1. This Participation Agreement shall come into force on the participation date and shall remain in force until-

 

(a) It is terminated by the written consent of all the parties; (b) All the Participating interests are vested in one Party; or (c) The expiration or termination of the Contract.

 

2. Before this Participation Agreement is terminated, there shall be a final accounting and settlement of the Joint Account.

 

19. FINAL PROVISIONS

 

1. Headings are inserted in this Participation Agreement for convenience  and  shall  not  affect  the  construction  for  interpretation hereof.

 

2. This Participation Agreement shall not be amended, modified or supplemented except by an instrument in writing signed by the parties.

 

3. Subject to the provisions hereof, this Participation Agreement is binding upon and shall apply to the successors and assignees of the parties hereto and each of them respectively.

 

IN WITNESS WHEREOF, the Parties hereto have signed this Participation Agreement on the day and year first above written.

 

 

	
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EXHIBIT "A" ACCOUNTING

 

 PROCEDURE

 

Attached to and made a part of the Participation Agreement.

 

TABLE OF CONTENTS

 

Section 1 - General Provisions

 

1.1 - Interpretation

 

1.2 - Statements, billings and adjustments

 

1.3 - Advances and payments

 

1.4 – Audits

 

SECTION 1

 

GENERAL PROVISIONS

 

 

The purpose of this accounting procedure is to establish equitable methods for determining charges and credits applicable to operations under the Agreement.

 

It is the intent of the Parties that no Party shall lose or profit by reason of its duties and responsibilities as either operator or as non- operator and that no duplicate charges to the joint account for the same work shall be made.

 

The parties agree that if any procedure established herein proves unfair or inequitable to any party, the parties shall meet and in good faith endeavour to agree on the changes necessary to correct that unfairness or inequity.

 

1.1. - INTERPRETATION

 

1.1.1. In this Exhibit-

 

(i) "The Agreement" means the Participation Agreement, of which this Exhibit forms part,

 

(ii)"the Contract" means the production sharing contract to which the Agreement is attached

 

 

	
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(iii) Words and expressions defined in the Agreement, the Contract and its appendices have the meanings therein ascribed to them.

 

1.1.2. In the event of any conflict between the provisions of the Agreement and this exhibit, the provisions of the Agreement shall prevail.

 

1.1.3. By mutual agreement between the parties, this accounting procedure attached to the Agreement may be revised from time to time by an instrument in writing signed by the parties.

 

1.2. - STATEMENTS, BILLINGS AND ADJUSTMENTS

 

1.2.1. The operator shall maintain financial accounts necessary to record in reasonable details the transactions relating to petroleum operations under the Agreement which shall be prepared in accordance with generally accepted standards of the international petroleum industry. The operator shall upon request by the Party furnish a description of its accounting classifications.

 

1.2.2. Each party to the Agreement is responsible for preparing its own accounting and tax reports and paying of its own tax obligations to meet Kenyan requirements.   The operator shall furnish the non- operator(s) with all reports, statements, billings and accounting documents necessary to maintain their own accounting records.

 

1.2.3. The operator shall bill the non-operator(s) on or before the last day of each month for their proportionate share of expenditure for the preceding month.  Such billings shall be accompanied by statements of all charges and credits to the joint account, summarized in reasonable detail by appropriate accounting classifications indicative of the nature thereof, except that items of controllable material and unusual charges and credits shall be detailed.

 

1.2.4. The operator shall, upon request by non-operator(s) furnish a description of such accounting classifications.

 

1.2.5. Amounts included in the billings shall be expressed in the currency in which the operator's records are maintained.   In the conversion of currencies when accounting for advances or payments in different currencies as provided for in sub-section 1.3., or any other currency transactions affecting operations under the Agreement, it is the intent that none of the parties shall experience an exchange gain or loss at the expense of, or to the benefit of, the other Parties. It is agreed that any loss or gain to the joint account resulting from the exchange of currency required for operations under the Agreement or from the translations required, shall be charged or credited to the joint account. The operator shall furnish the parties with a description of the procedure applied by the operator to accomplish said translation or exchange of currencies and provide currency exchange data sufficient to enable non- operator(s) to translate the billings to the currency of the non-operator(s) accounts.

 

 

	
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1.2.6. Payment of billings by non-operator(s) shall not prejudice the right of any non-operator(s) to protest or question the correctness thereof; however, all bills and statements rendered to non-operator(s) by the operator during any year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of any such year, unless within the said twenty-four (24) month period a non-operator takes written exception thereto and makes claim on the operator shall be made unless it is made within the same prescribed period.   The provisions of this Sub-section shall not prevent adjustment resulting from a physical inventory or the joint property or from a third party claim.

 

1.3. - ADVANCES AND PAYMENT

 

1.3.1. If operator so requests, non-operator(s) shall advance to the operator the non-operator(s)' share of estimated cash requirements for the succeeding month's operation in accordance with Article 6 of the Agreement.  Operator shall make written request for the advance to non- operator(s) at least twenty (20) days prior to the first banking day of such succeeding month.  The advance shall not be due and payable before the first banking day of the month for which the advance is requested. The request shall set out the funds in the currencies to be expended as estimated by the operator to be required.  The non-operator(s) shall on or before the due date make corresponding advances in the currencies requested by depositing such funds to operator's account at a bank as may be from time to time designated by the operator.

 

1.3.2. Should the operator be requested to pay any large sums of money for operations under the Agreement, which were unforeseen at the time of providing the non-operator(s) with said monthly estimates of its requirements, the operator may make a written request of the non- operator(s) for special advances covering the non-operators' share of such payments.  Non-operator(s) shall advance to operator their share of such advances within fifteen (15) days after date of such notice.

 

1.3.3. If non-operators' advances exceed their share of actual expenditure, the next succeeding cash advance, after such determination, shall be reduced accordingly.  However, non-operator(s) may request that excess advances be refunded.  The operator shall make such refund with fifteen (15) days after the date of such notice.

 

 

	
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1.3.4. If non-operators' advances are less than their share of actual expenditure, the deficiency shall, at operator's option, be added to subsequent cash advance requirements or be paid by non-operators within fifteen (15) days following operator's billing to non-operator(s) of such deficiency.

 

1.3.5.  If  the  operator  does  not  request  non-operator(s)  as provided in sub-part 1.3.1., to advance their share of estimated cash requirements, non-operator(s) shall pay their share of actual expenditure within fifteen (15) days following date of operator's billing.

 

1.3.6. Payments of advances or billings shall be made on or before the due date; and if not so paid, the unpaid balance shall be treated as provided under Article 6 of the Agreement.

 

1.4. - AUDITS

 

1.4.1. A non-operator, upon at least thirty (30) days' advance written notice to the operator and other non-operator(s), shall have the right at its sole expenses to audit the joint account and related records for any year or portion thereof within the twenty-four (24) month period following the end of such year; however, the conducting of an audit shall not extend the time for the taking of written exception to and the adjustment of accounts as provided for in sub-part 1.2.5.  The operator shall make every reasonable effort to co-operate with the non-operators, and the non-operators shall make every reasonable effort to conduct audits in a manner which will result in a minimum of inconvenience to the operator.

 

1.4.2. All adjustments resulting from an audit agreed between the operator and the non-operator conducting the audit shall be rectified promptly in the joint account by the operator and reported to the other non-operator.  Any unresolved dispute arising in connection with an audit shall be referred to arbitration in accordance with Article 15 of the Agreement.

 

1.4.3. Except as otherwise provided in the Contract, the cost of any audit or verification of the joint account that is for the benefit of all parties shall be chargeable to the joint account if the parties mutually agree.

 

  

	
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SECTION 2

 

CHARGEABLE COSTS, EXPENDITURE AND CREDITS

 

The operator shall charge the joint account for all those costs and expenditure necessary to conduct petroleum operations under the agreement pursuant to the provisions of sub-parts 2.12. inclusive of appendix "B" to the Contract.

 

The operator shall credit the joint account for all the proceeds resulting from petroleum operations under the Agreement pursuant to the provisions of sub-part 2.31. of Appendix "B" to the Contract.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	
Draft Production Sharing Contract Block L28

	Miinistry of Energy Page 97cak_ex108.htm

EXHIBIT 10.8

 

THE REPUBLIC OF THE GAMBIA

 

PETROLEUM (EXPLORATION, DEVELOPMENT & PRODUCTION) LICENCE

 

BLOCK A2

 

 

CAMAC Energy A2 (Gambia) Ltd.

 

  

 

  

 

TABLE OF CONTENTS

 

	ARTICLE 1	
DEFINITIONS AND INTERPRETATION 

	2
	  	
1.1  Defined Terms 

	2
	  	
1.2  Interpretation  

	11
	  	
1.3  Annexes 

	13
	 	 
	ARTICLE 2	
EXCLUSIVITY, TERM, EXPLORATION PERIOD AND DEVELOPMENT AND PRODUCTION PERIOD

	13
	  	
2.1  Exclusivity 

	13
	  	
2.2  Term 

	13
	  	
2.3  Exploration Period 

	14
	  	
2.4  Exploration Period Special Extensions 

	15
	  	
2.5  Development and Production Period 

	15
	 	 
	ARTICLE 3	
WORK OBLIGATIONS 

	16
	  	
3.1  Work Obligations 

	16
	  	
3.2  Exploration Well Requirements 

	17
	 	 
	ARTICLE 4	
WORK PROGRAMMES AND BUDGETS 

	18
	  	
4.1  Submission of Work Programme and Budget

	18
	  	
4.2  Work Programme and Budget Content 

	18
	  	
4.3  Work Programme and Budget Amendments 

	19
	  	
4.4  Approval of Work Programme and Budget 

	19
	 	 
	ARTICLE 5	
RELINQUISHMENT OF AREAS 

	 
	  	
5.1  Mandatory Periodic Relinquishment

	21
	  	
5.2  Relinquishment of Non-Commercial Discoveries, Potentially Commercial Discoveries and Areas Surrounding Dry Wells 

	21
	  	
5.3  Retention of Potentially Commercial Discoveries 

	21
	  	
5.4  Conditions of Relinquishment 

	23

	 	23
	
ARTICLE 6

	
DISCOVERY, APPRAISAL AND DEVELOPMENT

	 
	  	
6.1  Initial Notice of Discovery

	24
	  	
6.2  Discovery Merits Appraisal 

	26
	  	
6.3  Appraisal Programme Report

	27
	  	
6.4  Scope of Discovery Areas 

	28
	  	
6.5  Proposed Development and Production Plan Requirement and Content 

	29
	  	
6.6  Approval of Proposed Development and Production Plan 

	31
	  	
6.7  Amendments to Proposed Development and Production Plan 

	32

 

  

i

  

 

	
ARTICLE 7

	ROYALTIES, BONUSES, RENTALS, PAYROLL TAX AND DEVELOPMENT LEVY	33
	  	
7.1  Royalties, Rentals, Payroll Tax and Development Levy 

	33
	  	
7.2  Royalty Payment Generally 

	34
	  	
7.3  Royalty Amount 

	34
	  	
7.4  Royalty Taken in Kind and Quantities Produced in Testing

	35
	  	
7.5  Royalty Partly Taken in Kind 

	36
	  	
7.6  Defined Terms Relating to Royalties 

	36
	  	
7.7  Royalty Statements 

	36
	  	
7.8  Royalty Payment Timing 

	37
	  	
7.9  Rental Payments 

	37
	  	
7.10  Signature Bonus 

	38
	  	
7.11  Development and Production Plan Bonuses 

	39
	  	
7.12  Production Bonuses

	39
	  	
7.13  Additional Profits Tax

	40
	  	
7.14  Payroll Tax and National Development Levy

	40
	  	
7.15  Income Tax Clarifications

	40
	 	 
	
ARTICLE 8

	CONDUCT OF PETROLEUM OPERATIONS 	41
	  	
8.1  Standard of Petroleum Operations 

	41
	  	
8.2  Content of Petroleum Operations 

	41
	  	
8.3  Natural Gas Flaring 

	42
	  	
8.4  No Perimeter Wells 

	43
	  	
8.5  Survey Obligations

	43
	  	
8.6  Conduct of the Parties 

	43

	 	 
	
ARTICLE 9

	VALUATION OF CRUDE OIL 	45
	  	
9.1  Fair Market Value of Crude Oil 

	45
	  	
9.2  Determination of Average Prices 

	47
	  	
9.3  Annual Meeting

	48
	  	
9.4  Interim Royalty Calculations 

	49
	  	
9.5  Derivative Contracts

	49
	 	49
	
ARTICLE 10

	NATURAL GAS 	 
	 	
10.1  Non-Associated Gas Discovery 

	49
	  	
10.2  Valuation of Royalty on Non-Associated Gas 

	49
	  	
10.3  Associated Gas 

	50

 

  

ii

  

 

	
ARTICLE 11

	MARKETING AND DOMESTIC SUPPLY OBLIGATIONS 	50
	  	
11.1  Domestic Supply Obligation 

	50
	  	
11.2  Price of Domestic Supply

	50
	  	
11.3  Marketing of Government’s Share of Crude Oil 

	50
	 	 
	
ARTICLE 12

	GAMBIAN RESOURCES AND CORPORATE SOCIAL RESPONSIBILITY 	51
	  	
12.1  Use of Domestic Goods and Services 

	51
	  	
12.2  Corporate Social Responsibility

	51
	 	 
	
ARTICLE 13

	EMPLOYMENT AND TRAINING 	52
	  	
13.1  Work Permits 

	52
	  	
13.2  Employment of Gambian Citizens 

	52
	  	
13.3  Expenditure on Training and Resources 

	52

 

	ARTICLE 14	ASSETS AND INSURANCE 	54
	 	
14.1  Surrender of Assets after Term 

	54
	  	
14.2  Disposal of Assets During Term 

	54
	  	
14.3  Insurance 

	55
	  	
14.4  Restoration 

	56
	 	 
	
ARTICLE 15

	IMPORT DUTIES  	56
	  	
15.1  Import Duty Exemptions

	56
	  	
15.2  Disposal of Imported Items 

	56
	  	
15.3  Imports by Expatriate Employees 

	56
	 	 
	
ARTICLE 16

	FOREIGN EXCHANGE.	57
	  	
16.1  Licensee’s Foreign Exchange Rights 

	57
	  	
16.2  Expatriate Employee Foreign Exchange Rights 

	58
	 	 
	
ARTICLE 17

	FINANCIAL GUARANTEE 	58
	  	
17.1  Financial Guarantee Amounts

	58
	  	
17.2  Claims Under Financial Guarantee 

	59
	 	 
	
ARTICLE 18

	GOVERNMENT PARTICIPATION  	59
	  	
18.1  Participating Interest 

	59
	  	
18.2  Exercise of Option to Acquire Participating Interest 

	59
	  	
18.3  No Reimbursement of Past Expenses 

	60
	  	
18.4  Liability for Future Development and Production Expenses 

	60
	  	
18.5  Operating Agreement 

	60
	  	
18.6  Ownership by National Oil Company of The Gambia

	61

 

  

iii

  

 

	
ARTICLE 19

	RECORDS, REPORTS AND CONFIDENTIALITY 	61
	  	
19.1  Exploration Record Requirements 

	61
	  	
19.2  Maps and Plans 

	62
	  	
19.3  Production Reporting Requirements 

	63
	  	
19.4  Development and Production Record Requirements 

	64
	  	
19.5  Retention of Core and Cutting Samples

	66
	  	
19.6  Export of Samples 

	67
	  	
19.7  Property and Assets Records

	67
	  	
19.8  Accounting and Tax Records and Reports 

	67
	  	
19.9  Confidentiality 

	68
	  	
19.10  Surrender of Records on Relinquishment 

	70

	 	 
	
ARTICLE 20:

	AUDITS 	71
	  	
20.1  Accounting Procedure Audit Rights 

	71
	 	 
	
ARTICLE 21:

	ASSIGNMENT 	72
	  	
21.1  No Assignment Without Consent

	72
	  	
21.2  Assignment Free of Transfer Fees 

	72
	 	 
	
ARTICLE 22:

	MEASUREMENT OF PETROLEUM 	72
	  	
22.1  Measurement of and Title to Petroleum

	72
	  	
22.2  Changes in Measurement Methods 

	73
	  	
22.3  Verification of Measurement Methods 

	73
	  	
22.4  Consequences of Inaccurate Measurement Methods 

	73
	  	
22.5  Pressure of Natural Gas

	74
	 	 
	
ARTICLE 23: 

	DOMESTIC UNITIZATION AND JOINT DEVELOPMENT 	74
	  	
23.1  Domestic Unitization Order 

	74
	  	
23.2  Joint Development of Infrastructure 

	77
	 	 
	
ARTICLE 24:

	DIRECTIONS REGARDING PETROLEUM RESERVOIR ACROSS BOUNDARIES 	78
	 	
24.1  Cross-Border Unitization 

	78
	  	
24.2  Observation of Cross-Border Unitization Scheme

	78
	  	
24.3  Amendments to Domestic Unitization Scheme 

	78

	 	 
	ARTICLE 25: 	APPLICABLE LAW 	78
	  	
25.1  Governing Law

	78
	 	 
	
ARTICLE 26:

	SURRENDER AND TERMINATION  	79
	  	
26.1  Surrender of Rights 

	79
	  	
26.2  Termination 

	79
	  	
26.3  Notice of Termination 

	80
	  	
26.4  Cure Rights 

	80
	  	
26.5  Consequences of Surrender or Termination or Expiry of Term 

	81
	 	 
	
ARTICLE 27:

	FORCE MAJEURE 	81
	  	
27.1  Relief for Force Majeure 

	81
	  	
27.2  Definition of Force Majeure

	81
	  	
27.3  Exclusions from Force Majeure 

	82
	  	
27.4  Notice of Force Majeure 

	83
	  	
27.5  Mitigation 

	83
	  	
27.6  Extension of Term for Force Majeure

	83

 

  

iv

  

 

	
ARTICLE 28:  

	ARBITRATION	84
	  	
28.1  Amicable Settlement Efforts 

	84
	  	
28.2  Notification 

	84
	  	
28.3  Arbitration 

	84
	  	
28.4  Arbitration Rules 

	84
	  	
28.5  Law Governing the Arbitration 

	85
	  	
28.6  Number of Arbitrators

	85
	  	
28.7  Method of Appointment of the Arbitrators 

	85
	  	
28.8  Consolidation 

	86
	  	
28.9  Place of Arbitration 

	86
	  	
28.10  Language 

	87
	  	
28.11  Entry of Judgment 

	87
	  	
28.12  Service

	87
	  	
28.13  Conservatory and Provisional Measures 

	87
	  	
28.14  Expert Determination 

	89
	  	
28.15  Waiver of Sovereign Immunity

	89
	  	
28.16  Government’s Dispute Resolution Financing Option 

	90
	  	
28.17  Confidentiality of Dispute Resolution Proceedings 

	91

	 	 
	ARTICLE 29:	INDEMNITY	91
	  	
29.1  Indemnity 

	91
	 	  
	
ARTICLE 30:

	NOTICES	91
	  	
30.1  Method of Notice 

	91
	  	
30.2  Addresses for Notice 

	92

	 	 
	ARTICLE 31:	MISCELLANEOUS 	93
	  	
31.1  Stability 

	93
	  	
31.2  Inconsistencies 

	94
	  	
31.3  Waivers 

	94
	  	
31.4  Amendments 

	94
	  	
31.5  Time of the Essence 

	94
	  	
31.6  Payments 

	94
	  	
31.7  Entire Agreement 

	95
	  	
31.8  Successors and Assigns 

	95
	  	
31.9  Severability 

	95
	ANNEX “A”  DESCRIPTION OF LICENCE AREA	97
	ANNEX “B”   MAP OF LICENCE AREA	98
	ANNEX “C”   ROYALTY	99
	ANNEX “D”   FORM OF BANK GUARANTEE	101

 

  

v

  

 

(This Page Left Blank Intentionally.)

 

 

 

 

 

 

 

 

 

  

 

  

 

PETROLEUM LICENCE

 

Dated the 24th day of May, 2012

 

 

BETWEEN:

 

THE REPUBLIC OF THE GAMBIA, represented for these purposes by The Minister of Petroleum

 

AND

 

CAMAC Energy A2 (Gambia) Ltd. with its registered office in George Town, Grand Cayman

 

WHEREAS:

 

	
(A)

	
Subject to the Act, all rights relating to the ownership, exploration, development, production and disposal of Petroleum existing in its natural state in The Gambia are vested in the State;

 

	
(B)

	
The Minister of Petroleum is responsible for the regulation of the Petroleum industry in The Gambia;

 

	
(C)

	
The Minister of Petroleum received an expression of interest for the Licensee in relation to the conduct of Petroleum Operations in the License Area;

 

	
(D)

	
The Licensee is ready, willing and able to undertake Petroleum Operations in the Licence Area;

 

	
(E)

	
The Licensee has represented and confirmed to the Minister of Petroleum that the Licensee has the required financial capability, technical competence, and resources necessary to undertake Petroleum Operations in the manner set out in this Licence and the Act;

 

  

1

  

 

As of the date first written above the Parties agree as follows:

 

ARTICLE 1:       DEFINITIONS AND INTERPRETATION

 

1.1      Defined Terms

 

In this Licence the following capitalized words shall have the following meanings, and capitalized words used in this Licence and not defined below shall have the meanings given to them in the Act and the Income Tax Act:

 

“Abandonment” means all actions associated with permanently ceasing a significant operation (such as the drilling of a Well, conducting a Flow Test, or Development and Production Operations) and remedying the effects of that operation on the surrounding area in accordance with Best Industry Practice and includes the plugging of a Well, the removal and salvage of associated equipment, site restoration and all other such operations required by the Act and the Commissioner; and “Abandon” and other such word derivatives shall be construed accordingly.

