Document:

Exhibit 10.19

 

ISLAMIC

 

REPUBLIC

 

OF

 

MAURITANIA

 

HONOR — BROTHERHOOD -

JUSTICE

 

EXPLORATION AND PRODUCTION CONTRACT

 

BETWEEN

 

THE ISLAMIC REPUBLIC OF MAURITANIA

 

AND

 

KOSMOS ENERGY MAURITANIA

 

Bloc C13

 

 

INDEX

 

	
ARTICLE 1 : DEFINITIONS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 2 : SCOPE OF APPLICATION OF THE   CONTRACT
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 3 : EXPLORATION AUTHORIZATION
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 4 : EXPLORATION WORKS OBLIGATION
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 5 : ESTABLISHMENT AND APPROVAL OF   ANNUAL WORK PROGRAMS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 6 : OBLIGATIONS OF THE CONTRACTOR IN   THE CONDUCT OF PETROLEUM OPERATIONS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 7 : RIGHTS OF THE CONTRACTOR IN THE   CONDUCT OF PETROLEUM OPERATIONS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 8 : MONITORING OF PETROLEUM OPERATIONS   AND ACTIVITY REPORTS — CONFIDENTIALITY
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 9 : APPRAISAL OF A DISCOVERY AND   GRANTING OF AN EXPLOITATION AUTHORIZATION
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 10 : RECOVERY OF PETROLEUM COSTS AND   PRODUCTION SHARING
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 11 : TAX REGIME
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 12 : PERSONNEL
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 13 : BONUS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 14 : PRICE AND MEASUREMENT OF HYDROCARBONS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 15 : NATURAL GAS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 16 : TRANSPORT OF HYDROCARBONS BY   PIPELINES
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 17 : OBLIGATION FOR SUPPLYING THE   DOMESTIC MARKET
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 18 : IMPORTATION AND EXPORTATION
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 19 : FOREIGN EXCHANGE
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 20 : BOOK-KEEPING, MONETARY UNIT,   ACCOUNTING
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 21 : PARTICIPATION OF THE STATE
    	
 
    	
 
    

 

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ARTICLE 22 : ASSIGNMENT
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 23 : OWNERSHIP, USAGE AND ABANDONMENT   OF PROPERTY
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 24 : LIABILITY AND INSURANCE
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 25 : TERMINATION OF THE CONTRACT
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 26 : APPLICABLE LAW AND STABILIZATION   OF TERMS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 27 : FORCE MAJEURE
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 28 : ARBITRATION AND EXPERTISE
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 29 : TERMS FOR APPLICATION OF THE   CONTRACT
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ARTICLE 30 : ENTRY INTO FORCE
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
APPENDIX 1 : EXPLORATION PERIMETER
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
APPENDIX 2 : ACCOUNTING PROCEDURE
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
APPENDIX 3 : MODEL BANK GUARANTEE
    	
 
    	
 
    

 

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BETWEEN

 

The Islamic Republic of Mauritania (hereafter referred to as « the State »), represented for purposes of these presents by the Minister in Charge of Crude Hydrocarbons

 

ON THE ONE HAND,

 

AND

 

Kosmos Energy Mauritania, a company under the Cayman Islands laws, having its registered headquarters at 4th Floor Century Yard, Cricket Square, PO Box 32322,  George Town, Grand Cayman KY1, 1209 (hereafter referred to as « the Contractor »), represented herein by John R. KEMP III, having all powers and being endowed with full authority for these purposes.

 

ON THE OTHER HAND,

 

The State and the Contractor being hereafter collectively referred to as « Parties » or individually « Party ».

 

WHEREAS:

 

The State, owner of the deposits and natural accumulations of hydrocarbons contained in the soil and the subsoil of the national territory, wishes to promote the discovery and the production of hydrocarbons in order to promote economic expansion within the framework instituted by Law No. 2010-033 of 20 July 2010 containing the Crude Hydrocarbons Code;

 

The Contractor wishes to explore and to exploit, within the framework of this exploration-production contract and pursuant to the Crude Hydrocarbons Code, the hydrocarbons which may be contained in the perimeter described in Appendix 1 of this Contract, and has shown it possesses the technical and financial means necessary for this purpose.

 

IT HAS BEEN AGREED AS FOLLOWS:

 

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ARTICLE 1 : DEFINITIONS

 

The terms utilized in this text have the following meaning:

 

1.1                               « Calendar Year » means a period of twelve (12) consecutive months commencing on the first (1st) of January and terminating on the thirty-first (31st) of the following December.

 

1.2                               « Contract Year » means a period of twelve (12) consecutive months beginning on the Effective Date or the anniversary date of said Effective Date.

 

1.3                               « Appendices » (also called Annexes) means the appendices to this Contract consisting of :

 

·                  The Exploration Perimeter constituting Appendix 1

 

·                  The Accounting Procedure constituting Appendix 2

 

·                  The model bank guarantee constituting Appendix 3

 

1.4                               « Exploration Authorization » means the authorization referred to in Article 3 of this Contract by which the State authorizes the Contractor to carry out, on an exclusive basis, all works of prospection and exploration of Hydrocarbons within the Exploration Perimeter.

 

1.5                               « Exploitation Authorization » means the authorization granted to the Contractor to carry out, on an exclusive basis, all works of development and of exploitation of the deposits of Hydrocarbons within the Exploitation Perimeter.

 

1.6                               « Barrel» means « U.S. barrel », or 42 American gallons (159 liters) measured at the temperature of 60°F (15.6 °C) and at atmospheric pressure.

 

1.7                               « BTU » means the British unit of energy « British Thermal Unit » in such manner that a million BTU (MMBTU) is equal to approximately 1055 joules.

 

1.8                               « Annual Budget » means the detailed estimate of the cost of Petroleum Operations defined in an Annual Work Program.

 

1.9                               « Crude Hydrocarbons Code » means Law No. 2010-033 of 20 July 2010 containing the Crude Hydrocarbons Code, its amendments and its application texts.

 

1.10                        « Environmental Code » means Law No. 2000-045 of 26 July 2000 containing the Environmental Code, its amendments and its application texts.

 

1.11                        « Contractor » means collectively or individually the company(ies) signing this Contract as well as any entity or company to which an interest would be assigned in application of Articles 21 and 22 of this Contract.

 

1.12                        « Contract » means this text as well as its appendices and amendments.

 

In the case of contradiction between the provisions of this text and those of its appendices, the

 

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provisions of this text shall prevail.

 

1.13                        « Petroleum Costs » means all the costs and expenses incurred by the Contractor in execution of Petroleum Operations provided for in this Contract and determined according to the Accounting Procedure, the subject of Appendix 2 to this Contract.

 

1.14                        « Effective Date » means the date of entry into force of this Contract such as it is defined in Article 30.

 

1.15                        « Dollar » means the dollar of the United States of America ($).

 

1.16                        « State » means the Islamic Republic of Mauritania.

 

1.17                        « Gross Negligence » means imprudence or negligence of such gravity that it raises a presumption of malicious intent on the part of the person responsible for such action.

 

1.18                        « Wet Gas » means Natural Gas containing a fraction of elements becoming liquid at ambient pressure and temperature, justifying the creation of a facility to recover such liquids.

 

1.19                        « Natural Gas » means all gaseous hydrocarbons produced from a well, including Wet Gas and Dry Gas which may be associated or non-associated with liquid hydrocarbons and the residual gas which is obtained after extraction of the liquids from Natural Gas.

 

1.20                        « Associated Natural Gas » means the Natural Gas existing in a reservoir in a solution with Crude Petroleum or in the form of “Gas Cap” in contact with Crude Petroleum, and which is produced or may be produced in association with the Crude Petroleum.

 

1.21                        « Non-Associated Natural Gas » means Natural Gas excluding Associated Natural Gas.

 

1.22                        «  Dry Gas » : means Natural Gas containing essentially methane, ethane and inert gases.

 

1.23                        « Hydrocarbons » means liquid and gaseous or solid hydrocarbons, in particular oil sands and oil shale.

 

1.24                        « LIBOR » means the annual interbank rate applicable for the Dollar as published by the Financial Times, The Wall Street Journal or any other comparable publication of reference.

 

1.25                        « Ministry » means the Ministry in Charge of Crude Hydrocarbons.

 

1.26                        « Minister » means the Minister in Charge of Crude Hydrocarbons.

 

1.27                        « Operator » means the company designated in Article 6.2 here below in charge of the conduct and the execution of Petroleum Operations or any company which would later be substituted for it according to applicable terms.

 

1.28                        « Petroleum Operations » means all operations of exploration, exploitation, storage, transport and marketing of Hydrocarbons, including therein operations of evaluation/appraisal, development, production, separation, processing up until the Delivery Point, as well as the

 

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remediation of the sites to their prior condition, and, more generally, all other operations directly or indirectly linked to the foregoing, carried out by the Contractor within the framework of this Contract, with the exclusion of refining and distribution of petroleum products.

 

1.29                        «  Ouguiya » means the currency of the Islamic Republic of Mauritania.

 

1.30                        « Exploitation Perimeter » means all or part of the Exploratation Perimeter for which the State, within the context of this Contract, grants to the Contractor an Exploitation Authorization pursuant to the provisions of Article 9 here below.

 

1.31                        « Exploration Perimeter » means the surface defined in Appendix 1, reduced, as the case may be, by relinquishments provided for in Article 3 and/or by Exploitation Perimeters, for which the State, in the context of this Contract, grants to the Contractor an Exploration Authorization pursuant to the provisions of Article 2.1 here below.

 

1.32                        « Crude Petroleum » means all liquid Hydrocarbons in the natural state or obtained from Natural Gas by condensation or separation as well as asphalt.

 

1.33                        « Delivery Point means:

 

·                  For Crude Petroleum, the loading point F.O.B. of the Crude Petroleum as may be further defined more precisely in the possible lifting agreement(s) the Parties may enter into.

 

·                  For Natural Gas, the Delivery Point set by common agreement between the Parties pursuant to Article 15 of this Contract.

 

1.34                        « Remediation Plan » means the document detailing the program of work to be carried out by the Contractor at the expiration, the surrender or the canceling of an Exploitation Authorization, pursuant to Article 23.2 here below.

 

1.35                        « Annual Work Program » means the descriptive document, item by item, of the Petroleum Operations to be carried out during the course of a Calendar Year within the framework of this Contract prepared pursuant to the provisions of Articles 4, 5 and 9 here below.

 

1.36                        « Affiliated company » means:

 

a)             Any company or any other entity which controls or is controlled, directly or indirectly, by a company or entity, party to this contract, or

 

b)             Any company or any other entity which controls or is controlled, directly or indirectly, by a company or entity which itself controls directly or indirectly any company or entity, party to this contract.

 

For purposes of this definition, the term « control » means the direct or indirect ownership by a

 

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company or any other entity of a percentage of capital stock or shares greater than fifty percent (50%) of the voting rights at the shareholders’ meeting of another company or entity.

 

1.37                        « Third Party » means any natural person or legal entity other than the State, the Contractor and the Affiliated Companies of the Contractor.

 

1.38                        « Quarter » means a period of three (3) consecutive months beginning on the first day of January, April, July or October of each Calendar Year.

 

ARTICLE 2 :  SCOPE OF APPLICATION OF THE

CONTRACT

 

Pursuant to the Crude Hydrocarbons Code, the State hereby authorizes the Contractor to carry out on an exclusive basis in the Exploration Perimeter defined in Appendix 1 the appropriate and necessary Petroleum Operations within the framework of this Contract.

 

2.1                               This Contract is entered into for the duration of the Exploration Authorization such as provided for in Article 3 of this Contract, including therein its renewal periods and possible extensions, and, in the case of a commercial discovery, for the duration of the Exploitation Authorizations which will have been granted, such as defined in Article 9.11 here below.

 

2.2                               This Contract shall terminate if, at the expiration of all of the exploration phases provided for in Article 3, the Contractor has not notified the State of its decision to develop a commercial Hydrocarbons deposit and applied for an Exploitation Authorization relative to such deposit, pursuant to the provisions of Article 9.5 here below.

 

In the event of the grant of more than one Exploitation Authorization and unless there is an early termination, this Contract will expire upon the expiration of the last current valid Exploitation Authorization.

 

2.3                               The expiration, surrender or termination of this Contract for whatever reason it may be, shall not free the Contractor from his obligations under this Contract, which came into being prior to the time of such expiration, surrender or termination, which obligations must be carried out by the Contractor.

 

2.4                               The Contractor shall have the responsibility to carry out the Petroleum Operations provided for in this Contract. For their execution he undertakes to comply with good oilfield practice of the international petroleum industry and to comply with norms and standards decreed by Mauritanian regulations in matters of industrial safety, protection of the environment, and operational techniques.

 

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2.5                               The Contractor shall supply all the financial and technical means necessary for the proper functioning of the Petroleum Operations and shall bear in full all the risks linked to the execution of said Operations, and without prejudice to the provisions of Article 21 of this Contract. The Petroleum Costs borne by the Contractor shall be recoverable by the Contractor pursuant to the provisions of Article 10 here below.

 

2.6                               During the period of validity of the Contract, the production resulting from the Petroleum Operations shall be shared between the State and the Contractor pursuant to the provisions of Article 10 here below.

 

ARTICLE 3 :  EXPLORATION AUTHORIZATION

 

3.1                               The Exploration Authorization in the Exploration Perimeter defined in Appendix 1 shall be granted to the Contractor  for a first phase of Four (4) Contract Years.

 

3.2                               The Contractor shall have right to renewal of the Exploration Authorization two times, for a period of Three (3) Contract Years each time, if he has fulfilled for the preceding exploration phase the work obligations stipulated in Article 4 here below and provided that he furnishes the bank guarantee for the renewal period pursuant to Article 4.6 here below.

 

3.3                               In accordance with Article 21of the Crude Hydrocarbon Code, if at the expiration of any phase of the exploration period defined in Article 3.1 or 3.2 here above, works are actually still in progress, the Contractor shall have the right, if he submits an application duly providing supporting information, to a special extension of such phase for a period of time not to exceed twelve (12) months.

 

3.4                               If the Contractor discovers one or more deposits of Hydrocarbons for which he cannot present the declaration of commerciality prior to the end of the third phase of the exploration period pursuant to Article 9.5 here below, by reason of the distance of the deposit in relation to possible delivery points on the Mauritanian territory and of the lack of infrastructure of transportation by pipeline, or the lack of a market for the production of the Natural Gas, he may apply for an extension of the Exploration Authorization for a maximum period of three (3) years for deposits of Petroleum or of Wet Gas and five (5) years for deposits of Dry Gas, the Exploration Perimeter being thus reduced to the presumed limits of the deposit(s) in question.

 

3.5                               In the case where such an extension is granted, the Contractor must furnish to the Minister within sixty (60) days following the end of each Calendar Year of the period of extension a report showing whether or not the relevant deposit(s) is/are commercial, and, in the case of a deposit of Natural Gas, the results of the works and studies carried out pursuant to Article 15 here below.

 

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3.6                               For each renewal or extension, other than the extension contemplated by Article 3.3, the Contractor must submit an application to the Minister not later than two (2) months prior to the expiration of the current exploration phase.

 

The renewals shall be granted by decree of the Minister while the extensions shall be granted by decree of the Council of Ministers; such decrees shall take effect starting from the date following the expiration of the preceding period.

 

3.7                               The Contractor undertakes to relinquish to the State at least twenty-five percent (25%) of the initial surface area of the Exploration Perimeter at the time of each renewal of same, in such fashion as to not retain during the second phase of the exploration period more than seventy-five percent (75%) of the initial surface area of the Exploration Perimeter and during the third phase of the exploration period, not more than fifty percent (50%) of the initial surface area of the Exploration Perimeter.

 

3.8                               For the application of Article 3.7 here above :

 

a)                                     The surfaces having previously been the subject of a voluntary relinquishment per Article 3.9 here below and the surfaces already covered by Exploitation Authorizations shall be deducted from the area subject to mandatory relinquishment.

 

b)                                     The Contractor shall have the right to determine the extent, the form and the location of the portion of the Exploration Perimeter which he intends to keep. However, the portion relinquished must consist of a perimeter of simple geometric form, delimited by North-South, East-West lines or by natural limits or frontiers.  The surface relinquishment shall be made according to the land registry grid from one of the borders of the initial or residual Exploration Perimeter and in a contiguous fashion.

 

c)                                      The application for renewal must be accompanied by a plan containing an indication of the Exploration Perimeter that was kept as well as a report specifying the works carried out since the Effective Date on the relinquished surfaces and the results obtained.

 

3.9                               The Contractor may at any time, upon three (3) months’ notice, notify the Minister that he is surrendering all or a portion of the Exploration Perimeter.  In the event of a full surrender, the Exploration Authorization shall terminate automatically on the date of said notification.  In the case of a partial surrender, the provisions of Article 3.8 here above shall be applicable.

 

In all cases, no voluntary surrender during the course of an exploration phase shall reduce the exploration work commitments stipulated in Article 4 here below for said phase, nor does it terminate the corresponding bank guarantee.

 

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3.10                        Except in the case of extension pursuant to Articles 3.3 and 3.4 here above, upon the expiration of the third phase of the exploration period, the Contractor must relinquish the remaining surface of the Exploration Perimeter, except for areas already comprised within Exploitation Perimeters.

 

Notwithstanding the preceding  paragraph and pursuant to the provisions of Article 26.2 of the Crude Hydrocarbons Code, the Exploration  Authorization shall remain in effect until Contractor submits a request for an Exploitation Authorization in accordance with the time frames stipulated in Article 9.

 

ARTICLE 4 :  EXPLORATION WORKS OBLIGATION

 

4.1                               During the first phase of the exploration period of  four (4) Contract Years defined in Article 3.1 here above, the Contractor undertakes to carry out the following work:

 

·                  Acquire two thousand (2000) km 2D seismic

 

Said works must commence within the twelve (12) months following the Effective Date.

 

4.2                               During the second phase of the exploration period of  three (3) Contract Years defined in Article 3.2 here above, the Contractor undertakes to carry out the following work:

 

·                  Acquire one thousand (1000) sq. km 3D seismic;

 

·                  Drill one (1) Exploration well to a depth of two thousand (2000) meters below the mud line.

 

Said works must commence within the six (6) months following the start of the phase in question.

 

4.3                               During the third phase of the exploration period of  Three (3) Contract Years defined in Article 3.2 here above, the Contractor undertakes to carry out the following work:

 

·                  Drill one (1) Exploration well to a depth of two thousand (2000) meters below mud line.

 

Said works must commence within the three (3) months following the start of the phase in question.

 

4.4                               Each of the above-cited wells shall be carried out up to the minimum depth set forth here above, or to a lesser depth, upon authorization of the Minister, if the pursuit of the well, carried out according to good oilfield practices in the international petroleum industry, is impractical for one or another of the following reasons:

 

a)             The basement is encountered at a depth that is less than the minimum depth referred to above;

 

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b)             The pursuit of the well presents a manifest danger by reason of the existence of an abnormal stratum pressure ;

 

c)              Rock formations are encountered, the hardness of which does not allow the practical advancement of the well carried out with the appropriate means of equipment;

 

d)             Petroliferous formations are encountered which in order to cross through requires for their protection the laying of casings, preventing the attainment of the above-cited minimum depth.

 

In each of the cases cited here above, the Contractor shall inform the Minister and shall be authorized to suspend the well and said well shall be deemed to have been drilled to the minimum depth referred to above.

 

4.5                               If the Contractor, either during the course of the first phase of the exploration period, or during the course of the second phase of the exploration period, defined respectively in Articles 3.1 and 3.2 here above, carries out a number of exploration wells greater than the minimum commitments stipulated respectively in Articles 4.1 and 4.2 here above for said phase, the excess wells may be carried over to the following phase(s) of the exploration period and shall be deducted from the minimum work commitments stipulated for said phase(s).

 

For purposes of the application of Articles 4.1 to 4.5 here above, the wells carried out in the context of a program for evaluation of a discovery shall not be considered to be exploration wells, and, in the case of a discovery of Hydrocarbons, only one well per discovery shall be deemed to be an exploration well.

 

4.6                               Within the thirty (30) days following the Effective Date, the Contractor must remit to the Minister a bank guarantee issued by an international bank of first order, pursuant to Appendix 3 of nine  million Dollars ($9,000,000), covering his minimum work commitments for the first phase of the exploration period defined in Article 4.1 here above.

 

In the case of renewal of the Exploration Authorization, the Contractor also must remit to the Minister, within the thirty (30) days following receipt of the decree from the Minister granting the renewal, a bank guarantee issued by an international bank of first order, pursuant to Appendix 3 of twenty-seven million Dollars ($27,000,000) for the second Phase of the exploration period and of twenty-two million Dollars ($22,000,000) covering his minimum work commitments for the relevant phase.

 

If on expiration of any phase of the exploration period or in the case of total or partial surrender or termination of the Contract, the exploration works have not reached the minimum commitments of this Article 4, the Minister shall have the right to call the guarantee for an

 

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amount equal to the amount of the guarantee after deduction of the estimated cost of the minimum work actually carried out.

 

Such cost shall be calculated on a lump-sum basis in utilizing the following unit costs:

 

a)             four thousand five hundred Dollars ($4,500) per kilometer of seismic;

 

b)             five thousand Dollars ( $5,000) per square kilometer of seismic;

 

c)              twenty-two million  Dollars ($22,000,000) per exploration well.

 

Once the payment is made, the Contractor shall be deemed to have fulfilled his minimum exploration work obligations per Article 4 of this Contract; the Contractor may, except in the event of cancellation of the Exploration Authorization for a major failure in performance of this Contract, continue to benefit from the provisions of said Contract and, in the case of an acceptable application, obtain the renewal of the Exploration Authorization.

 

ARTICLE 5 :  PRESENTATION  AND APPROVAL OF
 ANNUAL WORK PROGRAMS

 

5.1                               Not later than (2) months after the Effective Date, the Contractor shall prepare and submit to the Ministry for approval an Annual Work Program, detailed item by item, including therein the corresponding Annual Budget for all of the Exploration Perimeter, specifying the Petroleum Operations relating to the period running from the Effective Date to the following 31 December.

 

Thereafter, not later than (3) months prior to the start of each Calendar Year, the Contractor shall prepare and submit to the Ministry for approval an Annual Work Program, detailed item by item, including therein the corresponding Annual Budget for all of the Exploration Perimeter, then, if applicable, for the Exploitation Perimeter(s), in specifying the Petroleum Operations which he proposes to carry out over the course of the following Calendar Year.

 

Each Annual Work Program and corresponding Annual Budget shall be itemized between the different activities of exploration, and if applicable, of appraisal for each discovery, of development and of production for each commercial deposit.

 

5.2                               If the Ministry deems that revisions or modifications to the Annual Work Program and to the corresponding Annual Budget are necessary and appropriate, it must so notify the Contractor in writing with all supporting documentation deemed appropriate within a time period of sixty (60) days following their receipt.  In such case, the Ministry and the Contractor shall meet as soon as possible in order to study the revisions or modifications requested and establish by common agreement the Annual Work Program and the corresponding Annual Budget in their

 

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definitive form, according to good oilfield practice in the international petroleum industry.  The date of adoption of the Annual Work Program and of the corresponding Annual Budget shall be the above-cited mutually agreed date.

 

In the absence of notification by the Ministry to the Contractor of his wish for revision or modification within the time period of the above-referenced sixty (60) days, said Annual Work Program and corresponding Annual Budget shall be deemed accepted by the Ministry upon the date of expiration of said time period.

 

In all cases, each operation of the Annual Work Program, for which the Ministry has not requested revision or modification, must be carried out by the Contractor within the time periods set forth.

 

5.3                               The Parties accept that the results obtained during the course of the works taking place, or that special circumstances may justify changes to an Annual Work Program and to the corresponding Budget.  In such case, after notification to the Ministry, the Contractor may make such changes provided that the fundamental objectives of said Annual Work Program are not modified.

 

ARTICLE 6 : OBLIGATIONS OF THE CONTRACTOR IN
 THE CONDUCT OF PETROLEUM OPERATIONS

 

6.1                               Without prejudice to the provisions of Article 21 here below, the Contractor must furnish all necessary funds and purchase or rent all tools, equipment and construction supplies that are indispensable for the execution of Petroleum Operations.  The Contractor is responsible for the preparation and the execution of the Annual Work Programs which are to be carried out in the most appropriate manner in compliance with good oilfield practice in the international petroleum industry.

 

6.2                               Upon the Effective Date of this Contract, Kosmos Energy Mauritania is designated as Operator and shall be responsible for the conduct and the execution of the Petroleum Operations.  The Operator, in the name of and on the behalf of the Contractor, shall communicate to the Minister all reports and information referred to in this Contract. Any change of Operator contemplated by the entities of the Contractor must receive the prior approval of the Minister, which approval shall not be withheld without reasonable justification provided therefor.

 

6.3                               The Operator must maintain during the term of the Contract in Mauritania, a branch which shall in particular be staffed with a responsible person having authority for the conduct of the Petroleum Operations and to whom any notification with regard to this Contract can be sent.

 

6.4                               The Contractor must during the course of the Petroleum Operations take all necessary

 

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measures for the protection of the environment.

 

He must in particular, for any Petroleum Operation subject to prior authorization according to the Environmental Code, submit to the Minister, depending on the case, the studies or notices of environmental impact required for this type of operation, carry out the measures and comply with restrictions set forth in the environmental management plan, furnish the declarations and submit himself to the oversight provided for in the Environmental Code

 

The Contractor must moreover take all reasonable measures according to good oilfield practice in the international petroleum industry in order to:

 

a)             Ensure that all of the facilities and equipment utilized for purposes of the Petroleum Operations be at all times in good repair and in conformity with the applicable norms, including therein those which result from international conventions ratified by the Islamic Republic of Mauritania and relative to the prevention of pollution;

 

b)             avoid losses and dumping:

 

·  of Hydrocarbons, including the flaring of Natural Gas, (with the exception of the cases provided for in Article 40 of the law instituting the Crude Hydrocarbons Code, under penalty of a fine which shall be later be determined by a decree taken by the Council of Ministers and which shall not under any circumstances exceed twenty (20) per cent of the then current market price of Natural Gas in Mauritania),

 

The above-cited fine shall not be considered a recoverable Petroleum Cost nor a deductible charge.

 

c)              DOES NOT APPLY.

 

d)             Store the Hydrocarbons produced in the facilities and receptacles constructed for this purpose ;

 

e)              Without prejudice to the provisions of Article 23.2 here below, dismantle facilities which are no longer necessary to the Petroleum Operations and return the sites to their original condition;

 

f)               and, generally, prevent pollution of the soil and of the subsoil, of the water and of the atmosphere, as well as prevent harm to fauna and flora.

 

6.5                               The Contractor must, during the course of the Petroleum Operations, take all necessary measures to ensure the safety and protect the health of persons according to good oilfield practices in the international petroleum industry and the Mauritanian regulations in force, and

 

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in particular to put into place:

 

a)             Appropriate means for prevention, rapid response and handling of risks, including the risks of blow-out;

 

b)             Measures for information, training and means adapted to the risks encountered, including therein individual protective equipment, fire-fighting materials as well as means of first-aid and prompt evacuation of victims.

 

6.6                               All works and facilities set up by the Contractor under this Contract must, according to the nature and circumstances, be constructed, shown with markers and sign posts and equipped in such fashion as to allow at any time and in complete safety free passage within the Exploration Perimeter and the Exploitation Perimeter(s).

 

6.7                               While carrying out his right of construction, to execute works, and to maintain all facilities necessary for the purposes of this Contract, the Contractor should not occupy lands situated less than five hundred (500) meters away from any religious buildings, whether cultural or not, burial grounds, walled enclosures, courts and gardens, dwelling places, groups of dwelling places, villages, built-up areas, wells, springs , reservoirs, roads, routes, railways, water conduits, pipelines, works of public utility, civil engineering works, without the prior consent of the Minister. The Contractor shall be required to repair any damages which his works may have caused to occur.

 

6.8                               The Contractor commits to granting preference to Mauritanian enterprises and products, on equivalent conditions in terms of price, quantity, quality, terms for payment and timeframe of delivery, and to require his subcontractors to make a similar commitment

 

All contracts of supply, construction or service of a value greater than seven hundred fifty thousand (750,000) Dollars where works of exploration/appraisal are concerned and one million five hundred thousand ($1,500,000) Dollars where works of development/exploitation are concerned, must be the subject of a call for bids from Mauritanian and foreign bidders, unless there is a prior consent from the Minister.

 

Copies of such contracts entered into during the course of each Quarter shall be sent to the Minister within the thirty (30) days following the end of the relevant Quarter.

 

6.9                               The Contractor undertakes to grant preference, on equivalent economic terms, in the purchase of goods necessary for the Petroleum Operations, taking into account rental terms and any other lease arrangements  and to require from his subcontractors a similar commitment.

 

To this end, every Annual Budget referred to in Article 5 must specify all the draft rental contracts of an annual value greater than  seven hundred fifty thousand (750,000) Dollars.

 

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ARTICLE 7 :  RIGHTS OF THE CONTRACTOR IN THE
 CONDUCT OF PETROLEUM OPERATIONS

 

7.1                               The Contractor has the exclusive right to carry out Petroleum Operations inside of the Exploration Perimeter or any Exploitation Perimeter resulting therefrom, as long as the Petroleum Operations are in conformity with the terms and conditions of this Contract, of the Crude Hydrocarbons Code as well as with the provisions of the laws and regulations in force in Mauritania, and that they are executed according to good oilfield practice in the international petroleum industry.

 

7.2                               For purposes of the execution of the Petroleum Operations, the Contractor shall benefit from the rights set forth in Article 54 of the Crude Hydrocarbons Code.

 

7.3                               The costs, compensation payments, and in general all charges resulting from occupation of lands referred to in Articles 55 to 57 of the Crude Hydrocarbons Code shall be at the expense of the Contractor and shall be recoverable as Petroleum Costs pursuant to the provisions of Article 10.2 here below.

 

7.4                               The expiration of an Exploration Authorization or of an Exploitation Authorization, or the obligatory or voluntary relinquishment, partial or total of an Exploration Perimeter or of an Exploitation Perimeter has no effect with regard to the rights resulting from Article 7.2 here above for the Contractor, on works and facilities executed in application of the provisions of this Article 7, provided that said works and facilities continue to be utilized in the framework of the Contractor’s activity on the portion kept or on other exploration or exploitation perimeters in Mauritania.

 

7.5                               Subject to the provisions of Articles 6.8 and 6.9 here above, the Contractor has freedom of choice concerning suppliers and subcontractors and shall benefit from the customs regime set forth in Article 18 of this Contract.

 

7.6                               Unless there are provisions to the contrary in the Contract, no restriction shall be set upon the entry, the stay, freedom of movement, employment and repatriation of persons and their families as well as their goods, for the employees of the Contractor and those of his subcontractors, subject to compliance with employment legislation and regulations as well as social laws in force in Mauritania.

 

The Ministry shall facilitate the delivery to the Contractor, as well as to his agents, to his subcontractors and to their families, all administrative authorizations which may possibly be

 

17

 

required in relation with the Petroleum Operations carried out in the framework of this Contract, including entry and exit visas.

 

ARTICLE 8 :  MONITORING OF PETROLEUM
 OPERATIONS AND ACTIVITY REPORTS —
 CONFIDENTIALITY

 

8.1                               The Petroleum Operations shall be subject to monitoring by the Ministry pursuant to the provisions of Title VIII of the Crude Hydrocarbons Code.  The duly mandated representatives of the Ministry shall in particular have the right to monitor the Petroleum Operations, to inspect facilities, equipment, materials, and to audit said procedures, norms, records and books pertaining to the Petroleum Operations.  Said such representatives shall make every effort not to disrupt the normal conduct of Contractor’s operations.