 

“Abandonment Fund” means any account or fund established by agreement of the Licensee and the Commissioner, including any revision or alteration thereof agreed by the Licensee and the Commissioner, for which the Licensee shall be required to make periodic contributions to fund some or all future Abandonment obligations arising in connection with Petroleum Operations.

 

“Act” means the Petroleum (Exploration, Development and Production) Act, 2004 of The Gambia, which is amended by the Petroleum (Exploration, Development and Production) (Amendment) Act, 2007.

 

“Additional Profits Tax” has the meaning given to it in the Tax Schedule.

 

“Affiliate” means, with respect to any Person, any other Person which is affiliated with such Person, and for the purposes of this Licence:

 

	
(a)

	
two Persons will be considered to be affiliated with each other if one of them controls the other, or if both of them are controlled by a common third Person; and

 

	
(b)

	
one Person will be considered to control another Person if it has the power to direct or cause the direction of the management and policies of the other Person, whether directly or indirectly, through one or more intermediaries or otherwise, and whether by virtue of the ownership of shares or other equity interests, the holding of voting rights or contractual rights, or otherwise.

 

  

2

  

“Applicable Laws” has the meaning given to it in the Act.

 

Appraisal Operations means that portion of Exploration Operations following a Commercial Discovery which is conducted for the purpose of delineating the Discovery Area in which that Commercial Discovery is located in terms of thickness and lateral extent and ascertaining the extent, volume and commerciality of recoverable Petroleum from the Reservoir  enclosed  by  that  Discovery  Area,  including  the  drilling  and  completion  of Appraisal Wells and any activities or operations in connection with preparing or proposing a Proposed Development and Production Plan (which includes reservoir analysis, engineering, environmental and economic data gathering and analysis).

 

“Appraisal Programme” means a programme for the conduct of Appraisal Operations.

 

“Appraisal Well” means any Well which is not an Exploration Well and which has a proposed bottom hole location inside a Discovery Area in which a Commercial Discovery is located and which is drilled or to be drilled or Deepened prior to the commencement of Development and Production Operations in respect of that Discovery Area.

 

“Approved Derivative Contracts” means Derivative Contracts that have been approved by the Commissioner pursuant to Clause 9.5.

 

“Approved  Development  and  Production  Plan”  means  a  Proposed  Development  and Production Plan approved in accordance with Clause 6.6.

 

“Approved Work Programme and Budget” means a Work Programme and Budget approved in accordance with Clause 4.4.

 

“Associated  Gas”  means  Natural  Gas  that  is  produced  with  Crude  Oil  from  the  same Reservoir.

 

“Authorized Officer” has the meaning given to it in the Act.

 

  

3

  

 

“Bank Guarantee” means a bank guarantee, applicable to the Initial Exploration Period, First Extension Exploration Period, Second Extension Exploration Period or any subsequent Extension Exploration Period as the case may be, in the form attached as Annex “D”.

 

“Barrel” means a quantity consisting of 42 United States gallons, liquid measure, corrected to a temperature of 60° Fahrenheit, under one atmosphere of pressure.

 

“Best Industry Practice” has the meaning given to it in the Act.

 

“Cap Gas” means the portion of a Reservoir occupied by free Natural Gas which is in contact with Crude Oil in the Reservoir.

 

“Commercial Discovery” means a Discovery from which the anticipated rate of Production would reasonably warrant drilling Appraisal Wells into the Discovery Area in which that Discovery is located.

 

“Commissioner” means the Commissioner for Petroleum Exploration, Development and Production appointed by the President of The Gambia pursuant to the Act.

 

“Crude Oil” means any hydrocarbon which is in a liquid state at the wellhead or gas/oil separator or which is extracted from Natural Gas in a plant, including distillate and condensate.

 

“Deepening” means an operation whereby a Well is drilled to a target Interval below the deepest Interval to which the Well was previously drilled; and “Deepen” and other such word derivatives shall be construed accordingly.

 

“Delivery Point” has the meaning given to it in Clause 7.4(a).

 

“Derivative Contracts” means hedges or other similar financial instruments entered into by the Licensee for the purpose of mitigating the risk of fluctuations in the price of Petroleum produced from the Licence Area.

 

  

4

  

 

“Development and Production Area” means one or more Discovery Areas as delineated in an Approved Development and Production Plan.

 

“Development   and   Production   Operations”   means   those   operations   or   activities undertaken  to  commence  Production  or  to  sustain  Production  once  Production  has commenced (as the case may be), including the drilling and completion of  Development and Production Wells but excluding Exploration Operations and Appraisal Operations and the word “Development” shall be construed accordingly.

 

“Development and Production Period” has the meaning given to it in Clause 2.5.

 

“Development and Production Plan Bonus” means the amount described in Clause 7.11 payable by the Licensee upon the approval, pursuant to Clause 6.6, of a Proposed Development and Production Plan.

 

“Development and Production Well” means any Well other than an Exploration Well or Appraisal Well and which has a proposed bottom hole location inside a Development and Production Area.

 

“Direct Operating Cost” has the meaning given to it in the Tax Schedule.

 

“Discovery” means the discovery of a Reservoir containing Petroleum not previously proven by the drilling of a Well with Petroleum productivity being demonstrated by either:

 

	
(a)

	
Petroleum being recovered at the surface in a flow measurable by conventional industry testing methods; or

 

	
(b)

	
Reservoir fluid content and deliverability being demonstrated using petrophysical and other subsurface evaluation technologies.

 

  

5

  

 

“Discovery Area” means, at the relevant time, the aerial extent of a Discovery in the form of a box or rectangle, defined:

 

	
(a)

	vertically from the surface to the Geological Basement; and

 

	
(b)

	
horizontally 1 kilometers from the outermost area delimited by the mapped and interpreted closure for that Discovery, as determined pursuant to Clause 6.3.

 

“Dispute” has the meaning given to it in Clause 28.1. “Dollars” or “$” means United States Dollars. “Effective Date” means the date first written above.

 

“Environmental Impact Assessment” has the meaning given to it in the Act.

 

“Evaluation Period” means the period commencing on the date of a Discovery and ending on the earlier of: (a) the date the Licensee notifies the Commissioner pursuant to Clause 6.1(a)(iv) whether the Discovery is a Non-Commercial Discovery, a Potentially Commercial Discovery or a Commercial Discovery; and  (b) six (6) months from the date of the Discovery. However, if the Licensee notifies the Commissioner that the Discovery merits further appraisal, both Parties can negotiate a further extension of the Evaluation Period.

 

“Expatriate Employee” means any employee of the Licensee or its Subcontractors who is not normally resident in The Gambia.

 

“Exploration” has the meaning given to it in the Act.

 

“Exploration Operations” means geoscientific studies and operations carried out for or in connection with the search for Petroleum in the Licence Area by geological, geophysical, or photogeological surveys (including remote sensing techniques and site surveys), the drilling and completion of Exploration Wells, Appraisal Operations (including the drilling and completion of Appraisal Wells) and activities connected therewith.

 

“Exploration Period” means the period described in Clause 2.3.

 

  

6

  

 

“Exploration Well” means a Well:

 

	
(a)

	
drilled in the course of Exploration Operations for the purpose of detecting the existence of a Reservoir or Reservoirs at a place, position or depth where such Reservoir or Reservoirs have not been previously known to exist; and

 

	
(b)

	whose proposed bottom hole location is located:

 

	
  

	
(i)

	
outside any Discovery Area or Development and Production Area and within a Producing Interval that is (A) higher than the highest point in a Discovery Area or (B) lower than the deepest point in a Discovery Area; or

 

	
  

	
(ii)

	
more than 5 kilometres from an existing Well where such distance is measured from the coordinates where the existing Well penetrated, and the subject Well is anticipated to penetrate, the applicable Producing Interval.

 

“Extended Flow Test” means a Flow Test that Petroleum flows from a Well for a period exceeding 10 days with the intent to help define or help determine the geometric limits, content and productivity of a Reservoir or Reservoirs.

 

“Extension Bonus” means a bonus payable by the Licensee to the Government pursuant to Clause 2.3 in respect of an extension following the Second Extension Exploration Period.

 

“Extension Exploration Period” means the First Extension Exploration Period, the Second Extension Exploration Period, or any additional finite period by which the Exploration Period is extended pursuant to Clause 2.3(a)(iii), as the context requires.

 

“Financial Guarantee” has the meaning given to it in the Act.

 

“First Extension Exploration Period” has the meaning given to it in Clause 2.3(a)(ii)(A).

 

  

7

  

 

“Flow  Test” means a test to measure a Reservoir’s ability of flowing Petroleum to the surface, the percentage or volume of water (if any) in the Reservoir, liquid and gas gravities, the shut-in pressure prior to testing and other technical data.

 

“Geological Basement” means any igneous or metamorphic rock or any Interval in and below which the geological structure or physical characteristics of the rock sequence do not have the properties necessary for the accumulation of Petroleum in commercial quantities and which reflects the maximum depth at which any such accumulation can be reasonably expected.

 

“Government” means The Republic of The Gambia.

 

“Health, Safety and Environment Laws” has the meaning given to it in the Act.

 

“Income Tax Act” means the Income and Sales Tax Act, 2004 of The Gambia, which is amended by Income and Sales Tax (Amendment) Act, 2007 and Income and Sales Tax (Amendment) (No.2) Act, 2007.

 

“Initial Exploration Period” has the meaning given to it in Clause 2.3(a)(i).

 

“Interval” means a recognizable vertical section or unit of rocks that is distinct from that above or below.

 

“Licence Area” means on the Effective Date the rectangular area described in Annex “A” and shown on the map in Annex “B”, as reasonably extended to the Geological Basement but thereafter excludes any portions (including three dimensional portions) of that area in respect of which the Licensee’s rights under this Licence have been relinquished or surrendered pursuant to this Licence.

 

“Licensee” means CAMAC Energy A2 (Gambia) Ltd. and its successors and permitted assigns.

 

“Minister of Petroleum” means the Minister of the Ministry of Petroleum responsible for Petroleum industry.

 

  

8

  

 

“Natural Gas” means hydrocarbons which are gaseous under normal atmospheric conditions and includes wet gas, dry gas and residue gas remaining after the extraction of liquid hydrocarbons from wet gas.

 

“Net Income from Petroleum Operations” has the meaning given to it in the Tax Schedule.

 

“Non-Associated Gas” means Natural Gas other than Cap Gas and Associated Gas.

 

“Non-Commercial Discovery” means a Discovery that is neither a Potentially Commercial Discovery nor a Commercial Discovery.

 

“Party”  means  the  Licensee  (including  each  Person  constituting  the  Licensee)  or  the Government, as the context requires, and “Parties” means both of them.

 

“Person” means any individual, sole proprietorship, partnership, firm, entity, unincorporated association, unincorporated syndicate, unincorporated  organization, trust  (including a business trust), body corporate, company, joint stock company, joint venture, governmental authority, and where the context requires any of the foregoing when they are acting as trustee, executor, administrator or other legal representative.

 

“Petroleum” has the meaning given to it in the Act.

 

“Petroleum Operations” has the meaning given to it in the Act.

 

“Potentially  Commercial  Discovery”  means  a  Discovery  that  is  not  a  Commercial Discovery and which the Licensee reasonably believes may become a Commercial Discovery prior to the end of the Exploration Period.

 

“Producing Interval” means an Interval that is, or is reasonably expected to be (as the case may be), Productive.

 

  

9

  

 

“Production” means, as the context requires, (a) the flowing of Petroleum from a Reservoir to the surface, for a purpose other than a Flow Test, or (b) the Petroleum that has been flowed from a Reservoir to the surface and saved, and not consumed in the operations causing the flow of such Petroleum to the surface; and “Produced” and other such word derivatives shall be construed accordingly.

 

“Proposed Development and Production Plan” means the detailed document required in order to obtain approval by the Commissioner pursuant to Clause 6.6 of Development and Production Operations in respect of one or more Discovery Areas that, among other things, is in accordance with, and includes the information specified in, Clause 6.5 including policies and procedures for Abandonment in connection therewith.

 

“Quarter” means a period of three consecutive months starting with the first day of January, April, July or October.

 

“Regulations” has the meaning given to it in the Act.

 

“Reservoir” means a porous, permeable sedimentary rock formation or fractured rock formation containing or appearing to contain quantities of Petroleum which is enclosed or surrounded by layers of less-permeable or impervious rock, that is separated or appears to be separated from other such formations and which has its own pressure system so that Production from, or Wells drilled, anywhere in the formation affects the pressure throughout the rock formation.

 

“Resource Expense” has the meaning given to it in the Tax Schedule.

 

“Satellite Development” means one or more Discovery Areas described in a Proposed Development and Production Plan (or otherwise) to be Produced through any Production facilities installed pursuant to, in respect of, or contemplated by (as the case may be) an Approved Development and Production Plan.

 

  

10

  

 

“Second Extension Exploration Period” has the meaning given to it in Clause 2.3(a)(ii)(B).

 

“Tax Schedule” means the Second Schedule of the Income Tax Act.

 

“Term” means the term of this Licence described in Clause 2.2.

 

“Well” means a hole drilled or bored into the ground or seabed, the entirety of which is within  the  Licence  Area  and  whose  target  bottom  hole  location  is  within  or  below  a Producing Interval.

 

“Work Programme and Budget” means an annual plan and budget for the conduct of those Petroleum Operations to be undertaken in the year governed by such plan.

 

1.2     Interpretation

 

	
(a)

	The words  “include” and  “including” when  used  in  this  Licence shall  be construed without limitation.

 

	
(b)

	
References to a statute, treaty or legislative provision in this Licence shall be construed, at any particular time, as including a reference to any modification, extension or re-enactment at any time then in force and to all subordinate legislation made from time to time under it.

 

  

11

  

 

	
(c)

	Clause headings are included for convenience only and shall not affect the interpretation of this Licence.

	
(d)

	Every reference to an “Article”, “Clause” or “Annex” is a reference to an Article or Clause of, or an Annex to, this Licence.

	
(e)

	Every reference to a “Section” or “Part” is a reference to a Section or Part of the Act.

	
(f)

	Every reference to a “day”, “month” or “year” is a reference to a day, month or year on the Gregorian calendar.

 

	
(g)

	
If  at  any  time  an  index  used  in  the  License  is  withdrawn  or  becomes unavailable for any reason or becomes, in the reasonable opinion of either Party, inappropriate as a basis for indexation pursuant to this Licence, then upon written notice of either Party to the other, the Parties shall:

 

	
  

	
(i)

	
use reasonable efforts to agree on a mutually acceptable replacement index; and

 

	
  

	
(ii)

	
if after fourteen (14) days of such notice they have been unable to agree on a mutually acceptable replacement index, then either Party may refer the matter to an expert, who shall determine an appropriate substitute index pursuant to Clause 28.14,

 

	
  

	
provided that pending the substitution of a replacement index, no index adjustment shall be made, and following the substitution of a replacement index the Parties shall make the indexation adjustment with the substitute index retroactively to the date on which the relevant adjustment would otherwise have been made.

 

  

12

  

 

1.3      Annexes

 

The following Annexes are attached to and form part of this Licence:

 

Annex “A”                              Description of Licence Area

 

Annex “B”                               Map of Licence Area

 

Annex “C”                               Royalty

 

Annex “D”                               Form of Bank Guarantee

 

ARTICLE 2:         EXCLUSIVITY, TERM, EXPLORATION PERIOD AND DEVELOPMENT AND PRODUCTION PERIOD

 

2.1     Exclusivity

 

Subject to the Act, the Licensee during the Term shall on the terms and conditions set out or referred to herein have the exclusive right to carry on Petroleum Operations, and execute such works as may be necessary or expedient in relation to those Petroleum Operations, in the Licence Area.

 

2.2     Term

 

Unless sooner terminated or surrendered pursuant to Article 26, this Licence shall commence on the Effective Date and remain in force until the first to occur of the following:

 

	
(a)

	
the last day of the Exploration Period if there has been no Development andProduction Period;

 

	
(b)

	
the last day of the last subsisting Development and Production Period; and

 

	
(c)

	
the day that is 30 years from the Effective Date, (the“Term”).

 

  

13

  

 

2.3     Exploration Period

 

	
(a)

	
The Exploration Period shall commence on the Effective Date and, unless this License is sooner terminated or surrendered pursuant to Article 26 shall continue:

 

	 	
(i)

	for an initial period of four (4) years from the Effective Date (the “Initial Exploration Period”);

 

	 	
(ii)

	
provided that the Licensee has fulfilled its obligations hereunder including under Article 3, upon the Licensee’s election made by notice in writing to the Commissioner:

 

	
  

	
(A)

	

not later than thirty (30) days before the Initial Exploration Period would otherwise expire, for a period of two (2) years from the date of expiry of the Initial Exploration Period (the "First Extension Exploration Period"); and 

 

	
  

	
(B)

	

not later than thirty (30) days before the date on which the First Extension Period would otherwise expire, for a period of two (2) years from the date of expiry of the First Extension Exploration Period (the "Second Extension Exploration Period");

 

	 	
(iii)

	
at the absolute discretion of the Commissioner and subject to a submission to the Commissioner, not later than sixty (60) days before the date on which the Second Extension Exploration Period or any subsequent Extension Exploration Period would expire, of a satisfactory Work Programme and Budget by the Licensee and to the payment by the Licensee to the Government of an Extension Bonus in an amount determined by the Commissioner, for such further period as the Commissioner may determine in his or her discretion (acting reasonably); in respect of the areas and for the periods (if any) referred to Clause 2.4; and

 

	 	
(iv)

	for the period of any extension calculated pursuant to Clause 27.6.

 

	
(b)

	
Unless the Commissioner notifies the Licensee of any objection within forty- five (45) days of receiving a notice under Clause 2.3(a)(ii), the Licensee shall be deemed to have fulfilled its obligations under Article 3 in respect of the relevant period.

 

  

14

  

 

	

(c)

	

The Exploration Period may run concurrently with one or more Development and Production Periods.

 

	

(d)

	

Extension  Bonuses  paid  by  the  Licensee  to  the  Government  shall  not constitute Resource Expenses, Direct Operating Costs or otherwise to be deductible for the purposes of calculating the Licensee’s Net Income from Petroleum Operations pursuant to the Tax Schedule.

 

2.4      Exploration Period Special Extensions

 

	
(a)

	
If pursuant to Clause 6.1 the Licensee has notified the Commissioner that it has found a Discovery, the Exploration Period shall not, in respect of the Discovery Area to which that Discovery relates, terminate before the end of the Evaluation Period.

 

	
(b)

	
If  the  Licensee  is  drawing  up  an  Appraisal  Programme  or  undertaking Appraisal Operations in compliance with Clause 6.2, the Exploration Period shall not terminate in respect of the Discovery Area to which that Appraisal Programme or those Appraisal Operations relate until the first to occur of the following:

 

	
  

	
(i)

	the date on which the Proposed Development and Production Plan submitted by the Licensee in respect of the Discovery Area is approved by the Commissioner pursuant to Clause 6.6;

 

	
  

	
(ii)

	
where the Commissioner does not approve the Proposed Development and Production Plan and reference is made to an expert, the date approval is given pursuant to Clause 6.6(c) or a determination is made pursuant to Clause 6.6(d); and

 

	
  

	
(iii)

	
the date the Licensee gives notice, or is deemed to have given notice, to the Commissioner under Clause 6.2(a)(ii) that the Licensee does not intend to enter into Development and Production Operations in respect of that Discovery Area.

2.5     Development and Production Period

 

A Development and Production Period shall commence with respect to each Development and Production Area on the date when the Commissioner pursuant to Article 6 approves the Proposed Development and Production Plan in relation to such area, and unless this Licence is extended or sooner terminated or surrendered in accordance with its terms, shall, in respect of the Development and Production Area, continue to subsist until the day that is twenty-five (25) years from the date of such approval or until the day that is thirty (30) years after the Effective Date, whichever is first to occur. The Development and Production Period may, at the absolute discretion of the Commissioner, on application by the Licensee made not later than 12 months before the date on which the Development and Production Period would otherwise expire, be extended by the Commissioner in respect of the Development and Production Area for ten (10) years on such terms and conditions as he or she may determine.

 

  

15

  

 

ARTICLE 3:       WORK OBLIGATIONS

 

3.1     Work Obligations

 

Subject to the provisions of this Article, in the course of carrying on Exploration Operations in the Licence Area the Licensee shall, during the several periods into which Exploration activities may occur hereunder, diligently carry out the following Exploration Operations:

 

	
(a)

	
Initial Exploration Period:

 

Prior to the end of the Initial Exploration Period, the Licensee shall complete at least:

 

	
  

	
(i)

	a regional geological study;

 

	
  

	
(ii)

	
acquiring, processing and interpreting seven hundred and  fifty (750) square kilometer 3D seismic data;

 

	
  

	
(iii)

	drilling one (1) Exploration Well to the total depth of five thousand (5,000) meters below mean sea level; and

 

	
  

	
(iv)

	evaluating the drilling results.

 

	
  

	

The (i) and (ii) work obligations of the Initial Exploration Period shall be completed before the end of the second year of the Initial Exploration Period.

 

  

16

  

 

	
(b)

	
First Extension Exploration Period:

 

Prior to the end of the First Extension Exploration Period, the Licensee shall complete at least:

 

	
  

	
(i)

	preparation work for drilling;

 

	
  

	
(ii)

	drilling one (1) Exploration Well to the total depth of five thousand (5,000) meters below mean sea level and evaluating the results.

 

	
(c)

	
Second Extension Exploration Period:

 

Prior to the end of the Second Exploration Period, the Licensee shall complete at least:

 

	
  

	
(i)

	preparation work for drilling;

 

	
  

	
(ii)

	drilling one (1) Exploration Well to the total depth of five thousand (5,000) meters below mean sea level and evaluating the results.

 

3.2          Exploration Well Requirements

 

	
(a)

	
No Exploration Well drilled by the Licensee shall be treated as discharging any obligation of the Licensee to drill Exploration Wells hereunder unless:

 

	
  

	
(i)

	it has been drilled to a Producing Interval above the depth set out in Clause 3.1; or

         

	
  

	
(ii)

	
before reaching such Producing Interval the Geological Basement is encountered.

 

  

17

  

 

	
(b)

	
If prior to discharging its obligation to drill an Exploration Well the Licensee encounters insurmountable technical problems which make further drilling unsafe or impractical, the Licensee shall Abandon that Exploration Well and comply with its obligations under the Act in respect thereof and drill a substitute Exploration Well in the License Area that meets (at a minimum) the requirements described in this Article 3 above that applied to the Abandoned Exploration Well, unless otherwise agreed with the Commissioner.

 

ARTICLE 4:       WORK PROGRAMMES AND BUDGETS

 

4.1     Submission of Work Programme and Budget

 

At least three months prior to the beginning of each year during the Term the Licensee shall prepare and submit to the Commissioner a detailed Work Programme and Budget setting forth the Petroleum Operations which the Licensee proposes to carry out in that year and a reasonable estimate of the cost thereof.

 

4.2     Work Programme and Budget Content

 

Every Work Programme and Budget submitted to the Commissioner pursuant to this Article 4 and every amendment thereto shall:

 

	
(a)

	
be consistent with the requirements set out in Article 3 in respect of any Exploration Operations to be undertaken in the period to which the Work Programme and Budget relates; and

 

	
(b)

	
be consistent with the requirements set out in the applicable Approved Development and Production Operations to be undertaken in the period to which the Work Programme and Budget relates, and in addition, every amendment thereto shall be necessary or desirable for Development and Production Operations.

 

  

18

  

 

4.3     Work Programme and Budget Amendments

 

By giving written notice to the Commissioner the Licensee may propose amendments to any Work Programme and Budget or any revised Work Programme and Budget. A notice under this Clause 4.3 shall state the reasons why in the reasonable opinion of the Licensee the proposed amendments meet the requirements of Clause 4.2.

 

4.4     Approval of Work Programme and Budget

 

	
(a)

	
The Commissioner shall approve any Work Programme and Budget submitted pursuant to Clause 4.1 and any revisions thereto proposed pursuant to Clause 4.3 if the proposed Work Programme and Budget or revisions meet the requirements of Clause 4.2.

 

	
(b)

	
If the Commissioner wishes to propose any revisions to a proposed Work Programme and Budget or proposed revisions thereto, he or she shall, within six (6) weeks after receipt thereof, so notify the Licensee specifying in reasonable detail his or her reasons. Promptly after receipt of a proposal from the Commissioner pursuant to this Clause 4.4(b), the Licensee shall make such revisions as the Licensee deems appropriate and give written notification thereof to the Commissioner together with the revised Work Programme and Budget.

 

	
(c)

	
If the Commissioner does not  propose revisions to a proposed Work Programme and Budget or proposed revisions thereto within six (6) weeks after receipt thereof, the Commissioner will be deemed to have approved the proposed Work Programme and Budget or proposed revisions thereto.

 

  

19

  

 

	
(d)

	
If the Commissioner does not approve the revisions proposed by the Licensee pursuant to Clause 4.3 or 4.4(b) then the Commissioner shall notify the Licensee within six (6) weeks after his or her receipt thereof and the Parties shall meet promptly thereafter and attempt to agree on a Work Programme and Budget. If the Parties are unable to agree within thirty (30) days of their first meeting, then either Party may refer the matter to an expert for determination pursuant to Clause 28.14.

 

	
(e)

	
Where  the  expert  determines  that  the  Work  Programme  and  Budget  or revisions thereto meets the requirements of Clause 4.2, the Commissioner shall forthwith give the requisite approval to the Work Programme and Budget or revisions thereto submitted by the Licensee.

 

	
(f)

	
Where  the  expert  determines  that  the  Work  Programme  and  Budget  or revisions   thereto   do   not   meet   the   requirements   of   Clause   4.2,   the Commissioner shall give the Licensee a reasonable period not exceeding one (1)  month  within  which  to  revise  the  Work  Programme  and  Budget  or revisions thereto in order to ensure that, taking account of the decision of the expert, the Work Programme and Budget or revisions thereto meets the requirements of Clause 4.2.  If in the opinion of the Commissioner the revised Work  Programme  and  Budget  or  revisions  thereto  do  not  duly  take  into account the decision of the expert and meet the requirements of Clause 4.2, then the Commissioner shall within thirty (30) days make such revisions to the Work Programme and Budget or revisions thereto as he or she deems appropriate and shall submit both the Commissioner’s revised Work Programme and Budget or revisions thereto and the Licensee’ s revised Work Programme and Budget or revisions thereto to the expert referred to in Clause 4.4 (d).  Within thirty (30) days thereafter the expert shall choose between the two submitted Work Programmes and Budgets or revisions thereto based upon which most closely takes into account that expert’s previous decision and meets the requirements of Clause 4.2 and the Commissioner shall forthwith give the requisite approval to the chosen Work Programme and Budget.

 

	
(g)

	
The Licensee shall diligently undertake and complete all Petroleum Operations described in any Work Programme and Budget approved pursuant to this Clause 4.4.

 

  

20

  

ARTICLE 5:       RELINQUISHMENT OF AREAS

 

5.1          Mandatory Periodic Relinquishment

 

The Licensee shall:

 

	
(a)

	
on or prior to the commencement of the Second Extension Exploration Period, relinquish its rights in respect of at least twenty percent (20%)of the portion of the Licence Area; and

 

	
(b)

	
at the end of the Exploration Period, relinquish all of the Licence Area that does not at that time comprise a Development and Production Area, or the portion of the Licence Area mutually agreed if being extended to a subsequent Extension Exploration Period.

 

5.2          Relinquishment of Non-Commercial Discoveries, Potentially Commercial Discoveries and Areas Surrounding Dry Wells

 

	
(a)

	
If the Licensee notifies the Commissioner pursuant to Clause 6.1(a)(iv)(C) that a Discovery is a Non-Commercial Discovery or, subject to Clause 5.3, a Potentially Commercial Discovery, the Licensee shall relinquish its rights in respect of the larger of the following areas:

	
  

	
(i)

	the Discovery Area relating to that Discovery; or

 

	
  

	
(ii)

	twenty percent (20%) of the Licence Area inclusive of the Discovery Area relating to that Discovery.

 

  

21

  

 

	
(b)

	
If the Licensee notifies the Commissioner pursuant to Clause 6.2(a)(ii)(A) that a Discovery will not be the subject of Development and Production Operations by the Licensee, the Licensee shall relinquish its rights in respect of the greater of:

	
  

	
(i)

	the Discovery Area relating to that Discovery; or

 

	
  

	
(ii)

	twenty percent (20%) of the Licence Area inclusive of the Discovery Area relating to that Discovery.

 

	
(c )

	
If the Licensee permanently or for any prolonged period without reasonable justification ceases the drilling of an Exploration Well without making a related Discovery, the Licensee shall relinquish its rights in respect of twenty percent  (20%) of the Licence Area inclusive of the well bore of that Exploration Well.

 

	
(d)

	
The relinquishments in Clauses 5.2(a), (b) and (c) shall be effective:

 

	
  

	
(i)

	
as at the end of the Initial Exploration Period if the Discovery to which that Discovery Area relates, or the cessation of the drilling of the Exploration Well, occurred during the Initial Exploration Period;

 

	
  

	
(ii)

	
as at the end of the First Extension Exploration Period if the Discovery to which that Discovery Area relates, or the cessation of the drilling of the Exploration Well, occurred during the First Extension Exploration Period; and

 

	
  

	
(iii)

	
as at the end of the Second Extension Exploration Period if the Discovery to which the Discovery Area relates, or the cessation of the drilling of the Exploration Well, occurred during or after the Second Extension Exploration Period, and shall be in addition to, and calculated by reference to the Licence Area after, the relinquishments described in Clause 5.1.

 

	
  

	
and shall be in addition to, and calculated by reference to the Licence Area after, the relinquishments described in Clause 5.1.

 

  

22

  

5.3     Retention of Potentially Commercial Discoveries

 

Until the earlier of:

 

	
(a)

	
the day that is eight (8)years after the Effective Date, or

 

	
(b)

	
the day on which the Licence is terminated,

 

the Licensee shall retain its rights in respect of each Discovery Area that the Licensee notifies the Commissioner pursuant to Clause 6.1(a)(iv)(B) is a Potentially Commercial Discovery if, together with that notice, the Licensee pays to the Government one million Dollars ($1,000,000).

 

5.4     Conditions of Relinquishment

 

	
(a)

	
In this Article 5, each reference to the Licence Area from which a portion is to be relinquished is a reference to the Licence Area as it was immediately prior to the relinquishment, excluding:

 

	
  

	
(i)

	
any Discovery Area relating to a Discovery the commerciality of which is still being assessed by the Licensee pursuant to Clause 6.1(a);

 

	
  

	
(ii)

	
any Discovery Area that is a Potentially Commercial Discovery in respect of which the Licensee has made a payment pursuant to Clause 5.3;

 

	
  

	
(ii)

	any Discovery Area that is the subject of Appraisal Operations;

 

  

23

  

 

	
  

	
(iv)

	
any Discovery Area that is the subject of an outstanding Proposed Development and Production Plan pursuant to Clause 6.6 or Clause6.7;and

	
  

	
(v)

	any subsisting Development and Production Area.

 

	
(b)

	
Each area relinquished under Clause 5.2  must be a contiguous three dimensional area extending vertically from the surface to the Geological Basement that is of a size and shape that will reasonably permit the carrying out of Petroleum Operations therein.

 

	
(c)

	
The Licensee shall specify the area to be relinquished by notice to the Commissioner at least sixty (60) days prior to the day on which the relinquishment is to take effect.  If the Licensee fails to provide this notice by that date, the Commissioner shall have the absolute discretion to determine the area to be relinquished and shall notify the Licensee accordingly prior to the date which the relinquishment is to take effect.

 

	
(d)

	
The Licensee shall comply with its rehabilitation obligations under Section 50 of the Act prior to its relinquishment of any area pursuant to Clause 5.1 or Clause 5.2.

 

ARTICLE 6:       DISCOVERY, APPRAISAL AND DEVELOPMENT

6.1          Initial Notice of Discovery

 

	
(a)

	
Upon a Discovery in the Licence Area the Licensee shall:

 

	
  

	
(i)

	as soon as practicable after the Discovery, and in any event within one (1) month thereof, notify the Commissioner of the Discovery;

 

	
  

	
(ii)

	
as soon as practicable after notifying the Commissioner pursuant to Clause 6.1(a)(i), furnish full particulars in writing of the Discovery to the Commissioner;

 

  

24

  

 

	
  

	
(iii)

	
promptly run an Extended Flow Test and/or other tests in respect of the Discovery and carry out a technical evaluation thereof and of all other relevant subsurface data and submit the evaluation to the Commissioner as soon as it is completed (and in any event within five (5) months of finding the Discovery); and

 

	
  

	
(iv)

	
within one (1) month after the date on which the technical evaluation is submitted to the Commissioner, notify the Commissioner in writing whether or not in the reasonable opinion of the Licensee the Discovery is:

 

(A)          a Commercial Discovery; or

 

(B)           a Potentially Commercial Discovery; or

 

(C)           a Non-Commercial Discovery.

 

	
(b)

	
If  the  Commissioner  receives  notice  from  the  Licensee  that  the  Licensee classified a Discovery as a Potentially Commercial Discovery pursuant to Clause 6.1(a)(iv)(B) and the Commissioner believes that the Discovery should be classified as a Commercial Discovery, the Commissioner shall notify the Licensee within sixty (60) days (failing which the Commissioner shall be deemed to have agreed with the Licensee’s classification). The parties shall attempt in good faith to resolve any differences regarding the Licensee’s classification, but if they are unable to do so within sixty (60) days of the Commissioner having given notice under this Clause 6.1(b), either party may refer the matter to an expert for determination pursuant to Clause 28.14.

 

	
(c )

	
If  the  expert  referred  to  in  Clause  6.1(b)  determines  that  the  Licensee’s classification of a Discovery as a Potentially Commercial Discovery pursuant to Clause 6.1(a)(iv)(B) was incorrect and that the Discovery should have been classified as a Commercial Discovery under Clause 6.1(a)(iv)(A), the corresponding payment received from the Licensee pursuant to Clause 5.3 shall be accounted for as Resource Expense and the Licensee may notify the Commissioner  within  thirty  (30)  days  of  the  expert’s  decision  that  the Licensee elects to appraise the Discovery Area pursuant to Clause 6.2. If the Licensee does not so notify the Commissioner within thirty (30) days, the Licensee shall be deemed to have classified the Discovery as a Non- Commercial Discovery pursuant to Clause 6.1(a)(iv)(C) and shall relinquish the area of that Discovery pursuant to Clause 5.2(a).

  

25

  

 

6.2          Discovery Merits Appraisal

 

	
(a)

	
If the Licensee notifies the Commissioner that a Discovery is a Commercial Discovery under Clause 6.1(a)(iv)(A) or Clause 6.2(d), or if the Licensee elects to appraise a Discovery Area after a determination by the expert pursuant to Clause 6.1(c), the Licensee shall:

 

	
  

	
(i)

	
within sixty (60) days draw up and submit to the Commissioner for his or her information an Appraisal Programme in respect of the Discovery Area and thereafter promptly carry out Appraisal Operations in accordance with the aforesaid Appraisal Programme;

 

	
  

	
(ii)

	
within a period of twenty-four (24) months from the date on which the Licensee notified the Commissioner that the Discovery Area was a Commercial Discovery or the date of the Licensee’s election under Clause 6.1(c), whichever is applicable:

 

	
  

	(A)	
notify the Commissioner in writing that the Licensee does not intend to enter into Development and Production Operations in respect of the Discovery Area;

 

	
  

	(B) 	
in respect of a Discovery of Crude Oil, submit to the Commissioner a Proposed Development and Production Plan in respect of the Discovery Area pursuant to Clause 6.5; or

 

	
  

	(C)	
in respect of a Discovery of Non-Associated Gas, notify the Commissioner by notice in writing that the Licensee intends to enter into Development and Production Operations in respect of the Discovery Area and is ready to promptly commence negotiations with the Commissioner pursuant to Article 10,

	
  

	
provided that if the Licensee fails to provide any of the applicable submissions or notices referred to in Clause 6.2(a)(i) - (ii) within the time periods set out therein, then on the last day of the applicable time period the Licensee shall be deemed to have notified the Commissioner under Clause 6.2(a)(ii)(A) that the Licensee does not intend to enter into Development and Production Operations in respect of the Discovery Area.

 

  

26

  

 

	
(b)

	
If the Licensee notifies the Commissioner that the Discovery is a Potentially Commercial   Discovery   under   Clause   6.1(a)(iv)(B),   the   Licensee   shall promptly draw up and submit to the Commissioner for his or her information the Licensee’s detailed analysis of the reasons for that assessment.

 

	
(c)

	
If the Licensee notifies the Commissioner that the Discovery Area in a Non- Commercial   Discovery   under   Clause   6.1(a)(iv)(C),   the   Licensee   shall promptly draw up and submit to the Commissioner for his or her information the Licensee’s detailed analysis of the reasons for that assessment.

 

	
(d)

	
Unless the Licence has been terminated earlier, until the day is eight (8) years after the Effective Date, the Licensee may give written notice to the Commissioner that a Potentially Commercial Discovery in respect of which the Licensee made the requisite payment under Clause 5.3 is a Commercial Discovery.

 

6.3     Appraisal Programme Report

 

The notice referred in Clause 6.2(a)(ii) shall be accompanied by a detailed evaluation report which shall include all available technical and economic data relevant to a determination of whether a Discovery merits Development and Production Operations, including particulars of:

 

	
(a)

	
the technical composition, physical properties and quality of Petroleum discovered;

	
(b)

	
the thickness and extent of the Producing Interval;

	
(c)

	
petrochemical properties of the Reservoir;

 

  

27

  

 

	
(d)

	
the  Reservoir’s  productivity indices  for  the  Wells  Flow  Tested  at  variousrates(if applicable);

 

	
(e)

	
permeability and porosity of the Reservoir;

 

	
(f)

	
estimate of the Production capacity of the Reservoir;

 

	
(g)

	
feasibility studies and technical economic evaluations carried out by or for theLicensee in relation to the Discovery Area;

 

	
(h)

	
evaluation of the Reservoir and Intervals; Producing Intervals and adjoining areas; and

	
(i)

	
all available geological data and information relating to the Discovery Area.

 

6.4         Scope of Discovery Areas

 

	
(a)

	
The  Commissioner  shall  notify  the  Licensee  within  thirty  (30)  days  of receiving an Appraisal Programme if the Commissioner disagrees with the scope of the Discovery Area described therein, and the Parties shall meet as soon as is reasonably possible thereafter and attempt to resolve their differences.  If the Parties are unable to resolve their differences within thirty (30) days of their first meeting then either Party may refer the matter to an expert for determination in the manner provided in Clause 28.14. The Parties shall each submit to the expert a proposed Discovery Area and the expert shall be restricted to deciding between the two proposals based upon which, on the basis of available seismic, Well, Flow Test and other data, most accurately covers the Reservoir in which the relevant Discovery was made.

 

	
(b)

	
The Licensee may, on the basis of new information and by notice to theCommissioner,  modify  the  Discovery  Area  and  the  approval  and  dispute resolutions provisions in Clause 6.4(a) shall apply mutatis mutandis in respect of such notice. No such modification may be made after the date of completion of the Appraisal Operations.

 

  

28

  

 

6.5         Proposed Development and Production Plan Requirement and Content

 

Where pursuant to Clause 6.2(a)(ii)(B) the Licensee elects to submit a Proposed Development and Production Plan to the Commissioner, the Proposed Development and Production Plan shall be in accordance with Best Industry Practice, shall provide for the development of the Petroleum resources concerned in a manner that is representative of the best practices then prevailing in the international petroleum industry and shall not contain any activities or operations that are contingent on further Appraisal Operations or on any other activities, operations or determinations. The Proposed Development and Production Plan shall contain particulars of:

 

	
(a)

	
the Licensee’s proposal for the delineation of the proposed Development and Production Area so as to include in a three dimensional area, so far as the boundaries of the Licence Area permit, the entire volume of the Reservoir(s) in respect of which the Discovery has been found and proposals for the development and production of those Reservoir(s), including the method for disposal of Associated Gas, giving particulars of feasible alternatives for aforesaid development and production of those Reservoir(s);

 

	
(b)

	
the  way  in  which  the  Development  and  Production  Operations  are  to  be financed;

 

	
(c)

	
proposals relating to the spacing, drilling and completion of Wells, and the facilities required for the Production, storage and transport of Petroleum, such proposals to include the following information:

 

	
(i)  

	
estimated number, size and production capacity of Petroleum platforms(if any);

 

	
(ii)  

	
estimated  number  of  Development  and  Production  Wells  and  theReservoirs they will produce from;

 

	
(iii)  

	
particulars of Production equipment and storage facilities;

 

  

29

  

 

	
(iv)  

	
particulars   of  feasible   alternatives   for  the   transportation   of  thePetroleum including pipelines;

 

	
(v)  

	
particulars  of  onshore  installations  required  including  the  type  and specifications and size thereof; and

 

	
(vi)  

	
particulars of other technical equipment and installations required for the Development and Production Operations;

 

	
(d)   

	
the estimated Production profiles for Crude Oil and Natural Gas from theReservoir generally and from each individual Producing Interval; (e) cost estimates of capital and recurrent expenditures;

 

	

(f)   

	

detailed estimates of Crude Oil or Natural Gas (if applicable) price forecasts for the expected duration of Production from the Discovery Area;

	
(g)   

	
the Licensee’s detailed economic model generated in accordance with Best Industry Practice and with a start date on the assumed date of the Commissioner’s approval of the Proposed Development and Production Plan and taking into account, for taxation purposes only, all estimated Resource Expenses following that date, excluding all Resource Expenses prior to the assumed date of the Commissioner’s approval, for the calculation of project internal rate of return and net present value. The economic model must have appropriate sensitivities for all economic parameters;

 

	
(h)   

	
technical and economic appraisal of the alternative methods for developing the Discovery Area and transporting Petroleum including the justifications for the method proposed;

 

	

(i)   

	

proposals (if any) relating to the establishment of processing facilities and processing of Petroleum in The Gambia.