 

In order to allow the exercise of the rights referred to here above, the Contractor shall furnish to the representatives of the Ministry and to the other agents of the State in charge of the supervision of Petroleum Operations reasonable assistance in the matter of means of transport and of lodging.  The reasonable expenses for transport and lodging directly linked to monitoring and inspection shall be at the expense of the Contractor.  Such expenses shall be considered as recoverable Petroleum Costs according to the provisions of Article 10.2 of this Contract and as deductible charges for purposes of the calculation of Industrial and Commercial Income Tax.

 

8.2                               The Contractor shall keep the Ministry regularly informed of the status of the Petroleum Operations. He must in particular supply the Ministry with the following programs and information:

 

a)             A work program for any geological or geophysical campaign, at least thirty (30) days before the beginning of the campaign in question and specifying in particular its location, its objectives, the techniques and equipment utilized, the name and address of the enterprise which will carry out the work, the starting date and the projected duration, the number of kilometers of seismic lines, the estimated costs and the safety measures put into place if the usage of explosives is contemplated.

 

b)             A work program for any well, at least thirty (30) days before the spudding of the well in question and specifying in particular its precise location, a detailed description of the works contemplated, including the well techniques and the associated operations, its depth, its geological objective, the start date and the projected duration, the estimated costs of the program, a summary of the geological and geophysical data which prompted the Contractor’s decision, the name and address of the drilling contractor as well as the

 

18

 

designation of the well site, the name and address of all other subcontractors recruited for such operation, and the safety measures envisioned.

 

c)              An advance notice of thirty (30) days concerning any abandonment of a producing well and forty-eight (48) hours when it concerns a non-producing well.

 

d)             An advance notice of forty-eight (48) hours concerning any suspension of drilling or resumption of drilling after a suspension of greater than thirty (30) days.

 

Any accident involving a stoppage of work or material damage or death occurring in the framework of the Petroleum Operations must be immediately notified to the Minister and not later than within twenty-four (24) hours.

 

8.3                               The Ministry may require from Contractor the execution, at the expense of the latter, of all work necessary to ensure safety and hygiene within the framework of the Petroleum Operations, pursuant to Article 6.5 here above.

 

8.4                               The Ministry shall have access to all original data resulting from Petroleum Operations undertaken by the Contractor within the Exploration Perimeter and Exploitation Perimeter(s) such as geological, geophysical, petrophysical, drilling, reports concerning commencement of exploitation and all other reports generally required for the Petroleum Operations.

 

8.5                               The Contractor commits to furnishing to the Ministry the following periodic reports:

 

a)             Daily reports on drilling activities;

 

b)             Weekly reports on geophysical works;

 

c)              Starting from the date of granting of an Exploitation Authorization, within fifteen (15) days following the end of each Quarter, a detailed report on development activities;

 

d)             Starting from the start-up of production, within fifteen (15) days following the end of each month, an exploitation report specifying in particular each of the quantities of Hydrocarbons produced, utilized in Petroleum Operations, stored, lost or flared, and sold, during the course of the preceding month as well as an estimate of each of the quantities in question for the current month.  With regard to Hydrocarbons sold, the report shall specify for each sale the identity of the buyer, the quantity sold and the price obtained;

 

e)              Within the fifteen (15) days following the end of each Quarter, a report relative to Petroleum Operations carried out during the Quarter elapsed, containing in particular a description of the Petroleum Operations carried out and a detailed statement of the

 

19

 

Petroleum Costs incurred, categorized in particular by Exploration Perimeter / Exploitation Perimeter and by type;

 

f)               Within the three (3) months following the end of each Calendar Year, a report relative to the Petroleum Operations carried out during the Calendar Year elapsed, as well as a detailed statement of Petroleum Costs incurred, categorized in particular by Exploration Perimeter / Exploitation Perimeter and by type and a statement of the personnel employed by the Contractor, indicating the number of employees, their nationality, their duties, the total amount of the salaries as well as a report on medical care and instruction given to them.

 

g)              Any other report generally required within the framework of Petroleum Operations.

 

8.6                               Moreover, the following reports, data and documents shall be furnished to the Ministry during the month following their drafting or their being obtained:

 

a)             Two (2) copies of the geological reports made in the framework of exploration ;

 

b)             Two (2) copies of geophysical reports made in the framework of exploration.  The Ministry shall have access to the originals of all recordings made (magnetic tapes or other format) and may, upon request, obtain copies;

 

c)              Two (2) copies of reports of commencement and termination of drilling for each of the wells drilled;

 

d)             Two (2) copies of all measures, tests, and well loggings recorded during the course of drilling (drilling termination reports);

 

e)              Two (2) copies of each report of analyses (petrography, biostratigraphy, geochemistry or other) carried out on the core samples, the cuttings or fluids sampled in each one of the wells drilled, including therein raw data and supporting items with media for copying photos pertaining thereto;

 

f)               A representative portion of the core samples taken, well cuttings taken from each well as well as fluid samples collected during the production tests shall also be supplied within reasonable periods of time.

 

g)              Moreover, the Contractor may freely export core samples taken, drill cuttings taken and fluids produced;

 

20

 

h)             And in a general fashion, two (2) copies of all other reports generally required for Petroleum Operations.

 

Reports, studies and other results referred to in this Article 8.6, as well as those referred to in Article 8.5 here above, shall be supplied in a suitable medium in digital and/or hard copy.

 

8.7                               The Parties undertake to consider as confidential and to not communicate to Third Parties or to publish, except with the prior consent of the Minister, data and information of a technical nature related to the Petroleum Operations and which would not already be in the public domain, for the entire duration of the Contract.

 

In the case of relinquishment of a surface area or surrender of a perimeter , the Contractor undertakes to consider as confidential and to not communicate to Third Parties or to publish, except with the prior consent of the Minister, the data and information relating to the perimeter in question and which would not already be in the public domain.

 

After the surrender, termination or expiration of the Contract, the Contractor undertakes to consider as confidential and to not communicate to Third Parties or to publish, except with the prior consent of the Minister, the data and information relating to Petroleum Operations and which would not already be in the public domain.

 

8.8                               Notwithstanding the provisions of Article 8.7, the State may communicate the data and information:

 

a)             To all suppliers of services and professional consultants providing services in the framework of the monitoring of Petroleum Operations, after obtaining a similar commitment of confidentiality;

 

b)             To any bank, institution or financial establishment with which an entity of the State solicits or obtains financing, after obtaining a similar commitment of confidentiality;

 

c)              In the framework of any contentious proceeding in a legal, administrative or arbitrational matter.

 

8.9                               Notwithstanding the provisions of Article 8.7, the Contractor may communicate the data and information:

 

a)             To any Affiliated Company bound by a similar commitment of confidentiality;

 

b)             To any suppliers of services and professional consultants providing services in the framework of Petroleum Operations, after obtaining a similar commitment of confidentiality;

 

21

 

c)              To any company with a bona fide interest in the carrying out of a possible assignment, after obtaining from such company a commitment to keep confidential such information and to utilize it only for the purposes of such assignment;

 

d)             To any bank or financial establishment with which an entity of the Contractor solicits or obtains financing, after obtaining a similar commitment of confidentiality;

 

e)              When and to the extent that the regulations of a recognized stock exchange require the information;

 

f)               Within the framework of any contentious proceeding in a legal, administrative or arbitrational matter.

 

8.10                        The Contractor must report to the Minister the soonest possible any information relative to mineral substances encountered during the Petroleum Operations.

 

8.11                        The Contractor must participate in the implementation of the Extractive Industries Transparency Initiative (EITI) pursuant to Article 98 of the Crude Hydrocarbons Code.

 

ARTICLE 9 :  APPRAISAL OF A DISCOVERY AND
 GRANTING OF AN EXPLOITATION AUTHORIZATION

 

9.1                               If the Contractor discovers Hydrocarbons in the Exploration Perimeter, he must so notify the Minister in writing the soonest possible and carry out, pursuant to good oilfield practice in the international petroleum industry, the necessary tests.  Within the thirty (30) days following the provisional closure or abandonment of the discovery well, the Contractor must submit to the Minister a report giving all information pertaining to such discovery and formulating recommendations of the Contractor as to whether or not to pursue his appraisal.

 

9.2                               If the Contractor wishes to undertake the appraisal works of the above-cited discovery, he must diligently submit to the Minister for approval the appraisal work program, the timetable for execution and the estimate of the corresponding budget, not later than six (6) months following the date of the notification of the discovery referred to in Article 9.1 here above.

 

The Contractor must then commence with maximum diligence the appraisal work pursuant to the program drawn up, it being understood that the provisions of Articles 5.2 and 5.3 here above shall apply to said program.

 

9.3                               Within the three (3) months following the completion of the appraisal works, and not later than thirty (30) days prior to the expiration of the third phase of the exploration period defined in Article 3.2, as may be extended pursuant to the provisions of Articles 3.3 and 3.4 here above,

 

22

 

the Contractor shall submit to the Minister a detailed report giving all the technical and economic information relative to the deposit so discovered and appraised, and establishing the commercial character or not of the said discovery.  Such report shall in particular include the following information:  the geological and petrophysical, characteristics, and the estimated delimitation of the deposit; the results of the production tests carried out, the nature, properties and volume of Hydrocarbons which it contains, a preliminary technical and economic study on the placement of the deposit into production.

 

9.4                               Any quantity of Hydrocarbons produced from a discovery before the discovery has been declared commercial, if it is not utilized for the carrying-out of the Petroleum Operations, or lost, shall be subject to the provisions of Article 10 of this Contract.

 

9.5                               A deposit considered by the Contractor to be commercially exploitable gives him the right to an Exploitation Authorization. In such case, the Contractor shall submit to the Minister, within the three (3) months following the submission of the report referred to in Article 9.3 here above, and not later than thirty (30) days prior to the expiration of the third phase of the exploration period defined in Article 3.2, possibly extended pursuant to the provisions of Articles 3.3 and 3.4 here above, an application for an Exploitation Authorization. Said application shall specify the lateral and stratigraphic delimitation of the Exploitation Perimeter, which shall cover only the presumed limits of the deposit discovered and appraised in the Exploration Perimeter then currently valid and shall be accompanied by technical justifications necessary for said delimitation. The above-cited application for an Exploitation Authorization shall be accompanied by a detailed development and production program, including in particular for the deposit in question :

 

a)             An estimate of the recoverable reserves, proven and probable and of the corresponding production profile, as well as a study of the methods of recovery of hydrocarbons and development of natural gas;

 

b)             A description of the works and facilities required to put the field into production, such as number of wells, facilities required for production, separation, processing, storage and transport of Hydrocarbons;

 

c)              A program and a schedule for carrying out the said works and facilities, including startup date for production ;

 

d)             An estimate of development investments and exploitation costs itemized for each year as well as an economic study confirming the commercial character of the deposit ;

 

23

 

e)              The methods for financing such investments by each one of the entities making up the Contractor ;

 

f)               An environmental impact study of the development project, carried out by the Contractor pursuant to the provisions of the Environmental Code.

 

g)              An outline of a Rehabilitation Plan to return the sites to their original condition at the end of exploitation.

 

The Minister may propose revisions or modifications to the development and production program referred to above, as well as to the Exploitation Perimeter applied for, in notifying the Contractor thereof with all justifying supporting data deemed appropriate, within the ninety (90) days following receipt of the said program.  The provisions of Article 5.2 here above shall apply to said program with regard to its adoption.

 

When the results acquired during the course of development justify changes to the development and production program, said program may be modified in utilizing the same procedure as that referred to here above for its initial adoption.

 

9.6                               The Exploitation Authorization shall be granted by the Minister within forty-five (45) days following the date of adoption by the Parties of the development and production program.  The granting of an Exploitation Authorization entails ipso facto the cancellation of the Exploration Authorization inside of the Exploitation Perimeter; however, the Exploration Authorization continues to be valid outside that perimeter until its expiration date, without the minimum exploration work obligation referred to in Article 4 above for the subject phase of the exploration period being modified.

 

9.7                               If the Contractor makes several commercial discoveries within the Exploration Perimeter, each of such will give rise, in accordance with Articles 9.5 and 9.6 here above, to a separate Exploitation Authorization corresponding to an Exploitation Perimeter.

 

9.8                               If in the course of work subsequent to the grant of an Exploitation Authorization, it appears that the deposit has an extension greater than that initially provided for in Article 9.5 here above, the Minister shall grant to the Contractor, within the framework of the Exploitation Authorization already granted, the additional portion, provided that the extension is an integral part of the currently valid Exploration Perimeter and that the Contractor supplies the technical justifications for the extension applied for.

 

If it appears that the deposit has an extension less than that initially provided for, the Minister may require the Contractor to relinquish the exterior portion(s) of the boundaries of the deposit.

 

24

 

9.9                               In the event that a deposit extends beyond the boundaries of the currently valid Exploration Perimeter, the Minister may require the Contractor to exploit such deposit together with the holder of the adjacent perimeter following the provisions of Article 53 of the Crude Hydrocarbons Code. Within the twelve (12) months following the written request of the Minister, the Contractor must submit to him, for approval, a draft development and production program of the relevant deposit drawn up in agreement with the holder of the adjacent perimeter.

 

In the case where the deposit extends over one or more other perimeters which are not under contract, the process of extension of the contractual perimeter may be undertaken, pursuant to the provisions of the Crude Hydrocarbons Code.

 

9.10                        The Contractor must start up the development operations including the necessary studies, not later than six (6) months following the date of granting of the Exploitation Authorization referred to in Article 9.6 here above and must pursue them with the maximum diligence. The Contractor undertakes to carry out the development and production operations according to good oilfield practice in the international petroleum industry, making it possible to ensure the optimum recovery of Hydrocarbons contained in the deposit. The Contractor undertakes to proceed as soon as possible with studies of assisted recovery in consultation with the Ministry and to utilize such processes if, in the estimation of Contractor, such processes will lead under the economic conditions to an improvement of the rate of recovery.

 

9.11                        The duration of the exploitation period during which the Contractor is authorized to ensure the production of a deposit declared to be commercial is set at twenty-five (25) years if the exploitation is for deposits of Crude Petroleum and thirty (30) years if the exploitation is for deposits of Dry Gas, starting from the date of granting of the corresponding Exploitation Authorization.

 

Upon the expiration of the initial period of exploitation defined here above, the Exploitation Authorization may be renewed for an additional maximum period of ten (10) years upon an application by Contractor providing supporting information submitted to the Minister at least one (1) year prior to said expiration, provided that the Contractor has fulfilled all his contractual obligations during the initial exploitation period and that he proves that additional commercial production from the Exploitation Perimeter remains possible during the additional period applied for.

 

9.12                        For any deposit having given rise to the granting of an Exploitation Authorization, the Contractor must, without prejudice to the provisions of Article 21 here below, carry out at his own expense all appropriate and necessary Petroleum Operations to place the deposit into

 

25

 

exploitation, in conformity with the adopted development and production program.

 

However if the Contractor believes, on the basis of technical knowledge acquired on such deposit, and can make the accounting proof during the course of the development and production program or during the course of exploitation that producing from such deposit cannot be, or can no longer be, commercially profitable, even though the discovery well and the appraisal works have led to the granting of an Exploitation Authorization pursuant to this Contract, the Minister undertakes to not obligate the Contractor to pursue the works and to explore with the Contractor, to the extent possible, technical and economic improvements which would permit the Contractor to consider the profitable exploitation of said deposit.  In the case where the Contractor decides not to pursue the exploitation works and if the Minister asks him to, the Contractor shall surrender the relevant Exploitation Authorization and the rights which are attached thereto.

 

9.13                        The Contractor may at any time, subject to so notifying the Minister in writing with an advance notice of at least six (6) months, surrender totally or in part an Exploitation Authorization, provided that he has satisfied all obligations provided for in this Contract.

 

9.14                        The Contractor undertakes for the duration of the Exploitation Authorizations to produce annually quantities of Hydrocarbons from each deposit according to generally accepted norms in the international petroleum industry in taking principally into consideration the rules for the proper conservation of deposits and the optimal recovery of the reserves of Hydrocarbons under economic conditions for the duration of the relevant Exploitation Authorizations.

 

9.15                        The ceasing of production of a deposit for a duration greater than six (6) consecutive months, decided upon by the Contractor without the consent of the Minister, may lead to the cancellation of this Contract within the terms set forth in Article 25 here below.

 

9.16                        The Minister may place the Contractor on notice by registered letter with return receipt to remedy the following shortcomings within a time period of three (3) months, if the latter, without duly justified reasons:

 

a)             Has not submitted an appraisal work program for said discovery within the time period referred in Article 9.2 here above ;

 

b)             Has not carried out the appraisal works of said discovery in conformity with the appraisal program  referred to in Article 9.2 here above ;

 

c)              Or has not submitted an application for an Exploitation Authorization within the time period referred to in Article 9.5 here above.

 

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If the Contractor has not remedied the above shortcomings within the mentioned time period, the Minister may then demand that he relinquish immediately and without compensation all his rights within the presumed boundaries of said discovery, including the Hydrocarbons which could be produced from it.

 

The State may then carry out all works of appraisal, development and production of such discovery upon condition however that it does not cause damage to the performance of the Petroleum Operations of the Contractor in the Exploration Perimeter or any Exploitation Perimeter governed by the Contract.

 

ARTICLE 10 :  RECOVERY OF PETROLEUM COSTS AND
 PRODUCTION SHARING

 

10.1                        From the commencement of regular Hydrocarbons production carried out pursuant to an Exploitation Authorization or an early production authorization, that production shall be shared and sold in accordance with the provisions hereafter.

 

10.2                        For the recovery of Petroleum Costs, the Contractor shall freely  retain each Quarter, and for each Exploitation Authorization, a share of total production equal to fifty-five percent (55%) for Crude Petroleum and sixty-two percent (62%) for Dry Gas, calculated on total production which is not utilized for Petroleum Operations, nor wasted, or, if applicable, a lower percentage of production, or only a lower percentage which would be necessary and would suffice.

 

The value of the share of total production allocated for the petroleum cost recovery of the Contractor as defined in the preceding subparagraph, shall be calculated in accordance with the provisions of Articles 14 and 15 here below.

 

In the course of a Calendar Year, should the Petroleum Costs not yet recovered by the Contractor pursuant to the provisions of this Article 10.2 exceed the equivalent in value of fifty-five percent (55%) with respect to Crude Petroleum and sixty-two percent (62%) with respect to Dry Gas, of the total production calculated as indicated here above, the excess which cannot be recovered for the Calendar Year under consideration shall be carried forward to the following Calendar Year(s) until full recovery of Petroleum Costs or the termination of this Contract.  The recovery of Petroleum Costs for any Quarter shall be scheduled in the order stipulated in the Accounting Procedure.

 

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10.3                        The volume of Hydrocarbons, related to each Exploitation Authorization, which remains for each Quarter after the Contractor has taken from total production the share necessary to the recovery of Petroleum Costs under the provisions of Article 10.2 here above, shall be shared between the State and the Contractor in the following manner, in the ratio of the applicable figure for the ratio “R” defined as follows::

 

	
 

Value of « R »
    	
 

Share of the State
    	
 

Share of the
   Contractor

 
    
	
 

Less than 1

 
    	
 

31%

 
    	
 

69%

 
    
	
 

Greater than or equal to 1 and less than 1.5

 
    	
 

33%

 
    	
 

67%

 
    
	
 

Greater than or equal to 1.5 and less than 2

 
    	
 

35%

 
    	
 

65%

 
    
	
 

Greater than or equal to 2 and less than 2.5

 
    	
 

37%

 
    	
 

63%

 
    
	
 

Greater than or equal to 2.5 and less than 3

 
    	
 

39%

 
    	
 

61%

 
    
	
 

Greater than or equal to 3

 
    	
 

42%

 
    	
 

58%

 
    

 

For the application of this Article, the ratio « R » means to the ratio of « Cumulative Net Revenue » of Contractor over « Cumulative Investments » in the relevant Exploitation Perimeter, where:

 

« Cumulative Net Revenue » means the sum, calculated from the Effective Date until the end of the preceding Quarter, of the value of Hydrocarbons obtained by Contractor pursuant to the provisions of Articles 10.2 and 10.3 here above ; less the Exploitation Petroleum Costs incurred by the Contractor, as such are defined and determined under the provisions of the Accounting Procedure.

 

« Cumulative Investments » means the sum, from the Effective Date up until the end of the preceding Quarter, of the Exploration Petroleum Costs and the Development Petroleum Costs incurred by the Contractor as defined and determined under the provisions of the Accounting Procedure.

 

10.4                        The State may receive its share of production defined in Article 10.3 here above, either in kind, or in cash.

 

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10.5                        If the State wishes to receive in kind all of part of its share of production defined in Article 10.3 here above, the Minister shall advise the Contractor in writing not less than ninety (90) days  prior to the commencement of the relevant Quarter and specify the exact quantity it wishes to receive in kind during said Quarter and the modalities of delivery, which must be specified in the lifting contract.

 

For this purpose, it is agreed that the Contractor shall not commit to the sale of a part of the State production, for a term which exceeds one hundred and eighty (180) days, unless he shall have obtained the written consent of the Minister.

 

10.6                        If the State wishes to receive in cash all or part of its share of production specified in Article 10.3 here above, or if the Minister has failed to notify the Contractor of its decision to take a portion of the State’s production in kind in accordance with Article 10.5 here above, the Contractor is obligated to sell the State share of production which the State wishes to take in cash during the relevant Quarter, and to proceed with the liftings of such share in the course of such Quarter, and to pay the State within thirty (30) days following each lifting, an amount equal to the quantity corresponding to the portion of the State production share, multiplied by the sale price F.O.B., after deduction of the costs attributable to such sales.

 

The Minister shall be entitled to request the settling of the sales of the State share of production effected by the Contractor either in Dollars or in any other convertible currency in which the transaction took place.

 

ARTICLE 11 : TAX REGIME

 

11.1                        Each of the entities which make up the Contractor shall be subject to the Industrial and Commercial Income Tax levied on the net profits earned in relation to the Petroleum Operations in accordance with Articles 66 to 74 of the Crude Hydrocarbons Code and the provisions of the Accounting Procedure found in Appendix 2 of this Contract.

 

The rate of this tax is set at twenty-seven percent (27%) for the entire duration of the Contract such as defined in Article 2.2 here above.

 

For the purposes of setting the amount of the  Industrial and Commercial Income Tax, the value of Hydrocarbons sold by the Contractor under Articles 10.2 and 10.3 here above to be included in net taxable profit shall be established  in accordance with the provisions of Article 14 here below.

 

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11.2                        Without prejudice to the provisions of Article 21 here below, the Contractor shall pay to the State the following surface rentals:

 

a)             two Dollars ($2) per square kilometer and per year during the first phase of the exploration period ;

 

b)             three Dollars ($3) per square kilometer and per year during the second phase of the exploration period ;

 

c)              four Dollars ($4) per square kilometer and per year during the third phase of the exploration period and during any extension provided for in Articles 3.3 and 3.4 here above;

 

d)             one hundred seventy Dollars ($170) per square kilometer and per year during the validity of the Exploitation Authorization.

 

The surface rentals referred to in paragraphs a), b) and c) here above shall be paid in advance and per year, not later than the first day of each Contract Year, for the entire Contract Year, according to the extent of the Exploration Perimeter held by the Contractor upon the due date of said rentals.

 

The surface rental relative to an Exploitation Authorization shall be paid in advance and per year, at the beginning of each Calendar Year following the granting of the Exploitation Authorization or for the Calendar Year of said grant, within thirty (30) days of the date of the grant, prorated over time for the remaining duration of the current Calendar Year, according to the extent of the Exploitation Perimeter upon such date.

 

In the case of relinquishment of the surface during the course of a Calendar Year or during the course of an event of Force Majeure, the Contractor shall have no right to any reimbursement of surface rentals already paid.

 

The amounts referred to in this Article 11.2 are not considered recoverable Petroleum Costs under the provisions of Article 10.2 here above, nor are they considered as deductible costs for setting the basis of the Industrial and Commercial Income Tax in accordance with Article 76 of the Crude Hydrocarbons Code.

 

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11.3                        The Contractor shall be subject to taxes and fees as well as to withholdings at source and other tax obligations applicable to contractors pursuant to Title VI of the Crude Hydrocarbons Code.

 

11.4                        The subcontractors of the Contractor as well as the personnel of the Contractor and of his subcontractors shall be subject to the generally applicable tax provisions, subject to the provisions of Title VI of the Crude Hydrocarbons Code which are applicable to them.

 

11.5                        The shareholders of the entities making up the Contractor and their Affiliated Companies shall benefit from the exemptions provided for in Article 86 of Title VI of the Crude Hydrocarbons Code.

 

11.6                        Except for taxes, fees and dues provided in Title VI of the Crude Hydrocarbons Code, for special taxes related to the utilization of drinking water or of irrigation water provided for in Article 6 .4 here above, for the surface rentals provided for in Article 11.2 here above, for the bonuses provided for in Article 13 here below andfor the payment referred to in Article 12.2 here below, the Contractor shall not be subject to any tax, fees, royalties, payments and contributions of any nature whatsoever, be they national, regional or municipal, either in effect now or in the future, which may burden the Petroleum Operations, and of any revenue derived therefrom or more generally, the property, the activities or action of the Contractor, including its facility, its money transfers, and its operation in implementation of this contract, provided, however, that these exemptions are only applicable to Petroleum Operations.

 

Pursuant to Article 83-2o of the Crude Hydrocarbons Code, the rendering of services directly related to Petroleum Operations shall, in particular, be subject to VAT at the rate of zero, when the service rendered, the right transferred or the item rented are reused or exploited in Mauritania, pursuant to Article 177 B of the General Tax Code.

 

The foregoing exemptions in this Article do not cover services actually rendered to Contractor by public Mauritanian administrations and local governmental departments or units.  However, the tariffs levied in such cases on the Contractor, its subcontractors, transporters, customers and agents must be reasonable in relation to the services rendered and must not exceed the tariffs generally applicable for these same services by the same public Mauritanian administrations and local governmental departments or units.  The cost of these services shall be considered recoverable Petroleum Costs in accordance with Article 10.2 of this Contract.

 

ARTICLE 12 :  PERSONNEL

 

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12.1                        From the beginning of the Petroleum Operations, the Contractor undertakes to ensure the employment on a priority basis, with equal qualification, of Mauritanian personnel and to contribute to the training of such personnel, in order to allow their accession to all employment as qualified workers, supervisors, management, engineers and directors.

 

To this end, the Contractor shall establish in agreement with the Ministry at the end of each Calendar Year, a recruitment plan of Mauritanian personnel and a plan for training and skills improvement in order to attain a greater and greater participation of Mauritanian personnel in the Petroleum Operations.

 

12.2                        The Contractor must also contribute to the training and skills improvement of the agents of the Ministry and to the other purposes referred to in Article 80 of the Crude Hydrocarbons Code, according to a plan established by the Ministry at the end of each Calendar Year.

 

To this end, the Contractor shall pay to the State, for said training and job skills improvement plan, an amount of three hundred thousand Dollars ($300,000) per Calendar Year during the validity of the Exploration Authorization, and, starting from the granting of an Exploitation Authorization, an amount of six hundred thousand Dollars ($600,000) per Calendar Year. The above-cited payments shall be considered to be nonrecoverable Petroleum Costs with respect to the provisions of Article 10.2 here above but as deductible charges on the Industrial and Commercial Income Tax  in conformity with Article 82 of the Crude Hydrocarbons Code.

 

ARTICLE 13 : BONUSES

 

13.1                        The Contractor shall pay to the State a signature bonus in the amount of one million Dollars ($1,000,000) within the thirty (30) days following the Effective Date.

 

13.2                        Moreover, the Contractor shall pay to the State the following production bonuses:

 

a)             six million Dollars ($6,000,000) when the regular commercial production of Hydrocarbons extracted from the Exploitation Perimeter(s) reaches for the first time an average rate equal to twenty-five thousand (25,000) Barrels of Crude Petroleum per day during a period of thirty (30) consecutive days;

 

b)             eight million Dollars ($8,000,000) when the regular commercial production of Hydrocarbons extracted from the Exploitation Perimeter(s) reaches for the first time an average rate equal to fifty thousand (50,000) Barrels of Crude Petroleum per day for a period of thirty (30) consecutive days;

 

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c)              tweleve million Dollars ($12,000,000) when the regular commercial production of Hydrocarbons extracted from the Exploitation Perimeter(s) reaches for the first time an average rate equal to one hundred thousand (100,000) Barrels of Crude Petroleum per day for a period of thirty (30) consecutive days ;

 

d)             twenty million Dollars ($20,000,000) when the regular commercial production of Hydrocarbons extracted from the Exploitation Perimeter(s) reaches for the first time an average rate equal to one hundred fifty thousand (150,000) Barrels of Crude Petroleum per day for a period of thirty (30) consecutive days.

 

Each of the sums referred to in paragraphs a), b), c) and d) here above shall be paid within the thirty (30) days following the above-cited period of reference.

 

13.3                        The sums referred to in Articles 13.1 and 13.2 here above shall not be considered as recoverable Petroleum Costs with respect to the provisions of Article 10.2 here above, nor considered to be deductible charges for the determination of the Industrial and Commercial Income Tax  pursuant to Article 79 of the Crude Hydrocarbons Code.

 

ARTICLE 14 : PRICE AND MEASUREMENT OF
 HYDROCARBONS

 

14.1                        The unitary market price of the Crude Petroleum used in consideration for purposes of Articles 10 and 11 here above shall be the “Market Price” F.O.B. the Delivery Point, expressed in Dollars per Barrel, as determined here below for each Quarter.

 

A Market Price shall be established for each type of Crude Petroleum or blend of Crude Petroleums.

 

14.2                        The Market Price applicable to Crude Petroleum lifted in the course of a Quarter shall be calculated at the end of each Quarter under consideration, and shall be equal to the weighted average of prevailing prices obtained by the Contractor and the State in the course of their sale of Crude Petroleum to Third Parties in the course of the Quarter under consideration, adjusted as appropriate to reflect differentials in quality and density, and on the terms of F.O.B. delivery and payment terms provided the quantity sold in such manner to Third Parties in the course of the Quarter under consideration corresponds to no less than thirty percent (30%) of the total of the volumes of Crude Petroleum extracted from the Exploitation Perimeters existing under this Contract, taken as a whole, and sold in the course of the said Quarter.

 

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14.3                        If such Third Party sales do not take place during the Quarter under consideration, or if they constitute less than thirty percent of the total of the quantities of Crude Petroleum of the Exploitation Perimeter granted under the present Contract taken as a whole and sold in the course of the said Quarter, the Market Price shall be arrived at by comparison with the « Current International Market Price » for the Quarter under consideration of the qualities of Crude Petroleum produced in Mauritania and in neighboring producing countries, taking into account differentials of quality, density, transport and terms of payment.

 

« Current International Market Price »  shall be a reference price based on Dated Brent prices, as such are published in “Platt’s Crude Oil Marketwire” or similar internationally recognized publication, averaged for the month(s) during which sales were made and adjusted for differences in quality, API  gravity, terms of FOB delivery and payment terms.  If Dated Brent is replaced by another internationally recognized reference crude, the published quotes of the replacement crude shall be used instead.

 

14.4                        In particular the following transactions are not taken into account in calculating the Market Price of the Crude Petroleum:

 

a)             Sales in which the buyer is an Affiliated Company of the seller as well as sales between entities making up the Contractor;

 

b)             Sales which include some consideration other than payment in freely-convertible currency or sales attributable in whole or in part to motivations other than the usual economic incentives attached to sales of Crude Petroleum on the international market (such as barter contracts, sales from government to government or to governmental units).