 

  

30

  

 

	
(j)   

	
safety measures to be adopted in the course of Development and ProductionOperations including measures to deal with emergencies;

 

	

(k)   

	

the necessary measures to be taken for the protection of the environment and for Abandonment (and compliance in all other respects with the rehabilitation obligations set forth in Section 50 of the Act);

 

	
(l)   

	
proposals for employment and training of citizens of The Gambia;

 

	
(m)   

	
proposals with respect to the procurement of goods and services obtainable inThe Gambia;

 

	
(n)   

	
an  estimate of the time required  to  complete each  phase of the ProposedDevelopment and Production Plan; and

 

	

(o)   

	

such other documentation as the Commissioner may reasonably require in addition to or to verify or supplement the foregoing.

 

6.6         Approval of Proposed Development and Production Plan

 

	
(a)   

	
Except where the Proposed Development and Production Plan submitted by the Licensee does not meet the requirements of Clause 6.5, the Commissioner shall give his or her approval to the Proposed Development and Production Plan within a period of six (6) months from the date of its submission.

 

	
(b)   

	
Where the Proposed Development and Production Plan is not approved by the Commissioner the Parties shall, within a period of thirty (30) days from the date on which the Licensee has been notified of the Commissioner’s decision, meet to attempt to agree on the revisions to the Proposed Development and Production Plan proposed by the Commissioner. If the Parties are unable to agree to such revisions within sixty (60) days of their first meeting, then either Party may refer the matter to an expert for determination pursuant to Clause 28.14.

 

  

31

  

 

	
(c)    

	
Where the expert determines that the Proposed Development and Production Plan meets the requirements of Clause 6.5, the Commissioner shall forthwith give the requisite approval to the Proposed Development and Production Plan submitted by the Licensee.

 

	
(d)   

	
Where the expert determines that the Proposed Development and Production Plan does not meet the requirements of Clause 6.5, the Commissioner shall give the Licensee a reasonable period not exceeding three (3) months within which to revise the Proposed Development and Production Plan in order to ensure that, taking account of the decision of the expert, the Proposed Development and Production Plan meets the requirements of Clause 6.5. If in the opinion of the Commissioner, the revised Proposed Development and Production Plan does not duly take into account the decision of the expert and meet the requirements of Clause 6.5, then the Commissioner shall within thirty (30) days make such revisions to the Proposed Development and Production Plan as he or she deems appropriate and shall submit both the Commissioner’s revised Proposed Development and Production Plan and the Licensee’s revised Proposed Development and Production Plan to the expert referred to in Clause 6.6(b). Within thirty (30) days thereafter the expert shall choose between the two submitted Proposed Development and Production Plans based upon which most closely takes into account that expert’s previous decision and meets the requirements of Clause 6.5 and the Commissioner shall forthwith give the requisite approval to the chosen Proposed Development and Production Plan.

 

6.7         Amendments to Proposed Development and Production Plan

 

The Licensee or the Commissioner may from time to time during a Development and Production Period propose amendments to the then prevailing Approved Development and Production Plan, including for the purposes of incorporating a Satellite Development. The Party that received the proposal shall within ninety (90) days of receipt notify the other Party whether it consents to that proposal (which consent may not be unreasonably withheld). If the Parties are unable to agree whether a Party’s consent has been unreasonably withheld under this Clause 6.7, then either Party may refer the matter to an expert for determination pursuant to Clause 28.14.

 

  

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ARTICLE 7:   ROYALTIES, BONUSES, RENTALS, PAYROLL TAX AND DEVELOPMENT LEVY

7.1         Royalties, Rentals, Payroll Tax and Development Levy

 

The Licensee shall be liable for the payment of:

 

	
(a)   

	
royalties in accordance with Clauses 7.2 through 7.8 (inclusive); (b)annual rentals in accordance with Clause 7.9;

 

	
(c)   

	
a signature bonus in accordance with Clause 7.10;

 

	
(d)   

	
Development and Production Plan Bonuses in accordance with Clause 7.11; (e)Production bonuses in accordance with Clause 7.12;

 

	

(f)   

	

Income  tax  pursuant  to  the  Tax  Schedule  on  income  from  Petroleum Operations and income tax pursuant to the Income Tax Act on other income (if any);

 

	
(g)   

	
Payroll Tax and National Development Levy to the extent not exempted underClause 7.14; and

 

	
(h)   

	
Additional Profits Tax in accordance with Clause 7.13.

 

  

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7.2          Royalty Payment Generally

 

The Licensee shall pay to the Government a royalty on all Petroleum Produced under this Licence. The liability of the Licensee to pay the royalty shall be discharged as follows:

 

	
(a)   

	
in the case of Natural Gas, by paying to the Government the royalty at the rate calculated in the manner specified in an agreement entered into between the Minister of Petroleum and the Licensee pursuant to Article 10; and

 

	
(b)   

	
in the case of Crude Oil :

 

	
(i)   

	
by paying to the Government the royalty at the rate specified in Clause7.3; or

 

	
(ii)   

	
where Clause 7.4 applies, by delivering the specified percentage ofCrude Oil as provided in Clause 7.4; or

 

	
(iii)   

	
where Clause 7.5 applies, partly by so paying the royalty and partly by so delivering Crude Oil as provided in Clause 7.5.

 

7.3         Royalty Amount

 

	
(a)   

	
Subject to the remainder of this Clause 7.3 (including the minimum royalty rate  determined  in  accordance  with  Clause  7.3(c),  the  royalty  payable  in respect of Crude Oil Produced from the first Development and Production Area, and from each subsequent Development and Production Area that is not developed as a Satellite Development, shall be the value f.o.b. The Gambia of all Crude Oil Produced by the Licensee in that Development and Production Area during the month in which Crude Oil was produced, multiplied by the highest applicable percentage set forth in Annex “C”.

 

  

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(b)

	
Subject to Clause 7.3(d), the royalty payable in respect of Crude Oil Produced from a Satellite Development shall be the value f.o.b. The Gambia of Crude Oil Produced by the Licensee from that Satellite Development during the relevant month multiplied by twenty five percent (25%).

 

	
(c)   

	
Notwithstanding the royalty rate stated to be payable in respect of Crude Oil pursuant to Annex “C”, the minimum royalty rate payable by the Licensee in respect of any Crude Oil Produced from any Development and Production Area shall be equal to the royalty rate paid by the Licensee in the previous month  in  respect  of  Crude  Oil  Produced  from  that  Development  and Production Area.

 

	
  

	
(d)

	
The royalty rate in respect of Crude Oil Produced from each Development and Production Area prior to the completion and commissioning of permanent Production facilities in that Development and Production Area, shall be twenty percent (20%).

 

	
(e)   

	
The value of Crude Oil shall be calculated in accordance with Article 9 hereof.

 

7.4         Royalty Taken in Kind and Quantities Produced in Testing

 

	
(a)   

	
The Commissioner may, by notice given to the Licensee not later than ninety (90) days before the commencement of any month, require the Licensee to deliver  the  prescribed  percentage,  or  such  lesser  percentage  as  may  be specified in such notice, of Crude Oil that is Produced in that month, and the Licensee shall comply with the requirement by delivery to the Government at any of the Licensee’s normal loading points in the Gambia (the“Delivery Point”) specified by the Government, of corresponding quantities of Crude oil. If in the relevant month the Licensee has produced different qualities of Crude Oil and not commingled them, proportionate quantities of each Quality of Crude Oil shall be so delivered unless otherwise requested by the Commissioner.

 

	
  

	
(b)

	
Crude Oil Produced during any Flow Test is the property of The Gambia and shall, if requested by the Commissioner, be made available to the Government for lifting at a mutually agreed loading point. The Licensee may not flare more than twenty-five thousand (25,000) Barrels of Crude Oil during the testing of any individual Reservoir or Producing Interval and may not flare more than an aggregate of fifty-thousand (50,000) Barrels of Crude Oil during the testing of multiple Reservoirs or Producing Intervals without the express written consent of the Commissioner (such consent not to be unreasonably withheld or delayed). In no event shall an Extended Flow Test have duration in excess of ninety (90) days.

 

  

35

  

 

7.5         Royalty Partly Taken in Kind

 

Where in a notice referred to in Clause 7.4 the Commissioner specifies a percentage that is less than the prescribed percentage, the Licensee shall discharge its liability to pay the royalty:

	
(a)   

	
by delivery in accordance with Clause 7.4 of the percentage so specified ofCrude Oil; and

 

	

(b)   

	

by paying in accordance with Clause 7.4 the royalty at the remaining royalty percentage in respect of Crude Oil Produced in the relevant month.

 

7.6         Defined Terms Relating to Royalties

 

For the purpose of this Article:

 

	
(a)   

	
“remaining royalty percentage” means the difference (expressed as a percentage) between the prescribed percentage and the amount (expressed as a percentage) specified in the relevant notice given under Clause 7.4; and

 

	
(b)   

	
the“prescribed percentage” means the rate specified in Clause 7.3.

 

7.7         Royalty Statements

 

The Licensee shall within twenty (20) days after the end of each month after the commencement of Production under this Licence deliver to the Minister of Petroleum in such form as the Minister of Petroleum may specify a statement of:

 

	
(a)   

	
the  quantity  of  Petroleum  Produced  from  the  Licence  Area,  including  a breakdown showing the quantity of Petroleum Produced from each Development and Production Area, in that month;

 

  

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(b)   

	
the value f.o.b. The Gambia of the Petroleum on which the royalty is payable;

	
(c)   

	
the amount of the royalty payable for that period and the particulars of the calculation of that amount; and

 

	
(d)   

	
any other matters which the Minister of Petroleum may require from time to time.

 

7.8         Royalty Payment Timing

 

The royalty in respect of Crude Oil Produced hereunder is payable not later than thirty (30) days after that Crude Oil is sold or otherwise disposed of as contemplated in Article 9.

7.9          Rental Payments

 

	
(a)   

	
The annual rental payable to the Government under this Licence shall be the amount calculated by charging the following amounts per annum for every square kilometer of the Licence Area retained during the following periods, provided that any areas relinquished pursuant to Article 5 shall not be included in the rental calculation:

 

	
(i)  

	
Initial Exploration Period:                                           $150 / sq km 

First Extension Exploration Period:                           $250 / sq km 

Second Extension Exploration Period:                      $500/ sq km 

Subsequent Extension Exploration Period(s):         to be determined

 

	
(ii)  

	
Subject to Clause 7.9(b),In the Development and Production Period            $1,000 / sq km

 

  

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(b)

	
the amount in United States Dollars referred to in Clause 7.9(a)(ii) shall be adjusted annually by dividing the amount by an inflation factor “I”, where “I” is calculated as follows:

 

	
 

 

Where :   

	

I = A ÷ B

 

 “A” is the United States Industrial Goods Producer Price Index (“USIGPPI”) as reported for the first time in the monthly publication “International Financial Statistics” of the International Monetary Fund (“IMF”) in the section “Prices, Production, Employment” for the month in which the Effective Date falls; and

 

“B” is the USIGPPI as reported for the first time in the aforesaid IMF publication for the month in which the first and any subsequent anniversary of the Effective Date falls.

 

	
(c)   

	
During the Term, payment of the annual rental for the first year shall be made within thirty (30) days of the Effective Date and for the second and subsequent years, payment is due thirty (30) days before the start of each new year.

 

7.10        Signature Bonus

 

	
(a)   

	
The Licensee shall pay to the Government a signature bonus of one millionDollars ($1,000,000) within thirty (30) days of the Effective Date.

 

	
  

	
(b)

	
The signature bonus paid by the Licensee to the Government pursuant to Clause 7.10(a) shall not constitute a Resource Expense, Direct Operating Cost or otherwise be deductible for the purposes of calculating the Licensee’s Net Income from Petroleum Operations pursuant to the Tax Schedule.

 

  

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7.11       Development and Production Plan Bonuses

 

	
(a)   

	
The Licensee shall pay to the Government a Development and Petroleum Plan Bonus of two million Dollars ($2,000,000)within thirty (30) days of the date when the Commissioner approves the first Proposed Development and Production Plan in accordance with Clause 6.6, and the Licensee shall pay to the Government an additional Development and Production Plan Bonus of two million Dollars ($2,000,000)within 30 days after each date on which the Commissioner approves a subsequent and separate Proposed Development and Production Plan in accordance with Clause 6.6.

 

	
  

	
(b)

	
If an Approved Development and Production Plan is amended to incorporate a Satellite Development, then within thirty (30) days thereafter the Licensee shall pay a separate two million Dollars ($2,000,000) per 1,000,000 Barrels Reserves to a maximum forty million Dollars ($40,000,000) Development and Production Plan Bonus in respect of that Satellite Development.

 

	
(c)   

	
The Development and Production Plan Bonuses paid by the Licensee to the Government pursuant to the Clauses 7.11(a)-(b) shall not constitute Resources Expenses, Direct Operating Costs or otherwise be deductible for the purposes of calculating the Licensee’s Net Income from Petroleum Operations pursuant to the Tax Schedule.

 

7.12       Production Bonuses

 

	
(a)   

	
The Licensee shall pay to the Government production bonus in respect of each Development and Production Area (and again in respect of each Satellite Development within that Development and Production Area) within sixty (60) days of first reaching each of the following production levels from that Development and Production Area or Satellite Development, as applicable:

 

	
    Production Threshold Achieved

	
Production Bonus

Payable when Production 

Threshold is First Achieved

	
Start of Production

	
Ten million Dollars

($10,000,000)

	
Production above 50,000 bopd

	
Ten million Dollars

($10,000,000)

	
Each production increase of 50,000 bopd over the last production threshold that trigged a production bonus payment hereunder

	
Ten million Dollars

($10,000,000)

 

  

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(b)

	
Production Bonuses paid by the Licensee to the Government pursuant to this Clause 7.12 (a) shall not constitute Resource Expenses, Direct Operating Costs or otherwise be deductible for the purpose of calculating the Licensee’s Net Income from Petroleum Operations pursuant to the Tax Schedule.

 

7.13        Additional Profits Tax

 

	
(a)   

	
The Licensee shall pay to the Government an Additional Profits Tax of ten percent (10%) calculated in accordance with the Tax Schedule.

	
(b)   

	
The Licensee shall pay the Additional Profits Tax to the Government within the time set out in the Income Tax Act for the payment by the Licensee of any income tax due by the Licensee.

 

7.14       Payroll Tax and National Development Levy

 

The Licensee shall not be liable to pay any Payroll Tax or National Development Levy in relation to its employees engaged in Petroleum Operations hereunder during any period prior to the commencement of the first Development and Production Period under this Licence.

 

7.15       Income Tax Clarifications

 

	
(a)   

	
Income tax paid by the Licensee pursuant to the Income Tax Act shall not constitute  a  Resource  Expense,  a  Direct  Operating  Cost  or  otherwise  be deductible for the purposes of calculating the Licensee’s Net Income from Petroleum Operations pursuant to the Income Tax Act.

 

	
  

	
(b)

	
The License’s Net  Income from Petroleum Operations shall be subject to income tax only under the Tax Schedule and not under the Income Tax Act.

 

  

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ARTICLE 8:       CONDUCT OF PETROLEUM OPERATIONS

8.1         Standard of Petroleum Operations

 

The Licensee shall diligently and in good faith carry on all Exploration Operations, Appraisal Operations, Development and Production Operations, other Petroleum Operations and any other activities, operations or obligations pursuant to this Licence or in the Licence Area in accordance with the Best Industry Practice and the relevant approved Work Programme and Budget. Similarly, all opinions, recommendations, submissions, representations, determinations, decisions and the like of the Licensee shall be based upon and made in accordance with the Best Industry Practice and in good faith.

 

8.2         Content of Petroleum Operations

 

In particular, and without limiting the generality of Clause 8.1, the Licensee:

 

	
(a)   

	
shall control the flow and prevent the waste or escape in the Licence Area ofPetroleum, gas (not being petroleum), and water;

 

	
(b)   

	
shall ensure the proper Abandonment of all Exploration Operations, AppraisalOperations and Development and Production Operations;

 

	
  

	
(c)

	
shall prevent damage to any Producing Interval in any area within or outside the Licence Area;

 

	
  

	
(d)

	
shall keep separate each Reservoir discovered in the Licence Area and each source of water (if any) discovered in the Licence Area;

 

	
(e)   

	
shall prevent water or any other matter from entering any Reservoir through the Wells in the Licence Area except when required by, and in accordance with, Best Industry Practice;

 

  

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(f)           

	

shall   comply  with   its   obligations   under  Part   IX  (Health,   Safety  and Environment) of the Act, including in respect of the conduct of Petroleum Operations, responses to releases of hazardous substances, the preparation of Environmental Impact Assessments, and the preparation and the implementation of environmental rehabilitation plans;

 

	

(g)          

	

in carrying out Petroleum Operations in the Licence Area, shall not interfere unjustifiably with any navigable waters or fishing in or conservation of the living resources of any waters in or in the vicinity of the Licence Area;

 

	

(h)          

	

shall furnish to the Commissioner prior to the drilling of any Well, a detailed report on the technique to be employed, an estimate of the time to be taken, the material to be used and the safety measures to be employed in the drilling of the Well;

 

	

(i)          

	

shall maintain in good conditions and repair all structures, equipment  and other property in the Licence Area and used in connection with the Petroleum Operations hereunder; and

 

	

(j)          

	

shall take reasonable steps to warn persons who may, from time to time, be in the  vicinity  of  any  such  structures,  equipment  or  other  property  and  the possible hazards resulting there from.

 

8.3         Natural Gas Flaring

 

	
  

	
(a)

	
Where the consent in writing of the Commissioner has been obtained, nothing in this Article 8 shall operate to prevent the Licensee from flaring Natural Gas in accordance with the terms of the instrument of consent.

 

	
  

	
(b)

	
Nothing in this Article 8 shall operate to prevent the Licensee from flaring Natural Gas where, in an emergency, flaring is required to safeguard the health and safety of persons in the Licence Area or to prevent damage to the property of any person in the Licence Area.

 

  

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8.4          No Perimeter Wells

 

A Licensee shall not drill a Well or any part of which is less than 150 metres from the boundary of the Licence Area except with the consent in writing of the Commissioner and in accordance with such conditions, if any, as are specified in the instrument of consent.

 

8.5         Survey Obligations

 

The Commissioner may, at any time for any reasonable purpose, by notice in writing served on the Licensee, direct the Licensee:

 

	
(a)   

	
to carry out a survey of the position of any Well, structure or equipment specified in the notice; and

	
(b)   

	
to furnish promptly to the Commissioner a report in writing of the survey.

8.6         Conduct of the Parties

 

	
(a)   

	
Each Party warrants and undertakes, with respect to this Licence and the transactions contemplated herein, that it and its Affiliates will not have made, offered, or authorized, requested, received, or accepted and will not make, offer or authorize, request, receive or accept with respect to the matters which are the subject of this Licence, any payment, gift, promise or other advantage, whether directly or indirectly through any other person or entity, to or for the use or benefit of any public official (i.e. any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of any governmental authority or agency, a public agency, a public enterprise  or  a  public  international  organization)  or  any  political  party  or political party official or candidate for office, or any other person, where such payment, gift, promise or advantage would violate or result in a violation of:

 

  

43

  

 

	
(i)  

	
the applicable laws of The Gambia;

 

	

(ii)  

	

the applicable laws of the country of incorporation of a party or of a Party’s ultimate parent company or any subsidiary of such parent company;

 

	

(iii)  

	

the applicable principles described in the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed in Paris on December 17, 1997, which entered into force on February 15, 1999, and the Convention’s Commentaries; or

 

	

(iv)  

	

if applicable, the United States Foreign Corrupt Practices Act and the regulations thereunder.

 

	
(b)   

	
Each Party shall defend, indemnify and hold the other Party and its Affiliates harmless from and against any and all claims, damages, losses, penalties costs and expenses arising from or related to, any breach by such first Party and such warranty and undertaking. Such indemnity obligation shall survive termination or expiration of this Licence.

	
(c)   

	
Each Party shall in good time:

 

	
(i)  

	
respond  in  reasonable  detail  to  any  notice  from  any  other  Party reasonably connected with the above-stated warranty; and

 

	

(ii)  

	

furnish applicable documentary support for such response from such other Party.

 

  

44

  

 

	
(d)   

	
Each Party agrees to:

 

	
(i)  

	
maintain adequate internal controls;

 

	
(ii)  

	
properly record and report all transactions; and

 

	
(iii)  

	
comply with the laws applicable to it.

 

	
(e)   

	
Each Party must be able to rely on the other Party’s system of internal controls, and on the adequacy of full disclosure of the fact, and of financial and other data regarding the transactions contemplated herein. No Party is in any way authorized to take any action on behalf of the other Party which would result in inadequate or inaccurate recording and reporting of assets, liabilities or any other transaction or which would put such Party or an Affiliate thereof in violation of any of the above laws, regulations or principles.