 

14.5                        A committee presided over by the Minister or his delegate and including other representatives of the State and those of the Contractor shall meet at the request of its president, at the end of each Quarter, to establish, according to the stipulations of this Article 14, the Market Price of the Crude Petroleum produced, applicable to the Quarter elapsed. The decisions of the committee shall be by unanimous vote.

 

If no agreement can be reached by the committee on a decision within a time period of thirty (30) days after the end of the relevant Quarter, the Market Price of the Crude Petroleum produced shall be definitively determined by an expert of international reputation, appointed by agreement of the Parties, or, if such agreement is not reached, by the International Centre for Expertise of the International Chamber of Commerce.  The expert shall establish the price according to the stipulations of this Article 14 within a time period of twenty (20) days after his appointment.  The costs of expertise shall be shared equally between the Parties.

 

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14.6                        While awaiting the determination of the price, the Market Price provisionally applicable to a Quarter shall be the Market Price of the preceding Quarter.  Any necessary adjustment shall be made not later than thirty (30) days after the determination of the Market Price for the Quarter under consideration.

 

14.7                        The Contractor shall measure all the Hydrocarbons produced after extraction of water and connected substances, in utilizing, with the consent of the Ministry, the instruments and procedures in conformity with the methods in force in the international petroleum industry.  The Ministry shall have the right to examine such measures and to check the instruments and procedures utilized.

 

If during the course of exploitation the Contractor wishes to modify such instruments and procedures, he must obtain the prior consent of the Ministry.

 

If, during the course of an inspection carried out by the Ministry, it is verified that the measuring instruments are inaccurate and exceed the acceptable tolerances, and that this condition of fact is confirmed by an independent expert, the inaccuracy in question shall be considered as having existed for half of the period since the preceding inspection, unless a different period is demonstrated.  The accounting of the Petroleum Costs and the shares of production and liftings of the Parties shall be the subject of appropriate adjustments within thirty (30) days following receipt of the expert’s report.

 

14.8                        For Dry Gas, the provisions of this Article 14 shall apply mutatis mutandis, subject to the provisions of Article 15 here below.

 

ARTICLE 15 :  NATURAL GAS

 

Non-Associated Natural Gas

 

15.1                        In the case where a discovery referred to in Article 9.1 here above concerns a deposit of Non-Associated Natural Gas which the Contractor has undertaken to appraise pursuant to Article 9.2 here above, the Minister and the Contractor shall jointly carry out, in parallel with the appraisal works of the discovery in question, a market study intended to evaluate the possible market outlets for such Natural Gas, both on the local and the export markets, as well as the means necessary for its marketing, and shall consider the possibility of a joint marketing of their shares of production.  The study shall in particular determine the quantities for which sale on the local market can be assured as a fuel or as a raw material, the facilities and arrangements necessary for the sale of such Natural Gas to the utilizing enterprises or to the entity of the State in charge of its distribution, as well as the discounted price which shall be determined pursuant to the

 

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principles set forth in Article 15.8 here below.

 

For purposes of evaluating the commercial value of the discovery of the Non-Associated Natural Gas, the Contractor shall have the right pursuant to Article 3.4 here above to an extension of his Exploration Authorization.

 

If following the appraisal of a discovery of Non-Associated Natural Gas, it is shown that the development requires specific economic terms in order to make it economically viable in the opinion of each of the two Parties, the Parties may agree, on an exceptional basis, on said terms. .

 

15.2                        At the end of appraisal works, in the case where the Parties should decide to jointly exploit such Natural Gas in order to supply the local market, or in the case where the Contractor should decide to exploit it for export, the latter shall submit, prior to the end of the Exploration Authorization, an application for an Exploitation Authorization which the Minister shall grant within the terms set forth in Article 9.6 here above.

 

The Contractor shall then proceed with the development and the production of such Natural Gas pursuant to the development and production program submitted to the Minister and approved by the latter within the terms provided for in Article 9.5.  The provisions of this Contract applicable to Crude Petroleum shall apply mutatis mutandis to the Natural Gas, subject to the special provisions provided for in Articles 15.7 to 15.9 here below.

 

In the case where the production is intended in whole or in part for the local market, a supply contract shall be entered into, under the supervision of the Minister, between the Contractor and the enterprise of the State responsible for the distribution of the gas.  The Contract shall define the obligations of the parties in the matter of delivery and lifting of the commercial gas and may contain a clause obligating the purchaser to pay a portion of the price in the event of a default in the lifting of the contractual quantities.

 

15.3                        If an appraisal program or application for an Exploitation Authorization has not been submitted within the time periods allowed for in Articles 9.2 and 9.5 here above, the surface comprising the extent of the deposit of Non-Associated Natural Gas shall be, upon the request of the Minister, relinquished to the State, which shall be able to undertake for its own account all works of placement into exploitation of the deposit in question.

 

Associated Natural Gas

 

15.4                        In the event of a discovery of a commercially exploitable deposit of Crude Petroleum containing Associated Natural Gas, the Contractor shall indicate in the report provided for in

 

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Article 9.3 here above whether he considers that the production of such Associated Natural Gas is likely to exceed the quantities necessary for the purposes of Petroleum Operations relative to the production of Crude Petroleum, including therein the operations of reinjection, and whether it considers that such excess is likely to be produced in marketable quantities.  In the case where the Contractor will have advised the Minister of such an excess amount, the Parties shall jointly evaluate the possible markets for such excess amount, both on the local and the export markets, including therein the possibility of a joint marketing of their shares of production of such excess amount as well as the means necessary for its marketing.

 

In the case where the Parties should agree to exploit the excess amount of the Associated Natural Gas, or in the case where the Contractor should decide to exploit such amount for export, the Contractor shall indicate in the development and production program referred to in Article 9.5 here above the additional facilities necessary for the development and exploitation of such excess amount and his estimate of the costs pertaining thereto.

 

The Contractor must then proceed with the development and the exploitation of such excess amount pursuant to the development and production program submitted and approved by the Minister within the terms set forth in Article 9.5 here above, and the provisions of this Contract applicable to the Crude Petroleum shall apply mutatis mutandis to the excess quantity of Natural Gas, subject to the special provisions set forth in Articles 15.7 to 15.9 here below.

 

A similar procedure to that described in the paragraph here above shall be followed if the marketing of the Associated Natural Gas is decided upon during the course of the exploitation of a deposit.

 

15.5                        In the case where the Contractor should decide not to exploit the excess amount of Associated Natural Gas and if the State should at any time desire to utilize it, the Minister shall so advise the Contractor, in which case:

 

a)             The Contractor shall freely place at the disposal of the State all or a portion of the excess amount which the State desires to lift, at the exit point of the separation facilities;

 

b)             The State shall be responsible for the collection, the processing, compression and transport of such excess amount from the above-mentioned separation facilities, and shall bear all additional costs pertaining thereto;

 

c)              The construction of the facilities necessary for the operations referred to in paragraph b) here above, as well as the lifting of the excess amount by the State, shall be accomplished pursuant to good oilfield practices in the international petroleum industry and in such a

 

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manner so as not to impede production, lifting and transport of the Crude Petroleum by the Contractor.

 

15.6                        Any excess amount of Associated Natural Gas which is not utilized within the framework of Articles 15.4 and 15.5 here above must be reinjected by the Contractor, unless Contractor technically demonstrates that such reinjection would result in a reduction of maximum oil recovery, in which case Contactor shall be authorized to flare said excess and shall be subject to the penalty provided for in Article 6.4.

 

Common Provisions

 

15.7                        The Contractor shall have the right to dispose of his share of production of Natural Gas, pursuant to the provisions of this Contract. He shall also have the right to proceed with the separation of liquids of all Natural Gas produced, and to transport, store, as well as to sell on the local or export market his share of the liquid Hydrocarbons thus separated, which Hydrocarbons shall be considered as Crude Petroleum for purposes of their sharing between the Parties according to Article 10 here above.

 

15.8                        For purposes of this Contract, the Market Price of the Natural Gas, expressed in Dollars per million of BTU, shall be equal:

 

a)                                     To the price obtained from buyers with regard to export sales of Natural Gas to Third Parties;

 

b)                                     With regard to sales on the local market of the Natural Gas as a fuel, to a price to be mutually agreed upon between the Minister or the national entity in charge of the distribution of gas on the local market, and the Contractor, on the basis in particular of the market rate of a fuel substitute for Natural Gas.

 

15.9                        For purposes of the application of Articles 10.2, 10.3 and 13.2  here above, the quantities of Natural Gas available after deduction of quantities reinjected, flared and those utilized for purposes of the Petroleum Operations shall be expressed in number of Barrels of Crude Petroleum such that one hundred sixty-five (165) cubic meters of Natural Gas measured at a temperature of 15.6°C and at an atmospheric pressure of 1.01325 bars are deemed to be equal to one (1) Barrel of Crude Petroleum, except as otherwise agreed between the Parties.

 

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ARTICLE 16 : TRANSPORT OF HYDROCARBONS BY
 PIPELINES

 

16.1                        The Contractor shall have the right, for the validity term of the Contract and within the terms defined in Title V of the Crude Hydrocarbons Code, to process and transport within its own facilities inside of the territory of Mauritania and to cause to be processed and transported, while retaining ownership, the products resulting from its exploitation activities or its share of such products, to points of storage, processing, lifting, or gross consumption.

 

16.2                        In the case where agreements having as their purpose to permit or to facilitate transport by pipelines of Hydrocarbons through other states should come to be agreed upon between such states and the Mauritanian State, the latter shall grant to the Contractor without discrimination all the benefits which could result from the execution of such agreements..

 

16.3                        Within the framework of its transport operations, the Contractor shall benefit from the rights and shall be subject to the obligations provided for in Title V of the Crude Hydrocarbons Code.

 

ARTICLE 17 : OBLIGATION FOR SUPPLYING THE
 DOMESTIC MARKET

 

17.1                        The Contractor has the obligation of participating in meeting the needs of domestic consumption of Hydrocarbons, except for exports of petroleum products, pursuant to the provisions of Article 41 of the Crude Hydrocarbons Code.

 

17.2                        The Minister shall notify the Contractor in writing, not later than the 1st of October of each Calendar Year, the quantities of Hydrocarbons which the State chooses to purchase pursuant to this Article, during the course of the following Calendar Year.  The deliveries shall be made, to the State or to the person designated by the Minister, by quantities and at regular time intervals during the course of said Year, according to terms set by agreement of the parties.

 

17.3                        The price of the Hydrocarbons so sold by the Contractor to the State shall be the Market Price established according to the provisions of Articles 14 and 15.8 here above; it shall be payable to the Contractor in Dollars within sixty (60) days from the date of delivery.  A sales contract shall be entered into between the State and the Contractor which shall establish payment procedures and pertaining guarantees.

 

ARTICLE 18 : IMPORTATION AND EXPORTATION

 

18.1                        The Contractor shall have the right to import into Mauritania, for its account or for that of its subcontractors, all merchandise, materials, machines, equipment, spare parts and consumable materials necessary for the proper execution of Petroleum Operations and specified in a customs list established by the Ministry, upon the proposal of the Contractor, pursuant to

 

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Article 92 of the Crude Hydrocarbons Code.

 

It is understood that the Contractor and his subcontractors undertake to proceed with the importing defined here above only to the extent that said materials and equipment are not available in Mauritania upon equivalent conditions in terms of price, quantity, quality, terms of payment and time period for delivery.

 

18.2                        The imports and re-exports of the Contractor and of his subcontractors are subject to the customs regime set forth in Articles 90 to 96 of the Crude Hydrocarbons Code.

 

18.3                        The Contractor, his clients and their transporters shall have, for the duration of the Contract, the right to freely export at the point of exportation chosen for such purpose, free of all customs duties and taxes and at any time whatsoeverand pursuant to the provisions of the Crude Hydrocarbons Code, the portion of Hydrocarbons to which the Contractor is entitled according to the provisions of the Contract, after deduction of all deliveries made to the State pursuant to Article 17. However, the Contractor undertakes, at the request of the State, not to sell the Hydrocarbons produced in Mauritania to countries declared hostile to the State.

 

ARTICLE 19 :  FOREIGN EXCHANGE

 

19.1                        The Contractor shall benefit from the rights and is subject to the obligations provided for in Title VII of the Crude Hydrocarbons Code in matters of control of foreign exchange and of protection of investments.

 

ARTICLE 20 :  BOOK-KEEPING, MONETARY UNIT,
 ACCOUNTING

 

20.1                        The records and books of account of the Contractor shall be kept according to the accounting rules generally utilized in the international petroleum industry, pursuant to the regulations in force and with the Accounting Procedure defined in Appendix 2 of this Contract.

 

20.2                        The records and books of account shall be kept in the English language and denominated in Dollars. They shall be fully supported by detailed documentation proving the expenses and receipts of the Contractor with respect to this Contract.

 

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Such records and books of account shall be utilized in particular to determine Petroleum Costs, and the net profits of the Contractor subject to the Industrial and Commercial Income Tax pursuant to Articles 66 et seq  of the Crude Hydrocarbons Code. They must contain the accounts of the Contractor highlighting the sales of Hydrocarbons under the terms of this Contract.

 

For informational purposes, the accounting of profits and balance sheets shall be kept in Ouguiyas.

 

20.3                        The originals of the records and accounting books referred to in Article 20.1 here above can be kept at the central headquarters of the Contractor, up until the Contractor is granted the first Exploitation Authorization, with at least one copy in Mauritania. Starting from the month during the course of which such Exploitation Authorization is granted to the Contractor, the originals of said records and accounting books as well as the supporting documents pertaining thereto shall be kept in Mauritania.

 

20.4                        The Minister, after having informed the Contractor in writing, may cause to have the records and books of account relative to the Petroleum Operations examined and verified by auditors of his choice or by his own agents, according to the terms specified in the Accounting Procedure.  He shall have a period of three (3) years following the end of a given Calendar Year to carry out the examinations or verifications concerning said Calendar Year and present to the Contractor his objections for any contradictions or errors noted at the time of such examinations or verifications.  The Parties may agree to extend this time period by one additional year if special circumstances so justify it.

 

For Petroleum Costs incurred before the first year of production of Hydrocarbons, the time period of verification and of rectification is extended to the end of the second Calendar Year following the Calendar Year during which the first lifting of Hydrocarbons takes place.

 

The Contractor is required to furnish all necessary assistance to persons appointed by the Minister for this purpose and to facilitate the services they are rendering.  The reasonable expenses for examination and of verification shall be reimbursed to the State by the Contractor and shall be considered to be recoverable Petroleum Costs according to the provisions of Article 10.2 here above.

 

20.5                        The sums due to the State or to the Contractor shall be payable in Dollars or in a convertible currency chosen by common agreement between the Parties.

 

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In the event of a delay in payment, the sums due shall bear interest at the LIBOR rate +5% starting from the day that they should have been paid up until their payment, with monthly compounding of interest if the payment is more than thirty (30) days late.

 

ARTICLE 21 :  PARTICIPATION OF THE STATE

 

21.1                        The State shall acquire on the Effective Date, through the National Enterprise (Société Mauritanienne des Hydrocarbures) referred to in Article 6 of the Crude Hydrocarbons Code, a carried interest of ten percent (10%) in the rights and obligations of the Contractor in the Exploration Perimeter.  The entities of the Contractor, other than the National Enterprise, shall finance the share of the latter in all Petroleum Costs corresponding to the exploration Petroleum Operations including therein the evaluation/appraisal of discoveries made in the Exploration Perimeter, during the entire duration of the Exploration Authorization which is the subject of Article 3 here above.

 

The National Enterprise, as an entity of the Contractor, shall benefit on account of and pro rata to its participation from the same rights and benefits and is subject to the same obligations as the other members of the Contractor, subject to the provisions of this Article 21.

 

21.2                        The State shall have the option to acquire, through the National Enterprise, a participation in the Petroleum Operations in any Exploitation Perimeter resulting from the Exploration Perimeter within the limits indicated in Article 21.3 here below.

 

In such case, the National Enterprise shall be the beneficiary, on account of and pro rata to its participation, of the same rights and subject to the same obligations as those of the Contractor defined in this Contract, subject to the provisions of this Article 21.

 

In order to avoid any ambiguity, the participation of the State in the Exploration Perimeter shall continue to be carried by the entities of the Contractor pursuant to the provisions of Article 21.1 here above.

 

21.3                        In the case of the exercise by the State of the option of participation in an Exploitation Perimeter mentioned in Article 21.2 here above,  such participation may not be less than ten percent (10% ) and may not exceed fourteen percent ( 14%).

 

21.4                        Not later than six (6) months starting from the date of the grant of an Exploitation Authorization, the Minister must notify the Contractor in writing of the decision of the State to

 

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exercise its option of participation in specifying the percentage chosen within the limit set forth in Article 21.3 here above.

 

Said participation shall take effect starting from the date of receipt of notification of the exercise of the option of the State.

 

In order to avoid any ambiguity, the State shall have no participation in Petroleum Operations in any Exploitation Perimeter from the Exploration Perimeter if he does not exercise the option mentioned in Article 21.2 here above.

 

21.5                        Starting from the effective date of its participation, which is the subject of Articles 21.2 to 21.4 here above, the State shall finance the Petroleum Costs in the relevant Exploitation Perimeter pro rata to its participation.

 

The State shall reimburse to the entities of the Contractor, other than the National Enterprise, pursuant to Article 21.6 here below, pro rata to its participation, the Petroleum Costs not yet recovered relative to said Exploitation Perimeter and incurred since the Effective Date (with the exclusion of exploitation Petroleum Costs (OPEX) and financing costs), up until the date of receipt of notification referred to in Article 21.4 here above.

 

The Contractor shall not be subject to any tax of any type whatsoever, by reason of such reimbursements or possible added value pertaining thereto.

 

21.6                        The State shall assign and shall continue to assign to the Contractor thirty percent (30%) of the share of production to which it is entitled from its participation and as recovery of Petroleum Costs pursuant to Article 10.2 here above and the Accounting Procedure constituting Appendix 2, until the cumulative value of such transfers or reimbursements, appraised according to the provisions of Articles 14 and 15 here above, is equal to one hundred fifteen percent (115%) of the Petroleum Costs prior to the Effective Date of the participation and referred to in the second paragraph of Article 21.5 here above.

 

21.7                        In order to remove any ambiguity, the reimbursement of the exploration Petroleum Costs stipulated in Articles 21.5 and 21 .6 here above, does not in any way include the sums paid by the Contractor with respect to Article 13 of this Contract.

 

21.8                        The reimbursements which will be made by the State with respect to the provisions of Articles

 

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21.5 and 21.6 here above, shall be paid in kind by the State which shall transfer to the entities of the Contractor, other than the National Enterprise, each Quarter at the Delivery Point the percentage of its quarterly share of production of Hydrocarbons stipulated in said Articles.

 

However, the State reserves the option to make said reimbursements in Dollars for which the payment in full must take place within a time period of ninety (90) days starting from the effective date of the participation referred to in Article 21.4 here above.

 

In the event that the payment of all said reimbursements within the time periods provided here above does not take place, the reimbursement in kind such as referred to in Articles 21.5 and 21.6 here above shall apply.

 

21.9                        The practical methods of participation of the State stipulated in Article 21.1 here above as well as the rules and obligations of the entities of the Contractor, including therein the National Enterprise, shall be determined in an association contract (JOA), substantially conforming  to the AIPN model JOA, which shall be entered into between these entities and shall enter into force not later than ninety (90) days starting from the Effective Date.  Said association contract (JOA) shall be amended as necessary and in particular to take into account, if applicable, the exercise by the State of its participation, which is the subject of Article 21.2 here above.

 

21.10                 The National Enterprise, on the one hand, and the other entities making up the Contractor on the other hand, shall not be jointly and severally liable for the obligations resulting from this Contract vis-a-vis the State. The National Enterprise shall be individually responsible vis-à-vis the State for its obligations such as provided in this Contract.  Any default of the National Enterprise to execute any of its obligations shall not be considered as a default of the other entities making up the Contractor and shall in no event be invoked by the State in order to cancel this Contract. The association of the National Enterprise to the Contractor, shall not under any circumstance cause void nor affect the rights of the other entities constituting the Contractor to have recourse to the arbitration clause provided in Article 28 here below.

 

ARTICLE 22 :  ASSIGNMENT

 

22.1                        The rights and obligations resulting from this Contract may not be assigned to a Third Party, wholly or in part, by any of the entities making up the Contractor, without the prior approval of the Minister .

 

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If within the three (3) months following notification to the Minister of a proposed assignment accompanied by the necessary information to prove the technical and financial means of the assignee as well as the terms and conditions of assignment, the Minister has not given notice of his opposition with reasonable justification, such assignment shall be deemed to have been approved by the Minister.

 

Starting from the date of approval, the assignee shall acquire the status of a member of the Contractor and must satisfy the obligations imposed upon the Contractor by this Contract.

 

Each of the entities making up the Contractor may freely and at any time assign all or a portion of its interests under the Contract to an Affiliated Company or to another entity of the Contractor provided that the Minister is notified beforehand.

 

22.2                        Likewise, the Contractor, or any entity of the Contractor, shall be required to submit for prior approval of the Minister:

 

a)             Any plan which would be likely to lead, in particular through a new allocation of capital stock, to a change of the direct control of the Contractor or of an entity comprising the Contractor. In particular the following shall be considered as elements of control of the Contractor, or of an entity comprising the Contractor :  a change in the allocation of capital stock, the nationality of the majority shareholders, as well as the statutory provisions relative to the registered office and the rights and obligations attached to the company shares with respect to the majority required at the shareholder meetings.  However, the transfers of company shares to Affiliated Companies may be freely made subject to prior declaration to the Minister for information and application of the provisions of Article 24.4 here below, if applicable.  As for transfer of company shares to Third Parties, transfers shall not be subject to the approval of the Minister unless they result in the transfer of greater than thirty percent (30%) of the capital of the enterprise.

 

b)             Any plan to pledge as security property and facilities earmarked for Petroleum Operations.

 

The plans referred to in paragraphs a) and b) shall be notified to the Minister.  If within a time period of three (3) months, the Minister has not notified the Contractor or one of the entities in question of his opposition with reasonable justification to said plans, the plans shall be deemed approved.

 

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22.3                        When the Contractor is made up of several entities, it shall furnish to the Minister, within the month following its signature, a copy of the association agreement (JOA) binding the entities and of all modifications which could be made to said agreement, in specifying the name of the enterprise appointed as Operator for the Petroleum Operations. Any change of Operator shall be submitted to the approval of the Minister, pursuant to the provisions of Article 6.2 here above.

 

22.4                        The transfers made in violation of the provisions of this Article 22 shall be null and void.

 

ARTICLE 23 : OWNERSHIP, USAGE AND ABANDONMENT
 OF PROPERTY

 

23.1                        The Contractor shall be the owner of property, moveable and immoveable, which he will have acquired for purposes of the Petroleum Operations, and shall retain the full usage thereof, as well as the right to export them or to transfer them to Third Parties during the entire term of the Contract, provided that the State may acquire for free, at the request of the Minister, all or a portion of the property belonging to the Contractor which will have been utilized for the Petroleum Operations and for which the acquisition costs will have been fully recovered pursuant to Article 10 here above in the following cases:

 

a)             Upon expiration, surrender or termination of this Contract ;

 

b)             In the event of surrender or of expiration of an Exploitation Authorization, with regard to the works and facilities situated in the Exploitation Perimeter and the equipment earmarked exclusively for Petroleum Operations in the Exploitation Perimeter in question, unless the Contractor wishes to utilize such property for the Petroleum Operations in other Exploitation Perimeters resulting from the Exploration Perimeter.

 

23.2                        Upon the expiration, surrender or termination of any Exploitation Authorization, the Contractor must proceed with all operations necessary to rehabilitate its original condition in conformity with a Remediation Plan drawn up and financed within the following terms:

 

a)             At the end of the Quarter during the course of which sixty percent (60%) of the recoverable reserves of Hydrocarbons identified in the development program of a deposit referred to in Article 9.5 will have been recovered, the Contractor shall prepare and submit to the Minister for approval a Remediation Plan of the site, in conformity with good oilfield practices of the international petroleum industry, which he proposes to carry out at the end of production operations, as well as the corresponding budget.  Each Calendar Year the Contractor shall incorporate into the Remediation Plan the necessary revisions to

 

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take into account the changes of technical and financial parameters. The revised Remediation Plan shall become the new Remediation Plan which shall be taken into account for the calculation of the payments on the sequestered account ;

 

b)             The Remediation Plan shall include a detailed description of the works of removal and/or of securing of infrastructure such as the platforms, the storage facilities, the wells, pipes, gathering lines, etc., necessary for the protection of the environment and of persons;

 

c)              The Minister may, in consultation with the Minister in charge of the Environment, propose revisions or modifications to the Remediation Plan, notifying  the Contractor thereof in writing with all appropriate justifying supporting information, within the ninety (90) days following receipt of said Plan. The provisions of Article 5.2 here above shall apply to said Plan with regard to its adoption.  When the results acquired during the course of exploitation justify changes to the Remediation Plan, said Plan and the corresponding budget may be modified in conformity with the adoption procedure described here before;

 

d)             For purposes of financing the operations set forth in the Remediation Plan, the Contractor shall open a sequestered account with a top tier international banking establishment acceptable to the Minister, which he will fund starting from the Quarter following the adoption of the Remediation Plan via annual payments of amounts and according to a schedule determined in agreement with the Minister ;

 

e)              The funds paid into the sequestered account shall be treated as recoverable Petroleum Costs according to the terms set forth in Article 10.2 here above, and shall be considered to be deductible charges for the determination of the tax on industrial and commercial profits.  Such funds, as well as the interest received on the sequestered account, shall be earmarked exclusively for the payment of expenses linked to the operations of the Remediation Plan ;

 

f)               The Contractor shall notify the Minister, with an advance notice of one hundred eighty (180) days, of his intention to start up the operations set forth in the Remediation Plan, unless the Minister notifies Contractor within thirty (30) days following the above-cited opinion that:

 

(i) the exploitation of the deposit of the Exploitation Perimeter in question shall be pursued by the State or by a Third Party, or

 

(ii) the State wishes to retain the facilities for justifiable reasons.

 

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In the two cases cited in i) and ii) here above, the sequestered account shall be transferred to  the successor responsible party and Contractor is relieved of all liability with regard to the Remediation Plan and the sequestered account pertaining to the deposit in question;

 

g)              In the case where the expenses necessary for the execution of the Rehabilitation Plan are greater than the amount available in the sequestered account, the excess amount shall be entirely at the expense of the Contractor;

 

h)             The Contractor shall pay to the State upon completion of Rehabilitation Plan any residual amount of the sequestered account not utilized for the carrying out of the Rehabilitation Plan and which will have been recovered under this Article 10.2 here above.

 

ARTICLE 24 : LIABILITY AND INSURANCE

 

24.1                        The Contractor shall indemnify and hold harmless any person, including the State, for any damage or loss that the Contractor, his employees or his subcontractors and their employees may cause to the person, property or rights of other persons, by reason of or during Petroleum Operations.

 

In the event the liability of the State is implicated by reason of or during the course of Petroleum Operations, the Minister must so advise the Contractor, who shall conduct the defense in this regard and shall indemnfiy the State for any sum which the latter is required to pay or any expense pertaining thereto which he has borne or which is incurred subseqent of a claim.

 

24.2                        The Contractor shall obtain and maintain in force, and shall cause his subcontractors to obtain and to maintain in force, all insurance coverages relative to Petroleum Operations of the type and amounts in use in the international petroleum industry, in particular (a) general third party liability coverage, (b) coverage for environmental risks pertaining to the Petroleum Operations, (c) coverage for employee work-related accidents  (d) any other insurance coverage required by the regulations in force.

 

The insurance coverages in question shall be obtained from top tier insurance companies pursuant to the applicable regulations.

 

The Contractor shall provide the Minister with certifications proving the obtaining of insurance coverage and the maintenance in force of the above-cited insurance coverages.

 

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24.3                        When the Contractor is made up of several entities, the obligations and responsibilities of the latter under this Contract shall be, without prejudice to the provisions of Article 21 here above, joint and several with the exception of their obligations pertaining to the Industrial and Commercial Income Tax.

 

24.4                        If one of the entities of the Contractor assigns all or a portion of his rights and obligations in connection with this Contract to an Affiliated Company, whenever the latter displays a lower level of financial and technical qualification, the parent company shall submit for the approval of the Minister a commitment guaranteeing the proper execution of the obligations arising from this Contract.

 

ARTICLE 25 :  TERMINATION OF THE CONTRACT

 

25.1                        This Contract may be terminated, without compensation, in any of the following cases:

 

a)             Serious and/or continued violation by the Contractor of the provisions of this Contract, of the Crude Hydrocarbons Code, or of the regulations in force applicable to the Contractor;

 

b)             Failure to remit a bank guarantee pursuant to Article 4.6 here above;

 

c)              Delay of more than three (3) months of a payment due to the State;

 

d)             Cessation of development works of a deposit for six (6) consecutive months without the consent of the Minister;

 

e)              After the startup of production on a deposit, cessation of his exploitation for a period of greater than six (6) months, decided upon by the Contractor without the consent of the Minister;

 

f)               Non-execution by the Contractor within the time period prescribed by an arbitral award rendered pursuant to the provisions of Article 28 here below;

 

g)              Bankruptcy, receivership or liquidation of the property of the Contractor.

 

25.2                        Except for the case set forth in subparagraph g) here above, the Minister may only pronounce the forfeiture provided for in Article 25.1 here above after having placed the Contractor on notice, by registered letter with return receipt, to remedy the violation in question within the

 

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allowed time period specified in the notice from the time of receipt of such.

 

25.3        If there is a failure by the Contractor to remedy the violation which was the subject of the termination notice within the time period allowed, the termination of this Contract may be pronounced.

 

Any dispute as to the justification of the termination of the Contract pronounced by the Minister is open to recourse to arbitration pursuant to the provisions of Article 28 here below. In such a case, the Contract shall remain in force until an arbitral award confirms the justifiability of such termination, in which case the Contract will definitively terminate..

 

The termination of this Contract shall automatically entail the withdrawal of the Exploration Authorization and of the currently valid Exploitation Authorizations.

 

ARTICLE 26 : APPLICABLE LAW AND STABILIZATION OF
 TERMS

 

26.1                        This Contract is governed by the laws and regulations of the Islamic Republic of Mauritania, supplemented by general principles of the laws of international commerce.

 

26.2                        The Contractor shall be subject at all times to the laws and regulations in force in the Islamic Republic of Mauritania.

 

26.3                        No legislative or regulatory provision occurring after the Effective Date of the Contract may be applied to the Contractor which would have as a direct or an indirect effect to diminish the rights of the Contractor or to increase his obligations under this Contract and the legislation and regulations in force upon the Effective Date of this Contract, without the prior agreement of the Parties.

 

However, it is agreed that the Contractor cannot, with reference to the preceding paragraph, oppose the application of the legislative and regulatory provisions which are generally applicable, adopted after the Effective Date of the Contract, in the matter of safety of persons and of protection of the environment or employment law

 

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ARTICLE 27 :  FORCE MAJEURE

 

27.1                        Any obligation resulting from this Contract which would be totally or partially impossible for a Party to carry out, other than payments for which it is responsible to pay, shall not be considered to be a violation of this Contract if said non-execution results from a case of Force Majeure, provided however that there is a direct link of cause and effect between impediment and the case of Force Majeure invoked.

 

27.2                        For purposes of this Contract the following should be understood to be a case of Force Majeure :  any event which is unforeseeable, irresistible or outside of the will of the Party invoking it, such as earthquake, accidents, strike, guerilla actions, acts of terrorism, blockade, riot, insurrection, civil unrest, sabotage, acts of war, the Contractor being subject to any law, regulation, or any other cause outside of his control and which has as a result of delaying or rendering momentarily impossible the execution of all or a portion of his obligations.  The intention of the Parties is that the term Force Majeure be given the interpretation the most in conformity with the principles and customs of international law and with the practices of the international petroleum industry.

 

27.3                        When a Party considers itself prevented from carrying out any of its obligations by reason of a case of Force Majeure, it must immediately so notify the other Party in writing specifying the elements of the type to establish the case of Force Majeure and to take, in agreement with the other Party, all appropriate and necessary provisions in order to allow a return to the normal execution of obligations affected by the Force Majeure after the case of Force Majeure ceases.

 

The obligations, other than those affected by the Force Majeure, must continue to be fulfilled pursuant to the provisions of this Contract.

 

27.4                        If, following a case of Force Majeure, the execution of any of the obligations of this Contract was delayed, the duration of the delay resulting therefrom, increased by the delay which may be necessary for the repair of all damage caused by the case of Force Majeure, shall be added to the time period stipulated in this Contract for the execution of said obligation as well as to the duration of the currently valid Exploration Authorization and of any Exploitation Authorizations.

 

ARTICLE 28 : ARBITRATION AND EXPERTISE

 

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28.1                        In the event of a dispute between the State and the Contractor concerning the interpretation or the application of the provisions of this Contract, the Parties shall make good faith effort to resolve such dispute amicably.

 

With regard to the Market Price, the provisions of Article 14.5 here above shall apply.

 

The Parties may also agree to submit any other dispute of a technical nature to an expert appointed by common agreement or by the International Centre for Expertise of the International Chamber of Commerce (“ICC”).

 

If, within a time period of ninety (90) days starting from the date of notification of a dispute, the Parties are not able to reach an amicable solution or following the proposal of an expert, said dispute shall be submitted at the request of the most diligent Party to the ICC for arbitration following the rules set by the Rules of Arbitration of the ICC.

 

28.2                        The location of the arbitration shall be Paris (France). The languages utilized during the proceedings shall be the French and English languages and the applicable law shall be the Mauritanian law, as well as the rules and customs of applicable international law in the matter.

 

The arbitrational court shall be made up of three (3) arbitrators.  No arbitrator shall be a national of the countries of which the Parties are nationals.

 

The award of the court is rendered on a definitive and irrevocable basis.  It is binding upon the Parties and is immediately executory.

 

The expenses of arbitration shall be borne in equal part by the Parties, subject to the decision of the court concerning their allocation.

 

The Parties formally and without reservation waive any right to attack such award, to impede its recognition and its execution by any means whatsoever.

 

28.3                        The Parties shall conform to any protective measures ordered by the arbitrational court.  Without prejudice to the power of the arbitrational court to recommend protective measures, each Party may solicit provisional or protective measures in application of the pre-arbitration emergency procedure rules of the ICC.

 

28.4                        The introduction of an arbitrational procedure shall entail the suspension of the contractual provisions with respect to the subject of the dispute, but shall leave in place all other rights and obligations of the Parties with respect to this Contract.

 

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28.5                        Without prejudice to the provisions of Article 21 here above, the costs and expert fees referred to in Article 28.1 here above shall be borne by the Contractor up until the grant of the first Exploitation Authorization and thereafter half by each of the Parties. Such costs shall be considered as recoverable Petroleum Costs with regard to Article 10 of this Contract.

 

ARTICLE 29 : TERMS FOR APPLICATION OF THE
 CONTRACT

 

29.1                        The Parties agree to cooperate in all ways possible in order to achieve the objectives of this Contract.

 

The State shall facilitate the Contractor in the exercise of his activities in granting to him all permits, authorizations, licenses and access rights necessary for the carrying out of the Petroleum Operations, and in placing at his disposal all appropriate services to said Operations of the Contractor , of his employees and agents on national territory.

 

Any application for the above-cited permits, authorizations, licenses and rights shall be submitted to the Minister who shall transmit it, if applicable to the relevant Ministries and entities, and shall ensure its follow-up.  Such applications may not be refused without a legitimate reason and shall be diligently handled in a manner so as to not unduly delay the Petroleum Operations.

 

29.2                        All notices or other communications related to this Contract must be sent in writing and shall be considered to have been validly made from the time they are, hand delivered against receipt, to the qualified representative of the concerned Party at the place of its principal establishment in Mauritania, or delivered in a stamped envelope, by registered mail with return receipt, or sent by telecopy confirmed by letter, and after confirmation of receipt by the recipient, at the address chosen by them and deemed authentic indicated here below :

 

For the Ministry :

 

Department of Crude Hydrocarbons

 

BP : 4921

 

Nouakchott- Mauritania

 

TEL/FAX : +222 524 43 07

 

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For the Contractor :

 

	
Kosmos Energy Mauritania
    	
 
    
	
c/o Wilmington Trust
    	
 
    
	
4th Floor, Century Yard
    	
 
    
	
Cricket Square, Hutchins Dr.
    	
 
    
	
Elgin Avenue, George Town
    	
 
    
	
Grand Cayman KY1-1209
    	
 
    
	
Cayman Islands
    	
 
    
	
Telephone
    	
:  +1-345-814-6703
    	
 
    
	
FAX
    	
:  +1-345-527-2105
    	
 
    
	
Attention
    	
:  Andrew   Johnson
    	
 
    
	
Email: mauritanianotifications@kosmosenergy.com
    	
 
    

 

	
With Copy to:
    	
 
    
	
Kosmos Energy Mauritania
    	
 
    
	
c/o Kosmos Energy, LLC.
    	
 
    
	
Attention: General Counsel
    	
 
    
	
8176 Park Lane, Suite 500
    	
 
    
	
Dallas, TX 75231
    	
 
    
	
Fax:  214-445-9705
    	
 
    
	
Email: KosmosGeneralCounsel@kosmosenergy.com
    	
 
    

 

The notices shall be considered as having been made upon the date of confirmation of the receipt.

 

29.3                        The State and the Contractor may at any time change their authorized representatives or choice of domicile mentioned in Article 29.2 here above, subject to having so notified with an advance notice of at least ten (10) days.

 

29.4                        This Contract may not be modified except by common agreement of the Parties and by the execution of an approved amendment entering into force within the terms provided in Article 30 here below.

 

29.5                        Any waiver by the State of the execution of an obligation of the Contractor must be done in writing and signed by the Minister, and no possible waiver can be considered as a precedent if the State declines to act upon any of its rights which are recognized by this Contract.

 

29.6                        Titles appearing in this Contract are inserted for purposes of convenience and of reference and

 

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in no way shall define, nor limit, nor describe the scope or the purpose of the provisions of the Contract.

 

29.7                        Appendices 1, 2 and 3 attached hereto are an integral part of this Contract.  However, in the event of conflict, the provisions of this Contract shall prevail over those of the Appendices.

 

ARTICLE 30 : ENTRY INTO FORCE

 

Once signed by the Parties, this Contract shall be approved by decree made in the Council of Ministers and shall enter into force upon the date of publication of the said decree in the Official Journal, said date being designated under the name Effective Date and rendering said Contract binding upon the Parties.

 

In witness whereof, the Parties have signed this Contract in two (2) original copies.

 

Nouakchott, on April 5, 2012            

 

	
FOR
    	
 
    	
 
    
	
 
    	
 
    	
FOR
    
	
THE ISLAMIC REPUBLIC
    	
 
    	
 
    
	
 
    	
 
    	
THE CONTRACTOR
    
	
OF MAURITANIA
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
THE MINISTER
    	
 
    	
/s/ John R. KEMP III
    
	
 
    	
 
    	
 
    
	
/s/ Taleb ABDIVALL
    	
 
    	
 
    

 

55

 

APPENDIX 1 : EXPLORATION PERIMETER

 

Attached and being an integral part of the Contract between the Islamic Republic of Mauritania and the Contractor.

 

On the Effective Date, the initial Exploration Perimeter includes a surface area deemed to be equal to eight thousand (8,000) km2,

 

Such Exploration Perimeter is represented on the attached map with the indicated coordinates.

 

MAP OF THE EXPLORATION PERIMETER

 

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APPENDIX 2 : ACCOUNTING PROCEDURE

 

Attached to and an integral part of the Contract between the Islamic Republic of Mauritania and Contractor.

 

ARTICLE 1:  GENERAL PROVISIONS

 

1.1                               Purpose

 

The purpose of this Accounting Procedure is to set the rules and methods of accounting for the verification of Petroleum Costs to provide for their recovery and for the purpose of sharing production in accordance with Article 10 of the Contract, as well as the rules to determine net profits of the Contractor for purposes of calculating the tax on industrial and commercial profits.

 

1.2                               Statements

 

The accounts, books and registers of the Contractor shall be maintained consistent with the rules of the applicable accounting plan in Mauritania and the practices and methods in use in the international petroleum industry.

 

Pursuant to the provisions of Article 20.2 of the Contract, the accounts, books and registers of the Contractor shall be kept in the English language using the Dollar as the unit of account.

 

Anytime, whenever it is necessary to convert into Dollars expenses and revenue paid or received in any other currency, these currencies shall be valued on the basis of the rate of exchange quoted on the foreign-exchange market of Paris, in accordance with terms determined by mutual agreement.

 

1.3                               Interpretation

 

The definitions of words which appear in this Appendix 2 are the same as those of the corresponding words as they appear in the Contract.

 

The word « Contractor », has the meaning given to it by the Contract, and may sometimes refer to the Operator when the Contractor is made up of several entities and when Petroleum Operations are conducted by the Operator on behalf of all these entities, or sometimes the reference is to each of these entities whenever the obligation of each individual entity is being addressed.

 

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ARTICLE 2:  ACCOUNTING FOR PETROLEUM COSTS

 

2.1                               General rules and principles.  Classes and groupings

 

2.1.1                     The Contractor shall at all times keep books of account specially reserved and organized for the booking of Petroleum Costs ; they shall detail the expenses actually incurred by it and giving rise to recovery consistent with the provisions of the Contract and of this Appendix, the recovered Petroleum Costs, progressively as the production intended for such purpose becomes available, as well as the amounts which must be properly deducted or which have the effect of reducing  the Petroleum Costs.

 

2.1.2                     The accounting of Petroleum Costs must highlight at all times and for each Exploration Perimeter and for each Exploitation Perimeter derived therefrom :

 

·                  The full amount of the Petroleum Costs paid by Contractor from Effective Date;

 

·                  The full amount of the Petroleum Costs recovered;

 

·                  The amounts which diminish or otherwise are a deduction from Petroleum Costs and the type of operations related to these amounts;

 

·                  The balance of Petroleum Costs not yet recovered.

 

2.1.3                     The accounting for Petroleum Costs shall comprise as debit entries all expenses actually incurred and directly related to Petroleum Operations in accordance with the Contract and the provisions of this Appendix, and considered chargeable to Petroleum Costs.

 

These expenses which have been actually incurred must:

 

·                  Be actually incurred by Contractor ;

 

·                  Be necessary to the proper carrying out of Petroleum Operations ;

 

·                  Be properly incurred and supported by items and documents which allow an effective audit by the Ministry.

 

2.1.4                     The accounting for Petroleum Costs shall include as credit entries the amount of recovered Petroleum Costs as and when this recovery takes place, and as and when the amounts are collected, the revenue and miscellaneous products which are to be deducted from or operate to diminish the Petroleum Costs.

 

2.1.5                     The original text of contracts, invoices and other documents which support the Petroleum Costs must be available for examination by the Ministry and produced whenever it requests it.

 

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2.1.6                     Petroleum Costs are recovered in accordance with the following:

 

a)             The priority order arranged by the type of costs:

 

·                  Exploitation Petroleum Costs ;

 

·                  Development Petroleum Costs ;

 

·                  Exploration Petroleum Costs;

 

As these categories of Petroleum Costs are defined in Articles 3.2, 3.3 and 3.4 of this Appendix.

 

b)             Priority based on geographic considerations:

 

·                  Petroleum Costs incurred in an Exploitation Perimeter shall be the first to be recovered from the production extracted from that perimeter consistent with the order of priorities stipulated in paragraph a) here above ;

 

·                  Petroleum Costs incurred outside of an Exploitation Perimeter shall be recovered in second priority from the production extracted from that perimeter consistent with the priority order specified in paragraph a) here above.

 

Petroleum Costs incurred in the Exploitation Perimeters, other than that in question shall be recovered before the Petroleum Costs incurred in the Exploration Perimeter and in accordance with the order of priority stipulated in subparagraph a) here above.

 

Each entity which makes up the Contractor is entitled to its cost recovery upon commencement of production.

 

2.1.7                     Accounting for Petroleum Costs must be true and accurate ; it must be organized and the books must be kept and submitted in such manner that they can be easily grouped together and make the relevant Petroleum Costs clearly apparent, in particular as they relate to the following expenses:

 

·                  exploration

 

·                  appraisal

 

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·                  development

 

·                  production of Crude Petroleum,

 

·                  production of Natural Gas,

 

·                  transportation of Hydrocarbons and storage thereof,

 

·                  ancillary activities, auxiliary or subordinate, and separate from them,

 

·                  as well as the amounts paid in the sequestered account in accordance with Article 23.2 of the Contract.

 

2.1.8                     For each of the activities here above listed, the accounting of Petroleum Costs must clearly show the following expenses:

 

a)             Related to tangible assets, in particular those which refer to the purchase, creation, construction or carrying out of:

 

·                  land parcels,

 

·                  buildings (workshops, offices, storage areas, dwellings, laboratories, etc....),

 

·                  facilities for loading and storage,

 

·                  access roads and general infrastructure works,

 

·                  facilities to transport Hydrocarbons (pipelines, tankers, etc.),

 

·                  general equipment,

 

·                  specific equipment and facilities,

 

·                  vehicles for use of transport and civil engineering machinery,

 

·                  materiel and tools (the normal useful life of which exceeds one year),

 

·                  successful drilling,

 

·                  other tangible assets.

 

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b)             Related to intangible assets, particularly those which relate to:

 

·                  Surface investigation of geological or geophysical nature and related to laboratory work (studies, reprocessing, etc.),

 

·                  Nonproductive exploration wells which are not utilized in furtherance of the development plan,

 

·                  Other intangible assets.

 

c)              Related to raw materials consumables;

 

d)             Operational for functioning expenses :

 

Involved here are expenses of whatever nature, excepting the overhead referred to below, and which are not accounted for in subparagraphs a) to c) above of this Article 2.1.8, and which are directly connected to the study, progress and the implementation of Petroleum Operations ;

 

e)              Non operating expenses or overhead :

 

Involved here are expenses borne by the Contractor related to Petroleum Operations and connected to management or to administration of the said operations.

 

2.1.9                     Moreover, the accounting of Petroleum Costs must show, for each category of expenses listed or defined in subparagraphs a) to d) of Article 2-1-8 above, all payments made to the following:

 

·                  The Operator, for goods and services which it has itself furnished;

 

·                  For the entities which make up the Contractor, the goods and services which they have supplied themselves;

 

·                  Affiliated Companies;

 

·                  Third Parties.

 

2.2                               Analysis of expenses and methodology for attribution

 

2.2.1                     The principles for attribution and the usual analytical methods of the Contractor in the matter of itemizing and of reintegrating must be applied in a homogeneous manner, which is fair and does not discriminate against its activities taken as a whole. They must be submitted to the Ministry on its request.

 

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The Contractor must inform Ministry of any change made by it in its principles and methodology.

 

2.2.2                     Tangible assets constructed, manufactured, created or brought about by the Contractor in the furtherance of Petroleum Operations and dedicated to these operations as well as their normal maintenance shall be accounted for at the acquisition cost of construction, manufacturing, creation, or realization.

 

2.2.3                     Equipment, materials and consumables required for Petroleum Operations and not including those referred to above shall be:

 

a)             Either acquired for immediate use, subject to the time spent in transport, and if necessary, the temporary storage by Contractor (provided they shall not have been commingled with his own inventory). This equipment, materials and consumables acquired by the Contractor shall be valued, for their charging Petroleum Costs, at their landed price in Mauritania.

 

“The Landed price in Mauritania “ includes the following items, which shall be accounted for in accordance with the analytic methodology of Contractor:

 

·                  Purchase price less discounts and rebates,

 

·                  Transport costs, insurance, transit costs, handling and customs (and other possible taxes and fees) from the storage site of the vendor to that of the Contractor or to the place they are utilized, as may be applicable,

 

b)             Or supplied by the Contractor from its own inventory

 

·                  New equipment and materials other than consumables, supplied by the Contractor from its own inventory, shall be valued for accounting purposes at the  weighted purchase price calculated pursuant to the provisions of subparagraph a) of this Article 2.2.3, hereafter  « net cost ».

 

·                  Materials and equipment which are depreciable and already used supplied by the Contractor from his own inventory or which originate from other activities he may have had, including those of Affiliated Companies, shall be valued for purposes of booking Petroleum Costs, in accordance with the following schedule:

 

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·                  New Material  (Condition « A »): New Material, never used : 100% (one hundred percent) of the net cost.

 

·                  Material in good condition (Condition « B »): Material in good condition and still utilizable for its original purpose without repair: 75% (seventy-five percent) of the net cost of the new material as defined here above.

 

·                  Other used material  (Condition  « C »): Material which is still utilizable for its original purpose, but only after repair and upgrading: 50% (fifty percent) of the  net cost of the new material as defined here above.

 

·                  Material in poor condition (Condition « D »): Material not utilizable for its original purpose but still usable for another purpose: 25% (twenty-five percent) of net cost of the new material as defined here above.

 

·                  Junk and scrap (Condition « E »): Materials unusable and not repairable: applicable price for junk.

 

2.2.3.1           The Operator does not guarantee the quality of the new material referred to above beyond the warranty furnished by the manufacturer or seller of the subject material.  In the event of defective new material, Contractor will do its best to seek reimbursement or compensation from the manufacturer or the reseller; however, the corresponding credit shall only be booked after receipt of reimbursement for indemnification;

 

2.2.3.2           In the event used material referred to above is defective, the Contractor shall credit the account of the Petroleum Costs with the amount which it will have actually received as compensation.

 

2.2.3.3           Utilization of materials, equipment and facilities which are Contractor’s own property

 

Materials, equipment and facilities which are Contractor’s own property and which are temporarily put into use to carry out Petroleum Operations, shall be charged to Petroleum Costs at a rental amount covering the following:

 

a)             Maintenance and repairs,

 

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b)             A share of depreciation pro rata to the time period utilized for Petroleum Operations, calculated by applying to the original costs (initial cost before revaluation), a rate which shall not exceed the one provided by Article 4.2 here below.

 

c)              The expenses of transport and operations and all other expenses have not been otherwise charged.

 

The invoiced price shall exclude any excess cost, arising in particular from breakdown or abnormal or inappropriate use of the same equipment and facilities in furtherance of the Contractor’s activities which are not Petroleum Operations.

 

In all events, costs charged as Petroleum Costs for use of this equipment and facilities shall not exceed those in common usage in Mauritania by Third Parties, nor shall they result in a cascading charge of expenses and profit margins.

 

The Contractor shall maintain detailed statement of materials, equipment and facilities which are owned by it and used in Petroleum Operations, it shall indicate the description and serial number of each unit, the maintenance expenses, the relevant repairs, and the dates on which each item has been dedicated to and then withdrawn from Petroleum Operations.  This statement must delivered to the Ministry not later than March 1st of every year.

 

2.3                               Operational expenses

 

2.3.1                     Expenses of this type shall be charged to Petroleum Costs at the Contractor’s actual cost for the charges for services involved, such as this price appears in the Contractor’s accounts consistent with the applicable provisions of this Appendix.  These expenses include in particular:

 

2.3.2                     The taxes, fees and imposts due and payable in Mauritania under applicable regulations and the provisions of the Contract and directly related to Petroleum Operations.

 

Surface rentals, the BIC tax and the bonuses provided for respectively in Articles 11 and 13 of the Contract, as well as any other charge the recovery of which is disallowed by the provisions of this Contract or of this Appendix, shall not be charged to Petroleum Costs..

 

2.3.3                     Personnel expenses and environment of the personnel

 

2.3.3.1           Principles

 

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To the extent that they correspond to actual work and services and that they are not excessive with regard to the importance of the responsibilities exercised, to the work carried out, and to the customary practices, such expenses cover all payments made to employ and and provide benefits to personnel working in Mauritania and hired for the conduct and execution of the Petroleum Operations or for their supervision.  Such personnel includes persons recruited locally by the by the Contractor and those placed at the Contractor’s disposal by the Affiliated Companies, the other Parties or Third Parties.

 

Such expenses are also deductible when they are connected to fixed premises of the Contractor abroad, when the activity of such premises is carried out exclusively for the benefit of the Petroleum Operations of the Contractor in Mauritania.

 

2.3.3.2           Expense Items

 

The expenses of personnel and personnel benefits shall include, on the one hand, all sums paid or reimbursed on account of such personnel referred to here above, under legal and regulatory texts, collective agreements, employment contracts and the internal policies of the Contractor and, on the other hand, expenses paid for the benefit of such personnel:

 

a)             Salaries and pay for active employment or holidays, overtime, bonuses and other compensation;

 

b)             Employer contributions pertaining thereto resulting from legal and regulatory texts, collective agreements and terms of employment;

 

c)              Expenses paid for the benefit of the personnel; these represent, in particular:

 

·                  Expenses for medical and hospital assistance, social security and all other social expenses particular to the Contractor ;

 

·                  Expenses for transportation of employees, their families and their personal effects, when the assumption of such expenses is provided for in the employment contract;

 

·                  Expenses for lodging of personnel, including therein provision of services related thereto, when the assumption of such expenses by the employer is provided for in the employment contract (water, gas, electricity, telephone) ;

 

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·                  Compensation paid upon the time of moving in and of departure of the salaried personnel;

 

·                  Expenses paid to administrative personnel rendering the following services:  management and recruitment of local personnel, management of expatriate personnel, personnel training, maintenance and operation of offices and lodging, when such expenses are not included in overhead or under other expense categories;

 

·                  Expenses for office rental or their expense for occupancy, the expense of collective administrative services (secretarial services, furniture, office supplies, telephone, etc.).

 

2.3.3.3           Terms for booking charges

 

Personnel costs correspond:

 

·                  Either to direct expenses charged to the corresponding Petroleum Costs account,

 

·                  Or to indirect or common expenses charged to the Petroleum Costs account based upon data fromanalytical accounting and determined pro rata to the time dedicated to the Petroleum Operations.

 

2.3.4                     Expenses paid by reason of the provision of services supplied by Third Parties, the entities comprising the Contractor and the Affiliated Companies shall include in particular:

 

2.3.4.1           Services rendered by Third Parties and by the Parties are booked at the Contractor’s actual book costs, which means the price invoiced by the vendors, including all taxes, fees, and ancillary costs, if applicable; the actual costs shall be reduced by any rebates, discounts, kickbacks, or promotions the Contractor may have secured either directly or indirectly.

 

2.3.4.2           The technical assistance rendered to the Contractor by its Affiliated Companies:  consisting of  services and actions for the benefit of the Petroleum Operations and emanate from the departments and services of these Affiliated Companies who are engaged in the following activities:

 

·                  Geology,

 

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·                  Geophysics,

 

·                  Engineering,

 

·                  Drilling and production,

 

·                  Deposits and reservoir studies,

 

·                  Economic studies,

 

·                  Technical contracts,

 

·                  Laboratories,

 

·                  Purchases and transport in transit (except for charges comprised of those referred to in 2.2.3 here above),

 

·                  Designs,

 

·                  Some administrative and legal services related to studies or to well-defined or occasional projects and which are not part of ordinary and regular business, nor of the legal proceedings referred to in 2.3.8 below.

 

Technical assistance is generally the subject of service contracts entered into between the Contractor and its Affiliated Companies.

 

The costs of technical assistance rendered by the Affiliated Companies are booked at actual cost for the Affiliated Company which renders the service.  This actual cost includes, in particular, personnel expenses, the cost of raw materials, materials and consumables utilized, the cost of maintenance and repair, the cost of insurance, taxes, a portion of the amortization of general investments calculated on the original acquisition cost or of the construction of related tangible items and of any other expenses which are related to these services and have not been otherwise booked elsewhere.

 

However, the price excludes any surcharges arising from, in particular, fixed assets or a non-regular or cyclical use of materials, facilities and equipment at an Affiliated Company.

 

In all cases, expenses related to these services must not exceed those which are normally incurred for similar services by technical service companies and independent laboratories.  They must not result in cascading charges from profit margins.

 

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Moreover, all of these services, including analytical studies, must be supported by reports to be submitted at the request of the Ministry.  They must be the subject of written orders issued by the Contractor, and also of itemized invoices.

 

2.3.4.3           Whenever the Contractor utilizes in Petroleum Operations, materiel, equipment or facilities which are the sole property of an entity which makes up the Contractor, the Contractor must charge the Petroleum Costs pro rata the usage time, and the corresponding entry must be determined in accordance with the customary methods and the principles defined in 2.3.4.2 above.  This entry includes, in particular:

 

·                  A portion of the annual depreciation calculated on the original “landed Mauritanian price” defined in 2.2.3 here above;

 

·                  A portion of the start-up cost, of insurance coverage, of ordinary maintenance, of financing, and of periodic checkups.

 

·                  Warehousing costs

 

·                  Warehousing costs and handling costs (expenses incurred for personnel and for management of the services) are charged to Petroleum Costs pro rata the value of the items taken out of inventory.

 

·                  Transportation expense:  expenses of transport of personnel, of materiel or of equipment intended and dedicated to Petroleum Operations shall be booked as Petroleum Costs if they are not already included in the preceding paragraphs and if they have not been accounted in actual costs.

 

2.3.5                     Damages and waste which impact jointly-owned properties

 

All expenses necessary to repair and restore to working condition equipment which has suffered damages or losses arising from fires, floods, storms, theft, accidents or any other cause, shall be booked in accordance with the principles defined in this Appendix.

 

Amounts recovered from insurance companies for these damages and losses shall be booked as a credit to Petroleum Costs.

 

2.3.6                     Maintenance expenses

 

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Maintenance expenses (routine maintenance and exceptional maintenance) of the materiel, equipment and facilities dedicated to Petroleum Operations shall be booked to Petroleum Costs at actual cost.

 

2.3.7                     Insurance premiums and expenses related to the settlement of casualty losses shall be charged to Petroleum Costs:

 

a)             Premiums and expenses related to mandatory insurance and to those arising under policies to cover the Hydrocarbons produced, the persons and the properties dedicated to Petroleum Operations or the third-party liability insurance of the Contractor within the purview of the said operations;

 

b)             Expenses incurred by the Contractor as the result of a casualty which arose from Petroleum Operations, and those incurred in the settlement of all losses, claims, damages and other related costs which are not covered by the insurance policies;

 

c)              Expenses disbursed in settlement of losses, claims, damages or legal proceedings which are not compensated by insurance and which do not relate to risk which the Contractor was required to insure against.  The amounts recovered from insurance policies and guarantees are accounted for as provided for in Article 2.6.2 g) here below;

 

2.3.8                     Legal costs

 

Petroleum Costs can be charged with expenses related to adversary legal proceedings, investigation, and settlement of disputes and claims (requests for reimbursement or compensation), which arise from Petroleum Operations or which become necessary in order to protect or recover properties, including, in particular, the fees of lawyers and experts, legal costs, investigation costs, cost of gathering evidence, as well as amounts disbursed in settlement of the disputes or the final settlement of any proceedings or claim.

 

Whenever these services are rendered by personnel of the Contractor, a compensatory payment shall be included in the Petroleum Costs which corresponds to time expended and costs actually incurred.  The price charged in such manner shall not exceed that which would have been paid to Third Parties for identical or analogous services.

 

2.3.9                     Interest, fees, and financial charges

 

The following are chargeable to Petroleum Costs : interest penalties for late payment incurred by the Contractor and related to borrowings from Third Parties as well as advances and loans

 

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from Affiliated Companies, to the extent that these borrowings and advances are used to finance the Petroleum Costs and related exclusively to petroleum development operations of a commercial deposit (excluded here are Petroleum Operations related to exploration and appraisal), and provided they do not exceed seventy percent (70%) of the total amount of these petroleum development costs.  These borrowings and advances must be submitted for the approval of the Ministry.

 

In the case where such financing is secured by Affiliated Companies, the acceptable interest rates must not exceed the rate normally charged on the international financial markets for similar loans.

 

2.3.10              Foreign-exchange losses

 

Foreign-exchange losses related to borrowings and debts incurred by the Contractor under this Contract are chargeable to Petroleum Costs.

 

2.3.11              Disbursements related to expenses, verifications and audits of the Ministry, pursuant to the provisions of the Contract, are chargeable to Petroleum Costs.

 

2.3.12              Payments related to other expenses, including payments to Third Parties for the transport of Hydrocarbons to the Delivery Point shall be included in the Petroleum Costs.  Involved here are all payments made or losses incurred related to or caused by the proper execution of the Petroleum Operations, provided the charge to Petroleum Costs is not disallowed under provisions of this Contract or of this Appendix, and provided they are not similar to expenses which the Ministry has disallowed and provided these expenses have received the approval of the Ministry.  Moreover, except for contrary provisions in the law, the Contractor is at liberty, if it wishes, to make contributions of an economic, social, cultural or sport-related nature, with the mandatory exclusion of financing political activities.  These contributions shall be debited to the Petroleum Costs account.

 

2.4                               Overhead

 

These expenses pertain to those Petroleum Costs which have not been otherwise accounted for.  They pertain to:

 

2.4.1                     Expenses incurred outside of Mauritania

 

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The Contractor shall add a reasonable sum on account of foreign overhead necessary to carry out the Petroleum Operations and borne by the Contractor and its Affiliated Companies, in such amount as they reflect the cost of the services rendered to the Petroleum Operations.

 

The amounts must be supported by accounting entries and copies of reports related to the services and works carried out; if an arbitrary sharing is utilized, there must be proof by means of supportive explanations and presentation of the rules utilized to arrive at such.

 

The amounts charged are considered provisional amounts arrived at on the basis of the Contractor’s experience, and they shall be adjusted annually in relation to the Contractor’s real costs, but they must not exceed the following caps:

 

·                  Before grant of the first Exploitation Authorization : three percent (3%) of the Petroleum Costs excluding overhead;

 

·                  On the grant of the first Exploitation Authorization : one and one-half percent (1.5%) of Petroleum Costs not including financial costs and overhead.

 

These percentages are applied to expenses, not including overhead, which are chargeable to Petroleum Costs for the Calendar Year under consideration.

 

2.4.2                     Expenses disbursed inside of Mauritania

 

These expenses cover payment related to the following activities and services:

 

·                  General management and general secretarial services;

 

·                  Information and communication ;

 

·                  General administration (law department, insurance, taxes, computer services) ;

 

·                  Accounting and budget ;

 

·                  Internal audit.

 

They must include services which have actually been required to advance the Petroleum Operations and which correspond to actual services rendered in Mauritania by the Contractor or the Affiliated Companies.  They must not result in cascading of of costs margins.

 

The amount must be actual amounts, whenever direct expenses are involved, and they must be amounts arrived at by sharing whenever indirect expenses are involved.  In the latter case, the rules for sharing must be clearly defined and the amounts must be supported by analytical accounting.