 

ARTICLE 9:       VALUATION OF CRUDE OIL

9.1         Fair Market Value of Crude Oil

 

The Parties hereby agree that Crude Oil Produced from the Licence Area shall be sold or otherwise disposed of at competitive international market prices. The average fair market price of Crude Oil marketed in any Quarter shall, for the purposes of this Licence, be determined as follows:

 

	
(a)   

	
as soon as possible after the end of each Quarter in which Crude Oil has been Produced from any Development and Production Area pursuant to this Licence an average price (in terms of Dollars per Barrel, f.o.b. The Gambia) for each separate volume of Crude Oil of the same gravity, sulphur and metal content, pour point, product yield and other relevant characteristics (“Quality”) shall be determined in respect of Production during that Quarter. It is understood that Production from different Development and Production Areas may be of differing Quality and that separate average prices may accordingly be appropriate for any Quarter in respect of Production from each Development and Production Area in which event the overall price applicable to Production from the Licence Area shall be determined by taking the arithmetic weighted average (weighted by volume) of all such prices separately determined;

 

  

45

  

 

	
  

	
(b)

	
the  prices  aforesaid  shall  be  determined  on  the  basis  of  international  fair market value as follows:

 

	
  

	
(i)

	
if fifty percent (50%) or more of the total sales by the Licensee during the Quarter of Crude Oil of a given Quality Produced hereunder have been third Party arm’s length sales transacted in foreign exchange (“Third Party Sales”), the fair market valuation for all Crude Oil of that Quality will be taken to be the simple arithmetic average price actually realized in such Third Party Sales (inclusive of any gains or losses arising under any Approved Derivative contracts). This will be calculated by dividing the total receipts from all Third Party Sales by the total number of Barrels of crude Oil sold in such sales;

 

	
  

	
(ii)

	
subject to Clause 9.1(c) below, if less than fifty percent (50%) of the total volume of sales made by the Licensee during the quarter of Crude Oil of a given Quality Produced hereunder have been Third Party Sales, the fair market valuation for all Crude Oil of that Quality will be determined by the arithmetic weighted average of:

 

	

(A)          

	
the  simple  arithmetic  average  price  actually  realized  in  the Third  Party  Sales  during  the  Quarter  of  such  Crude  Oil Produced hereunder, if any, calculated by dividing the total receipts  from  all  Third   Party   Sales  by  the  total  number  of Barrels of Crude Oil in such sales; and

 

	

(B)          

	

the  simple  arithmetic  average  price  per  Barrel  at  which  a selection of major competitive Crude Oils of generally similar Quality to that of Crude Oil Produced hereunder were sold in international markets  during the same period,

 

	
  

	
provided that:

	 

 

	

(C)          

	

the prices of the Crude Oils used for reference will be adjusted for   differences   in   Quality,   quantity,   transportation   costs, delivery time, payment and other contract terms;

 

	
(D)          

	
the selected Crude Oils will be agreed between the Licensee and the Commissioner in advance for each year and in making the selection preference will be given to those Crude Oils of similar Quality  to  Crude  Oil  which  are  produced  in  Africa  or  the Middle East and are regularly sold in the same markets as Crude Oil is normally sold; and

 

	
(E)          

	
the arithmetic weighted average aforesaid will be determined by the percentage volume of sales of Crude Oil by the Licensee that are, and that are not, as the case may be, Third Party Sales during the Quarter in question;

 

  

46

  

 

	
(iii)   

	
all such prices shall be adjusted to f.o.b. The Gambia; and

 

	
(iv)   

	
for the purpose of this Article 9, Third Party Sales of Crude Oil made by the Licensee shall include any third party arm’s length sales made by the Licensee on the Government’s behalf pursuant to Clause 11.3 but shall exclude:

 

	
(A)   

	
sales, whether direct or indirect through brokers or otherwise, of any seller or to any Affiliate of such seller, and

	
(B)   

	
Crude Oil exchanges, barter deals or restricted or distress transactions, and more generally any Crude Oil transaction which is motivated in whole or in part by considerations other than the usual economic incentives for commercial arm’s length crude oil sales;

 

	
(c)   

	
if less than fifty percent (50%) of the total volume of sales by the Licensee during the Quarter of Crude Oil of a given Quality Produced hereunder have been Third Party Sales, the Licensee shall promptly notify the Commissioner of the applicable percentage and respective volumes and prices realized (inclusive of any gains or losses arising under any Approved Derivative Contracts). The Commissioner shall have the right to elect that the fair market valuation for all Crude Oil of that Quality will be determined for that Quarter in accordance with Clause 9.1(b)(i) above. If the Commissioner so elects he or she will notify the Licensee in writing within fourteen (14) days of receipt of the original notification from the Licensee and the fair market valuation of the aforesaid Crude Oil shall be determined accordingly. If the Commissioner does not so elect, then the fair market valuation shall be determined in accordance with Clause 9.1(b)(ii) above.

 

9.2           Determination of Average Prices

 

	
(a)   

	
The Licensee shall be responsible for establishing the relevant average prices for Crude Oil in accordance with this Article 9 and such prices shall be subject to the agreement by the Commissioner before they shall be accepted as having been finally determined. If the Parties fail to agree on the average price for any Quarter within thirty (30) days following the end of such Quarter then the calculation of the relevant average price shall be referred to an expert pursuant to Clause 28.14.

 

  

47

  

 

	
  

	
(b)

	
The Licensee shall, for the purposes of this Article 9, prepare and submit to the Commissioner within twenty (20) days after the end of each Quarter during a Development and Production Period a statement providing calculations of the value of Crude Oil Produced from Petroleum Operations during that Quarter and containing the following information:

 

	
  

	
(i)

	
the quantities, prices and receipts realized by the Licensee in Third Party Sales of Crude Oil of a given Quality Produced hereunder from each Development and Production Area during that Quarter;

 

	
  

	
(ii)

	
the quantities, prices and receipts realized by the Licensee in sales of Crude Oil of a given Quality Produced hereunder from each Development and Production Area during that Quarter, other than in Third Party Sales;

 

	
  

	
(iii)

	
the  quantity  of  stocks  of  Crude  Oil  of  a  given  Quality  Produced hereunder from each Development and Production Area held at the end of that Quarter,

 

	
  

	
(iv)

	
the percentage volume of total sales of Crude Oil of a given Quality Produced  hereunder  from  each  Development  and  Production  Area made by the Licensee during that Quarter that are Third Party Sales; and

 

	
  

	
(v)

	
all information available to the Licensee, if relevant for the purposes of the calculations to be performed under this Article 9, concerning the prices of the selection of major competitive Crude Oils, including contract prices, discount and premia, and prices obtained on the spot markets.

 

9.3         Annual Meeting

 

During the year in which Production from the Licence Area commences, the Parties will meet in order to establish a provisional selection of the major competitive Crude Oils and an appropriate mechanism for the purposes of giving effect to Clause 9.1(b)(ii)(B) above. The selection of Crude Oils will be reviewed annually and modified if necessary.

 

  

48

  

 

9.4         Interim Royalty Calculations

 

For the purposes of ascertaining any amount of royalty until such time as the value of the Crude Oil attributable to a Quarter is determined hereunder, the calculations shall be based on the value of the Crude Oil attributable to the preceding Quarter under this Article 9 and in the absence of such value, on the value agreed between the Commissioner and the Licensee. 

Upon determination of the value of the Crude Oil attributable to the Quarter in question hereunder, adjustments shall be made on the basis of the value determined.

 

9.5         Derivative Contracts

 

Prior to entering into any Derivative Contract the Licensee shall provide the Commissioner with a copy of that Derivative Contract or a term sheet accurately and in detail describing all of its material terms. If the Commissioner approves the use of that Derivative Contract in the calculations set out in Clause 9.1 the Commissioner shall so notify the Licensee in writing within seven (7) days after the receipt by the Commissioner of the Derivative Contract (or term sheet). If the Commissioner does not so notify the Licensee, the Derivative Contract shall not be used in the calculations set out in Clause 9.1.

 

ARTICLE 10:   NATURAL GAS

10.1       Non-Associated Gas Discovery

 

Where the Licensee has pursuant to Article 6 notified the Commissioner that Non-Associated Gas discovered in the License Area is a Commercial Discovery or Potentially Commercial Discovery the Parties shall as soon as possible after completion by the Licensee of an Appraisal Programme relating to such Discovery or sooner if so agreed, meet with a view to reaching an agreement on the Production, processing and sale of such Natural Gas.

 

10.2       Valuation of Royalty on Non-Associated Gas

 

For the purpose aforesaid the Minister of Petroleum and the Licensee shall negotiate in good faith with a view to reaching an agreement on the method of valuing the said Natural Gas and on the royalty payable in respect thereof which, to the extent that market conditions permit, shall give to the Licensee a fair return on its investment taking account of the risk assumed by the Licensee during the exploration stage.

 

  

49

  

 

10.3       Associated Gas

 

All Associated Gas is the property of The Gambia. The Government may elect to off-take at the wellhead or gas oil separator and use such Associated Gas provided that the costs thereof are borne by the Government and that such off-take will not be detrimental to the proper conduct of oilfield operations according to Best Industry Practice.

 

ARTICLE 11:   MARKETING AND DOMESTIC SUPPLY OBLIGATIONS

11.1       Domestic Supply Obligation

 

The requirements of the domestic market of The Gambia shall in the first instance be met by royalty Crude Oil delivered to the Government pursuant to Article 7 and Article 18. If there is a domestic demand in excess of the Crude Oil Production available pursuant to Article 7 and Article 18, the Licensee may be required by the Commissioner to sell Crude Oil in The Gambia on a pro rata basis with other producers in The Gambia according to the quantity of Crude Oil Produced by each producer. The Commissioner shall give the Licensee at least three (3) months notice in advance of the said requirements and the term of the supply shall be on an annual basis.

 

11.2       Price of Domestic Supply

 

Crude Oil sold pursuant to Clause 11.1 shall be paid for in foreign exchange at a price of ten percent (10%) less than that determined in accordance with Article 9.

 

11.3       Marketing of Government’s Share of Crude Oil

 

The Licensee shall, if requested by the Government with at least three (3) months advance notice, market abroad on competitive terms all or part of Government’s entitlement to Crude Oil Production under Article 18 and to royalty Crude Oil Production hereunder, subject to payment by the Government of direct costs normally borne by a seller in such transactions as may be agreed by the Government but excluding any commission overhead, marketing or similar fee or charge in respect of such service.

 

  

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ARTICLE 12: GAMBIAN RESOURCES AND CORPORATE SOCIAL RESPONSIBILITY

12.1  Use of Domestic Goods and Services

 

	
(a)   

	
In Petroleum Operations the Licensee shall use goods and services produced or provided in The Gambia provided such goods and services are:

 

	
(i)  

	
in accordance with accepted international standards;

 

	
(ii)  

	
available on a timely basis in the quantity required; and

 

	
(iii)  

	
available at prices that are not more than ten percent (10%) greater than those offered by an international supplier that would otherwise have been selected pursuant to the tender procedures established pursuant to Clause 12.1(b).

 

	
(b)   

	
The Licensee will establish appropriate tender procedures for the aforesaid Gambian goods and services, taking into account Gambian local market conditions and enabling Gambian contractors to bid for the supply of such goods and for the provision of such services.

 

12.2        Corporate Social Responsibility

 

Corporate social responsibility is the commitment of the Licensee to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life in The Gambia. The annual Work Programme and Budget shall include a corporate social responsibility agenda and program.

 

  

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ARTICLE 13:  EMPLOYMENT AND TRAINING

 

13.1       Work Permits

 

Subject to the requirements of any law relating to immigration and to Clause 13.2, the Government shall provide the necessary work permits and other approvals required for the employment of Expatriate Employees by the Licensee in The Gambia for the purpose of performing its obligations under this Licence.

 

13.2       Employment of Gambian Citizens

 

In hiring managerial, administrative, operational and other personnel, the Licensee shall give preference to citizens of The Gambia having the requisite expertise and qualifications.

 

13.3       Expenditure on Training and Resources

 

	
(a)   

	
The Licensee shall spend a minimum sum of:

 

	
(i)  

	
one hundred thousand Dollars ($100,000) during each year of the Exploration Period (whether or not it runs concurrently with one or more Development and Production Periods); and

 

	
(ii)  

	
five hundred thousand Dollars ($500,000) during each year of each Development and Production Period in respect of each Development and Production Area and each Satellite Development, for one or more of the following purposes:

 

	
(A)  

	
to provide a mutually agreed number of Government personnel with on-the-job training in the Licensee’s operations in The Gambia and overseas, and/or practical training at institutions abroad;

 

  

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(B)  

	
to send suitable Gambian personnel selected by the Government on courses at universities, colleges or other training institutions mutually selected by the Licensee and the Government;

 

	
(C)  

	
to send Gambian personnel selected by the Government to conferences and seminars related to the Petroleum industry; and

 

	
    (D)  

	
to purchase for the Government advanced technical books, professional publications, scientific instruments or other equipment required by the Government.

	
(b)   

	
The minimum expenditure requirements in Clause 13.3(a) shall be adjusted bydividing them by an inflation factor “I” where I = A ÷ B: 

 

where :

 

“A” is the United States Industrial Goods Producer Price Index (USIGPPI) as reported for the first time in the monthly publication “International Financial Statistics” of the International Monetary Fund (IMF) in the section “Prices, Production, Employment” for the month in which the Effective Date falls; and

 

“B” is the USIGPPI as reported for the first time in the aforesaid IMF publication for the month in which the first and any subsequent anniversary of the Effective Date falls.

 

	
(c)   

	
The Government and the Licensee shall meet annually in order to formulate the programmes of activities to be undertaken by the Licensee specified in Clauses 13.3(a)(ii)(A) ~ 13.3(a)(ii)(D) above for the following year.

 

  

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ARTICLE 14:   ASSETS AND INSURANCE

14.1       Surrender of Assets after Term

 

	
(a)   

	
Subject  to  the  occupation  rights  of  the  Licensee  (if  any)  under  another Petroleum Production licence, prior to terminating Petroleum Operations in any area the Licensee shall comply with its rehabilitation obligations under Article 50 of the Act, including its obligation to by thirty (30) days prior written notice give the Minister of Petroleum on behalf of the Government the option to take possession of and title to the affected facilities, materials, equipment and Wells at no cost to the Government.

 

	
  

	
(b)

	
The provisions of this Clause 14.1 shall not apply to any facility, materials, equipment and wells which are still required by the Licensee for use in respect of any other Petroleum Production licence in The Gambia.

 

	
(c)   

	
The provisions of this Clause 14.1 shall not apply in respect of any leased equipment belonging to local or foreign third parties, and such equipment may be freely exported from The Gambia in accordance with the terms of the applicable lease.

 

14.2       Disposal of Assets During Term

 

	
(a)   

	
Subject to Clauses 14.1(a) and 14.2(b), the Licensee may, from time to time, remove and sell or otherwise dispose of any facility, materials, equipment and Wells in or on the Licence Area which are no longer required by the Licensee for the purpose of the Petroleum Operations under this Licence.

 

  

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(b)

	
The Licensee shall, prior to removing and selling from the Licence Area any facility, materials, equipment and wells described in Clause 14.2(a), offer to the Government, at no cost to the Government, all such facility, materials, equipment and Wells. Such offer shall be made in writing by the Licensee to the Minister of Petroleum and shall set out the particular facility, materials, equipment and Wells to be removed and sold. If the Minister of Petroleum has not responded in writing to the Licensee within thirty (30) days of receiving such notice that it intends to take possession and title to such facility, materials, equipment and Wells, the licensee may remove and sell such in accordance with Clause 14.2(a).

14.3       Insurance

 

The Licensee shall obtain and at all times during the Term maintain, and shall require its Subcontractors to obtain and maintain, for Petroleum Operations hereunder, insurance of such type and in such amount as is customary in the international Petroleum industry in accordance with Best Industry Practice. Such insurance shall, without prejudice to the generality of the foregoing, cover:

 

	
  

	
(a)

	
the full replacement cost if there is any loss or damage to all assets for so long as they are used in the Petroleum Operations;

 

	
(b)   

	
pollution caused in the course of the Petroleum Operations for which theLicensee, the Subcontractor or the operator may be held responsible;

 

	
  

	
(c)

	
property loss or damage or bodily injury suffered by any third party in the course of the Petroleum Operations;

 

	
  

	
(d)

	
the cost of removing wrecks and clean-up operations following an accident in the course of the Petroleum Operations; and

 

	
(e)   

	
the Licensee’s, Subcontractor’s and/or the operator’s liability to its employeesengaged in the Petroleum Operations.

 

  

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14.4       Restoration

 

If any of the assets used or to be used by the Licensee in Petroleum Operations are lost or damaged for any reason, then irrespective of whether the proceeds of the insurance described in Clause 14.3(a) are sufficient for these purposes, the Licensee shall fully replace or repair those assets as soon as is reasonably possible.

 

ARTICLE 15:   IMPORT DUTIES

 

15.1       Import Duty Exemptions

 

The Licensee and its Subcontractors engaged in Petroleum Operations hereunder shall be permitted to import free of duty and other taxes on imports machinery, equipment, vehicles, materials, supplies, consumable items (other than food stuffs or alcoholic  beverages)  and  moveable property where imports in any of the said categories have been certified, with appropriate  verification  thereof,  by  the  Licensee  to  be  for  use  solely  in  carrying  out Petroleum Operations under this Licence.

 

15.2       Disposal of Imported Items

 

Subject to Article 14, any of the items imported in The Gambia may, if no longer required for the operations hereunder, be freely exported at any time by the importing party without the payment of any export duty or import duty provided, however, that on the sale or transfer by the importer of any such items to any person in The Gambia import duty shall be payable by the importer on the value thereof at the date of such sale or transfer.

 

15.3       Imports by Expatriate Employees

 

Each Expatriate Employee of the Licensee and of its Subcontractors shall be permitted, subject to the limitations and conditions set out in the Customs Act and the Customs Tariff Act, to import into The Gambia free of import duty bona fide personal and household effects including one automobile and one motorcycle provided, however, that no property imported by the Expatriate Employee shall be resold in The Gambia except in accordance with Applicable Laws.

 

  

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ARTICLE 16:   FOREIGN EXCHANGE

16.1       Licensee’s Foreign Exchange Rights

 

The Licensee shall, during the Term, have the right:

 

	
(a)   

	
to enter into loan agreements outside The Gambia for the purpose of financingPetroleum Operations hereunder provided that:

 

	

(i)  

	

notification  of  the  proposed  loan agreements is given to the Government not less than one (1) month prior to their execution; and

 

	
(ii)  

	
no payments of principal or interest in respect of such loans is made from any source in The Gambia other than the bank accounts referred to in Clause 16.1(b);

 

	
  

	
(b)

	
to open and maintain bank accounts denominated in Gambian currency in The Gambia and freely dispose of the sums deposited therein provided the said accounts are credited only with sums deposited in foreign currency or with the proceeds of the sale of foreign currency being credits relating to or derived from Petroleum Operations hereunder;

 

	
(c)   

	
to  open  and  maintain  bank  accounts  in  any foreign  currency outside  The Gambia which may be credited without restriction and freely dispose of any sums  deposited  therein  without  restriction  and  without  any  obligation  to convert into Gambian currency any part of the said amounts save that such accounts shall not be credited with the proceeds of the sale of any Gambian currency without the consent of the Central Bank of The Gambia; and

 

	
(d)   

	
to purchase Gambian  currency,  through authorized  banks, without discrimination, at the rate of exchange generally available.

 

  

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16.2       Expatriate Employee Foreign Exchange Rights

 

	
(a)   

	
Expatriate  Employees  of  the  Licensee  and  its  Subcontractors  engaged  in Petroleum Operations hereunder shall be entitled to:

 

	
  

	
(i)

	
export freely from The Gambia their savings on salaries in The Gambia and to export from The Gambia upon termination of their contract any sums paid to them from any provident fund or similar fund; and

 

	
  

	
(ii)

	
export  freely  from  The  Gambia  their  personal  property  previously imported into The Gambia or purchased with their personal property previously imported into The Gambia or purchased with their savings on salaries in The Gambia.

 

	
  

	
(b)

	
Where the Licensee by notice in writing to the Commissioner has guaranteed the full and proper discharge by any Expatriate Employee of his or her liability for Income Tax under the laws of The Gambia that Expatriate Employee shall be entitled to receive freely the whole or any part of his or her remuneration in the country in which he or she is normally resident.

ARTICLE 17:   FINANCIAL GUARANTEE

17.1       Financial Guarantee Amounts

 

Within seven (7) days after the execution of this Licence the Licensee shall provide, and the Licensee shall thereafter maintain in full force and effect as required pursuant to the Act, the Financial Guarantee in one or more than one (as the case may be) of either (a) the forms attached hereto as Annex D or (b) a parent company guarantee signed by the ultimate parent company of the Licensee in a form reasonably agreed by the Licensee and the Commissioner. During the Exploration Period the amount of the Financial Guarantee shall be ten percent (10%) of the estimated minimum work program expenses during each exploration period. Thereafter (or on the occurrence of the first Development and Production Period, if earlier) the amount of the Financial Guarantee shall be determined (and from time to time adjusted) by the Minister of Petroleum pursuant to Sections 59(1) and 59(2) of the Act, having regard to representations made by the Licensee pursuant to Section 59(9) of the Act.