 

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2.5                               Expenses not chargeable to Petroleum Costs

 

Payments paid in settlement of expenses, charges or costs not directly chargeable to Petroleum Operations, and those for which the deduction or charging for is disallowed by the provisions of the Contract or of this Appendix, or those which are not necessary for the conduct of Petroleum Operations, shall not be taken into account and shall not give rise to recovery.

 

Involved here are these types of payments:

 

a)             Costs of a capital increase;

 

b)             Expenses related to activities downstream of the Delivery Point, particularly marketing costs;

 

c)              The expenses which relate to the period prior to the Effective Date;

 

d)             Auditing expenses disbursed by the Contractor further to special relationships between the entities which make up the Contractor;

 

e)              Expenses borne for meetings, studies and work carried out in furtherance of the association which ties together the entities which make up the Contractor and the purpose of which is not the proper conduct of the Petroleum Operations;

 

f)               Interest, late payment fees, and financial charges other than those the chargeability of which is authorized pursuant to Article 2.3.9 of this Appendix.

 

g)              Foreign-exchange losses incurred other than those which are chargeable under the provisions of this Contract.

 

h)             Foreign-exchange losses which constitute a loss of earnings tied to risks related to the Contractor’s own capital and self-financing by it.

 

2.6                               Items to be booked as a credit to Petroleum Costs

 

The following must be credited to the Petroleum Costs account, in particular:

 

2.6.1                     The proceeds from the quantities of Hydrocarbons which the Contractor takes in furtherance of the provisions of Article 10.2 of the Contract, multiplied by the related Market Price as defined in Article 14 of the Contract.

 

2.6.2                     All other receipts, revenues, proceeds, connected profits, whether ancillary or accessory, directly or indirectly tied to Petroleum Operations, including in particular those derived from:

 

(A)       The sale of associated substances;

 

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(B)       The transport and storage of products owned by Third Parties in the facilities dedicated to the Petroleum Operations;

 

(C)       Reimbursements originating from insurance companies;

 

(D)       Settlements arising out transactions or liquidations;

 

(E)        Transfers or rentals already declared under Petroleum Costs

 

(F)         Discounts, rebates, allowances and promotions received which have not been charged as a deduction from the actual costs of the properties to which they relate.

 

(G)       Any other income or receipts similar to those  listed above that are usually deducted from Petroleum Costs.

 

2.7                               Materiel, equipment and facilities sold by the Contractor

 

2.7.1                     The materials, equipment, facilities, and consumables which are not used or are not usable shall be withdrawn from Petroleum Operations ; they must be either downgraded or considered as « junk and waste », or bought back by the Contractor for his own needs, or sold to Third Parties or to Affiliated Companies.

 

2.7.2                     In the event of adisposal to the entities which make up the Contractor or to their Affiliated Companies, the prices shall be arrived at pursuant to the provisions of 2-2-3.b of this Appendix, or, should they exceed those which would be applicable under the provisions of that article, their price must be agreed by the Parties. Whenever the use of an item of property related to Petroleum Operations has been temporary and it does not fall under the price reduction referred to in the above article, the said item shall be valued so that the Petroleum Costs are debited of a net amount which is equivalent to the value of the service rendered.

 

2.7.3                     The sales to Third Parties of materials, equipment, facilities and consumables shall be effected by Contractor at the best possible price.  All reimbursements or compensation granted to a buyer for a defective piece of equipment shall be debited to the Petroleum Costs account to the extent and at the time such are actually paid by the Contractor.

 

2.7.4                     Whenever an asset is used for the benefit of a Third Party or the Contractor for activities which are not within the scope of this Contract, the amounts due in exchange therefor must be calculated at a rate which is not less than actual costs, unless the Ministry agrees otherwise.

 

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ARTICLE 3:  DETERMINATION OF THE RATIO « R »

 

3.1                               For the purpose of arriving at the value of the “R” ratio in application of Article 10.3 of the Contract, the Petroleum Costs which impact the calculation of Net Cumulative Revenues and of Cumulative Investments shall be categorized and recorded separately according to the following categories.

 

3.2                               Exploration Petroleum Costs

 

They are the Petroleum Costs incurred in the exploration Petroleum Operations inside an Exploration Perimeter, included in an Annual Work Program approved pursuant to the provisions of the Contract, and they shall include, without limitation:

 

3.2.1                     Geochemical, geophysical, paleontological, geological, topographical studies and the seismic campaigning as well as studies and interpretations related thereto.

 

3.2.2                     Coring, exploration wells, appraisal wells and wells drilled to supply water.

 

3.2.3                     Labor costs, materiel, supplies and services used to service exploration wells or appraisal wells of a discovery and which are not completed as producers.

 

3.2.4                     Equipment utilized exclusively to enhance and justify the objectives listed in Articles 3.2.1, 3.2.2 and 3.2.3 here above, including access roads and acquired geological and geophysical information.

 

3.2.5                     That portion of the Petroleum Costs incurred in construction of facilities and equipment, the overhead chargeable to exploration Petroleum Costs as such is derived from a fair allocation of the Petroleum Costs taken as a whole (including overhead) between exploration Petroleum Costs and the Petroleum Costs taken as a whole, with exception of overhead.

 

3.2.6                     All the other Petroleum Costs incurred for the purpose of exploration between the Effective Date and the startup of the commercial production of Hydrocarbons that are not included in Article 3.3 here below.

 

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3.3                               Petroleum Costs of Development

 

They are the Petroleum Costs incurred in development Petroleum Operations related to an Exploitation Authorization, and they include, without limitation:

 

3.3.1                     Development and production wells, including water-injection wells and gas-injection wells drilled for the purpose of enhancing recovery of Hydrocarbons as well as those intended to sequester and conserve natural gas.

 

3.3.2                     The wells which have been completed by setting casing or equipment after a well has been drilled with intent to complete it as a producer well or a water-injection well or a gas-injection well drilled for the purpose of increasing the recovery rate of Hydrocarbons as well as those wells the purpose of which is sequestration and conservation of natural gas.

 

3.3.3                     The costs of equipment related to production, transport and storage to the Delivery Point, such as pipelines, flow-lines, processing and production units, equipment on the well-head, underwater equipment, systems to increase recovery of Hydrocarbons, offshore platforms, production floating unit and/or production and storage floating units (FPO and FPSO), storage facilities, export terminals, port installations and auxiliary equipment, as well as access roads in relation to production activities.

 

3.3.4                     Engineering studies and design studies related to the equipment referred to in Article 3.3.3.

 

3.3.5                     The cost of construction, the overhead chargeable to Development Costs, as these are calculated according to the ratio of Development Costs over total Petroleum Costs, excluding overhead.

 

3.3.6                     Financial charges pertaining to the financing of Development Costs are excluded.

 

3.4                               Exploitation Petroleum Costs

 

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These are the Petroleum Costs incurred in an Exploitation Perimeter consequent to the startup of commercial Hydrocarbons production and which are neither exploration costs nor development costs nor overhead.

 

Exploitation costs include more particularly the reserves built up for the purpose of meeting losses or charges, including the reserve to fund the Rehabilitation  Plan, which reserve has been paid in full to the sequestered account opened for the purpose of financing rehabilitation of the site works in accordance with Article 23.2 of the Contract.

 

The portion of overhead which has not been allocated to either exploration or development costs shall be included in exploitation costs.

 

3.5                               It is understood that depreciation of assets as calculated for the determination of taxable profits pursuant to the provisions of Article 4 here below are not Petroleum Costs and consequently, they do not enter into the determination of the Ratio “R”.

 

ARTICLE 4:  CHARGES WHICH ARE DEDUCTIBLE FOR DETERMINATION OF THE
 INDUSTRIAL AND COMMERCIAL INCOME TAX

 

4.1                               Deductible charges

 

In accordance with Article 70 of the Crude Hydrocarbons Code, the charges which are deductible for the determination of the  Industrial and Commercial Income Tax are made up of the following items, within the limits prescribed by this Accounting Procedure, and excluding those charges which are non-deductible as specified in Title 6 of the Crude Hydrocarbons Code and of costs non-chargeable to Petroleum as specified in Article 2.5 here above of this Appendix:

 

·                  The exploitation Petroleum Costs, as defined in the provisions of this Accounting Procedure ;

 

·                  The overhead  in accordance with the provisions of Article 2-4 here above of this Appendix;

 

·                  Depreciation of assets which make up the development Petroleum Costs in according with the provisions of Article 4.2 below;

 

·                  Interest, interest for late payments, and financial charges, in accordance with the Article 2.3.9 here above ;

 

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·                  Loss or wastage of materials and property arising out of destruction or casualty, uncollectible debts, and compensation paid to Third Parties on account of legal liability (unless these damages were caused by the Gross Negligence of the Contractor) ;

 

·                  Reserves which are reasonable and justified created for the purpose of meeting losses or clearly defined charges which the prevailing circumstances make probable;

 

·                  The non-recovered portion of deficits related to previous years within a limit of five (5) years following the fiscal year that shows a deficit.

 

4.2                               Depreciation of fixed assets

 

Fixed assets of the Contractor that are required for Petroleum Operations are depreciated according to a straight-line dereciation method.

 

The minimum span of the depreciation period shall be:

 

·                  ten (10) Calendar Years for assets related to the transport of Hydrocarbons production by pipeline;

 

·                  five (5) Calendar Years for the other fixed assets.

 

The period of depreciation shall begin with the Calendar Year during which the said fixed assets have been acquired, or from the Calendar Year during which the fixed assets were placed into normal service if such latter year is after, pro rata temporis, the first Calendar Year in question.

 

4.3                               Exploration Petroleum Costs

 

The petroleum Exploration Costs incurred by the Contractor for the Exploration Perimeter, including particularly the expenses of geological and geophysical exploration studies and the expenses of exploration drilling and appraisal of a discovery (excluding productive wells, which shall be considered assets which fall under the provisions of Article 4.2 here above of this Appendix), are considered charges deductible in full from the year they are entered on the books or they may be depreciated at the rate chosen by the Contractor.

 

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ARTICLE 5:  INVENTORIES

 

5.1                               Frequency

 

The Contractor shall keep a permanent inventory in both quantity and value of all property used in Petroleum Operations and he shall, with reasonable frequency, and not less than once a year, proceed to take a physical inventory as required by the Parties.

 

5.2                               Notification

 

Written notification of the intention to take a physical inventory must be sent by the Contractor not less than ninety days (90) days prior to the commencement of the taking of such inventory, so that the Ministry and the entities which make up the Contractor may if they wish be represented at their own expense during the taking of said inventory.

 

5.3                               Information

 

Should the Ministry or an entity which makes up the Contractor not be represented when an inventory is taken, such Party will remain bound by the result of the inventory taken by the Contractor, who must furnish to said Party a copy of the said inventory.

 

ARTICLE 6:  STATEMENTS OF OPERATIONS AND WORK, STATUS REPORTS

 

6.1                               Principles

 

Other than the statements and supply of information provided for elsewhere, the Contractor must submit to the Ministry under terms, conditions and timelines indicated below, the details of its operations and works carried out as they have been booked in its accounts, documents, reports and statements which it must keep in relation to the Petroleum Operations.

 

6.2                               Statement of variations in fixed assets accounting and in inventory of materiel and consumables.

 

This statement must be received by the Ministry not later than the fifteenth day (15th) day of the first month of each calendar Quarter. In particular, it shall state, for the preceding quarter what was acquired and created by way of fixed assets, of materiel and of consumables required for Petroleum Operations, for each deposit, and by major categories, as well as disposal of these items (assignments, wastage and losses, destruction, discarding and junk).

 

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6.3                               Statement of the quantities of Crude Petroleum and of Natural Gas which have been transported during each month

 

Such statement must reach the Ministry not later than the fifteenth (15th) day of each month.  For each deposit, it shall indicate the quantities of Crude Petroleum and of Natural Gas which have been transported in the course of the preceding month, between the field and the point of export or delivery, as well as the identification of the pipeline utilized and the cost of transport paid, whenever transport was carried out by Third Parties.  The statement must also show how the products transported in such manner are shared between the Parties.

 

6.4                               Statement of the recovery of Petroleum Costs

 

This statement must reach the Ministry not later than the fifteenth (15th) day of each month.  It shall show, for the preceding month, the breakdown of the Petroleum Costs account and must reflect, in particular, the following:

 

·                  The Petroleum Costs which remain to be recovered as of the end of the preceding month;

 

·                  The Petroleum Costs related to activities during the month in question;

 

·                  The Petroleum Costs recovered in the course of the month indicating in particular quantities and value of production involved for this purpose;

 

·                  The amounts which are booked to reduce or diminish Petroleum Costs in the course of the month in question;

 

·                  The unrecovered Petroleum Costs as of the end of that month.

 

6.5                               Statement of the determination of the ratio « R »

 

This statement must reach the Ministry not later than the fifteenth (15th) day of the first month of each Quarter.  It shall highlight each of the factors which enter into the determination of the “R” ratio as defined in Article 3 of this Accounting Procedure, as well as the resulting value of the ratio, which ratio is applicable during the subject Quarter.

 

6.6                               Inventories of Crude Petroleum and of Natural Gas

 

This statement must reach the Ministry not later than the fifteenth (15th) day of each month.  It shall specify for the preceding month and for each storage location:

 

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·                  Inventory at the commencement of the month;

 

·                  Addition to inventory in the course of the month;

 

·                  Withdrawals from inventories during the course of the month;

 

·                  Theoretical level of the inventory at the end of the month;

 

·                  Inventory at the end of the month taken by measurement;

 

·                  An explanation for discrepancies, if any.

 

6.7                               Tax returns

 

The Contractor shall supply the Ministry with a copy of all returns which the entities which make up the Contractor are required to file with the Tax Administrations responsible for determining tax basis; and in particular, those which pertain to the BIC tax on together with all annexes, documents, and supporting information attached thereto.

 

6.8                               Statement of payments of taxes and fees

 

Not later than the fifteenth (15th) day of the first month of each Quarter, the Contractor shall prepare and submit to the Ministry a statement showing taxes, fees, and dues of any kind paid by it in the course of the preceding calendar Quarter; it shall detail precisely the nature of the tax, fee and dues involved (surface rentals, customs duties, etc.), the kind of payment involved (on account, balances, corrections, etc.), the date and the amount of each payment, the designation of the tax collector responsible for the collection, and other further useful information.

 

6.9                               Special provisions

 

The statements, lists, and information referred to in Articles 6.2 to 6.8 shall be produced and submitted in accordance with printed forms issued by the Ministry, after consultation with the Contractor.

 

The Ministry may, as needed, request that the Contractor furnish it with all other statements, reports and information that the Ministry deems useful.

 

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APPENDIX 3:  MODEL BANK GUARANTEE

 

Attached and being an integral part of the Contract between the Islamic Republic of Mauritania and the Contractor (On letterhead of the Bank)

 

To the Honorable Minister in Charge of Crude Hydrocarbons,

Nouakchott

Mauritania

Amount :

In letters :

 

 

We have been informed that, upon the date of       , the Mauritanian State entered into an exploration-production contract with the Contractor constituted by the following entities:

 

Kosmos Energy Mauritania

 

Grand Cayman

 

Kosmos Energy Mauritania             , address              is the Principal and has been so designated here below.

 

Pursuant to Article 4.6  of this Contract, a bank guarantee of proper discharge of the minimum work obligations, for work committed to for each phase of the Exploration Period of the contract,  must be  remitted to the State.

 

That said, we (name of bank                 , address                 ) referred to hereafter as «the Bank», upon instructions from the Principal, commit ourselves through this Guarantee, in an irrevocable fashion, to pay to the Mauritanian State, independently of the validity and legal merits under the Contract in question and without raising any exception, nor objection arising from the said Contract, upon your first demand, any amount up to the maximum amount cited above in this letter of of guarantee, upon receipt  by ourselves of a demand for payment duly signed and a written confirmation on your part certifying that the Contractor has not fulfilled the minimum work obligations above-mentioned and specifying the nature as well of the estimated cost of the work not executed.

 

For reasons of identification, your written demand for payment will only be considered valid if it reaches us through the intermediary of our corresponding bank located in Mauritania (name          , address                ), accompanied by a declaration of the latter certifying that it proceeded with the verification of your signature.

 

Your call is also acceptable to the extent that it is fully transmitted to us by the bank in question by means of a telex/SWIFT confirming that it has sent us the original by registered mail or by another courier service and that the signature appearing there was verified by the latter.

 

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The amount of the Guarantee shall be reduced by the amount of the expenditures made  by                 , upon receipt by the Bank of a copy of a work completion statement signed by the Mauritanian State and attesting to said expenditures and to the resulting new Guarantee amount, in accordance with the model in Annex A.

 

Our guarantee is valid up until the                                           (provide for 6 months after the end of the phase in question of the Exploration Period) and shall terminate automatically and entirely if your demand for payment or the telex/SWIFT does not reach us at the address here above by such date at the latest, whether it is a business day or not.

 

All the bank fees in connection with this guarantee are at the expense of the Principal.

 

This guarantee is subject to the « Uniform Rules for Demand Guarantees of the ICC » of the International Chamber of Commerce (ICC Publication in force No. 758).

 

·              Signature of the authorized representative and seal of the Bank

 

Annex A

 

Model notification of expenditure and reduction of guarantee to be used

 

Notification of expenditure and reduction of guarantee

 

To the Minister in Charge of Crude Hydrocarbons

 

Mauritanian State

 

Nouakchott

 

Mauritania

 

Purpose:  Notification of expenditure and reduction of guarantee amount ref. XXXX

 

Honorable Minister,

 

We refer to the Exploration and Production Contract signed on         , as well as the bank guarantee of proper discharge in the initial amount of USD       given by           on            under reference no.           .

 

On          the amounts expended were USD        .  Accordingly the amount of said guarantee is reduced to          (numbers plus letters).

 

Polite closure statement

 

Date:

 

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Signature of Contracting Entity

Confirmation of Principal (KOSMOS ENERGY)

 

“Stamp of the Minister in charge of Hydrocarbons, authorized signature

Preceded by the statement “Agreed for the reduction of the guarantee in question in the amount of XXXX”

NAME + FUNCTION + STAMP of the Minister”

 

84Exhibit 10.20

 

PRODUCTION SHARING CONTRACT

 

For

 

PETROLEUM EXPLORATION, DEVELOPMENT AND

 

PRODUCTION

 

relating to

 

Block 42 OFFSHORE SURINAME

 

BETWEEN

 

STAATSOLIE MAATSCHAPPIJ SURINAME N.V.

 

and

 

KOSMOS ENERGY SURINAME

 

 

Table of Contents

 

 

	
ARTICLE 1
    	
DEFINITIONS
    	
7
    
	
 
    	
 
    	
 
    
	
ARTICLE 2
    	
SCOPE OF THE CONTRACT
    	
17
    
	
 
    	
 
    	
 
    
	
ARTICLE 3
    	
TERM OF THE CONTRACT
    	
19
    
	
 
    	
 
    	
 
    
	
ARTICLE 4
    	
LOCATION AND SIZE OF THE CONTRACT AREA
    	
22
    
	
 
    	
 
    	
 
    
	
ARTICLE 5
    	
MINIMUM EXPLORATION PROGRAM
    	
23
    
	
 
    	
 
    	
 
    
	
ARTICLE 6
    	
OPERATOR
    	
27
    
	
 
    	
 
    	
 
    
	
ARTICLE 7
    	
OPERATIONS COMMITTEE
    	
29
    
	
 
    	
 
    	
 
    
	
ARTICLE 8
    	
CONDUCT OF OPERATIONS, WORK PROGRAM AND   BUDGET
    	
34
    
	
 
    	
 
    	
 
    
	
ARTICLE 9
    	
COMMERCIALITY
    	
37
    
	
 
    	
 
    	
 
    
	
ARTICLE 10
    	
PETROLEUM EXPENDITURES
    	
42
    
	
 
    	
 
    	
 
    
	
ARTICLE 11
    	
PARTICIPATION OF STAATSOLIE
    	
43
    
	
 
    	
 
    	
 
    
	
ARTICLE 12
    	
ROYALTY
    	
45
    
	
 
    	
 
    	
 
    
	
ARTICLE 13
    	
COST REIMBURSEMENT AND PAYMENT TO   CONTRACTOR
    	
46
    
	
 
    	
 
    	
 
    
	
ARTICLE 14
    	
MEASUREMENT AND VALUATION OF PETROLEUM
    	
50
    
	
 
    	
 
    	
 
    
	
ARTICLE 15
    	
FOREIGN CURRENCY AND BANKING
    	
53
    
	
 
    	
 
    	
 
    
	
ARTICLE 16. 
    	
PAYMENTS
    	
55
    
	
 
    	
 
    	
 
    
	
ARTICLE 17.
    	
IMPORTS
    	
56
    
	
 
    	
 
    	
 
    
	
ARTICLE 18
    	
TAXATION
    	
57
    
	
 
    	
 
    	
 
    
	
ARTICLE 19
    	
DOMESTIC SUPPLY REQUIREMENT
    	
59
    
	
 
    	
 
    	
 
    
	
ARTICLE 21
    	
INFORMATION
    	
63
    

 

2

 

	
ARTICLE 22
    	
CONFIDENTIALITY
    	
66
    
	
 
    	
 
    	
 
    
	
ARTICLE 23
    	
INSPECTIONS
    	
69
    
	
 
    	
 
    	
 
    
	
ARTICLE24
    	
SAFETY AND ENVIRONMENTAL PROTECTION
    	
70
    
	
 
    	
 
    	
 
    
	
ARTICLE 25
    	
INSURANCE, LIABILITIES AND INDEMNITIES
    	
73
    
	
 
    	
 
    	
 
    
	
ARTICLE 26
    	
ACCOUNTING AND AUDITING
    	
76
    
	
 
    	
 
    	
 
    
	
ARTICLE 27
    	
OWNERSHIP TO AND CONTROL OF GOODS AND   EQUIPMENT
    	
79
    
	
 
    	
 
    	
 
    
	
ARTICLE 28
    	
USE OF LAND AND SEA BEDS
    	
81
    
	
 
    	
 
    	
 
    
	
ARTICLE 29
    	
ABANDONMENT
    	
82
    
	
 
    	
 
    	
 
    
	
ARTICLE 30
    	
IMMIGRATION AND EXPATRIATE EMPLOYEES
    	
86
    
	
 
    	
 
    	
 
    
	
ARTICLE 31
    	
LOCAL CONTENT
    	
87
    
	
 
    	
 
    	
 
    
	
ARTICLE 32
    	
SOCIAL RESPONSIBILITY AND TRAINING
    	
88
    
	
 
    	
 
    	
 
    
	
ARTICLE 33
    	
FORCE MAJEURE
    	
89
    
	
 
    	
 
    	
 
    
	
ARTICLE 34
    	
LOCAL OFFICE AND PRESENCE
    	
91
    
	
 
    	
 
    	
 
    
	
ARTICLE 35
    	
NOTICES
    	
92
    
	
 
    	
 
    	
 
    
	
ARTICLE 36
    	
GOOD FAITH
    	
94
    
	
 
    	
 
    	
 
    
	
ARTICLE 37
    	
EFFECTIVE DATE
    	
95
    
	
 
    	
 
    	
 
    
	
ARTICLE 38
    	
REPRESENTATIONS, WARRANTIES, COVENANTS AND   UNDERTAKINGS
    	
96
    
	
 
    	
 
    	
 
    
	
ARTICLE 39
    	
BREACH, TERMINATION, AND REMEDIES
    	
99
    
	
 
    	
 
    	
 
    
	
ARTICLE 40
    	
APPLICABLE LAW AND OFFICIAL LANGUAGE
    	
102
    
	
 
    	
 
    	
 
    
	
ARTICLE 41
    	
DISPUTE RESOLUTION
    	
103
    

 

3

 

	
ARTICLE 42
    	
WAIVER OF IMMUNITY
    	
108
    
	
 
    	
 
    	
 
    
	
ARTICLE 43
    	
ASSIGNMENT
    	
109
    
	
 
    	
 
    	
 
    
	
ANNEX 1
    	
MAP OFFSHORE BLOCK 42
    	
113
    
	
 
    	
 
    	
 
    
	
ANNEX 2
    	
COORDINATES OFFSHORE BLOCK 42
    	
114
    
	
 
    	
 
    	
 
    
	
ANNEX 3
    	
ACCOUNTING PROCEDURE
    	
115
    
	
 
    	
 
    	
 
    
	
ANNEX 4
    	
CRUDE OIL AND NATURAL GAS MEASUREMENT   PROCEDURE
    	
133
    
	
 
    	
 
    	
 
    
	
ANNEX 5
    	
ENVIRONMENTAL STANDARDS AND PRACTICES
    	
135
    
	
 
    	
 
    	
 
    
	
ANNEX 5A
    	
OUTLINE OF ENVIRONMENTAL BASELINE STUDY
    	
138
    
	
 
    	
 
    	
 
    
	
ANNEX 5B
    	
FORM OF ENVIRONMENTAL AND SOCIAL IMPACT   ASSESSMENT
    	
139
    
	
 
    	
 
    	
 
    
	
ANNEX 5C. 
    	
OUTLINE OF HEALTH AND SAFETY PLAN
    	
140
    
	
 
    	
 
    	
 
    
	
ANNEX 5D. 
    	
OUTLINE OF CONTRACTOR HSE MANUAL
    	
141
    
	
 
    	
 
    	
 
    
	
ANNEX 6. 
    	
DUTIABLE ITEMS
    	
142
    
	
 
    	
 
    	
 
    
	
ANNEX 7. 
    	
FORM OF CONTRACTOR PARENT COMPANY   PERFORMANCE GUARANTEE
    	
143
    
	
 
    	
 
    	
 
    
	
ANNEX 8 
    	
EXAMPLE OF R-FACTOR CALCULATION
    	
144
    
	
 
    	
 
    	
 
    
	
ANNEX 9 
    	
TAX RULINGS
    	
145
    

 

4

 

This Contract is entered into this 13 day of December 2011, by and between:

 

STAATSOLIE MAATSCHAPPIJ SURINAME N.V. (hereinafter referred to as “Staatsolie”) a corporation organized and acting under the laws of the Republic of Suriname;

 

and

 

 Kosmos Energy Suriname (hereinafter referred to as “Kosmos”), a corporation organized and acting under the laws of the Cayman Islands.

 

WITNESSETH:

 

WHEREAS, all Petroleum existing in the territory of the Republic of Suriname, including Petroleum existing offshore, is the property of the Republic of Suriname, and the Republic of Suriname holds exclusive sovereign rights with regard to the exploration and exploitation for all Petroleum existing in this area; and

 

WHEREAS, the Republic of Suriname wishes to ensure the sustainable exploitation of these ‘non-renewable resources’ in a prudent and environmentally sound manner in accordance with accepted international standards; and

 

WHEREAS, Staatsolie, in accordance with the Mining Decree, Official Gazette 1986 No. 28, has been granted mining rights including in Block 42 as described in Annex 1 and Annex 2; and

 

WHEREAS, Staatsolie acts as agent of the Republic of Suriname with respect to the petroleum industry; and

 

WHEREAS, in accordance with Decree No. E-8B, dated May 11, 1981, Official Gazette 1981; No. 59, and Resolution No. 3051/93 of 11 July 1993, as extended by Resolution No. 478/03 of 26 July 2003, Staatsolie has been granted the exclusive rights to explore for, develop and produce Petroleum including in Block 42; and

 

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WHEREAS, Kosmos has demonstrated that it possesses the financial ability, technical competence and professional skills necessary to perform operations for the Exploration, Development, Production, transportation and marketing of petroleum and is prepared to utilize such technical competence and financial ability as is necessary to fulfill its obligations under this Contract; and

 

WHEREAS, the parties hereto have agreed that Kosmos shall have the exclusive right to carry out all Petroleum Operations in Block 42 pursuant to the provisions of this Contract; and

 

WHEREAS, Kosmos will not be required to develop or produce or continue to produce any Petroleum hereunder which, in Kosmos’ opinion, based on a technical and financial analysis, would not provide Kosmos with an acceptable rate of return; and

 

WHEREAS, in accordance with the Petroleum Law of 1990, Official Gazette 1991, No. 7, Staatsolie has the right, power and authority to enter into this Contract; and

 

WHEREAS the Minister of Natural Resources after referral to and approval to do so by the Cabinet of Ministers has given Staatsolie permission to sign this Contract.

 

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

 

6

 

ARTICLE 1         DEFINITIONS

 

In this Contract the following terms shall have the following meanings:

 

1.01                        “Abandonment Fund” is an escrow account set up to finance abandonment activities, in US Dollars at a bank of good international repute to be agreed between Staatsolie and Contractor.

 

1.02                        “Accounting Procedure” means the procedures and reporting requirements defined in Annex 3.

 

1.03                        “Addendum” shall have the meaning set forth in Sub-article 20.4.

 

1.04                        “Affiliate” means any entity directly or indirectly effectively controlling, or effectively controlled by, or under direct or indirect effective common control with a Party. For the purposes of this definition “control”, when used with respect to any specified entity, means the power to direct, administer and dictate policies of such entity (it being understood and agreed that it is not necessary to own directly or indirectly fifty percent (50%) or more of such entity’s voting securities to have effective control over such entity, but ownership, direct or indirect, of fifty percent (50%) or more of such entity’s voting securities shall automatically indicate effective control), and the terms “controlling” and “controlled” have meanings corresponding with the foregoing.

 

1.05                        “Applicable Law” means the laws, decrees, regulations and other legal provisions having the force of law in the Republic of Suriname, as these may be amended from time to time.

 

1.06                        “Appraise” or “Appraisal” means work (being part of Exploration) carried out following a Discovery for the purpose of delineating a Petroleum Field and determining whether or not such Petroleum Field merits Development.

 

1.07                        “Appraisal Well” means any well whose purpose at the time of commencement of drilling such well is the determination of the extent, volume or recoverability of a Discovery.

 

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1.08                        “Arm’s Length Transaction” means a “transaction (purchase, sale, exchange or swap) in conformity with the market (or “determined by market forces”), between a seller and a willing buyer not being Affiliates, in the international market, valued in US Dollars.

 

1.09                        “Associated Gas” means Natural Gas produced from any well in the Contract Area, the predominant production of which is Crude Oil and which is separated from Crude Oil in accordance with normal oilfield practice including Natural Gas produced from a free gas cap, but shall exclude any liquid hydrocarbon extracted from such gas either by normal field separation, dehydration or in a gas plant.

 

1.10                        “Authorized Representative” is the representative authorized to cast a vote on behalf of Staatsolie or Contractor, as the case may be, in the Operations Committee

 

1.11                        “Barrel” means a quantity or unit of Crude Oil equal to forty-two (42) United States gallons at a temperature of sixty (60) degrees Fahrenheit and at an atmospheric pressure of fourteen point seven (14.7) p.s.i.

 

1.12                        “Basket” is a collection of at least three (3) but no more than four (4) representative crude oils, quoted for pricing purposes that are comparable to the Crude Oil and that are freely traded in international markets.

 

1.13                        “Budget” means the annual income and expenditure plan for each Work Program or Calendar Year, prepared in a form acceptable to the Operations Committee pursuant to Article 8.

 

1.14                        “Calendar Months” means a month of a Calendar Year.

 

1.15                        “Calendar Quarter” means a period of three (3) consecutive Calendar Months commencing on the 1st of January, the 1st of April, the 1st of July, or the 1st of October, respectively in a Calendar Year.

 

1.16                        “Calendar Year” means a period of twelve (12) Calendar Months commencing on the 1st of January and ending on the following December 31st according to the Gregorian calendar.

 

1.17                        “Commercial Field” means an area delineated on the surface as described in 

 

8

 

the approved Development Plan for such Petroleum Field.

 

1.18                        “Contract” means this instrument and its annexes attached.

 

1.19                        “Contract Area” means on the Effective Date, the area described in Annexes 1 and 2 and, thereafter, the whole or any part of such area in respect of which, at the relevant time, the Contractor continues to have rights and obligations under this Contract.

 

1.20                        “Contract Year” means a period of twelve (12) consecutive Calendar Months according to the Gregorian calendar, commencing on the Effective Date or on each anniversary thereof.

 

1.21                        “Contractor” means Kosmos or, in the event of assignment of Contractor participating interest or participation by Staatsolie pursuant to Article 11, all Contractor Parties collectively at the time of reference.

 

1.22                        “Contractor Party(ies)” means any party with a participating interest in Contractor’s rights and obligations under this Contract.

 

1.23                        “Cost Oil” means the amount of produced Crude Oil allocated to Contractor for recovery of expenditures pursuant to Sub-articles 13.2, 13.3, 13.4 and 13.5.

 

1.24                        “Cost Recovery” means the process by which Contractor is allocated produced Crude Oil for the recovery of its Petroleum Expenditures pursuant to Article 13.

 

1.25                        “Crude Oil” means all hydrocarbons, which are solid or liquid under normal atmospheric conditions of temperature and pressure, and includes any liquid hydrocarbon extracted from Natural Gas either by normal field separation, dehydration or in a gas plant.

 

1.26                        “Date of Declaration of a Commercial Field” means the date on which Contractor has submitted to the Operations Committee the declaration of a Commercial Field pursuant to Sub-Article 9.3.

 

1.27                        “Date of Establishment of a Commercial Field” means the date on which Contractor has received written approval from the Operations Committee for the Development Plan of a Commercial Field.

 

9

 

1.28                        “Date of Initial Commercial Production” means the date on which the regular production of Crude Oil, excluding production from the testing of wells, starts from the first Commercial Field.

 

1.29                        “Day” means a period of one (1) twenty-four (24) hour calendar day commencing at 00:00 hours.

 

1.30                        “Delivery Point” for Petroleum means the custody transfer point where Petroleum is measured and delivered to Parties, and where ownership and risk of loss of the Petroleum is transferred to the lifting Party, the location of which is specified in the approved Development Plan.

 

1.31                        “Development and Production Area” means that part of the Contract Area containing a Commercial Field, as defined in the Development Plan pursuant to Sub-article 9.5.

 

1.32                        “Development and Production Period” in respect of each Commercial Field, commences on the Date of Establishment of a Commercial Field and shall terminate at the expiration of this Contract.

 

1.33                        “Development” or “Development Operations” means all work, whether inside or outside Suriname, associated with:

 

·                  planning, procurement, design, and execution related to the drilling and completion of Development Wells; and

 

·                  planning, design, construction, installation and commissioning of facilities for the Production of Petroleum including purchase or leasing of all materials and equipment,

 

which are required for Production, treatment, waste disposal, transport, storage and lifting of Petroleum and for reservoir pressure maintenance, injection, recycling and secondary and tertiary recovery projects for the execution of this Contract.

 

1.34                        “Development Expenditures” means all capital costs and expenses made for Development Operations during the Development and Production Period excluding interest, as determined in accordance with the Accounting Procedure.

 

10

 

1.35                        “Development Plan” means the plan for Development of a Commercial Field pursuant to Sub-article 9.5.

 

1.36                        “Development Well” means any Production, injection or observation well drilled as part of the Development Plan or subsequent expansion, infill drilling or enhanced recovery program in an existing Commercial Field. This also includes reentering of suspended Exploration and/or Appraisal Wells.

 

1.37                        “Discovery” means the penetration by a well of a Petroleum Reservoir within the Contract Area which was previously unknown, and which could indicate the existence of a Commercial Field.

 

1.38                        “Discovery Area” means, that portion of the Contract Area, reasonably determined by Contractor and to be approved by Staatsolie, on the basis of the available seismic and well data to cover the real extent of the geological structure in which the Discovery is made. A Discovery Area may be modified, subject to Staatsolie’s approval, at any time by Contractor, if justified on the basis of new information, but may not be modified after the date of completion of the Appraisal program. In the event Staatsolie disapproves a Discovery Area, either Party has the right to refer the matter to an independent expert in accordance with Sub-Article 41.5.

 

1.39                        “Dispute” means any dispute, controversy or claim between the Parties arising out of, relating to or in connection with this Contract or the scope, breach, termination or validity thereof.

 

1.40                        “Domestic Supply Requirement” means Crude Oil consumed in Suriname and shall include only Crude Oil which is subsequently refined into petroleum products, or burned for development of electricity, within the national borders of Suriname.  For the avoidance of doubt Crude Oil provided under this Contract to meet the Domestic Supply Requirement shall not be exported and the calculation of the Domestic Supply Requirement shall not include petroleum products.

 

1.41                        “Effective Date” means the date on which this Contract comes into force 

 

11

 

pursuant to Sub-article 37.2.

 

1.42                        “Environmental Damage” means any damage, disturbance or hindrance of the environment such as significant soil erosion, removal of vegetation, destruction of wildlife, marine organisms, pollution of groundwater, pollution of surface water, land or sea contamination, air pollution, noise pollution, bush fire, disruption of water supplies, disruption of natural drainage, damage to archaeological, paleontological and cultural sites.

 

1.43                        “Expatriate Employee” means a person, who at the start of his/her employment contract did not reside in the Republic of Suriname and who is employed by Contractor or a Sub-Contractor for purposes of this Contract.

 

1.44                        “Exploration Expenditures” means all costs and expenses paid for Exploration Operations during the Exploration Period or afterward pursuant to Sub-article 3.5 as determined in accordance with the Accounting Procedure.

 

1.45                        “Exploration” or “Exploration Operations” means all activities carried out in the search for Petroleum, Appraisal of Discoveries and subsequent activities leading to the decision of whether or not to submit a Development Plan and any subsequent preparation of a Development Plan. This includes planning, preparation and conduct of geological and geophysical studies, drilling and well testing activities and technical and economic evaluations. Exploration Operations shall include all plugging, abandonment, and rehabilitation activities associated with Exploration Wells.

 

1.46                        “Exploration Period” means the period specified in Sub-article 3.2 hereof including any extension of such period in accordance with Sub-article 3.3, during which Contractor is to carry out Exploration Operations.

 

1.47                        “Exploration Well” means any well, which upon commencement is intended to explore for any accumulation of Petroleum previously unconfirmed.

 

1.48                        “Force Majeure” means an event, other than the obligation to pay money (unless payment is prohibited by government instruction or order as noted below), which could not reasonably be expected to have been prevented or controlled and is beyond the ability of the affected Party to control using reasonable efforts, including but not limited to: 

 

12

 

earthquake, storm, flood, lightning, or other adverse weather conditions, war or other military activity, fire, embargo, blockade, riot, civil disorder, labor disputes, strikes and other labor stoppages.  “Force Majeure” also encompasses orders given by a government having jurisdiction over a Party, or laws and other regulations enacted by such government or inaction by such government to perform those acts that can reasonably be expected to be performed.

 

1.49                        “Government” means the government of the Republic of Suriname.

 

1.50                        “Government Authority” means the Government and any subdivision thereof, including any local government or other representative authority or agency, which has the authority to govern, legislate, regulate and collect taxes or duties, grant licenses and permits, approve or otherwise impact (whether financially or otherwise) directly or indirectly, any of Staatsolie’s rights and or Contractor’s rights, obligations or activities under this Contract.

 

1.51                        “Gross Negligence or Willful Misconduct” means an intentional and conscious or reckless disregard of a duty regarding good and prudent international oil industry practices, but shall not include (i) any act or inaction required, in the opinion of the Party acting or failing to act based upon the circumstances known to such Party at the time, to meet emergency conditions including, but not limited to, the safeguarding of life, property and Petroleum Operations, or (ii) any error of judgment or mistake made in the exercise of good faith of any function, authority, or discretion conferred upon the Party.

 

1.52                        “Gross Production” means all Crude Oil produced and saved from the Contract Area during the Development and Production Period of each Commercial Field, and delivered to the Delivery Point, excluding water, sediments and any Petroleum used in Petroleum Operations.

 

1.53                        “LIBOR” means interest at the rate per annum equal to the one (1) month term, London Interbank Offered Rate (LIBOR rate) for US Dollar deposits, as published in London by the Financial Times or if not published, then by the Wall Street Journal, applicable on the first business day of the month in which such interest commences to accrue and thereafter on the first Business Day of each succeeding Calendar month. For the purpose of this definition “Business day” means a day on which the Financial Times or the Wall Street Journal (as the case may be) published the LIBOR rate for US Dollar deposits.

 

13

 

1.54                        “Minimum Work Obligations” means those work obligations set forth in Sub-articles 5.2.1, 5.2.2 and 5.2.3 for each respective phase of the Exploration Period.

 

1.55                        “Mining Decree” means Decree E-58 of May 8, 1986, Official Gazette 1986 No. 28 of the Republic of Suriname.

 

1.56                        “Natural Gas” means all hydrocarbons produced from the Contract Area, which at a temperature of sixty (60) degrees Fahrenheit and pressure of fourteen point seven (14.7) p.s.i., are in a gaseous phase, including wet mineral gas, dry mineral gas, wet gas and residue gas remaining after the extraction, processing or separation of both liquid hydrocarbons and non-hydrocarbon gas or gasses produced in association with liquid or gaseous Petroleum.

 

1.57                        “Operating Expenditures” means all costs and expenses, excluding interest expenditures incurred for Production Operations, as determined in accordance with the Accounting Procedure.

 

1.58                        “Operations Committee” means the committee established pursuant to Sub-article 7.1.

 

1.59                        “Operator” means the Contractor Party responsible for the conduct of Petroleum Operations as determined in Article 6.

 

1.60                        “Parent Company Performance Guarantee” means a written assurance by a parent company of Contractor, or in the case of multiple Contractor Parties, a parent company of each Contractor Party, for the satisfactory performance and discharge of Contractor’s obligations during the term of this Contract and, in the event of withdrawal by Contractor, to make payment as specified in Sub-article 5.8.

 

1.61                        “Party” or “Parties” means Staatsolie and/or Contractor, as the case may be.

 

1.62                        “Petroleum” means as the context requires, Crude Oil and/or Natural Gas.

 

1.63                        “Petroleum Expenditures” means Exploration Expenditures, Operating Expenditures and Development Expenditures.

 

14

 

1.64                        “Petroleum Expenditures Account” shall mean the account showing the charges and credits accrued as Petroleum Expenditures.

 

1.65                        “Petroleum Field” means one (1) or more Petroleum Reservoirs, which have been identified by one (1) or more Exploration Wells or Appraisal Wells.

 

1.66                        “Petroleum Law of 1990” means the law of March 6, 1991, Official Gazette 1991 No. 7 of the Republic of Suriname as amended in 2001.

 

1.67                        “Petroleum Operations” means all activities (both in and outside the Republic of Suriname), relating to Exploration, Development and Production.

 

1.68                        “Petroleum Reservoir” means a single continuous deposit of Petroleum in the pores of a formation, which has a single pressure system and does not communicate with other zones.

 

1.69                        “Production” or “Production Operations” means all activities, up to the Delivery Point, other than Development Operations, performed in or outside Suriname during the Development and Production Period for the ongoing and continuous production, treatment, gathering, transport, storage and lifting of Petroleum and includes all works and activities connected therewith, including enhanced recovery operations such as recycling, recompression, pressure maintenance, treatment of discharged water, water flooding and abandonment.

 

1.70                        “Profit Oil” means the Crude Oil remaining after deduction of Royalty and Cost Oil from Crude Oil produced and saved from the Contract Area and delivered to the Delivery Point, calculated in accordance with the provisions of Sub-article 13.7.

 

1.71                        “Proven Reserves” are those quantities of Crude Oil which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known Petroleum Reservoirs and under current economic conditions, operating methods, and government regulations, as described in the “2007 Petroleum Resources Management System” adopted by the Society of Petroleum Engineers and the World Petroleum Congress, or as updated from time to time, and mutually agreed upon between Parties.

 

15

 

1.72                        “Realized Price” shall mean the price of Crude Oil FOB, actually realized in freely convertible currency, at the Delivery Point.

 

1.73                        “Royalty” means the fee or delivery in kind to the Republic of Suriname as described in Article 12.

 

1.74                        “Signing Date” means the date on which the Parties sign this Contract.

 

1.75                        “Site Restoration” means all activities required to return a site to its natural state or to render a site compatible with its intended future use by the Republic of Suriname, after cessation of and in relation to Petroleum Operations, and to repair any Environmental Damage to the extent reasonably feasible.  These activities shall include, where appropriate, removal of equipment, structures and debris, pipelines, establishment of compatible contours and drainage, replacement of top soil, re-vegetation, slope stabilization, filling of excavations, or any other appropriate actions, consistent with good international petroleum industry practices.

 

1.76                        “Sub-Contractor” means a natural person or legal entity, providing services to Contractor directly connected with and typically related to Petroleum Operations.

 

1.77                        “Tax” or “Taxes” means all existing or future levies, duties, payments, fees, taxes or contributions payable to or imposed by any Government Authority.

 

1.78                        “Work Program” means the annual plan for the conduct of Petroleum Operations, prepared in accordance with Article 8.

 

16

 

ARTICLE 2         SCOPE OF THE CONTRACT

 

2.1                          Scope

 

This Contract is a production-sharing contract in accordance with the provisions contained herein.  Its objective is the Exploration, Development and Production of Petroleum in the Contract Area by Contractor, carried out in consultation with and under supervision of the Operations Committee for the mutual benefit and profit of the Parties.

 

2.2                          Grant of Exclusive Right

 

Staatsolie grants to Contractor the sole and exclusive right to conduct Petroleum Operations within the Contract Area.  Except for the rights expressly provided for herein, this Contract shall not include rights for any activity other than Petroleum Operations.

 

Notwithstanding the above, upon thirty (30) Days prior notice to Contractor, Staatsolie shall have the right to obtain regional gravity, magnetic, geological and 2D seismic data for its own purpose during the term of the Contract, ensuring that this will not unduly interfere or unreasonably interrupt Contractors operations.

 

2.3                          Petroleum Operations and Expenditures

 

Contractor is hereby exclusively designated to carry out Petroleum Operations in the Contract Area and shall be responsible for rendering the technical and operational services required for the management and performance of Petroleum Operations. In particular, but not by way of limitation, Contractor shall:

 

2.3.1                       carry out all Exploration, Development, Production and Abandonment in the Contract Area;

 

2.3.2                       bear all costs necessary for Exploration Operations;

 

2.3.3                       if one or more Commercial Fields are established in the Contract Area, bear all costs for the Development and Production of such Commercial Fields, except if Staatsolie, at its sole option, decides to participate in such Development and Production pursuant to Article 11

 

2.3.4                       be entitled to recover its Petroleum Expenditures from its share of any Petroleum produced from the Contract Area in accordance with Article 13; and

 

2.3.5                       be entitled to Profit Oil from any Petroleum produced from the Contract Area in accordance with Article 13.

 

17

 

2.4                          Sole risk

 

2.4.1                       Exploration, Development and Production shall be carried out at the sole cost and risk of Contractor.

 

2.4.2                       If no Commercial Field is established in the Contract Area, or if the Cost Oil is insufficient to fully reimburse Contractor in accordance with the terms of this Contract, Contractor shall bear its own loss and Staatsolie shall have no obligation to reimburse Contractor for such loss.

 

2.4.3                       Notwithstanding anything to the contrary contained herein, and subject to the provisions of Article 39, nothing contained in this Contract shall be construed or interpreted to require Contractor to develop or produce or continue to produce Petroleum from a Commercial Field, which, in Contractor’s opinion, does not provide it with an acceptable rate of return.

 

2.5                          Approval for Cost Recovery

 

Staatsolie shall approve Petroleum Expenditures for Cost Recovery in accordance with the Accounting Procedure.

 

2.6                          Other Rights

 

This Contract does not, and is not to be construed by either Party to create a partnership, joint venture or any other legal entity or structure between the Parties.  Each Party shall be solely responsible for its own acts and omissions (and the acts and omissions of its employees, consultants, and agents).  Neither Party shall have any authority to act for the other Party and no act of one Party shall bind the other Party to any third party.

 

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ARTICLE 3         TERM OF THE CONTRACT

 

3.1                          Term

 

This Contract shall remain in force for a term of thirty (30) Contract Years from the Effective Date or twenty five (25) years starting from the date on which the Operator has received written approval of the Development Plan of the first Commercial Field, whichever is the greater. The Contract may be extended upon mutual agreement of the Parties.

 

The term of this Contract shall be divided in one (1) Exploration Period and one (1) or more Development and Production Period(s), which shall not exceed the term of this Contract as set out in this Article.

 

3.2                          Exploration Period

 

3.2.1                       The Exploration Period shall be nine (9) years divided into three (3) phases as follows:

 

(i)                            Phase 1 of the Exploration Period shall have a duration of four (4) years commencing on the Effective Date of this Contract

 

(ii)                           Phase 2 of the Exploration Period shall have a duration of three (3) years immediately following phase 1.

 

(iii)                          Phase 3 of the Exploration Period shall have a duration of two (2) years immediately following phase 2.

 

3.2.2                       Contractor shall have the right to withdraw from this Contract at the end of each phase of the Exploration Period, provided that, subject to Sub-article 5.6, the Minimum Work Obligations for such phase have been fulfilled, by notifying Staatsolie of its election, given pursuant to Sub-articles 5.2.1, 5.2.2 or 5.2.3, as applicable.

 

For the avoidance of doubt, there will be no mandatory relinquishment during the Exploration Period, provided however during any extension of the Exploration Period, relinquishments will be required in accordance with Article 9.

 

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3.3                          Extension of Exploration Period

 

In case of unforeseen delays which are not an event of Force Majeure, Contractor may, at least sixty (60) Days prior to the expiration of any phase of the Exploration Period, request Staatsolie to extend the duration of such phase for a maximum of one (1) Calendar Year in order to complete ongoing drilling operations, including logging and drill stem testing of wells. Approval of any such application shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, in the case of delays associated with drilling operations which are not part of the Minimum Work Obligations such application shall be granted.

 

For any Discovery made at any point during the Exploration Period, Contractor shall have the right to retain such Discovery and its resulting Discovery Area in order to Appraise and submit a Development Plan, all in accordance with Article 9. The Exploration Period of the resulting Discovery Area will be extended in order to complete such work.

 

3.4                          Commercial Field during Exploration Period

 

If during the Exploration Period a Commercial Field has been determined pursuant to Article 9, the Exploration Period for that Commercial Field shall be terminated. Exploration Operations shall continue in the remaining portion of the Contract Area until the end of the Exploration Period, subject to ring fencing per Commercial Field.

 

3.5                          Exploration in Development and Production Areas

 

During the entire term of this Contract, Contractor may conduct exploratory activities in all Development and Production Areas, at all depths and strata, until Contractor relinquishes these areas or this Contract is terminated. These exploration expenditures, which are the result of the above mentioned exploration activities, after expiration of the Exploration Period, shall not be cost recovered through existing Commercial Fields, but shall only be recoverable from production from the newly discovered reservoirs established as the result of such exploratory activities.

 

3.6                          Development and Production Period

 

3.6.1                       The Development and Production Period of a Commercial Field shall commence on the Date of Establishment of a Commercial Field and shall terminate at the expiration of this Contract.

 

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3.6.2                       If Production Operations in a Commercial Field are stopped during the Exploration Period, the Commercial Field shall continue to be part of the Contract Area to the end of the Exploration Period.

 

3.6.3                       Contractor may, upon at least three hundred and sixty-five (365) Days prior notice to Staatsolie, elect to abandon a Commercial Field.  Within one hundred eighty (180) Days of receipt of Contractor’s notice, Staatsolie may, upon notice to Contractor, elect to assume responsibility for such field. In such case, Contractor shall, acting as a prudent Operator, transfer and deliver the Commercial Field and all associated facilities to Staatsolie in working order and as a going concern (“as is, where is”) whereupon Contractor shall be released from all liability and responsibility accruing after such assignment.

 

3.6.4                       When such transfer and delivery of a Commercial Field has taken place, a) the custody of the Abandonment Fund allocated to such Commercial Field and facilities in accordance with Article 29 shall transferred to Staatsolie and b) unrecovered costs associated with such field at the moment of transfer, will no longer be recoverable.

 

3.6.5                       If Staatsolie fails to make an election within the one hundred and eighty (180) Day period or provides notice to Contractor that it does not wish to assume responsibility for the Commercial Field, Contractor may abandon the Commercial Field. In this case the Development and Production Area belonging to such Commercial Field will be relinquished, and abandoned in accordance with Article 29.

 

3.7                          Further Agreement

 

On expiration of this Contract, the Parties shall negotiate the terms and conditions of a revised agreement with respect to the Contract Area or part of it, if they wish to continue Petroleum Operations.  Failure to reach an agreement shall not give rise to a dispute and shall not be subjected to arbitration in accordance with Article 41 and marks the end of the Contract.

 

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ARTICLE 4         LOCATION AND SIZE OF THE CONTRACT AREA

 

4.1                          Location and Size

 

The Contract Area comprises 6176 square kilometers, as delineated in Annex 1 and by the coordinates set out in Annex 2.

 

4.2                          Rights Granted

 

The Contract Area has been delimited for the purpose of determining the surface area for the conduct of Petroleum Operations; no rights to the soil or sub-soil or to any natural resources existing therein are granted to Contractor, except the rights expressly granted by this Contract and Applicable Law.

 

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ARTICLE 5         MINIMUM EXPLORATION PROGRAM

 

5.1                          Exploration Operations

 

Contractor shall commence Exploration Operations within ninety (90) Days of the Effective Date.

 

5.2                          Work Obligations during the Exploration Period.

 

The Minimum Work Obligations of Contractor shall be as follows:

 

5.2.1                       Exploration Period - Phase 1

 

The Minimum Work Obligations for phase 1 of the Exploration Period shall be as follows:

 

(i)                            reprocess all available 2D seismic data across Block 42;

 

(ii)                           Acquire, process and interpret at least one thousand and four hundred (1400) kilometer of 2D seismic data.

 

(iii)                          Acquire, process and interpret at least five hundred (500) square kilometer of 3D seismic data.

 

(iv)                          Conduct geological analysis and evaluation of the data in the Contract Area supplied to the Contractor pursuant to Sub-article 21.2.

 

At the end of phase 1 Contractor will have the option to enter into phase 2 or withdraw from the Contract and relinquish the Contract Area with no further obligations for either Party and will, at least sixty (60) Days prior to the end of phase 1, report its election to Staatsolie in writing.

 

5.2.2                       Exploration Period - Phase 2

 

The Minimum Work Obligations for phase 2 of the Exploration Period shall be as follows:

 

(i)                            Drill at least one (1) Exploration Well in the Contract Area

 

(ii)                           Conduct geological analysis and evaluation of the data acquired by the Contractor in the Contract Area.

 

At the end of phase 2 Contractor will have the option to enter into phase 3 or withdraw from the Contract and relinquish the Contract Area with no further obligations for either Party and the Contractor shall, at least sixty (60) Days prior to the end of phase 2, report its election to Staatsolie in writing.

 

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5.2.3                       Exploration Period - Phase 3

 

The Minimum Work Obligations for phase 3 of the Exploration Period shall be as follows:

 

(i)                            Drill at least one (1) Exploration Well in the Contract Area

 

(ii)                           Conduct geological analysis and evaluation of the data acquired by the Contractor in the Contract Area.

 

Subject to Section 3.3, at the end of phase 3 Contractor shall either relinquish all of the Contract Area except Development and Production Areas and areas for which a declaration of a Commercial Field is pending before the Operations Committee or withdraw from the Contract and relinquish all of the Contract Area with no further obligations for either Party.

 

5.3                          Minimum Work Obligation - Deemed Fulfilled

 

If Contractor has fulfilled the Minimum Work Obligations during a phase of the Exploration Period, the commitments for such phase of the Exploration Period shall be deemed completely fulfilled.

 

5.4                          Minimum Work Obligations - Carried Forward

 

Work performed in excess of the Minimum Work Obligations during any phase of the Exploration Period shall be carried forward into subsequent phases of the Exploration Period.  This work shall be credited against the Minimum Work Obligations of subsequent phases.

 

5.5                          Exploration Operations

 

Staatsolie and Contractor agree that the Exploration Operations shall be determined by Contractor, at its sole discretion. Contractor shall inform Staatsolie in advance of its Exploration drilling schedule or program, or of any modifications thereof.

 

5.6                          Drilling Problems - Well Obligation Deemed Fulfilled

 

If, during drilling of an Exploration Well and prior to reaching the targeted depth, drilling problems are encountered which, after all reasonable efforts (in accordance with good practices generally observed in the international petroleum industry) have been made to drill deeper, render further drilling of the said Exploration Well impossible, impractical or unsafe, Contractor may plug and abandon or complete the well and the work obligation for such well shall be deemed fulfilled.

 

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5.7                          Parent Company Performance Guarantee

 

On or before entering into any phase of the Exploration Period, Contractor shall provide Staatsolie with a Parent Company Performance Guarantee guaranteeing the execution of the Minimum Work Obligation, for the relevant phase as described in Annex 7.

 

5.8                          Contractor’s Obligation to Make Payment

 

5.8.1                       Subject to Sub-article 3.3, if at the end of the relevant Exploration phase the Minimum Work Obligations for such phase of the Exploration Period have not been fulfilled, as set out in Article 5.2, Contractor or the Company that issued the Parent Company Performance Guarantee shall pay Staatsolie the difference between (i) and (ii) below:

 

(i)                            The estimated cost of the Minimum Work Obligation for each Exploration phase, are as follows:

 

For phase 1, US$ five (5) million;

 

for phase 2, US$ eight-five (85) million; and

 

for phase 3 US$ one hundred (100) million;

 

and

 

(ii)                           the Exploration Expenditures attributable to such phase of the Exploration Period, incurred by Contractor up to the date of the decision to withdraw was received by Staatsolie.

 

5.8.2                       Subject to Sub-article 3.3, if the Minimum Work Obligations of any phase of the Exploration Period has not been fulfilled prior to the end of such phase, as determined in accordance with Article 5, Contractor shall be deemed to have withdrawn from the Contract at the end of such phase, and shall pay Staatsolie the amount calculated based on Sub-article 5.8.1

 

5.9                          Withdrawal during Exploration Period

 

If Contractor elects to withdraw and has made the payment required by Sub-article 5.8, all its obligations under this Contract shall end and be deemed completely fulfilled, except for Site Restoration obligations of Contractor.

 

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5.10                        Completion of Minimum Work Obligations — Contractor Notice

 

5.10.1                     Within sixty (60) Days following completion of the Minimum Work Obligations for each phase of the Exploration Period, Contractor shall notify Staatsolie that it has fulfilled the Minimum Work Obligations under Sub-article 5.2 regarding the respective phase of the Exploration Period.

 

5.10.2                     Staatsolie will within thirty (30) Days of receiving such notice, confirm in writing that Contractor has fulfilled such Minimum Work Obligations of the relevant phase of the Exploration Period.

 

5.11                        Completion of Minimum Work Obligations - Staatsolie Verification

 

5.11.1                     If Staatsolie does not dispute in writing, within thirty (30) Days of Contractor’s notice pursuant to Sub-article 5.10, that Contractor has fulfilled its Minimum Work Obligations with respect to such phase, Contractor shall be deemed to have completed its Minimum Work Obligations with respect to the relevant phase.

 

5.11.2                     If Staatsolie does dispute in writing that Contractor has fulfilled its Minimum Work Obligations, such objections shall set forth the full details of Staatsolie’s objections.  Parties shall discuss disputes, which may arise as to whether or not the Minimum Work Obligations have been satisfied, in an effort to reach an amicable solution.  Either of the Parties may refer the matter to dispute resolution, pursuant to Article 41, should they remain unable to agree.

 

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ARTICLE 6         OPERATOR

 

6.1                          General Standards of Conduct

 

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

 

6.1.2                       In particular, the Operator shall, in accordance with good international petroleum industry practice:

 

(i)                            ensure that all machinery, plants, equipment and installations used by the Contractor in connection with the Petroleum Operations are of proper and accepted construction and are well maintained;

 

(ii)                           use the resources of the Contract Area as productively as possible and prevent spills of Petroleum, mud or any other substances;

 

(iii)                          prevent damage to all (including adjacent) strata which bear petroleum or water;

 

(iv)                          adhere to all HSE practices as described in this Contract.

 

6.2                          Operator

 

6.2.1                       Kosmos is hereby designated to be the Operator and is responsible for the management, coordination, implementation and conduct of the day-to-day Petroleum Operations on behalf of the Parties under this Contract. There shall only be one (1) Operator at any given time. Only Contractor or one of the Contractor Parties shall be Operator. Staatsolie must consent to any changes in Operator, and such consent shall not be unreasonably withheld in the event of a competent replacement.

 

6.2.2                       If Operator resigns or the Contractor Parties agree upon a replacement for Operator, it shall continue to serve as Operator in a temporary capacity until another Operator, agreed upon by the Contractor Parties, assumes its responsibilities. Parties agree to deal in good faith with one another in selecting a replacement Operator. In no event shall Operator be required to serve in a temporary capacity for more than twelve (12) consecutive months.

 

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6.3                          Responsibilities and Authority of Operator

 

The responsibilities of Operator shall be the management, and conduct of the day-to-day Petroleum Operations on behalf of Contractor Parties pursuant to Article 6, and all other functions as may be delegated to Operator by Contractor Parties. Operator may sub-contract specialist work as necessary for the conduct of Petroleum Operations.

 

6.4                          Procedures

 

Operator shall adopt and implement all policies, procedures and operational practices required by Applicable Law and according to good international petroleum industry practices and which the Parties otherwise deem necessary for the conduct of Petroleum Operations in accordance with this Contract.

 

6.5                          Status of Operator

 

Operator shall not receive any payments acting as Operator according to this Contract, except as otherwise provided in the Accounting procedure and any joint operating agreement which may be executed by Contractor Parties.

 

6.6                          Operator

 

The books and accounts of Operator will record all financial flows or other transactions passing through Operator to the Contractor Parties in accordance with this Contract as though Operator did not exist as a commercial entity separately from its status as Contractor (or as a Contractor Party).

 

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ARTICLE 7         OPERATIONS COMMITTEE

 

7.1                          Operations Committee

 

7.1.1                       In order to enable Staatsolie and Contractor to carry out Petroleum Operations in mutual cooperation at all times, Parties shall, within sixty (60) Days after the Effective Date, form an Operations Committee, consisting of three (3) representatives from each of Staatsolie and Contractor. Parties shall notify each other of the names of its representatives and alternates within the time prescribed above. The senior representative of Staatsolie shall be the chairperson of the Operations Committee. The duties of the chairperson shall include, without limitation, drafting of the agenda, presiding at meetings of the Operations Committee, establishment and maintenance of the minute books and coordinating communications between the Parties.

 

7.1.2                       The size of the Operations Committee may be changed by mutual consent but shall not exceed a total membership of six (6). The Parties may replace their representatives or alternates. The names of the replaced representatives and alternates shall be communicated to the other Party at least three (3) days prior to a meeting of the Operations Committee. Consultants and/or advisors may accompany the representatives to the meetings of the Operations Committee. Such representatives, consultants and advisors shall have no voting rights and shall be subject to the confidentiality restrictions of Article 22.