 

  

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17.2       Claims Under Financial Guarantee

 

	
(a)   

	
The Minister of Petroleum may claim under the Financial Guarantee to the extent that he or she is permitted to do so under the Act or this Licence, including in the circumstance described in clause 17.2(b).

 

	

(b)   

	

If at any time prior to the issuance pursuant to Section 51 of the Act of the final Closure Certificate in respect of the Licence Area the expiry date of the Financial Guarantee will occur within fourteen (14) days, The Minister of Petroleum  may  draw  down  from  the  Financial  Guarantee  the  maximum amount available thereunder.

 

ARTICLE 18:   GOVERNMENT PARTICIPATION

 

18.1       Participating Interest

 

The Government shall have the option to acquire a participating interest in the rights and obligations of the Licensee hereunder in any Development and Production Area or Areas and thereby to become one of the Persons constituting the Licensee in any Development and Production Area or Areas with effect from the date it exercises such option in accordance with Clause 18.2. Such participating interest, if acquired, shall not be more than fifteen percent (15%).

 

18.2       Exercise of Option to Acquire Participating Interest

 

If the Government wishes to exercise the option under Clause 18.1, the Minister of Petroleum must give notice to that effect to the Licensee no later than ninety (90) days following the date of approval of the Proposed Development and Production Plan approved hereunder in accordance with Clause 6.6. Such notice by the Minister of Petroleum to the Licensee shall include the percentage participating interest to be acquired by the Government.

 

  

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18.3       No Reimbursement of Past Expenses

 

If the Government exercises the option under Clause 18.1, the Government shall not be liable to reimburse the Licensee for any expenses incurred by the Licensee in respect of the period prior to the date on which the Approved Development and Production Plan was approved.

 

18.4       Liability for Future Development and Production Expenses

 

	
(a)   

	
Subject to the provisions relating to the approval of Work Programmes andBudgets set out herein and in the Operating Agreement referred to in Clause 18.5, if the Government exercises the option under Clause 18.1, the Government shall be liable for its participating interest share of all expenses incurred by the Licensee in relation to Petroleum Operations in the Development and Production Area after the date the Approved Development and Production Plan was approved, provided that the Government shall not be liable for its participating interest share of any Development and Production Bonuses pursuant to Clause 7.11, any production bonuses pursuant to Clause 7.12, or any claims, losses, costs, liabilities or expenses arising out of in connection with the negligence, gross negligence or willful misconduct of the Licensee, its Affiliates, or its or their contractors, vendors or agents.

 

	
(b)   

	
For the purposes of Clause 18.4(a) “negligence, gross negligence or willful misconduct” means the failure by a person to exercise the standard of care that a reasonably prudent person would have exercised in the same or similar circumstances, and any act or failure to act (whether sole, joint or concurrent) by any person which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such person knew, or should have known, such act or failure to act would have on the safety or property of another person.

18.5       Operating Agreement

 

If the Government exercises the option under Clause 18.1, the Licensee and the Government shall forthwith enter into a mutually acceptable joint operating agreement in the form prescribed in the Regulations or, if no such form is prescribed in the Regulations, in a form that conforms to Best Industry Practice and is based on the most recent Model Contract of the International Operating Agreement developed by the Association of International Petroleum Negotiators (“AIPN”).

 

  

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18.6       Ownership by National Oil Company of The Gambia

 

The Government may by notice to the Licensee elect to assign its participating interest in the Licence to the national oil company of The Gambia.

ARTICLE 19:   RECORDS, REPORTS AND CONFIDENTIALITY

 

19.1       Exploration Record Requirements

 

	
(a)   

	
The Licensee shall keep at an address in The Gambia notified to the Commissioner, full and accurate accounts and records relating to Exploration, in accordance with Applicable Laws and accepted accounting principles generally used in the international Petroleum industry.

 

	
(b)   

	
The  records  and  accounts  referred  to  in  Clause  19.1(a)  shall  include  full particulars of the following matters:

 

	
(i)  

	
the drilling, operation, deepening, plugging and Abandonment of Wells; (ii)the Intervals and subsoil through which Wells are drilled;

 

	
(iii)  

	
the casing inserted in Wells and any alteration to such casing;

 

	
(iv)  

	
any Petroleum, water and economic minerals or dangerous substances encountered, and any significant discovery of any mineral made; and

 

  

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(v)  

	

the areas in which any geological or geophysical work has been carried out,

 

and shall include:

 

	
(vi)  

	
all tapes, diagrams, profiles and charts which were prepared in respect of the Licence Area;

 

	

(vii)  

	

all geological and geophysical data and studies relating to the Licence Area, including digital data in raw and final forms, copies of all interpretations in workstation backup format, and reports and logs in digital and paper form; and

 

	

(viii)  

	

all engineering data, studies and records relating to the Licence Area, including drawings, plans, designs and evaluations.

 

19.2       Maps and Plans

 

The Licensee shall keep at the address referred to in Clause 19.1 all geological maps and plans, geophysical records, and interpretations thereof, relating to the Licence Area which have been prepared by or on behalf of the Licensee or which the Licensee has otherwise acquired.

 

  

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19.3        Production Reporting Requirements

 

The Licensee shall submit to the Commissioner:

 

	
 

	
(a)

	
at quarterly intervals commencing three (3) months after the Effective Date, in such form as the Commissioner directs:

 

	
(i)  

	
a summary of all geological and geophysical work carried out;

	
(ii)  

	
a summary of all drilling activity and results obtained; and

 

	
(iii)  

	
a list of maps, or reports and of other geological and geophysical data prepared by or for the Licensee, in or in respect of the period concerned;

 

	
(b)   

	
within sixty (60) days after the end of any year of the Term:

 

	
(i)  

	
a record describing the results of all Petroleum Operations carried out by or for the Licensee in that year; and

 

	
(ii)  

	
estimates (if available) of economically recoverable reserves of Crude Oil and Natural Gas at the end of that year;

 

	
(c)        

	(i)	
summaries of Wells drilled, including lithological groups, layer classification boundaries and Producing Intervals within six (6) months of the completion of drilling or, in the case of information that cannot reasonably be obtained in that period, as soon as possible after the completion of drilling; and

	  	
 

(ii)

	
 

copies of all data, including geological and geophysical reports, logs and Well surveys and interpretation of such data and any other data relating to Petroleum Operations hereunder as and when such data becomes available to the Licensee.

 

  

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19.4       Development and Production Record Requirements

 

The Licensee shall keep at the address referred to in Clause 19.1 full and accurate accounts and records relating to Production. Such records and accounts shall be kept in accordance with Applicable Laws and accepted accounting principles generally used in the international Petroleum industry and shall include particulars of the following matters:

 

	
(a)   

	
the  gross  quantity of  any Crude  Oil  and  Natural  Gas  Produced  from  theLicence Area;

 

	
(b)   

	
the grades and gravity of any Crude Oil Produced and the composition ofNatural Gas Produced; 

 

	
(c)   

	
the quantities of:

 

	
(i)  

	
Crude Oil;

 

	
(ii)  

	
Natural Gas;

 

	
(iii)  

	
each refined Petroleum product, including liquefied Petroleum gases;and

 

	
(iv)  

	
sulphur, in any form or any other mineral in any form or any other gases, liquids or solids, disposed of by way of sale or otherwise, the consideration received, the quantity disposed of, and the name of the Person to whom any such quantity was disposed;

 

  

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(d)   

	
the quantity of Petroleum injected into the formation of: 

 

	
(i)  

	
Crude Oil;

 

	
(ii)  

	
Natural Gas;

 

	
(iii)  

	
each refined Petroleum product including liquefied Petroleum gases;and

 

	
(iv)  

	
other liquids or gases;

 

	

(e)   

	

the quantity consumed for drilling or otherwise in Production (other than quantities reported under paragraph (d)) and consumed in pumping to field storage and refineries in The Gambia of:

 

	
(i)  

	
Crude Oil;

 

	
(ii)  

	
Natural Gas; and

 

	
(iii)  

	
each refined Petroleum product including liquefied Petroleum gases;

 

	
(f)   

	
the quantity of Crude Oil refined by it or on its behalf in The Gambia;

 

  

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(g)   

	

the quantity of Natural Gas treated in The Gambia by it or on its behalf for the removal of liquids and liquefied petroleum gases, and the quantity of:

 

	
(i)  

	
butane;

 

	
(ii)  

	
propane; and

 

	
(iii)  

	
any other liquids or gases or any solids;obtained from it; and

 

	
(h)   

	
the quantity of Natural Gas or other Petroleum flared.

 

19.5       Retention of Core and Cutting Samples

 

The Licensee shall save and keep for a reasonable period of time a representative portion of each sample of cuttings, and a full set of cores, taken from drilling Wells and shall dispose of or forward the same to the Commissioner or an Authorized Officer in such manner as directed by the Commissioner. All samples acquired by the Licensee and kept for a period of twelve (12) months without receipt of any instruction to forward the same to the Commissioner or an Authorized Officer may, after prior notification of not less than one hundred and twenty (120) days to the Commissioner of the Licensee’s intention to do so, be disposed of by the Licensee at its discretion.

 

  

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19.6       Export of Samples

 

The Licensee shall be freely permitted to export samples for purposes of processing or laboratory examination or analysis provided that samples equivalent in size and quality have first  been  delivered  to  the  Commissioner.  Originals  of  records  may  also  be  exported, provided however, that copies of equivalent quality have first been delivered to the Commissioner.

 

19.7       Property and Assets Records

 

	
(a)   

	
The Licensee shall maintain, at the address referred to in Clause 19.1 and in accordance   with   Applicable   Laws   and   accepted   accounting   principles generally used in the international Petroleum industry, detailed records of property and assets it owns or utilizes in relation to this Licence.

 

	
(b)            

	
At six (6) monthly intervals, the Licensee shall notify the Government in writing of all assets acquired during the preceding six (6) months indicating the quantities, costs and location of each asset.

 

	
(c)   

	
At reasonable intervals but at least once a year with respect to moveable assets and once every four (4) years with respect to immovable assets, the Licensee shall take inventories of the property and assets it owns or utilizes in relation to this Licence. The Licensee shall give the Government at least ninety (90) days written notice of its intention to take such inventory and the Government shall have the right to be represented when such inventory is taken. The Licensee will clearly state the principles upon which valuation of the inventory has been based.

 

19.8       Accounting and Tax Records and Reports

 

	
(a)   

	
The Licensee shall keep at the address referred to in Clause 19.1 full and accurate accounting and tax records. Such records and accounts shall be kept in accordance with Applicable Laws and accepted accounting principles generally used in the international Petroleum industry.

 

  

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(b)  

	

The  accounts  shall  be  maintained  in  Gambian  currency  and  United  State Dollars; however, the United States Dollar accounts will prevail in case of any conflict.  Metric  units  and  Barrels  shall  be  employed  for  measurements required under the Licence. The language employed shall be English. Where necessary  for  clarification  the  Licensee  may  also  maintain  accounts  and records in other units of measurements and currencies.

 

	

(c)  

	

The Licensee shall prepare and submit to the Commissioner within twenty (20) days after every month a statement of expenditures and receipts under the Licence in respect of that month. If the Commissioner is not satisfied with the degree of detail and  segregation within the categories, he or she shall  be entitled to ask for a more detailed breakdown and the Licensee shall comply with such request. The statement shall show the following:

 

	
(i)  

	
actual expenditures and receipts for the month in question;

 

	
(ii)  

	
cumulative expenditures and receipts for the year in question;

 

	

(iii)  

	

the latest forecast of cumulative expenditures and receipts at the year end; and

 

	

(iv)  

	

variations  between  the  budgeted  forecast  and  the  latest  forecast  of expenditures and receipts, with explanations thereof.

 

19.9  Confidentiality

 

	

(a)   

	

The Parties,  and  Persons  comprising  Licensee,  shall  maintain  the confidentiality of all data, interpretations, and other information generated hereunder except:

 

	
(i)  

	
to  the  extent  such  information  is  required  in  compliance  with Applicable Laws or Regulations, or pursuant to any legal proceedings or because of any order of any court binding upon a Party;

 

  

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(ii)  

	

to  prospective or  actual  attorneys,  consultants,  shipping companies, Subcontractors (applicable only to Licensee), or agents engaged by a Party where disclosure is essential to such Person’s work for such Party;

 

	

(iii)  

	

as may be required under the rules or requirements of a government or stock exchange having jurisdiction over such a Party, or its Affiliates;

	
(iv)  

	
to its employees for the purposes of implementation of this License;and

 

	

(v)  

	

any information which, through no fault of a Party, becomes part of the public domain. Disclosure pursuant to Clause 19.9(a)(ii) shall not be made unless the disclosing Party has obtained a written undertaking from the recipient that provides for rights and obligations substantially in accordance with this Clause 19.9(a), provided that any obligation on the part of an attorney to make a disclosure in accordance with his or her law society or bar association shall be considered as a disclosure required by law.

 

	
(b)   

	
The Licensee, and the Persons comprising or representing Licensee, shall also have the right to make disclosures to:

	
(i)  

	
to an Affiliate or agent;

 

	
(ii)  

	
to any Government agency of The Gambia when required under theLicence or the Act;

 

	
(iii)  

	
to a bona fide prospective transferee or joint venturer; and

 

	

(iv)  

	

to a bank or other financial party in the context of arranging for funding of Petroleum Operations. Disclosure pursuant to Clauses 19.9(b)(i), 19.9(b)(iii)and 19.9(b)(iv) shall not be made unless the disclosing Party has obtained a written undertaking from the recipient that provides for rights and obligations substantially in accordance with Clause 19.9 (a).

 

  

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(c)   

	
Notwithstanding the foregoing, subject to the provisions of Section 38 of the Act and Applicable Laws, all data and information and any interpretation thereof submitted by the Licensee to the Minister of Petroleum or Commissioner pursuant to this Licence or the Act shall so long as it relates to an area which is a part of the Licence Area be treated as confidential and shall not be disclosed by the Government to any other person without the consent of the Licensee, which consent shall not be unreasonably withheld or delayed.

 

19.10      Surrender of Records on Relinquishment

 

Where the Licence Area is relinquished on termination or expiry of the Licence or surrender of the Licence pursuant to Article 26, or where the Licensee otherwise relinquishes any part of the Licence Area, the Licensee shall forthwith deliver to the Minister of Petroleum:

 

	
(a)   

	
all  the  records  which  were  maintained  hereunder  with  respect  to  the relinquished Licence Area;

 

	

(b)   

	

all plans or maps of the relinquished Licence Area which were prepared by or on the instructions of the Licensee or which the Licensee otherwise acquired;

	
(c)   

	
all tapes, diagrams, profiles and charts which were so prepared;

 

	

(d)   

	

all geological and geophysical data and studies including digital data in raw and final forms, copies of all interpretations in workstation backup format, and reports and logs in digital and paper form relating to the relinquished Licence Area;

 

	

(e)   

	

all engineering data studies and records including drawings, plans, designs and evaluations, relating to the relinquished Licence Area;

 

	

(f)   

	

any other data then in the possession of the Licensee or to which the Licensee has access that is based on or derived from the foregoing; and

 

	

(g)   

	

such other documents relating to operations under this Licence as Minister of Petroleum may, by notice given to the former Licensee, require the former Licensee to so deliver,

provided that the Licensee may retain copies of any of the foregoing materials but only to the extent and for the period necessary for the Licensee to develop in accordance with Best Industry Practice any portion of the Licence Area still retained by the Licensee, and provided further  that  the  Licensee  shall  provide  the  Minister  of  Petroleum  with  an  accurate  and detailed list of the copies so retained.

 

  

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ARTICLE 20:   AUDITS

20.1       Accounting Procedure Audit Rights

 

	
(a)   

	
Without prejudice to the Government’s statutory audit rights, the Government shall have the right to audit the Licensee’s accounts and records maintained hereunder with respect to each year within six (6) years from the end of each such year. Notice of any exception to the Licensee’s accounts for any year shall be submitted to the Licensee within one hundred and twenty (120) days of receipt by Government of the report of its auditors.

 

	

(b)   

	

For purposes of audits, the Government may examine and verify, at reasonable times, all charges and credits relating to the Licensee’s activities under the Licence and all books of accounts, accounting entries, material records and inventories, vouchers, payrolls, invoices and any other documents, correspondences and records necessary to audit and verify the credits. Furthermore, the auditors shall have the right in connection with such audit to visit and inspect at reasonable times all sites, plants, facilities, warehouses and offices of the Licensee directly or indirectly serving its activities under this Licence.

 

	
(c)   

	
Where the Government requires verification of charges made by an Affiliate of the Licensee it shall have the right to obtain at the Licensee’s cost an audit certificate from a recognized firm of public accountants acceptable to both the Government and the Licensee.

 

20.2 Statutory Audit Rights

 

Nothing in this Article 20 shall be construed as limiting in any way the right of the Government or any officer of the Government pursuant to any statutory power to audit or cause to be audited the books and accounts of the License

 

  

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ARTICLE 21:   ASSIGNMENT

 

21.1       No Assignment Without Consent

 

	
(a)   

	
The Licensee may not assign to any Person, in whole or in part, any of its rights, privileges, duties or obligations under this Licence without the prior written consent of the Minister of Petroleum, which consent may be withheld on reasonable grounds, including if the Minister of Petroleum has reasonable concerns regarding the technical or financial capabilities and resources of the assignee (having given due regard to the technical and financial capabilities of the assignor in the case of a partial assignment). The Minister of Petroleum shall respond within sixty (60) days to any requests for consent to an assignment.

 

	
(b)   

	
An assignment made pursuant to the provisions of this Article 21 shall bind the assignee to all the terms and conditions hereof and, as a condition to any assignment, the Licensee shall provide an unconditional undertaking by the assignee to assume all obligations of the assignor under this Licence.

21.2       Assignment Free of Transfer Fees

 

Any assignment made pursuant to the provisions of this Article 21 shall be free of any transfer related taxes, charges or fees.

 

ARTICLE 22:  MEASUREMENT OF PETROLEUM

 

22.1       Measurement of and Title to Petroleum

 

The Licensee shall measure or weigh by a method or methods customarily used in Best Industry Practice and from time to time approved by the Commissioner, all Petroleum Produced from the Licence Area. The quantity of Crude Oil (if any) delivered to the Government pursuant to Clause 7.4(a) shall be measured at the Delivery Point and title to that Crude Oil shall not pass to the Government until the Crude Oil passes the Delivery Point.

 

  

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22.2       Changes in Measurement Methods

 

The Licensee shall not make any alteration in the method or methods of measurement or weighing used by it or in any appliances used for such purpose without the consent in writing of the Commissioner and the Commissioner may in any case require that no alteration shall be made save in the presence of a person authorized by the Commissioner.

 

22.3       Verification of Measurement Methods

 

The Commissioner may, from time to time, direct that any weighing or measuring appliance shall be tested or examined in such manner, on such occasions or at such intervals, and by such means as may be specified in the direction.

 

22.4        Consequences of Inaccurate Measurement Methods

 

If any measuring or weighing appliance is, upon any test or examination pursuant to Clause 22.3, found to be inaccurate, the appliance shall be deemed to have existed in that condition:

 

	
(a)   

	
during the period commencing on the date that the Commissioner determines (acting reasonably) was the date on which the appliance became inaccurate and ending on the date when the appliance was found to be inaccurate; or

 

	
(b)   

	
if the Commissioner is unable to make a determination under Clause 22.4(a), during a period that is represented by half of the period from the last occasion upon which the appliance was tested or examined pursuant to Clause 22.3 to the date when the appliance was found to be inaccurate. Any royalty or other amounts payable under this Licence or the Act affected by the inaccurate measuring or weighing appliance shall be adjusted accordingly for the applicable period.

 

  

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22.5       Pressure of Natural Gas

 

For the purposes of measuring Natural Gas Produced from the Licence Area the volume of the Natural Gas shall be calculated at an absolute pressure of one atmosphere and at a temperature of 60 ̊F.

 

ARTICLE 23:  DOMESTIC UNITIZATION AND JOINT DEVELOPMENT

 

23.1  Domestic Unitization Order

 

	
(a)   

	
If the Minister of Petroleum:

 

	
(i)  

	
is satisfied that a Reservoir within the Licence Area extends into one or more other licence areas (either held by the Licensee or another licensee(s), but in any event existing entirely within the international borders of The Gambia); and

 

	
(ii)  

	
if both: (A) the Licensee has submitted a Proposed Development andProduction Plan under Clause 6.5 in regard to such Reservoir; and (B) a proposed  development  and  production  plan  has  been  submitted  in regard to such Reservoir by such other licensee(s); an the Minister of Petroleum considers it desirable, in order to maximize the ultimate economic recovery of Petroleum in accordance with this Clause 23.1, and in order to avoid unnecessary drilling, that the Reservoir be Developed and Produced as a unit in cooperation by all licensees who have Licences into which such Reservoir extends; then, notwithstanding Clauses 6.5 and 6.6, the following provisions of this Clause 23.1 shall apply.