 

7.1.3                       Reasonable and documented, direct costs associated with the Operations Committee meetings shall be borne by the Contractor and eligible for Cost Recovery.  The chairperson of the Operations Committee may, on behalf of Staatsolie, submit to Operator documented invoices for such direct costs and Operator shall make appropriate payment within 30 days.

 

7.2                          Voting

 

7.2.1                       Staatsolie and Contractor shall each have one (1) undivided vote to cast on any matter submitted to the Operations Committee for approval.  For this purpose, both Staatsolie and Contractor shall give notice to each other, specifying the identity of the Authorized Representative, which may be changed by written notice to the other Party.

 

7.2.2                       Subject to Sub-article 7.8, all decisions required by this Contract to be made by the Operations Committee shall require the unanimous vote of both Staatsolie and

 

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Contractor. Any approval by the Operations Committee shall be deemed to be an approval by Staatsolie to the extent such approval is required by this Contract or Applicable Law.

 

7.2.3                       Regarding matters on which agreement cannot be reached, on the basis of sound and reasonable arguments brought by each Party, the Operations Committee shall attempt to resolve the matter in good faith. However, if the Operations Committee fails to reach a decision on disputed matters, then either Party may agree to refer such matter to determination by independent experts, according to Sub-Article 41.5 or may refer such matter to arbitration according to Sub-Articles 41.1 and 41.2.

 

7.2.4                       A quorum of the Operations Committee shall, for regular meetings, consist of at least two (2) representatives from each of Staatsolie and Contractor, including the respective Authorized Representatives.

 

7.2.5                       Proposal(s) other than those of Work Program(s) and Budget(s) shall be considered rejected if no action is taken by the Operations Committee within thirty (30) Days of receipt of Contractor’s proposal(s).  To the degree possible, and if acceptable to the Parties, all undisputed portions of the proposal shall be approved and promptly take effect.

 

7.3                          Meetings

 

7.3.1                       Unless otherwise agreed by the Parties, the Operations Committee shall meet two (2) times per Calendar Year beginning in 2012 in Paramaribo, Suriname or another mutually accepted venue.

 

7.3.2                       Additional meetings of the Operations Committee may be called by either Party as deemed necessary, with at least twenty (20) Days prior notice to the other Party, which period may be waived by mutual agreement of the Parties, specifying the proposed agenda, time and venue of the meeting.

 

7.3.3                       If urgent action is required, additional meetings shall be convened whenever necessary and on such notice as deemed reasonable under the circumstances.  If time is of the essence, a matter may be decided by the Operations Committee through a telecommunication meeting confirmed by facsimile, or emailed PDF.

 

7.4                          Attendance at Meetings

 

All regular meetings shall be attended in person by at least two (2) representatives from each Party. Additional meetings shall be attended by at least one (1) representative from each Party. A maximum of one (1) representative of a Party unable to attend a regular meeting and any representative of a Party unable to attend an additional meeting in person, may attend by

 

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teleconference or phone, so long as he or she can be heard by all attendees and can hear all discussion during the meeting. If the Authorized Representative attends a meeting by teleconference or phone, his or her voice vote shall be confirmed in writing, and immediately sent to the chairperson either by courier, emailed PDF or by facsimile.

 

7.5                          Written Response in Lieu of Meeting

 

Subject to a Party’s right to call an additional meeting, when one Party is of the opinion that an action of the Operations Committee can be taken without holding a meeting, the Authorized Representative of that Party shall give written notice to that of the other Party providing sufficient information to permit the other Party to determine whether to agree to such action.  All such notices shall clearly state the proposed action and contain a place for the Authorized Representative of each Party to sign the notice approving the action. Failure of the other Party to respond in writing within twenty (20) Days of receiving such notice shall be deemed a rejection of the proposed action by the receiving Party. The signed original(s) of all such notices approved by the Parties under this Sub-article shall be placed in the minute books of the Operations Committee.

 

7.6                          Agenda and Minutes

 

Operator and Staatsolie, through the chairperson, shall be responsible for preparation of the draft agenda and supporting documents for each meeting of the Operations Committee. Responsibility for taking and distribution of minutes will be assigned by the chairperson at the start of the meeting. A copy of all minutes shall be distributed to each representative within ten (10) Days following the meeting.  Within thirty (30) days of receipt, all minutes shall be reviewed and either initially approved or corrected and the chairperson advised thereof. The minutes shall then be considered for formal approval at the next Operations Committee meeting after their distribution.

 

7.7                          Responsibilities during entire Contract Period

 

Subject to Sub-articles 7.8 and 7.9, the Operations Committee shall provide policy and general guidance regarding operations under the Contract.  Such policy and guidance shall include:

 

7.7.1                       supervision of Petroleum Operations carried out by Contractor in accordance with the Work Programs and Budgets;

 

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7.7.2                       Approve if Petroleum Operations are adequately insured at a reputable international insurance company and in case of world-wide insurance to approve the premium if is pro rata shared;

 

7.7.3                       approval for disposal of Material and Equipment from Contractor as described in the Accounting Procedure;

 

7.7.4                       review of audited accounts of Petroleum Operations;

 

7.7.5                       approval of training programs and projects aimed at the community at large in accordance with Article 32 and amounts budgeted for such programs;

 

7.7.6                       establishing subcommittees for matters within the jurisdiction of the Operations Committee;

 

7.7.7                       approval of the boundaries of each Development and Production Area;

 

7.7.8                       approval of Development Plans;

 

7.7.9                       approval of plans and budgets for operations relating to secondary recovery and the enhancement of Production;

 

7.7.10                     approval of expenditures in excess of the amount provided in the Budget, concerning Development Operations and Production Operations, subject to the provisions of Article 8;

 

7.7.11                     all other functions which may be expressly delegated to the Operations Committee by agreement of the Parties.

 

7.8                          Responsibilities during Exploration Period

 

Except where it is specifically stated that Staatsolie shall approve a proposal, the function and responsibility of the Operations Committee during the Exploration Period shall be to review and advise on the Exploration Operations of Contractor.  Such review and advice shall include:

 

7.8.1                       review and advice on Contractors budget and work program and operations

 

7.8.2                       review of Contractor’s Appraisal report on the commerciality of a Petroleum Field.

 

7.9                          Responsibilities during Development and Production Period

 

During the Development and Production Period(s), the function and responsibility of the Operations Committee shall be to review, comment on and approve, Petroleum Operations of

 

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Contractor. Such review, advice and approval shall not be will be unreasonably withheld shall include:

 

7.9.1                       approval of work programs and budgets in accordance with Article 8.4;

 

7.9.2                       approval of the adjustment and modifications of approved Development Plans;

 

7.9.3                       review of operational activities.

 

7.10                        Communication to Operations Committee

 

All documents and communication intended for the Operations Committee should be addressed to the chairperson of this committee.

 

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ARTICLE 8         CONDUCT OF OPERATIONS, WORK PROGRAM AND BUDGET

 

8.1                          General Obligations Contractor

 

Contractor shall be responsible for the conduct of the Petroleum Operations.  Contractor shall carry out the Petroleum Operations in the Contract Area diligently, expeditiously, efficiently, and with the objective to economically maximize the ultimate recovery of Crude Oil and Natural Gas from the Commercial Field(s) in accordance with good international petroleum industry practice, and in consultation with or after approval of, as applicable, the Operations Committee, pursuant to Sub-articles 7.7, 7.8 and 7.9.

 

8.2                          Initial Work Program and Budget

 

Contractor shall, within ninety (90) Days after the Effective Date, submit to the Operations Committee for its review and comment, in accordance with Sub-articles 7.7 and 7.8, a Work Program and Budget for the Exploration Operations for the remainder of the first Calendar Year of the Exploration Period. If the Effective Date is less than one hundred thirty-five (135) Days before the end of the first Calendar Year, Contractor shall submit a Work Program and Budget for the Exploration Operations for the remainder of the first Calendar Year and the subsequent Calendar Year of the Exploration Period.

 

8.3                          Annual Work Program and Budget

 

8.3.1                       Exploration

 

Contractor shall submit to the Operations Committee for its review and advisement in accordance with Sub-articles 7.7 and 7.8, a Work Program and a Budget for the subsequent Calendar Year at least ninety (90) Days before the commencement of each Calendar Year.  Submission of the Work Program(s) and Budget(s) shall not be considered a decision by Contractor to enter the subsequent phases of the Exploration Period in accordance with Sub-article 5.2.

 

During the Exploration Period, the Work Program(s) submitted by Contractor for each Calendar Year shall be accompanied by an indicative schedule for operations for the remainder of the then current phase of the Minimum Work Obligations accordance with Article 5.

 

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8.3.2                       Development and Production

 

Contractor shall submit for review and approval a Work Program and Budget for each Commercial Field for each Calendar Year to the Operations Committee at least ninety (90) Days prior to the commencement of such Calendar Year.  Notwithstanding the foregoing, for activities related to Exploration Operations conducted during a Development and Production Period shall be submitted in accordance with Sub-article 8.3.1.

 

8.4                          Review and Approval of Work Program and Budget

 

8.4.1                       After the submission of each Work Program and Budget in accordance with Sub-article 8.3, the Operations Committee will meet within thirty (30) Days and Operator will explain the proposed Work Program and Budget. The Parties shall review and either i) advise (for Exploration Operations) or ii) approve, propose modifications to, or reject the proposed Work Program and Budget (for Development Operations or Production Operations) in accordance with Sub-article 7.8 and 7.9 as appropriate.

 

8.4.2                       Following review and consideration of any modifications of the Work Program and Budget proposed by Staatsolie, the Contractor shall, within fifteen (15) Days of the proposed changes, re-submit the final Work Program and Budget for the subject Calendar Year.

 

8.4.3                       For Work Programs and Budgets related to Exploration Operations, the Work Program and Budget re-submitted as described in Sub-article 8.4.2 shall be deemed final.

 

8.4.4                       For Work Programs and Budgets related to Development Operations or Production Operations, within fifteen (15) Days following the receipt of the re-submitted Work Program and Budget as described in Sub-article 8.4.2, Staatsolie shall notify the Contractor of its Operations Committee vote of approval or rejection of the re-submitted Work Program and Budget and, if a vote of rejection, propose modifications with detailed reasons for such modifications.  In the case that Staatsolie fails to respond to the re-submitted Work Program and Budget within fifteen (15) Days from its receipt thereof, the resubmitted Work Program and Budget shall be deemed approved by the Operations Committee.

 

8.4.5                       In the event that Staatsolie rejects such re-submitted Work Program and Budget as described in Sub-article 8.4.2, the Contractor may either accept the modifications to the Work Program and Budget proposed by Staatsolie or refer its re-submitted Work Program and Budget to Expert Determination in accordance with Sub-article 41.5. The decision of the expert shall be limited to approval or rejection of the Work Program and Budget submitted by the Contractor.  Pending receipt of the final decision of the independent expert, the

 

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Contractor shall have the right (but not an obligation) to continue operations in any manner that is not inconsistent with Staatsolie’s proposed modifications to the Work Program and Budget.

 

8.5                          Modifications to Work Program and Budget

 

8.5.1                      During the Exploration Period and for any subsequent Exploration, Contractor shall implement the Work Program and Budget that was reviewed by the Operations Committee. Modification to or revision of the details of such a Work Program and Budget may be conducted at the discretion of Contractor. Contractor shall inform the Operations Committee in advance of these modifications or revisions.

 

8.5.2                       For Development Operations and Production, Contractor shall implement the Work Program and Budget approved by the Operations Committee.  Modification or revision of the details of the Work Program or Budget is permitted subject to the following:

 

8.5.2.1                    For approved Development Operations and Production Operations, Operator may incur expenditures in excess of those in the Budget, but not exceeding the greater of ten percent (10%) of the total expenditure approved for a line item under an applicable annual Budget or five million US Dollars (US$5,000,000) in a total annual Budget. In such cases, Operator shall report in writing any such overexpenditure to the Operations Committee within fourteen (14) Days after the overexpenditures are known to Operator.

 

8.5.2.2                    In case of emergency, Operator may incur expenditures necessary for prudent Operations. Operator shall report such expenditures to the Operations Committee in accordance with Sub-Article 8.5.2.1.  Unless such emergency is due to Gross Negligence or Willful Misconduct on the part of Operator, such expenditures shall be approved by the Operations Committee, and shall automatically be included in the approved Budget.

 

8.5.3                       The aggregate of excess expenditures made under Sub-articles 8.5.2 shall not exceed ten percentages (10%) of the expenditures authorized in the approved Budget.  If Operator is of the opinion that a necessary expenditure would result in exceeding the limits set forth above, Operator shall justify this expenditure to the Operations Committee and shall obtain its approval therefore. The provisions of Sub-article 8.4.2 shall apply mutatis mutandis. In case of operational imperatives requiring such approval in a shorter timeframe, Parties shall endeavor to complete the approval process within such shorter time frame. Excess expenditures shall become part of the approved Budget after approval by the Operations Committee.

 

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ARTICLE 9         COMMERCIALITY

 

9.1                          Discovery and Appraisal Notifications

 

9.1.1                       If Petroleum Operations carried out by Contractor result in a Discovery, Contractor shall inform Staatsolie within twenty four (24) hours of such Discovery, followed by a notification within thirty (30) Days of the Discovery (the “Discovery Notice”), including all technical information data and interpretations available and the delineation of the Discovery Area.

 

9.1.2                       As soon as possible after the analysis of the data and information from such Discovery but no later than one hundred (100) Days from the date of the Discovery Notice, Contractor shall by further notice inform Staatsolie whether or not in the opinion of Contractor the Discovery merits appraisal and if Contractor indicates that the Discovery does merit Appraisal shall simultaneously submit its Appraisal program.

 

9.1.3                       Where Contractor indicates, within one hundred (100) Days from the Date of the Discovery Notice, that the Discovery does not merit Appraisal, Contractor shall, unless otherwise agreed between Contractor and Staatsolie and subject to Sub-Article 3.2, surrender the Discovery Area corresponding to such Discovery, and forfeit any rights relating to Development and Production there from.

 

9.1.4                       The Operations Committee shall review and provide advice on the Appraisal work program to be carried out by Contractor in respect of such Discovery.  The Operations Committee shall provide any proposed modifications within thirty (30) Days of receipt of Contractor’s proposal.  Contractor will consider such modifications and re-submit the final Appraisal work program within thirty (30) Days of receipt such proposed modifications.

 

9.2                          Assessment of Commerciality

 

9.2.1                       Contractor shall commence the Appraisal work program, which may include conducting studies, within thirty (30) Days from the date of its final submission to the Operations Committee or otherwise the Discovery Area shall be relinquished, except as set out in Sub-Article 3.2.

 

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9.2.2                       Contractor shall assess the commerciality based on the production rates designed to maximize the ultimate recovery of Crude Oil (maximum efficient rate) from the Commercial Field in accordance with good and prudent petroleum industry practices and field conservation principles, and in accordance with the Appraisal work program which may be submitted to the Operations Committee for modification, from time to time in accordance with Sub Article 9.1.4 to incorporate new information, interpretations, data and technology.

 

9.2.3                       Contractor shall have a period of two (2) years from the date of final submission of the Appraisal work program to complete the Appraisal work program.  If all agreed Appraisal activities under the Appraisal work program have been completed within this time and the results of those activities indicate that further Appraisal is necessary to optimize Development, then Contractor may request that Staatsolie approve a six (6) month extension on the basis of an agreed work program.  Approval of such request shall not be unreasonably withheld.

 

9.3                          Date of Declaration of a Commercial Field

 

Within ninety (90) Days upon completion of the Appraisal work program Contractor shall submit to the Operations Committee a declaration of a Commercial Field. Failure to submit said declaration and subject to Sub-Article 3.2, results in surrender of the Discovery Area. The date on which Contractor has submitted to the Operations Committee the declaration of a Commercial Field shall be “Date of Declaration of a Commercial Field”.

 

9.4                        Appraisal Report

 

9.4.1                       Contractor shall submit to the Operations Committee a detailed Appraisal report for such the Discovery Area, no later than ninety (90) Days following the completion of the Appraisal work program. Such report shall include all available technical and economic data relevant to a determination of potential commerciality. To the extent such data is available, this report shall include, but not be limited to:

 

a.              geological and geophysical conditions;

 

b.              areal extent, thickness and depth of pay zones; pressure, volume and temperature of the reservoir fluid;

 

c.               Crude Oil and Natural Gas reserve estimates;

 

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d.              fluid characteristics, including, gravity, sulfur percentage, sediment and water percentage of the fluid;

 

e.               anticipated production performance

 

f.                an assessment of the commerciality of the field

 

9.5                          Development Plan

 

9.5.1                       No later than two hundred and ten (210) Days after the Date of Declaration of a Commercial Field, Contractor shall, with respect to each Commercial Field, submit a Development Plan to the Operations Committee for approval.  The Development Plan shall include, but not be limited to:

 

a.              all relevant maps;

 

b.              a general description of the techniques and equipment for development;

 

c.               a description of proposed cooperation with Staatsolie;

 

d.              a description of the goods, labor and services to be acquired from the Republic of Suriname in compliance with Article 32;

 

e.               an Environmental Impact Assessment, conform Annex 5B, describing the possible environmental effects of the Petroleum Operations of the Development Plan;

 

f.                a description of the technical and economic feasibility of optional methods of Development, including the impact of EOR techniques;

 

g.               where any Petroleum Field(s) extend beyond the Contract Area, a suggested unitization or joint development plan;

 

h.              a project work program and project budget including an estimate of the abandonment costs.;

 

i.                  an outline of financing the Development of the Commercial Field;

 

j.                 a calculation of proven, probable and possible Petroleum reserves;

 

k.              a time line for Development Work leading to production and

 

l.                  a production profile for the Commercial Field, based upon production rates that ensures optimal ultimate recovery in accordance with best petroleum industry practice;

 

m.          the Delivery Point

 

n.              the Work Program and Budget for the first year of Development Operations and Production Operations.

 

o.              the surface outline of the area in which Development Operations and Production Operations will be conducted (“Development and Production Area”)

 

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9.5.2                       Copies of all studies regarding the proposed Development Plan shall be submitted both in paper and in digital format to the Operations Committee.

 

9.6                          Rejection of Development Plan

 

The Operations Committee has one hundred (100) Days of its receipt decide whether it approve or reject the Development Plan.  . In the event that the Operations Committee fails to approve the proposed Development Plan, the objecting Party shall provide arguments for its rejection. Contractor may submit a revised Development Plan for the same Commercial Field no later than sixty (60) Days after the date of notice of such rejection of the previously proposed Development Plan. If Contractor does not submit the revised Development Plan within sixty (60) Days of receipt of such notice, it will lose all rights related to that Commercial Field and shall relinquish that part of the Contract Area containing such Commercial Field, except as provided in Sub-Article 3.2.

 

9.7                          Failure of Approval of Development Plan

 

9.7.1                       In the event the Operations Committee fails to approve the re-submitted Development Plan within thirty (30) Days of its receipt, Parties will meet within the following thirty (30) Days to seek a mutually acceptable solution, which may include amendments to the Development Plan.

 

9.7.2                       If Parties have not reached a mutually acceptable solution within such thirty (30) Days, Contractor may withdraw the Development Plan.  If not withdrawn, either Party shall have the right to refer such proposed Development Plan to an independent expert in accordance with Sub-article 41.8. The period pending resolution by the independent experts shall be considered Force Majeure, pursuant to Article 33.

 

9.8                          Petroleum Discovered after Declaration of a Commercial Field

 

The discovery of Petroleum after the Date of Declaration of a Commercial Field, outside but nearby the delineated area of such Commercial Field and not included in a submitted Development Plan, shall either be considered an expansion of an existing Petroleum Field or a new Petroleum Field, to be decided with regard to each Commercial Field by Contractor using good international petroleum industry standards. Any dispute between the Parties

 

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regarding the above may be submitted by either Party for resolution by expert determination in accordance with Sub-Article 41.7.

 

9.9                          Unitization

 

9.9.1                       If the recoverable reserves of a Commercial Field extend into adjacent Contract Area(s), Staatsolie may require the respective contractors to co-operate in producing Petroleum from such Commercial Field.

 

9.9.2                       If Staatsolie so requires, the Contractor shall, in co-operation with the contractor of the adjacent area, submit within six (6) months of receiving Staatsolie’s request, unless otherwise agreed, a proposal for the joint exploitation of the deposits, for the approval of Staatsolie, such approval not to be unreasonably withheld.

 

9.9.3                       If the proposal is not submitted or approved, Staatsolie may prepare its own proposal, in accordance with good international petroleum industry practice, for the joint exploitation of the recoverable reserves. Staatsolie’s proposal, unless another proposal is mutually agreed, shall be adopted by the Contractor, subject to Sub-Article 9.9.4, and subject to the adjacent contractor’s acceptance of the same proposal. The reasonable costs of preparing the proposal shall be divided between the Contractor and the adjacent contractor proportional to their respective reserves in such Commercial Field.

 

9.10                        Joint Operations

 

Where otherwise non-commercial volumes of Petroleum in the Contract Area would, if exploited together with deposits in an area adjacent to the Contract Area, be commercial, Staatsolie may require Contractor and the contractor of that adjacent area to share facilities.

 

9.11                        Sole risk operations by Staatsolie

 

Where the Contractor does not consider that a Petroleum Field warrants declaration of a Commercial Field in accordance with Sub-Article 9.4, Staatsolie may, subject to Sub-Article 9.5, at its sole risk, cost and expense, develop the Discovery. Once the area is relinquished by Contractor, Staatsolie may then establish a Development and Production Area and perform its own Petroleum Operations at its sole risk.

 

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ARTICLE 10       PETROLEUM EXPENDITURES

 

Petroleum Expenditures shall be paid in accordance with Work Program(s), Budget(s) and the provisions of the Accounting Procedure, as follows:

 

10.1                        Exploration Expenditures

 

All Exploration Expenditures shall be paid by Contractor.

 

10.2                        Development Expenditures

 

All Development Expenditures with respect to each individual Commercial Field shall be paid by Contractor.

 

10.3                        Operating Expenditures

 

All Operating Expenditures with respect to each individual Commercial Field shall be paid by Contractor.

 

10.4                        Cost Recovery

 

Development Expenditures, Operating Expenditures and Exploration Expenditures shall be cost recoverable pursuant to Article 13, subject to Sub-article 3.5.

 

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ARTICLE 11       PARTICIPATION OF STAATSOLIE

 

11.1                        Right of Participation

 

Staatsolie has the right to participate in the Development Operations and Production Operations of each Commercial Field on a Commercial Field by Commercial Field basis, such right to be exercised by notice to Contractor no later than three hundred and sixty (360) Days after the Date of Establishment of such Commercial Field and failure to exercise such right shall be deemed an election not to participate in the Development Operations and Production Operations.

 

11.2                        Percentage of Participation

 

11.2.1                     Staatsolie’s participation may be in any percentage it wishes, but not more than ten percent (10%);

 

11.2.2                     Staatsolie shall, automatically upon its election to participate in accordance with Sub-article 11.1, become a Contractor Party.  Staatsolie, as a Contractor Party, shall bear its share of all Operating Expenditures and Development Expenditures related to the Commercial Field in which it elects to participate as from the Date of Establishment of such Commercial Field. Within ninety (90) Days of its election date, Staatsolie shall pay to Operator its share of all Operating and Development Expenditures incurred by Contractor since the Date of Establishment of a Commercial Field. If Staatsolie is in default of the above payment obligation the provisions in 11.2.3 will apply.

 

11.2.3                     If Staatsolie elects to participate, Staatsolie and Contractor shall promptly attempt to conclude a mutually acceptable joint operating agreement based on the then current AIPN model form, or, in case of an existing joint operating agreement among the Contractor Parties, will promptly attempt to conclude a mutually acceptable amendment, whereby Staatsolie would become a party to such agreement.  Included in the joint operating agreement will be terms which allow Contractor to take and sell up to one hundred percent (100%) of Staatsolie’s Cost Oil and seventy-five percent (75%) of Staatsolie’s participating interest share of Profit Oil, in order to pay the amount then due from Staatsolie in the event that Staatsolie does not pay its participating interest share of costs within thirty (30) days of the date of receipt of any joint billing statement.  Any excess funds received by Contractor for Staatsolie’s entitlement in excess of the amounts due from Staatsolie will be refunded to Staatsolie within 30 days of receipt of such funds by Contractor.

 

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11.3                        Assistance in Obtaining Financing

 

Contractor shall provide reasonable assistance in the form of introductions and the like, as may be requested in writing by Staatsolie, to Staatsolie’s efforts to procure financing for its participation, provided that Contractor shall not be required to contribute financially to or be responsible for Staatsolie obtaining such financing.

 

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ARTICLE 12       ROYALTY

 

12.1                        Pursuant to the lifting procedure of Sub-article 13.9, Contractor shall, on Staatsolie’s instructions, deliver to Staatsolie at the Delivery Point six and one quarter percent (6.25%) of the Gross Production as Royalty.

 

12.2                        If taken in cash, the amount of the Royalty payment obligation shall be based upon the Market Price calculated in accordance with Article 14 and be paid per Calendar Month.

 

12.3                        Contractor shall be released from and indemnified by Staatsolie for any obligation for payment to any Government Authority of any Royalty referenced in Article 65 of the Mining Decree or in any other law, decree, regulation or order in existence as of the Effective Date or any time thereafter during the term of this Contract.

 

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ARTICLE 13       COST REIMBURSEMENT AND PAYMENT TO CONTRACTOR

 

Reporting on costs, revenues and production shall be on a monthly basis. Settlement of obligations of Contractor and Staatsolie under this Article will be on a quarterly basis.

 

13.1                        Ownership of Petroleum

 

13.1.1                     In accordance with the Mining Decree, the Petroleum Law of 1990 and Article 5 of Decree E-8B, Petroleum produced and saved and not used in Petroleum Operations or re-injected shall belong to Staatsolie.

 

13.1.2                     Crude Oil shall be distributed from the Contract Area in the sequence and quantities determined in this Article. Contractor Parties and Staatsolie each have the right and obligation to separately take, dispose of, market and freely sell their share of Crude Oil according to this Article 13.

 

13.2                        Operating Expenditures

 

After delivery of Royalty in accordance with Article 12,  Contractor will be entitled to an amount of Crude Oil from the Commercial Field which, when valued at the Market Price, equals the Operating Expenditures of such field in such Calendar Quarter and carried forward pursuant to Sub-article 13.6.

 

13.3                        Development Expenditures

 

After delivery of Royalty in accordance with Article 12 and reimbursement of Operating Expenditures in accordance with Sub-article 13.2, Contractor shall be entitled to an amount of Crude Oil from the Commercial Field which, when valued at the Market Price, equals the Development Expenditures for such field carried forward pursuant to Sub-articles 13.5 and 13.6.

 

13.4                        Exploration Expenditures

 

After delivery of the Royalty in accordance with Article 12, and reimbursement of Operating Expenditures in accordance with Sub-article 13.2 and Development Expenditures in accordance with Sub-article 13.3, Contractor (excluding Staatsolie) shall be entitled to an amount of Crude Oil from the Contract Area, which, when valued at the Market Price, equals the Exploration Expenditures and those carried forward pursuant to Sub-articles 13.5 and

 

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13.6.                        Exploration Expenditures which are attributable to a Commercial Field shall be reimbursed by that Commercial Field.

 

13.5                        Cost Recovery Oil - Percentage of Production

 

In any Calendar Quarter the amount of Crude Oil distributed in accordance with Sub-articles 13.2, 13.3 and 13.4 shall not exceed eighty percent (80%) of Gross Production after all Royalties have been paid, denoted as the Cost Oil ceiling.

 

13.6                        Carry Forward

 

The amounts of unrecovered Operating Expenditures, Development Expenditures and Exploration Expenditures that cannot be reimbursed from Cost Oil pursuant to Sub-article 13.5, shall be carried forward for recovery in the succeeding Calendar Quarter(s) until fully recovered or this Contract terminates.

 

13.7                        Profit Oil

 

After distribution of the amounts of Crude Oil as required pursuant to Article 12 and Sub-articles 13.2, 13.3 and 13.4, any remaining Crude Oil (i.e. Profit Oil) produced from the Commercial Field shall be distributed between Contractor and Staatsolie as a function of the value of the “R” factor defined herein.  The R-factor shall be calculated for each Commercial Field on a Calendar Quarterly basis.  Because the precise value for the R-Factor for a Calendar Quarter cannot be determined with certainty until after the end of that Calendar Quarter, allocation of Profit Oil with respect to such Calendar Quarter shall be made on a prospective basis during such Calendar Quarter based upon the Contractor’s good faith estimates of the information required in the calculation of the R-Factor pursuant hereto.  Any adjustments to such provisional R-Factor following the end of such Calendar Quarter shall be settled pursuant to the procedures agreed by the Parties in the Lifting Procedures, and such final R-Factor will be applied retrospectively to the Profit Oil allocations of the Parties.  The R-Factor shall be equal to the cumulative gross revenue minus the cumulative Royalty minus cumulative income tax, divided by cumulative Petroleum Expenditures on a Commercial Field basis. Subject to the above, the R-factor shall be applied to Profit Oil produced during the relevant Calendar Quarter in calculating the Crude Oil to which each Party is entitled.

 

	
R =
    	
(cumulative gross revenue – cumulative   royalty-cumulative income tax)
    	
 
    
	
 
    	
(cumulative petroleum expenditures)
    	
 
    

 

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For purposes of this calculation:

 

“cumulative gross revenue” means the total value of all Gross Production from the Effective Date to end of the respective Calendar Quarter, with Gross Production being valued at the Market Price.

 

“cumulative royalty” means 6.25% of the cumulative gross revenue;

 

“cumulative income tax” means the total of all income taxes calculated as the tax rate multiplied by total Profit Oil from both Contractor and Staatsolie’s share related to this Commercial Field, from the Effective Date to the end of the respective Calendar Quarter; and

 

“cumulative petroleum expenditures” means the sum of all recoverable Petroleum Expenditures related to the Commercial Field from the Effective Date to the end of the respective Calendar Quarter.

 

	
R-Factor slice
    	
Staatsolie Share
    	
Contractor Share
    
	
 
    	
 
    	
 
    
	
0-1.00
    	
15%
    	
85%
    
	
 
    	
 
    	
 
    
	
>1.00-1.25
    	
20%
    	
80%
    
	
 
    	
 
    	
 
    
	
>1.25-1.50
    	
25%
    	
75%
    
	
 
    	
 
    	
 
    
	
>1.50-1.75
    	
30%
    	
70%
    
	
 
    	
 
    	
 
    
	
>1.75-2.00
    	
45%
    	
55%
    
	
 
    	
 
    	
 
    
	
>2.00-3.00
    	
60%
    	
40%
    
	
 
    	
 
    	
 
    
	
>3
    	
75%
    	
25%
    
	
 
    	
 
    	
 
    

 

13.8                        Transfer of Title

 

Title to the Crude Oil and Natural Gas, which Contractor is entitled to in accordance with this Contract, shall be transferred to Contractor at the Delivery Point.

 

13.9                        Lifting Procedures

 

Not later than one-hundred and twenty (120) Days prior to the anticipated Date of Initial Commercial Production, the Parties shall enter into supplementary contracts concerning Crude Oil transfer of title, lifting procedures and delivery, lifting and tanker schedules, loading conditions, Crude Oil metering, statistics and classification of the lifting responsibility.  If such contracts are not agreed by all within the time period specified, the

 

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Parties agree to use the AIPN Model Crude Oil Lifting Agreement to govern such activities until such a time as an alternative lifting agreement may be agreed

 

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ARTICLE 14       MEASUREMENT AND VALUATION OF PETROLEUM

 

14.1                        Measurement

 

14.1.1                     The Contractor shall recommend sampling, measuring and testing equipment, and procedures for controlling measurement of Crude Oil produced to the Operations Committee for approval. Such recommendations shall include Measurement Procedures and an appropriate cycle of testing and calibration of equipment.