 

	
(b)   

	
Upon being so required by written notice of the Minister of Petroleum, the Licensee shall cooperate with such other licensee(s) to attempt to prepare a scheme   (a   “Unit   Development   Scheme”)   for   the   Development   and Production of the Reservoir as a unit, and shall use best reasonable efforts jointly with the other licensees to submit such Unit Development Scheme to the Minister of Petroleum for approval by the date provided for in such written notice (which shall not be less than eight (8) months). Such Unit Development Scheme shall be designed to Develop and Produce the subject Reservoir in a manner that will provide for the highest possible net present value (considering Licensee, and the other licensee(s), in aggregate) while at the same time meet the requirements of Best Industry Practice in terms of engineering, health, safety and the environment, and shall otherwise be in accordance with the criteria described in Article6, mutatis mutandis.

 

  

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(c)   

	
Within sixty (60) days of the submission of a Unit Development Scheme underClause 23.1(b) the Commissioner shall, by written notice:

 

	
(i)  

	
if the Unit Development Scheme is in accordance with the criteria described in Clause 23.1(b), approve such Unit Development Scheme; or

	
(ii)  

	
if the Unit Development Scheme is not in accordance with the criteria described in Clause 23.1(b), reject such Unit Development Scheme.

 

	

(d)  

	

Provided, however, that in regard to any Unit Development Scheme that is in accordance with the criteria described in Clause 23.1(b), the Commissioner may also provide to the Licensee, and the other licensee(s) (along with such written notice of approval) with modifications to such Unit Development Scheme that are reasonably required by the Government, and which are in accordance with Best Industry Practice, provided that such required modifications do not increase the budget for such Unit Development Scheme by more than ten percent (10%) and do not substantially alter the general objectives of the Unit Development Scheme (such as the general location of facilities or the general route of a pipeline).

 

	

(e)   

	

In any case where the Commissioner does not provide any written notice to the Licensee as provided in Clause 23.1(c), or does not provide any required modifications as provided in Clause 23.1(d), within the time provided for in Clauses 23.1(c) or 23.1(d), respectively, then the Government shall be deemed to have waived its rights under Clauses 23.1(c) or 23.1(d), as applicable, and the applicable Unit Development Scheme shall be deemed approved.

 

	
(f)   

	
If there is a dispute over:

 

	

(i)  

	

whether  any  Unit  Development  Scheme  is  in  accordance  with  the criteria described in Clause 23.1(b); or

 

	

(ii)  

	

whether  any  modifications  provided  by  the  Commissioner  are  in accordance with the criteria described in Clause 23.1(d), then either Party may refer the matter to an expert for determination in accordance with Clause 28.14, according to the applicable criteria described in Clause 23.1(b) and Clause 23.1(d), respectively.

 

  

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(g)           

	
Where the expert determines that

 

	

(i)  

	

a  Unit  Development  Scheme  is  in  accordance  with  the  criteria described in Clause 23.1(b), such Unit Development Scheme shall become the Approved Unit Development Scheme; or

 

	

(ii)  

	

that modifications provided by the Commissioner are in accordance with the criteria described in Clause 23.1(d), such Unit Development Scheme, as modified pursuant to the modifications provided by the Commissioner shall become the Approved Unit Development Scheme.

 

	

(h)   

	

Where  the  expert  determines  that  a  Unit  Development  Scheme  is  not  in accordance with the criteria described in Clause 23.1(b), then such expert shall advise the Licensee how such Unit Development Scheme may be revised in order to meet the applicable criteria. The Licensee shall have the right to revise a Unit Development Scheme in accordance with such advice from the expert and to re-submit such revised Unit Development Scheme to the Commissioner by written notice within sixty (60) days of receipt of such advice from such expert. If the Commissioner determines, acting reasonably, that such revised Unit Development Scheme is still not in accordance with the criteria described in Clause 23.1(b), then the Commissioner shall within a further thirty (30) days submit the Licensee’s then current Unit Development Scheme, and the Commissioner’s proposal, to the expert referred to in Clause 23.1(f).Within thirty (30) days thereafter the expert shall choose either the Licensee’s then current Unit Development Scheme or the Commissioner’s proposal (such choice to be based upon which proposal best meets the criteria described in Clause 23.1(b) and most closely takes into account the expert’s advice under this Clause 23.1(h)) and all of the costs and expenses arising in relation to or incurred by the Parties with respect to this second submission to the expert shall be paid by that Party whose proposal is  not selected by the expert. Subject to any modifications as contemplated pursuant to Clause 23.1(d), the proposal selected by the expert shall become the Unit Development Scheme.

 

	

(i)   

	

Where the expert determines that modifications provided by the Commissioner are not in accordance with the criteria described in Clause 23.1(d), then such expert shall advise the Commissioner how such modifications may be revised inorder to meet the applicable criteria. The Commissioner shall have the right to revise such modifications in accordance with such advice from the expert and to provide such revised modifications to the Licensee by written notice within sixty (60) days of receipt of such advice from the expert. If the Licensee determines, acting reasonably, that such revised modifications are still not in accordance with the criteria described in Clause 23.1(d), then the Licensee shall within a further thirty (30) days submit the Commissioner’s then current modifications, and the Licensee’s proposal, to the expert referred to in Clause 23.1 (f).Within thirty (30) days thereafter the expert shall choose either the Commissioner’s then current modifications or the Licensee’s proposal (such choice to be based upon which proposal best meets the criteria described in Clause 23.1(d) and most closely takes into account the expert’s advice under this Clause 23.1(i)) and all of the costs and expenses arising in relation to or incurred by the Parties with respect to this second submission to the expert shall be paid by that Party whose proposal is not selected by the expert. The proposal selected by the expert shall become modifications to the approved Unit Development Scheme. If the Commissioner does not provide such revised modifications to the Licensee within such time period the Government shall have waived all rights under this Clause 23.1, and the applicable Unit Development Scheme shall become the Approved Unit Development Scheme.

 

  

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(j)   

	

In  the  event  that  the  Licensee  has  not  (with  the  agreement  of  the  other licensees)   submitted   to   the   Minister   of   Petroleum   a   proposed   Unit Development Scheme within the time provided under Clause 23.1(b), then, within six (6) months of the date that the Licensee was to submit a proposed Unit Development Scheme, the Minister of Petroleum shall propose to the Licensee, and the other licensee(s), a Unit Development Scheme as provided for in Clause 23.1(b), mutatis mutandis, and which is equitable to the Licensee and the other licensee(s).

 

	

(k)   

	

If there is a dispute over any such Unit Development Scheme proposed by the Minister of Petroleum, then either Party may, within thirty (30) days of receipt of  any  such  proposal,  refer  the  matter  to  an  expert  for  determination  in accordance with Clause 28.14 and the relevant criteria described in Clause 23.1(b).

23.2  Joint Development of Infrastructure

 

If there is a:

 

	
(a)   

	
Reservoir within the Licence Area; and

 

	

(b)   

	

a separate Reservoir located in one or more other Licence areas (either held by the Licensee or another licensee(s), but in any event existing entirely within the international borders of The Gambia);

 

then the Licensee shall have the right, but not the obligation, jointly to develop and utilize infrastructure (including pipelines and other facilities) with such other licensee(s).  In such a case Clauses 6.5, 6.6 and 6.7 shall be otherwise applicable, mutatis mutandis.

 

  

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ARTICLE 24: DIRECTIONS REGARDING PETROLEUM RESERVOIR ACROSS BOUNDARIES

24.1       Cross-Border Unitization

 

Where the Minister of Petroleum is satisfied that any Reservoir in the License Area extends into an area to which the Minister of Petroleum’s powers to grant Licences pursuant to the Act do not apply and the Minister of Petroleum considers that it should be developed as a unit in cooperation by the Licensee and all other Persons having an interest in any part of the Reservoir, the Minister of Petroleum may from time to time by notice in writing give to the Licensee such directions as the Minister of Petroleum may think fit as to the manner in which the rights conferred by this Licence shall be exercised.

 

24.2       Observation of Cross-Border Unitization Scheme

 

The Licensee shall observe and perform all such requirements in relation to the Licence Area as may be specified in any such direction.

 

24.3       Amendments to Domestic Unitization Scheme

 

Any such direction may add to, vary or revoke the provisions of a Unit Development Scheme referred to in Article 23 in the event that a Reservoir that is previously the subject of Article 23 is determined to be a cross-border Reservoir.

 

ARTICLE 25:   APPLICABLE LAW

 

25.1       Governing Law

 

This Licence shall be governed by, interpreted and construed in accordance with the Laws of The Gambia.

 

  

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ARTICLE 26:   SURRENDER AND TERMINATION

 

26.1       Surrender of Rights

 

The Licensee, by giving to the Minister of Petroleum not less than thirty (30) days notice in writing, may:

 

	
(a)   

	
if its obligations in respect of the Initial Exploration Period and any Extension Exploration Period have been fulfilled, at any time thereafter during the relevant period surrender its rights and subject to Clause 26.5 be relieved of further obligations in respect of the entire Licence Area; and

 

	
(b)   

	
at any time after the Effective Date, surrender its rights and be relieved of its obligations in respect of any area forming part of the Licence Area provided however, that no surrender by the Licensee of its rights over any part of the Licence Area shall relieve the Licensee of its work obligations set out in Article 3 or its rehabilitation obligations under Section 50 of the Act.

 

26.2       Termination

 

Subject  to  Clauses  26.3  and  26.4,  this  Licence  will  terminate  on  written  notice  by the Minister of Petroleum to the Licensee in the following events:

 

	
(a)   

	
if the Licensee is in material default of any obligation under this Licence or the Act, provided that any failure by the Licensee to comply with its obligations under Clause 3.1 (Work Obligations), Article 4 (Work Programmes and Budgets), Clause 6.1 (Initial Notice of Discovery), Clause 6.2 (Discovery Merits Appraisal), Clause 6.5 (Proposed Development and Production Plan Requirement and Content), Article 7 (Royalties, Bonuses, Rentals, Payroll Tax and Development Levy), Article 8 (Conduct of Petroleum Operations), or Article 17 (Financial Guarantee), or its material obligations under the Tax Schedule shall be deemed to be a material default entitling the Minister of Petroleum to terminate this Licence under this Clause 26.2(a); or

 

  

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(b)   

	(i)	
if an order is made or a resolution is passed by a court of competent jurisdiction  for  the  winding  up,  dissolution,  liquidation  or reorganization under any bankruptcy law of a Person constituting the Licensee unless it is for the purpose of amalgamation or reconstruction and the Minister of Petroleum has been notified of the amalgamation or reconstruction in advance;

 

	
 

	
(ii)

	
if a Person constituting the Licensee becomes insolvent or bankrupt, or makes an assignment for the benefit of creditors without the consent of the Minister of Petroleum; or

 

	
  

	
(iii)

	
if a receiver is appointed for a substantial part of the assets of a Person constituting the Licensee, and either Party may terminate this Licence in the following events:

 

	
(c)           

	
if the other Party fails to comply with any arbitration award given as a result of arbitration pursuant to Article 28 or any decision of an expert pursuant to Clause 28.14; or

 

	
  

	
(d)

	
if as a result of an event or circumstance of Force Majeure, either Party is relieved from performing a material obligation pursuant to Clause 27.1 for a period in excess of eighteen (18) months and it is reasonable to assume that the Party will be unable to resume performance of that material obligation within the next six (6) months.

 

26.3       Notice of Termination

 

Before terminating this Licence pursuant to Clause 26.2(a) the Minister of Petroleum shall, by written notice to the Licensee, give not less than thirty (30) days notice (or such longer period not to exceed one hundred and twenty (120) days as may be required to give the Licensee a reasonable opportunity to remedy the relevant breach if that breach is capable of remedy) of his or her intention to terminate this Licence stating in detail the grounds of the intended termination.

 

26.4        Cure Rights

 

The Minister of Petroleum shall not terminate this Licence under Clause 26.2(a) if the Licensee remedies or removes the grounds for termination to the reasonable satisfaction of the Minister of Petroleum within the time period specified pursuant to Clause 26.3.

 

  

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26.5       Consequences of Surrender or Termination or Expiry of Term

 

Notwithstanding the termination of this Licence pursuant to Clause 26.2, the surrender of rights by the Licensee pursuant to Clause 26.1(a) or the expiry of the Term, the terms of this Licence shall remain in full force and effect in respect of:

 

	
(a)   

	
unperformed  obligations  that  arose prior  to  that  termination,  surrender  or expiry;

 

	
(b)   

	
liabilities that accrued prior to the termination, surrender or expiry; and

 

	
(c)   

	
liabilities arising out of or in connection with circumstances, acts or omissions that occurred prior to the termination, surrender or expiry.

 

ARTICLE 27:    FORCE MAJEURE

 

27.1       Relief for Force Majeure

 

If by reason of Force Majeure a Party is unable, wholly or partially, to perform any of its obligations hereunder (other than an obligation to pay or expend money), then the Party so affected by Force Majeure shall be relieved of such obligations to the extent of that inability.

 

27.2       Definition of Force Majeure

 

The expression “Force Majeure” shall mean any event or circumstance that is beyond the reasonable control of the Party claiming relief under Clause 27.1 having acted in accordance with Best Industry Practice and, subject to the foregoing, shall include:

 

	
(a)   

	
national   or   industry-wide   strikes,   lockouts,   labour   or   other   industrial disturbances (including sabotage) and civil disturbances;

 

  

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(b)   

	
epidemics and quarantine restrictions;

 

	
(c)   

	
accidents, landslides, lightning, earthquakes, volcanic eruptions, meteorite impacts, fires, floods, storms, fog, tidal waves, washouts and explosions, shipwrecks and perils to navigation and other acts of God; and

 

	
(d)   

	
acts of war, including blockades, insurrections, riots, arrests and restraints of rulers and peoples, or conditions arising out of or attributable to war (declared or undeclared).

 

27.3  Exclusions from Force Majeure

 

Notwithstanding anything in Clauses 27.2, the following events or circumstances shall not be treated as Force Majeure:

 

	
(a)   

	
lack  of  money  or  credit,  lack  or  markets,  economic  hardship,  changesin market conditions, including changes which directly or indirectly affect the demand for or price of Petroleum, including the demand for, or price of, any commodity used in the pricing thereof or the ability to make a profit or to receive a satisfactory rate of return from the Production, sale or consumption of Petroleum;

 

	
(b)   

	
the imposition of sanctions by any government or governmental authority due solely to the failure of the Licensee to comply with any law or regulation;

 

	
(c)   

	
the withdrawal or expiration of, or failure to obtain, any necessary consent, confirmation, authorization or other approval of any government or governmental authority which the Licensee, having acted in accordance with Best Industry Practice, can apply for and obtain, maintain or extend or could have applied for and obtained, maintained or extended;

 

	
(d)   

	
the  breakdown,  failure  or  non-operation  of  machinery  comprising  theLicensee’s facilities:

 

	
(i)  

	
caused by normal wear and tear;

 

	
(ii)  

	
caused by the non-availability of any part or parts of the machinery;and

 

	

(iii)  

	

which has been caused by a design or manufacturing defect which is patent, known or foreseeable as the date of this Licence.

 

  

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27.4       Notice of Force Majeure

 

A Party shall have the benefit of relief from its obligations under Clause 27.1 with effect from the commencement of the relevant event or circumstance of Force Majeure, provided that as soon as is practical in the circumstance such affected Party gives to the other Party notice, written or oral (but if oral, promptly confirmed in writing) of the Force Majeure, including a full description thereof and of the likely impact on such Party’s performance of its obligations hereunder.  If such notice is not given as soon as is practical then the Party’s relief from its obligations shall not be effective until the giving of such notice.

 

27.5       Mitigation

 

A Party seeking relief from its obligations due to Force Majeure shall:

 

	
(a)   

	
use all reasonable efforts to overcome the effects of the Force Majeure and to perform its obligations hereunder;

 

	
(b)   

	
provide the other Party with regular written updates (no less often than every ten (10) days) on its efforts to overcome the effects of the Force Majeure, the status of its ability to perform its obligations hereunder and a good faith estimate of when it will be able to resume performance of such obligations; and

 

	
(c)   

	
provide notice to the other Party promptly upon it being able to fully resume performance of its obligations hereunder.

 

27.6       Extension of Term for Force Majeure

 

The  period  for  the  performance  of  any  obligation  or  exercise  of  any  right  by  a  Party hereunder shall be extended by an amount of time equal to the period during which that Party was relieved from performing a material obligation pursuant to Clause 27.1.

 

  

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ARTICLE 28:   ARBITRATION

 

28.1       Amicable Settlement Efforts

 

The Parties shall use their best efforts to settle amicably all disputes or differences arising out of or in connection with any of the terms and conditions of this Licence or the interpretation thereof (each a “Dispute”).

 

28.2       Notification

 

Notwithstanding Clause 28.1 but subject to Clause 28.14, a Party who desires to submit a Dispute for resolution shall provide to the other Party written notice of the Dispute (a “Notice of Dispute”). The Notice of Dispute shall contain a brief statement of the nature of the Dispute and the relief requested. The submission of a Notice of Dispute shall toll any applicable  statutes  of  limitation  related  to  the  Dispute,  pending  the  conclusion  or abandonment of dispute resolution proceedings under this Article 28.

 

28.3       Arbitration

 

Except for Disputes which are expressly stated in this Licence to be referable to an expert, any Dispute shall be exclusively and definitively resolved through final and binding arbitration, its being the intention of the Parties that this Article 28 constitutes a broad form arbitration agreement designed to encompass all possible disputes.

 

28.4       Arbitration Rules

 

	
(a)   

	
The arbitration shall be conducted in accordance with the Rules of Procedure for Arbitration Proceedings (the“ICSID Rules”) of the International Centre for Settlement of Investment Disputes (“ICSID”) and except as provided in Clause 28.4 (b) the Parties irrevocably agree to submit themselves to the jurisdiction of ICSID.

 

  

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(b)   

	
If:

 

	
(i)      

	
any request for arbitration made pursuant to Clause 28.2 and Article 36 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (the “ICSID Convention”) is not registered by the Secretary-General under Clause 36(3) of the ICSID Convention; or

 

	
(ii)      

	
ICSID or the arbitral tribunal fails or refuses to assume or to exercise jurisdiction or to continue to exercise jurisdiction with respect to any dispute referred to it; or

 

	
(iii)      

	
for any other reason the Dispute cannot be fully determined by arbitral proceedings pursuant to the ICSID Rules, then any such Dispute shall be determined by means of arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (the “ICC”).

28.5       Law Governing the Arbitration

 

The Arbitration shall be governed by English Law.

 

28.6       Number of Arbitrators

 

The arbitration shall be conducted by three arbitrators, unless the Parties agree to a sole arbitrator within thirty (30) days after the day on which the Notice of Dispute is delivered (the “Dispute Filing Day”).

 

28.7       Method of Appointment of the Arbitrators

 

	
(a)   

	
If the arbitration is to be conducted by a sole arbitrator, then the arbitrator will be jointly selected by the Parties.  If the Parties fail to agree on the arbitrator within thirty (30) days after the Dispute Filing Day the arbitrator shall be appointed by the Chairman of the Administrative Council pursuant to the ICSID Rules or, in the case of an arbitrator under Clause 28.4(b), by the ICC International Court of Arbitration.

 

  

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(b)   

	
If the arbitration is to be conducted by three arbitrators, then each Party shall appoint one arbitrator within thirty (30) days of the filing of the arbitration, and the two arbitrators so appointed shall select the presiding arbitrator within thirty (30) days after the latter of the two arbitrators has been appointed by the Parties.  If a Party fails to appoint its Party-appointed arbitrator or if the two Party-appointed arbitrators cannot reach an agreement on the presiding arbitrator within the applicable time period, then the remaining arbitrator shall be, at the request of either Party, appointed by the Chairman of the Administrative Council pursuant to the ICSID Rules or, in the case of an arbitration under Clause 28.4(b), by the ICC International Court of Arbitration.

 

	
(c)   

	
If there is more than one Person constituting Licensee, and if such Persons are unable to agree upon their Party-appointed arbitrator; and the Persons constituting Licensee, and the Government, cannot unanimously agree upon the appointment of all three arbitrators within the applicable time period, then all three arbitrators shall be, at the request of either Party, appointed by the Chairman of the Administrative Council pursuant to the ICSID Rules, or, in the case of an arbitration under Article 28.4(b), by the ICC International Court of Arbitration.

 

28.8       Consolidation

 

If the Parties initiate multiple arbitration proceedings the subject matters of which are related by common questions of law or fact and which could result in conflicting awards or obligations, then all such proceedings may be consolidated into a single arbitral proceeding.

 

28.9       Place of Arbitration

 

Unless otherwise agreed by all Parties to the Dispute, the place of arbitration shall be London, England.

 

  

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28.10     Language

 

The arbitration proceedings shall be conducted in the English language and the arbitrator(s) shall be fluent in the English language.

 

28.11     Entry of Judgment

 

The award of the arbitral tribunal shall be final and binding. Judgment on the award of the arbitral tribunal may be entered and enforced by any court of competent jurisdiction. Subject (in the case of arbitral proceedings under Clause 28.4(a)) to the provisions of Section 5 of Chapter IV of the ICSID Convention and Chapter VII of the ICSID Rules, each Party hereby irrevocably undertakes:

 

	
(a)   

	
to treat any arbitral award or procedural order made by the arbitral tribunal constituted pursuant to this Clause 28.11 as final and binding; and

 

	
(b)   

	
to comply with and to carry out any such arbitral award or procedural order, fully and without delay.

 

28.12     Service

 

Any legal process or notice required for any arbitration proceeding or expert determination shall be deemed properly served if sent in accordance with Article 30 of this Licence.

 

28.13     Conservatory and Provisional Measures

 

	
(a)   

	
Prior  to  the  constitution  of  the  arbitral  tribunal  or  in  the  absence  of  the jurisdiction  of  the  arbitral  tribunal,  any  Party  may  apply  to  a  court  of competent jurisdiction for conservatory or provisional measures for the preservation of the rights and interests of any Party under or with respect to this Licence and the arbitration agreement set forth in this Article 28. The Parties agree that seeking such conservatory or provisional measures shall be without prejudice to the Parties’ rights and obligations to resolve Disputes in the manner set forth in Clause 28.3.

 

  

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(b)   

	
Without prejudice to the provisions of Article 47 of the ICSID Convention and Rule 39 of the ICSID Rules (in the case of any arbitral proceeding begun pursuant to Clause 28.4(a) of this Licence), the Parties agree that the arbitral tribunal may, upon the application of either Party, take such conservatory or provisional measures as the arbitral tribunal may consider necessary with respect to:

 

	
(i)  

	
the subject matter of the Dispute or any ancillary claim referred to it;

 

	
(ii)  

	
the maintenance or efficient conduct of the arbitration; or

 

	

(iii)  

	

the preservation of the rights and interests of any Party under or with respect to this Licence and the arbitration agreement set forth in this Article 28, including the making of an order requiring any Party to refrain from filing or pursuing, or to terminate or withdraw, any action, suit or proceeding in any court of competent jurisdiction or, to the extent not prohibited by law, other authority which has (directly or indirectly) a connection with the subject matter of the arbitral proceeding or jurisdiction relating to such subject matter.

	
(c)   

	
Until such time as any arbitral proceedings begun pursuant to Clause 28.4(a) or  Clause 28.4(b) have been finally concluded and all rights or appeal, if any, have been exhausted, each Party irrevocably agrees not to initiate any proceedings or file any action or suit in any action or suit in any court of competent jurisdiction or before any judicial or other authority arising out of or in connection with this Licence, the arbitration agreement set forth in this Article 28, or any Dispute, including proceedings brought with a view to recourse or appeal against or revision or the annulment of any arbitral award or procedural order made by the arbitral tribunal or proceedings in which relief or remedy is sought by way of injunction or other judicial order (interlocutory or final) which would have the effect (directly or indirectly)of restraining or impeding the maintenance or prosecution by either Party of any arbitral proceeding initiated pursuant to Clause 28.4(a) or Clause 28.4(b), except proceedings brought exclusively for the purpose of recognition and enforcement of any arbitral award or procedural order made by the arbitral tribunal.

 

  

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28.14     Expert Determination

 

For any Dispute which is expressly stated in this Licence to be referable to an expert, the Parties hereby agree that such decision shall be conducted expeditiously by an expert selected unanimously by the Parties. The expert is not an arbitrator of the Dispute and shall not be deemed to be acting in an arbitral capacity. The Party desiring an expert determination shall give the other Party written notice of the request for such determination. On the request of any Party the International Centre for Expertise of the ICC shall appoint such expert and shall administer such expert determination through the ICC’s Rules for Expertise. The expert, once appointed, shall have no ex parte communications with any of the Parties concerning the expert determination or the underlying Dispute. All Parties agree to cooperate fully in the expeditious conduct as such expert determination and to provide the expert with access to all facilities, books, records, documents, information and personnel necessary to make a fully informed decision in an expeditious manner. Before issuing his or her final decision, the expert shall issue a draft report and allow the Parties to comment on it. The expert shall endeavor to resolve the Dispute within thirty (30) days (but no later than ninety (90) days) after his or her appointment, taking into account the circumstances requiring an expeditious resolution of the matter in Dispute. The expert’s decision shall be final and binding on the Parties and not subject to any rights of appeal.

 

28.15     Waiver of Sovereign Immunity

 

Any Party that now or hereafter has a right to claim sovereign immunity for itself or any of its assets hereby waives any such immunity to the fullest extent permitted by the laws of any applicable jurisdiction. This waiver includes immunity from:

 

	
  (a)   

	
any expert determination, mediation, or arbitration proceeding commenced pursuant to this Licence;

 

	
(b)   

	
any   judicial,   administrative   or   other   proceedings   to   aid   the   expert determination, mediation or arbitration commenced pursuant to this Licence;

 

	
  (c)   

	
any effort to confirm, enforce or execute any decision, settlement, award, judgment, service of process, execution order or attachment (including pre- judgment attachment) that results from an expert determination, mediation, arbitration or any judicial or administrative proceedings commenced pursuant to this Licence. 

 

Each Party acknowledges that its rights and obligations hereunder are of a commercial and not a government nature.

 

  

89

  

 

28.16     Government’s Dispute Resolution Financing Option

 

	
(a)   

	
If there is a Dispute prior to the first payment by the Licensee of a royalty pursuant to Clause 7.2. the Government may by written notice to the Licensee require  that  the  Licensee  promptly  reimburse  the  Government  for  out-of- pocket costs reasonably incurred by the Government in relation to the conduct of that Dispute, including in relation to the retention by the Government of international and domestic legal counsel and one or more experts.

 

	
(b)   

	
The aggregate amount of costs for which the Government may be reimbursed pursuant to Clause 28.16(a) during the Term shall be two million Dollars ($2,000,000) or one hundred percent (100%) of jointly validated incurred expenses by the Government, whichever is larger.

 

	
(c)   

	
Subject to any confidentiality obligations and except to the extent that it would prejudice its right to claim legal or other privileges, the Government shall provide invoices and other reasonable supporting documents in relation to any claim for reimbursement under Clause 28.16.

 

	
(d)   

	
The  Licensee’s  obligation  to  pay  the  royalty  under  Article  7  shall  not commence until the royalty amount that the Licensee would otherwise have paid under Article 7 is equal to 200% of the aggregate amount (if any) that the Licensee paid to the Government under Clause 28.16(a).

 

	
(e)   

	
The arbitrator(s) or expert that finally determines a Dispute pursuant to this Article  28  may  as  part  of  the  related  award  require  the  Government  to promptly repay to the Licensee some or all of the costs paid by the Licensee to the Government under Clause 28.16(a), with such interest thereon as the arbitrator(s) or expert determines is appropriate. Any costs repaid by the Government under this Clause 28.16(e) shall not be included in the calculation of amounts paid to the Government for the purpose of Clause 28.16(d).

 

  

90

  

 

28.17      Confidentiality of Dispute Resolution Proceedings

 

The Parties shall keep confidential and not use for any collateral or ulterior purpose the subject  matter  of  an  arbitration  or  expert  determination  hereunder  and  all  information (whether given orally, in writing or otherwise) produced for, or arising in relation to, the arbitration or expert determination hereunder including any award arising out of it except insofar as is necessary to implement and enforce any award or otherwise as required by law.

 

ARTICLE 29:   INDEMNITY

 

29.1       Indemnity

 

The Licensee shall at all times keep the Government indemnified in accordance with Section 41 of the Act.

 

ARTICLE 30:   NOTICES

 

30.1       Method of Notice

 

Any notice or other document given by one Party to another under or in connection with this Licence shall:

 

	
(a)   

	
if transmitted by fax, be deemed to have been given and received at the place of receipt on the next business day in the country of receipt, following the day of sending, provided that the sender has received telephone confirmation from the recipient of receipt of same on or before the date transmission is deemed to have been received as above;

 

	
(b)   

	
if transmitted by email, be deemed to have been given and received at the place of receipt on the next business day in the country of receipt, following the day of sending, provided that the sender has received telephone confirmation from the recipient of receipt of same on or before the date transmission is deemed to have been received as above;

 

  

91

  

 

	
(c)   

	
if hand delivered, be deemed to have been given and received at the place of receipt on the date of delivery, provided that if such date is a day other than a business day in the place of receipt, such notice or document shall be deemed to have been given and received at the place of receipt on the first business day thereafter in the place of receipt; and

 

	
(d)   

	
if mailed, be deemed to have been given and received at the place of receipt on the date of actual receipt. Provided that in the event of a postal disruption, such notices or documents must either be hand delivered or sent by fax or email.

 

30.2  Addresses for Notice

 

All notices under this Licence shall be addressed:

 

	
(a)   

	
If to the Government, or the Minister of Petroleum, to:

The Government of The Republic of The Gambia

Attn:  Minister of Petroleum 

Ministry of Petroleum 

Futurelec Building

Bertil Harding Highway

Kotu, KMC The Gambia 

Facsimile:+220-4465401

   with a copy to the Commissioner. 

 

	
(b)   

	
If to the Commissioner, to:

 

Commissioner for Petroleum 

Ministry of Petroleum 

Futurelec Building

Bertil Harding Highway

Kotu, KMC The Gambia 

Facsimile:+220-4465401

 

     and

 

  

92

  

 

	
(c)   

	
If to the Licensee, to: CAMAC Energy Inc.

 

Attn: Senior Vice President (Exploration & Production)

1330 Post Oak Boulevard, Suite 2575

Houston, Texas 77056

U.S.A.

Telephone: +1 713-797-2940

Facsimile: +1 713-797-2990 

 

with a copy to:

 

CAMAC Energy Inc. Attn: General Counsel

1330 Post Oak Boulevard, Suite 2575

Houston, Texas 77056

U.S.A.

Telephone: +1 713-797-2940

Facsimile: +1 713-797-2990

 

ARTICLE 31:   MISCELLANEOUS

 

31.1       Stability

 

If any change to any Applicable Laws or introduction of any new Applicable Laws, other than a Health, Safety and Environment Laws, results in a material change in the net economic benefits that the Licensee enjoys under this Licence immediately prior to that change in Applicable Laws, the Parties shall meet and act in good faith in attempting to negotiate those revisions to the Licence for the benefits of both Parties.

 

  

93

  

 

31.2        Inconsistencies

 

Subject to the preamble of Clause 1.1, in the event of a clear conflict or clear inconsistency between a provision of this Licence and a provision of the Act, the provision of the Act shall prevail to the extent of the clear conflict or clear inconsistency. In the event of a clear conflict or clear inconsistency between a provision of this Licence and a provision of the Tax Schedule, the provision of the Tax Schedule shall prevail to the extent of the clear conflict or clear inconsistency.

 

31.3        Waivers

 

No failure or delay by any Party in exercising any of its rights under the Licence shall operate as a waiver thereof, nor shall any single or partial exercise preclude any other or further exercise of such rights.

31.4        Amendments

 

No variation of this Licence shall be effective unless in writing and signed by the Minister of Petroleum and the Licensee.

 

31.5       Time of the Essence

 

Time shall be of the essence in this Licence.

 

31.6        Payments

 

Except as expressly indicated otherwise, all sums of money referred to in this Licence are expressed and shall be payable in Dollars. All payments shall be in immediately available funds.

 

  

94

  

 

31.7       Entire Agreement

 

This Licence constitutes the entire agreement between the Parties and supersedes all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter hereof.

 

31.8       Successors and Assigns

 

This Licence shall be binding upon the Parties hereto and their respective administrators, successors and assigns.

 

31.9       Severability

 

Wherever possible, this Licence, and all documents contemplated hereunder, shall be construed and interpreted so as to be effective and valid under Applicable Laws. If any provision of this Licence or any document contemplated hereunder, for any reason shall be deemed invalid or prohibited under Applicable Laws, such provision shall be invalid or prohibited only to the extent of such invalidity or prohibition, which shall not invalidate the remainder of such provision or the remaining provisions of this Licence.

 

  

95

  

IN WITNESS WHEREOF the Parties have executed this Licence by their proper officers duly authorized on their behalf on the first date above written.

 

 

	
THE REPUBLIC OF THE GAMBIA 

Represented for these purposes by the Minister of Petroleum

	 	CAMAC Energy A2 (Gambia) Ltd.	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	Per:	
 

	 	Per:	
 

	 
	 	
Hon. Minister of Petroleum

	 	 	
Dr. Kase Lawal

	 
	 	Mrs. Teneng Mba Jaiteh	 	 	Chairman/CEO	 

 

  

96

  

 

ANNEX “A”

 

DESCRIPTION OF LICENCE AREA

The licence area referenced in the definition of Licence Area is the area marked by light- green shade in the map of Annex B. The area is rectangular with the area and the coordinates as follows:

 

	
Block A2

	
AREA (KM2)

	
1,282.37

	
NW Corner

	
13 Deg 35 Min 36 Sec N

17 Deg  40 Min 00 Sec W

	
NE Corner

	
13 Deg 35 Min 36 Sec N

17 Deg  15 Min 00 Sec W

	
SE Corner

	
13 Deg  20 Min 00 Sec N

17 Deg  15 Min 00 Sec W

	
SW Corner

	
13 Deg  20 Min 00 Sec  N

17 Deg  40 Min 00 Sec W

 

  

97

  

 

ANNEX “B”

 

MAP OF LICENCE AREA

 

 

  

98

  

 

ANNEX “C”

 

ROYALTY

 

	
Tranche of Production

Average Daily Production During Month1

(bopd)

	 ROYALTY
	from	to
	
0

	
24,999

	
12.5%

	
25,000

	
49,999

	
12.5%

	
50,000

	
74,999

	
12.5%

	
75,000

	
99,999

	
12.5%

	
100,000

	
124,999

	
13%

	
125,000

	
149,999

	
13%

	
150,000

	
174,999

	
13%

	
175,000

	
199,999

	
13%

	
200,000

	
224,999

	
15.5%

	
225,000

	
249,999

	
15.5%

	
250,000

	
274,999

	
15.5%

	
275,000

	
299,999

	
15.5%

	
300,000

	
324,999

	
16.5%

	
325,000

	
349,999

	
16.5%

	
350,000

	
374,999

	
16.5%

	
375,000

	
399,999

	
17.5%

	
400,000

	
424,999

	
18.5%

	
425,000

	
449,999

	
18.5%

	
450,000

	
474,999

	
19.5%

	
475,000

	
499,999

	
20.5%

	
500,000

	
524,999

	
20.5%

	
525,000

	
549,999

	
20.5%

	
550,000

	
574,999

	
21.5%

	
575,000

	
599,999

	
21.5%

 

  

99

  

 

	
600,000

	
624,999

	
22.5%

	
625,000

	
649,999

	
22.5%

	
650,000

	
674,999

	
22.5%

	
675,000

	
699,999

	
22.5%

	
700,000

	
724,999

	
23.5%

	
725,000

	
749,999

	
23.5%

	
750,000

	
774,999

	
24.5%

	
775,000

	
799,999

	
24.5%

	
800,000

	
824,999

	
25%

	
825,000

	
849,999

	
25%

	
850,000

	
874,999

	
25%

	
875,000

	
899,999

	
25%

	
900,000

	
924,999

	
25%

	
925,000

	
949,999

	
25%

	
950,000

	
974,999

	
25%

	
975,000

	
999,999

	
25%

	
Over 1,000,000

	
25%

Notes:

 

	
1.

	
The “Average Daily Production” described above shall be calculated by aggregating the daily Production (in Barrels) from the relevant Development and Production Area in each relevant month and dividing by the number of days in that relevant month the Licensee Produced Crude Oil.

 

  

100

  

 

ANNEX “D”

 

FORM OF BANK GUARANTEE

[This Bank Guarantee is to be issued by a First Class International Bank reasonably acceptable to The Gambia]

BENEFICIARY: The Republic of The Gambia

 

APPLICANT: 

 

AMOUNT:

 

Dear Sir or Madam:

 

This guarantee is provided pursuant to the Petroleum Licence between The Republic of The Gambia  (“The  Gambia”)  and_______(the  “Licensee”),  dated  [ _____],  (the “Licence”).  Under Article 17 of the Licence, the Licensee is required to provide The Gambia with a bank guarantee to guarantee the payment by the Licensee of the amount stipulated in Section 2 belowunder the Licence and the Petroleum (Exploration, Development and Production) Act 2004 (the “Act”), including without limitation in respect of the Licensee’s minimum work obligations, indemnity obligations, rehabilitation obligations and obligations in respect of environmental liabilities (the “Guaranteed Obligations”).

 

	
1.

	
The [ ________ ] Bank hereby agrees to act as guarantor of the payment by the Licensee of all amounts due to The Gambia by the Licensee under the Licence and the Act.

 

	

2.

	

The Obligation assumed by [ ________ ] Bank under this bank guarantee shall be limited to the payment to The Gambia of the amounts claimed in any demands for payment delivered by The Gambia pursuant to Section 4 below, provided that the amount of any such payment shall not, when aggregated with any other payments previously made to The Gambia under this bank guarantee, exceed [ ________ ] United States Dollars (the “Maximum Aggregate Liability”). The [ ] Bank’s liability to pay The Gambia in respect of expenses pursuant to Section 10 or in respect of interest pursuant to Section 11 shall not be subject to the limitation on liability set forth in this Section 2.

 

  

101

  

 

	
3. 

	
This bank guarantee is irrevocable, unconditional and automatically enforceable.

 

	
4.

	
Our  payment  obligations  under  this  bank  guarantee  are  due  and  owing  upon presentation, prior to the expiry of this bank guarantee, of a letter addressed to the bank by The Gambia:

 

	
(a)   

	
claiming the payment of an amount not exceeding the Maximum Aggregate Liability (when aggregated with all previous claims made and paid hereunder) together  with  any  amounts  due  under  Sections  10  and  11  of  this  bank guarantee; and

 

	

(b)   

	

declaring that the Licensee has failed to perform one or more of its Guaranteed Obligations and that the amount claimed is therefore due and payable to The Gambia.

	
5. 

	
The Gambia may make multiple claims under this bank guarantee.

 

	

6.

	

We  hereby  waive  diligence,  presentment,  demand  for  payment,  protest,  any requirement that The Gambia exhaust any right or power or take any action against the Licensee, all notices (whether of non-payment by the Licensee, dishonour, protest or otherwise) and all demands whatsoever. Our obligations hereunder are continuing, absolute and unconditional, and will not be in any way affected by giving of time or any forbearance by The Gambia, the waiver or consent by The Gambia with respect to any provision of the Licence, and irrespective of the validity, regularity, enforceability or value of the Licence, or by any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, all of which are hereby expressly waived.

 

	

7.

	

Our obligations hereunder shall be paid in United States Dollars to the bank account designated by The Gambia, free and clear of and without reduction by reason of any and all present and future taxes, levies, imposts, deductions, assessments, charges of withholdings whatsoever levied, assessed, imposed or collected with respect thereto by any governmental authority in any jurisdiction. We shall bear and pay any and all fees and expenses in relation to or in connection with any demand for payment under this Letter of Guarantee.

 

	

8.

	

We hereby waive all and any of the rights as surety which may at any time be inconsistent with any of the above provisions.

 

  

102

  

 

	
9. 

	
This bank guarantee shall be effective immediately and expire on the first to occur of:

 

	
(a)   

	
our receipt from The Gambia of written confirmation that it has issued to theLicensee that final Closure Certificate relating to the Licence Area; and

 

	

(b)   

	

our payment to The Gambia of amounts that are, in aggregate, equal to the Maximum Aggregate Liability plus any interest and expenses payable by us pursuant to Sections 10 and 11.

 

	

10.

	

The [ ________ ] Bank shall pay for or reimburse The Gambia for any and all out-of- pocket costs or expenses, including all fees and disbursements of counsel (located in jurisdiction outside of The Gambia or otherwise), reasonably incurred or suffered by The Gambia in connection with any enforcement by The Gambia of its rights under this bank guarantee, such costs or expenses to bear interest calculated at the rate set out in Section 56 of the Act.

	
11. 

	
The Guaranteed Obligations or the unpaid portion thereof from time to time shall bearinterest  payable  by  the [ ________ ] Bank to The Gambia from the date of demand pursuant to Section 4 to the date of payment (and both before and after judgment) at the rate set out in Section 56 of the Act.

 

	

12.

	

This bank guarantee shall be governed by the laws of [ ________ ] (without regard to the conflict of laws rules thereof). 

Yours truly,

 

The Bank ___________________

 

  

103

  

 

[LETTERHEAD OF THE MINISTER OF PETROLEUM]

 

Schedule “A”

 

FORM OF DEMAND

 

(DRAWING CERTIFICATE)

 

TO:             [ _______]

Attention:  [to be inserted by Bank] Department

 

Dear Sir or Madam:

 

The undersigned refers to your Letter of Credit No. [ ________  ] issued by you in respect of [ ________ ] and bearing issue date [ ________ ], and makes demand in the aggregate amount of $[ ________ ] in lawful money of the United States of America. The undersigned certifies that:

 

	
(a)   

	
such amount is due and payable in respect of unperformed obligations of [    ] pursuant to the terms of its Petroleum Licence dated [   ] with The Republic of The Gambia; and

 

	
(b)   

	
the persons whose names appear below are duly authorized signing officers of the Minister of Petroleum, responsible for Petroleum industry of The Republic of The Gambia for the purpose of making this demand.

 

DATED this__________day of _______ , 201___.

 

 

[INSERT NAME]

 

 

104

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