 

14.1.2                     Operator shall give written notice to Staatsolie fourteen (14) Days prior to any testing and calibration by Operator of the appliances used in the measurement and determination of the quality and quantity of Petroleum.  Staatsolie, at its cost and risk, shall be entitled to have witnesses present at such testing and calibration.

 

14.1.3                     Where the appliances used in connection with Petroleum measurement have caused an overstatement or understatement of production, the error shall be presumed to have existed since the date of the last calibration of such appliance, unless proven otherwise. Operator shall appropriately correct the error by:

 

a)                            amending the volume of the Petroleum delivered in the relevant period; and

 

b)                            adjusting the entitlements of each Party to take into account the correction.

 

14.1.4                     Petroleum produced from each Commercial Field shall be measured at the Delivery Point.

 

14.2                        Production Forecast

 

No later than sixty (60) Days prior to the Date of Initial Commercial Production and thereafter before the beginning of each Calendar Quarter, Contractor shall present a production forecast to Staatsolie. The forecast will estimate Gross Production for the next four (4) Calendar Quarters on a Commercial Field by Commercial Field basis, based on the production rates designed to maximize the ultimate recovery of Crude Oil (maximum efficient rate) from the Commercial Field in accordance with good and prudent petroleum industry practices and field conservation principles. Contractor shall give due consideration to any comments or recommendations made by Staatsolie in respect of such forecast. Contractor shall use reasonable efforts to produce the forecasted quantity each Calendar Quarter.

 

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14.3                        Market price

 

The Market Price of Crude Oil shall be equal to the Realized Price or the Crude Oil Basket Price as determined in accordance with Sub-article 14.4 at the time of sale, whichever is highest.  If the Crude Oil Basket price is higher than the Realized Price and the difference is equal to or greater than US$ fifty-cents (US$ 0.50), then the Market Price shall be determined by the Operations Committee.  In the event the Operations Committee cannot resolve the issue within seven (7) Days, the Market Price to be used pending final resolution of the issue shall be the Realized Price plus US$ fifty-cents (US$ 0.50).  Additionally, any adjustment made pursuant to this Sub-Article 14.3 shall not be counted as an adjustment under Sub-Article 14.4.4.

 

14.4                        Crude Oil Basket

 

14.4.1                     Staatsolie and Contractor shall, at least six months before the projected start-up date of a Commercial Field, agree upon the Basket. In the event Staatsolie and Contractor have been unable to determine the Basket within such period, the Basket will be determined through expert opinion in accordance with Sub-Article 41.5, at least two months prior to the projected startup date of such Commercial Field.  The Crude Oil Basket price shall be the average price of the Basket as determined from the prices of the representative crude oils in the Basket as published by a mutually acceptable independent oil publication. If said publication or any adequate succeeding publication ceases to be published, Staatsolie and Contractor must agree in writing on a substitute publication. It is understood that the following principles shall apply with respect to calculation of the value of the Basket:

 

(a)                           The representative crude oils to be included in the Basket shall differ less than four (4) degrees API and the sulfur content thereof shall be less than one percent (1%) different to that of the Crude Oil of the relevant Commercial Field

 

(b)                           The price of each representative crude oil in the Basket shall be adjusted for difference in API gravity, sulfur content and other pertinent characteristics.

 

14.4.2                     If Staatsolie and Contractor cannot agree to the above corrections, as set out in Sub-Article 14.4.1(b), six (6) Months before the projected start-up date of a Commercial Field, Staatsolie and Contractor shall revert to expert determination in accordance with Sub-article 41.5 for determination of the corrections. Such determination will be reached at least two (2) Months prior to the projected start-up date of a Commercial Field.

 

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14.4.3                     In the absence of a quotation of one (1) or more of the agreed representative crude oils in the Basket, or to reflect changes in the Crude Oil produced, Staatsolie and Contractor shall meet to agree on a replacement representative crude oil for the Basket.

 

14.4.4                     The Basket may be revised periodically but no more than once each Calendar Quarter within the three (3) years following the start-up date of a Commercial Field and no more than once during a Calendar Year thereafter, if required, by written agreement between Staatsolie and Contractor to reflect any change in the quality of the Crude Oil produced from the Contract Area or if one of the oils in the Basket is no longer representative in accordance with Sub-article 1.12.

 

14.4.5                     Each Party shall notify the Operator of the volumes, prices, sales dates, points of sale for all its transactions, whether Arm’s Length Transactions or transactions not in conformity with the market (or “not determined by market forces”), as well as the Market Price of Crude Oil (as specified in Sub-article 14.3), within fifteen (15) Days before the end of such Calendar Month.  Operator shall promptly give Staatsolie and any other Contractor Parties notice of the volumes and Market Price for each transaction.  If any Party objects to Market Price of such transaction, within thirty (30) Days of such notice to Staatsolie, such Market Price shall be determined by expert determination in accordance with Sub-Article 41.5.

 

14.5                        Notwithstanding the foregoing, the Parties may, if mutually agreed in writing, review and, if necessary, adjust or renegotiate this Article 14, one (1) Calendar Year after the commencement of Production Operations, provided however, that this Article 14 shall remain in full force and effect until otherwise agreed in writing.

 

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ARTICLE 15       FOREIGN CURRENCY AND BANKING

 

15.1                        Bank Accounts in Suriname

 

Contractor shall be authorized to open and hold bank accounts in Suriname denominated in foreign currencies for the conduct of Petroleum Operations

 

15.2                        Bank Accounts General

 

Contractor shall be responsible for reporting any deposits and withdrawals in respect of the foreign currency accounts to the Central Bank of Suriname in accordance with the Law of Suriname.

 

15.3                        Foreign Currencies

 

No restriction will be imposed on importation by the Contractor of the funds intended for the performance of the Petroleum Operations.  The flow of incoming and outgoing funds (investment and dividends) shall comply with the laws of Suriname, including with the country’s monetary authorities.

 

15.4                        Purchase or Exchange of Suriname Dollars

 

Suriname Dollars shall be purchased by Contractor from The Central Bank of Suriname or a local commercial bank. The applicable conversion rate for these transactions shall be the rate published by the Central Bank of Suriname for conversion of the US Dollar into Suriname Dollars at the time of purchase.

 

15.5                        Export Profit Oil and Cost Oil

 

In accordance with the Petroleum Law of 1990, and subject to the provisions of Article 19, Contractor shall be entitled to freely export all of its share of Cost Oil and Profit Oil from Suriname and sell, assign or otherwise transfer such Crude Oil in or outside Suriname, and record and retain in Foreign Currency Accounts, all sales proceeds as income without restriction.  With the exception of the statistics and consent duties, no further export duty, stamp duty, or other provision fee or tax will be levied against Contractor or due in connection with the export of Crude Oil.

 

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15.6                        Information for Foreign Exchange Commission

 

Contractor shall be subject to the Foreign Exchange Act of 1947 as amended from time to time and, in accordance with the provisions thereof, shall submit to the Foreign Exchange Commission at the commission’s request, all information the commission deems necessary.  Notwithstanding the foregoing, in case of any conflict between the provisions of the Petroleum Law of 1990 and the provisions of the Foreign Exchange Act of 1947, the provisions of the Petroleum Law of 1990 shall prevail.

 

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ARTICLE 16. PAYMENTS

 

16.1                        Currency of Payments to Staatsolie and the Republic of Suriname

 

All cash payments of Contractor to Staatsolie or the Republic of Suriname shall be in US Dollars or, if agreed by the Parties, any other currency, all in accordance with Article 2.3, to a bank account to be designated in writing by Staatsolie or the Republic of Suriname, as appropriate.

 

16.2                        Currency of Payments to Contractor

 

All cash payments of Staatsolie to Contractor shall be made in US Dollars or, if agreed by the Parties, any other currency, all in accordance with Article 2.3, to a bank account to be designated in writing by Contractor.

 

16.3                        Due Date of Invoices

 

Unless otherwise provided elsewhere in this Contract or in the Accounting Procedure, all payments shall be made within thirty (30) Days after receipt of the invoice for such payments.

 

16.4                        Interest on Overdue Payments

 

Any overdue payment shall bear an interest equal to LIBOR, plus five percentage points (5%), per annum.

 

16.5                        Payment of Disputed Payment Obligations

 

If the Owing Party disputes an amount due, including payments in kind, under an invoice or other documented obligation to pay under this Contract, it shall, within the payment period of the invoice or other documented obligation to pay, inform the Invoicing Party in writing of its objection, setting forth with specificity the amount disputed and the reasons therefore. If Parties fail to amicably resolve the dispute, either Party may seek arbitration in accordance with Sub-Article 41.2. Notwithstanding the above, in the event the Parties execute a joint operating agreement (“JOA”) in accordance with Sub-Article 11.2.3, the payment terms agreed under the JOA will govern payments of cash calls and joint interest billings issued by Operator to the Parties.”

 

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ARTICLE 17.      IMPORTS

 

17.1                        Import and Export Duties

 

Contractor, and its Sub-Contractors, shall be exempted from import and export duties in accordance with the Petroleum Law of 1990. The waiver described herein shall not apply to items listed in Annex 6.

 

17.2                        List of Sub-Contractor(s)

 

Contractor shall, twice every Calendar Year, submit to Staatsolie a list of Sub-Contractors who are engaged in its Petroleum Operations.

 

17.3                        Withdrawal of Import and Export Duties Exemption

 

If Contractor or its Sub-Contractors sell or transfer ownership of imported goods to a party other than the Government, Staatsolie or another exempt third party, then Contractor or its Sub-Contractors shall be liable to pay all duties, taxes and levies on such goods imported under the exemption provided by this Contract.  The duties, taxes and levies payable shall be calculated on the CIF value of the goods at the day of import, as determined by the Surinamese customs authority.

 

17.4                        Re-Export of Imported Goods

 

Industrial means, materials, goods and equipment imported by Contractor or its Sub-Contractors pursuant to this Article may be re-exported by Contractor or its Sub-Contractors, provided that the terms and conditions of this Article have been complied with.

 

17.5                        Household Objects for Expatriate Employees

 

Household objects for personnel and domestic use imported by the Contractor’s, Operator’s and their Sub-Contractors’ Expatriate Employees relevant to activities concerning Petroleum Operations on the occasion of their change of residence will be admitted duty-free, provided however that such property is imported for the sole use of the Expatriate Employee and his family and have been imported within six (6) months after the arrival of the Expatriate Employee. Items imported under this Article and exempt from custom duties may be exported without the payment of custom duties.

 

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ARTICLE 18       TAXATION

 

18.1                        General

 

Each Contractor Party shall pay its own income tax in accordance with Sub-article 18.2.  In addition, except as otherwise provided for in the Petroleum Law of 1990 and the Mining Decree, each Contractor Party shall be subject to all fees, imposts, charges or Taxes imposed by a Government Authority to the extent they are generally applicable in Suriname and not discriminatory to Contractor. For the purposes of this Article 18, “generally applicable” shall mean of general application to the citizenry or business community of Suriname as a whole and shall not include Taxes which are focused on Petroleum Operations and not generally applicable in this industry.

 

18.2                        Income Tax

 

Each Contractor Party will be subject to the Income Tax Act of 1922 (Government Bulletin of 1921 no. 112, as last amended by State Decree of 1995 no. 52) and the Petroleum Law of 1990.   Subject to the preceding, the income tax calculation will take into account the follow revenues and expenses:

 

Revenues:

 

(a)                the value of each Contractor Party’s share of Cost Oil and Profit Oil according to Article 13; and

 

(b)                all other income of Contractor Party derived from Petroleum Operations properly included in gross income under Applicable Law, related to or as a consequence of this Contract and referenced in the applicable rulings issued by the Tax authorities, drafts of which are attached as Annex 9.

 

Expenses:

 

(a)                each Contractor Party’s share of Cost Oil, and

 

(b)                expenditures, related to or as a consequence of this Contract, by Contractor which are not subject to Cost Recovery. These will be treated in accordance with the Income Tax Act of 1922 and as referenced in the applicable rulings issued by the Tax authorities, drafts of which are attached as Annex 9.

 

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18.3                        Payment

 

All Taxes payable by Contractor or a Contractor Party shall be paid and all Tax returns shall be calculated and filed in US Dollars or currency as agreed in Article 2.3. Losses or credits for income tax purposes may be carried forward in accordance with Applicable Law.

 

18.4                        Stabilization

 

18.4.1                     A Contractor, pursuant to the Income Tax Law of 1922 (Government Gazette 1921 no. 112, as lastly amended by Official Gazette 2000 no. 123), shall be subject to Income Tax pursuant to the rates applicable on the date that the petroleum agreement enters into force. In case the tax rates are adjusted, such adjustment shall not be applicable to the Contractor and shall have no influence on his liability to pay taxes pursuant to the Income Tax Law of 1922.

 

18.4.2                     If any additional impositions of, or changes in the existing Tax, Royalty, Applicable Law, or any other legislation, policies, rules or regulations in Suriname, from and after the Signing Date, which are not of a general nature and not applicable to the general public, have the effect of adversely impacting the rights and exemptions of Contractor or adversely impacting Contractor’s economic benefit in the Contract, the economic terms of the Contract shall be modified in order to maintain the economic equilibrium of this Contract so that Contractor shall receive the same economic benefit as before such imposition or change.

 

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ARTICLE 19       DOMESTIC SUPPLY REQUIREMENT

 

19.1                        Supply by Government and Staatsolie

 

Domestic Supply Requirement shall, to the extent possible, be supplied from the entitlements of the Government and Staatsolie under this Contract, and from other entitlements of the Government and any entity owned or controlled by the Government.

 

19.2                        Supply by Contractor

 

If Crude Oil available to the Government and Staatsolie pursuant to Sub-article 19.1 is insufficient for fulfilling the Domestic Supply Requirement, at any time, at least twelve (12) Calendar Months after the Date of Initial Commercial Production, Staatsolie may request in writing that Contractor make available a quantity of Crude Oil to which Contractor is entitled hereunder. Beginning with its first such request, and every thirty (30) Calendar Days thereafter, Staatsolie shall include data indicating the total production from each contract area then producing within Suriname.  In response to such request, Contractor shall supply at the Delivery Point from the Contractor’s entitlement, that portion of the Domestic Supply Requirement, in excess of the entitlements of the Government and Staatsolie described in Article 19.1, on a pro rata basis with other crude oil producers except Staatsolie, in Suriname, but not exceeding twenty-five percent (25%) of Contractor’s entitlement, which portion shall be offered for sale at the Market Price. Contractor’s obligations to fulfill this obligation shall take effect ninety (90) Days from the date of the request from Staatsolie. If the request from Staatsolie is the result of Force Majeure conditions, which do not permit Staatsolie to wait until such quantities become available following expiry of Contractor’s long-term commitments, Staatsolie shall reimburse Contractor its actual costs incurred in covering such commitments.

 

19.3                        Payment for Purchased Crude Oil

 

If the request for deliveries from Contractor is the result of a Force Majeure event under Sub-article 19.2, Staatsolie shall settle the payment in cash within sixty (60) Days from the date of delivery, otherwise payment to Contractor shall be made in accordance with Article 16. In all events that Staatsolie fails to pay any amount owed to Contractor for received Crude Oil when due, Contractor shall have the right to take and sell such quantity of Staatsolie’s Profit Oil in satisfaction of any unpaid balance.

 

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ARTICLE 20       NATURAL GAS

 

20.1                        Use of Associated Gas

 

Associated Gas produced in the Contract Area shall in first instance be utilized for conducting Petroleum Operations, including but not limited to secondary recovery operations, re-pressuring and recycling, and power generation.

 

20.2                        Excess Associated Gas

 

20.2.1                     Associated Gas in excess of amounts used pursuant to Sub-article 20.1 shall be designated as excess Associated Gas. If Contractor considers the excess Associated Gas not to be economic, Staatsolie shall have the right to collect, transport and utilize this excess Associated Gas at its sole cost and risk.  In that case, the Parties shall mutually agree on the operational aspects of Staatsolie’s utilization of such Gas. Production of such excess Associated Gas shall not hinder Contractor’s operations in any way.

 

20.2.2                     Contractor is not allowed to flare excess Associated Gas, except in the event it cannot be sold or re-injected in accordance with Sub-articles 20.2.3 or 20.2.4.

 

20.2.3                     If Contractor considers the Development of excess Associated Gas to be economic, then Contractor shall include the Development of such excess Associated Gas in the Development Plan submitted for the Development of Crude Oil.

 

20.2.4                     Contractor shall re-inject into the subsurface any excess Associated Gas, which is not developed under this Sub-article 20.2, subject to international petroleum standards and Staatsolie’s explicit permission; provided that Contractor is not required to re-inject any excess Associated Gas if such re-injection would, in Contractor’s opinion, cause damage to the reservoir or negatively effect the efficiency of production of Crude Oil or the ultimate recovery of Crude Oil.

 

20.3                        Discovery of Significant Non-Associated Gas

 

20.3.1                     In the event of the Discovery of significant amounts of non-Associated Gas Staatsolie and Contractor shall meet as soon as practicable to consider how such Discovery may be appraised, developed and produced.  They shall consider whether a market exists for the non-Associated Gas and how such market may be supplied.

 

20.3.2                     If no market exists at the time of Discovery of non-Associated Gas, the Parties shall consider how a market may best be created and the Contractor shall have the right to

 

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retain the Discovery Area for a period not exceeding five (5) Calendar Years beyond the expiry of the Exploration Period while a market is being created.

 

20.4                        Non-Associated Gas Addendum

 

Within ninety (90) Days of the Discovery of a significant amount of non-Associated Gas, which in the written opinion of Contractor may be commercial, the Parties shall initiate negotiations for an addendum to this Contract for non-Associated Gas (“Addendum”), which shall establish the procedures and conditions by which Contractor may Appraise, develop and produce such Discovery.  The principles for the Addendum shall be the same as those for Crude Oil, but the terms may be negotiated in order to make such Discovery not less profitable to Parties than would be realized in a Discovery of Crude Oil of a similar magnitude. The Addendum shall include, among others, provisions to:

 

a)                            govern the orderly Appraisal, Development and Production of such Discovery;

 

b)                            determine the expected market price for natural gas in relation to its location, volume and potential customers;

 

c)                             address Staatsolie’s direct participation; and

 

d)                            address cost reimbursement and payment to Contractor

 

The provisions of the Addendum shall result in a similar profit split to that for Crude Oil under this Contract.

 

20.5                        Disagreement on Non-Associated Gas

 

If, following the process set out in this Article 20, Contractor does not agree that the resulting terms of the Addendum support the commercialization of the Discovery, then subject to Sub-Article 3.2, Staatsolie shall have the right to develop and produce the non-Associated Gas. In such event, Contractor shall relinquish its rights to that part of the Contract Area that contains the non-Associated Gas Discovery, and such relinquishment shall be limited both geographically and stratigraphically in order for Contractor to explore either deeper or shallower zones. Contractor shall in this event be reimbursed for all expenditures connected with the Discovery of the non-Associated Gas, in accordance with Article 13, as if such costs were Exploration Expenditures described in Sub-Article 13.4.

 

20.6                        Failure to agree on the terms of Addendum

 

If the terms of the Addendum have not been agreed to within one (1) Calendar Year from the start of negotiation referenced in Sub-article 20.4, the Parties shall refer the matter to a

 

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mediator. The mediator shall be a person with an internationally recognized reputation as mediator and have knowledge of the international petroleum industry. If the Parties fail to appoint the mediator within thirty (30) Days after the expiry of such period, either Party may have such mediator appointed by the Secretary General of the Permanent Court of Arbitration at The Hague. The Parties shall use their best endeavors to reach an amicable solution with respect to the negotiation of the Addendum through mediation.

 

20.7                        Extension of the Term of the Exploration Period during Addendum Negotiation

 

In the event of a non-Associated Gas Discovery, the Exploration Period for the Discovery Area shall automatically be extended, at the end of the Exploration Period, by such period of time as it may take for the Parties to mutually agree to the Addendum and for Contractor to Appraise the Discovery, and for the Government to provide its final approval for such addendum.  During any such extension, Exploration Operations shall be limited to such area delineated by the Discovery of non-Associated Gas. The remaining Contract Area shall be relinquished as required by this Contract.

 

20.8                        Crude Oil Priority

 

Notwithstanding the foregoing provisions of this Article 20, the Production of Crude Oil shall not be unduly delayed or hindered by any evaluation or indecision with regard to the possible Development of a Discovery of Associated Gas or Non-associated Gas.

 

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ARTICLE 21       INFORMATION

 

21.1                        Reports, Data and Information from Contractor

 

In accordance with good international petroleum industry practice, Contractor shall keep Staatsolie promptly and fully informed of Petroleum Operations being carried out by it and it’s sub-contractors and shall promptly, and if feasible in real time, provide Staatsolie with all data, samples, information, interpretations and reports, including progress and completion reports, which are related to this Contract, and which shall include, but not be limited to:

 

21.1.1                     raw and processed seismic data and interpretations thereof including digital horizon files, velocity models used for depth conversion in formats specified by Staatsolie;

 

21.1.2                     well data, including, but not limited to, daily drilling reports, electric logs and other wire line surveys, mud logging reports and logs, samples of cuttings and cores and analyses made thereof;

 

21.1.3                     all reports prepared from drilling data, geological or geophysical data, including all maps or illustrations derived there from in formats specified by Staatsolie;

 

21.1.4                     all original well completion and well testing reports;

 

21.1.5                     reports dealing with location surveys and all other reports regarding wells, treating plants or pipeline locations;

 

21.1.6                     reports dealing with reservoir investigations and reserve estimates s, field outlines and economic evaluations relating to current and future Petroleum Operations;

 

21.1.7                     quarterly reports on Petroleum Operations as determined by the Operations Committee or requested by the Government;

 

21.1.8                     final reports upon completion of each specific project or operation; contingency programs and reports dealing with health, safety, and the environment

 

21.1.9                     design drawings, criteria,  specifications and construction records;

 

21.1.10                  reports of technical audits and studies relating to Petroleum Operations;

 

21.1.11                  reports of all other technical data relevant to the performance of Petroleum Operations in the Contract Area; and

 

21.1.12                  all reports which may be required by the Accounting Procedure or which may be requested by Staatsolie and are otherwise required by the terms of this Contract.

 

21.1.13                  All audit reports issued in accordance with the Accounting Procedure regarding the Petroleum Operations and its accounting.

 

Upon approval by Staatsolie, Contractor may cease submitting any or all of the above items and maintain them for the review by Staatsolie in its files in Paramaribo, Suriname.

 

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Files may be maintained in electronic form, provided that the files can timely be printed, and originals of scanned documents can be presented,  upon request of Staatsolie.

 

21.2                        Reports, Data and Information from Staatsolie

 

Staatsolie shall make available to Contractor all technical data and information in its possession or under its control, relating to the Contract Area and relevant to the performance of Petroleum Operations by Contractor.  This information shall include but not be limited to, seismic data and all logs and records of wells, well cuttings, samples, cores, sidewall cores, and oil samples regarding the Contract Area.  However, Staatsolie shall not be obliged to disclose data and information which it is unable to release due to confidentiality restrictions in force and in effect at the time of Contractor’s request for this technical data and information.

 

21.3                        Ownership of Data

 

21.3.1                     All original and copied data and samples collected by Contractor during Petroleum Operations shall be the property of Staatsolie. Contractor may export, use and retain the collected data and the samples outside Suriname and shall, on behalf of Staatsolie and in furtherance of Petroleum Operations, manage the use of such data, subject to the provisions of this Article.  Contractor shall initially be responsible to store all samples and data and shall inform Staatsolie of their location.  Notwithstanding the foregoing, Staatsolie shall have the option to relocate and store a copy of all data and, if practicable, part of the samples at its own cost.

 

21.3.2                   Prior to the destruction of any data or samples, Contractor shall notify Staatsolie and Staatsolie may elect to further store or relocate the data and samples, at its cost.  During the Term of this Contract, Parties shall have access to all data and samples.

 

21.3.3                     On termination of this Contract, Contractor shall turn over all original and copied data, samples and information obtained during or in relation to its Petroleum Operations in Suriname still in its possession to Staatsolie, provided that Contractor may retain its evaluation materials which shall remain the property of Contractor.

 

21.3.4                     Contractor shall maintain accounting records, returns, books and accounts as required under the Accounting Procedure and shall be entitled to retain and use at least one (1) copy of all data for any purpose during the term of this Contract and after this Contract’s termination, so long as Contractor complies with its confidentiality obligations set forth in Article 22.

 

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21.4                        Annual Reports

 

No later than ninety (90) Days following the end of each Calendar Year, Contractor shall submit to Staatsolie a report covering Petroleum Operations performed in the Contract Area during such Calendar Year.  Such report shall include but not be limited to:

 

21.4.1                     a statement of all wells drilled, the summary of each such well, and a map on which drilling locations are indicated;

 

21.4.2                     a statement on any Petroleum encountered during Petroleum Operations, as well as a statement of any fresh water layers encountered;

 

21.4.3                     a statement of quantities of Petroleum, water and any significant quantities of other minerals produced therewith from the same reservoir or deposit;

 

21.4.4                     a summary of the nature and extent of all Exploration Operations in the Contract Area;

 

21.4.5                     a general summary of all Petroleum Operations in the Contract Area;

 

21.4.6                     a statement of the number of employees engaged in Petroleum Operations in Suriname, identified by nationality to the extent providing such information does not cause Contractor to violate any laws to which it is subject;

 

21.4.7                     a statement on the estimated Petroleum reserves remaining to be recovered and the underlying analysis related to this statement; and

 

21.4.8                     a summary of the disposals or sales pursuant to Sub-article 27.5.

 

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ARTICLE 22       CONFIDENTIALITY

 

22.1                        Confidentiality of Information and Data

 

22 .1.1                    Each Party agrees that all information and data of a technical, geological or commercial nature, acquired or obtained from and/or related to Petroleum Operations on or after the Effective Date and not (i) in the public domain; (ii) already known to each Party or its respective Affiliates as of the Effective Date; (iii) acquired independently from a third party who has the right to disseminate such information at the time it is acquired by either Party or an Affiliate of such Party; (iv) developed by a Party or is respective Affiliates wholly independently of the information and data received from a disclosing party; or (v) otherwise legally in the possession of such Party without restriction on disclosure, shall be considered and kept confidential (subject to Contractor’s right to use and to trade such data and information in accordance with this Article 22), and shall not be disclosed, sold, offered to any third party or published, except:

 

(a)                           to employees, officers and directors of each Party, and to an Affiliate of each Party and its respective employees, officers and directors, provided such Affiliate maintains confidentiality as provided in this Contract;

 

(b)                           to any Government Authority when required by this Contract;

 

(c)                           to the extent such data and information are required to be furnished in compliance with Applicable Laws, or pursuant to any legal proceedings or because of any order of any court binding upon a Party or its Affiliates;

 

(d)                           subject to Sub-article 22.1.3, to potential Sub-Contractors, consultants and attorneys contracted by any Party where disclosure of such data or information is essential to such Sub-Contractor’s, consultant’s or attorney’s work;

 

(e)                           subject to Sub-article 23.1.3, to a bona fide prospective transferee of all or a portion of a Party’s participating interest (including an entity with whom a Party is conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate’s shares);

 

(f)                            subject to Sub-article 22.1.3, to a bank or other financial institution or entity to the extent appropriate to a Party’s arranging for funding or proposing to fund for its obligations under this Contract, including any consultant retained by such bank, financing institution or entity;

 

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(g)                           to the extent such data and information must be disclosed pursuant to any laws, rules, orders, decrees or requirements of any government or stock exchange having jurisdiction over such Party or its Affiliates;

 

(h)                           where any data or information which, through no fault of a Party, becomes a part of the public domain;

 

(i)                            to the arbitrators, in accordance with Article 41; or

 

(j)                            to the extent such data and information are required to be furnished in connection with any unitization of all or part of the Contract Area.

 

22.1.2                     Each Party shall take customary precautions to ensure that such data and information on Petroleum Operations are kept confidential by its respective employees, officers, directors, consultants, agents or other parties to whom each Party is responsible.

 

22.1.3                     Prior to any disclosure not otherwise permitted in this Article, the disclosing Party must obtain a written undertaking from the recipient third party to keep the data and information strictly confidential from other third parties, with exceptions similar to those set out in Sub-article 22.1.1 and with the conditions that the data and information not to use or disclose the data and information except for the express purpose for which disclosure is to be made.

 

22.1.4                     Subject to Sub-article 22.1.6, the confidentiality obligations of the Parties shall terminate:

 

(a)                           on the termination of this Contract

 

(b)                           as to data from areas relinquished, on the date of such relinquishment: or

 

(c)                           as to data associated with portions of the Contract Area retained beyond the termination of the Exploration Period, on the termination date of this Contract; or

 

(d)                           as to data associated with areas not relinquished, five (5) Years from the date of collection of such data or the termination of the Exploration Period, whichever is soonest.

 

22.1.5                     Any Contractor Party ceasing to own a participating interest in this Contract, during the term of this Contract, shall nonetheless remain bound by the obligations of confidentiality set forth above and any disputes shall be resolved in accordance with Article 41.

 

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22.1.6                     Notwithstanding the provisions of Sub-article 22.1.4 of this Contract, the confidentiality obligations of Contractor with respect to geological, geophysical data and information acquired or obtained from and related to Petroleum Operations shall remain in force and effect throughout the life of the Contract and a period of ten (10) Calendar years thereafter.

 

22.2                        Disclosure in Annual Reports etc.

 

Notwithstanding any other provisions in this Article 22, each Contractor Party may make disclosures in annual reports, all regulatory filings related to corporate securities (including, but not limited to, annual and quarterly reports) press releases, employee and stockholder newsletters, magazines and the like, of summarizations of a general nature relating to Petroleum Operations, which are customarily or routinely described or reported in such publications.

 

22.3                        Right to Use

 

22.3.1                     No Party shall make available to any third parties any technology, including patent information or proprietary know-how, acquired from any other Party without the written consent of such other Party.

 

22.3.2                     Subject to Sub-Article 22.1, any Party has the right to freely use all geological, geophysical, reservoir, engineering, drilling engineering, facilities engineering, and project data and information regarding the Contract Area for other petroleum activities in and outside Suriname.

 

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ARTICLE 23       INSPECTIONS

 

23.1                        Inspections

 

Staatsolie shall, during business hours, and with reasonable notice to Contractor, have the right of access, at Staatsolie’s sole risk, to all sites and offices of Contractor in Suriname and the right to inspect all buildings, facilities and installations used by Contractor and to inspect and audit the books and accounts of Contractor relating to Petroleum Operations. In this regard, Contractor shall provide facilities to a reasonable number of duly authorized representatives of Staatsolie to perform their duties and obligations in relation to this Contract. All costs for providing such facilities incurred by Contractor during the Exploration Period and Development and Production Period, shall be subject to Cost Recovery in accordance with Article 13.  All representatives of Staatsolie shall abide by the posted or published safety rules of Contractor during such inspections and audits. To the extent possible, such inspections and audits shall take place at such times and in a manner as not to unduly interfere with the normal operations of Contractor. The Parties shall attempt to limit the inspections and audits provided for herein to a reasonable number.

 

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ARTICLE24        SAFETY AND ENVIRONMENTAL PROTECTION

 

24.1                        General HSE requirements

 

24.1.1                     It shall be Contractor’s continuing responsibility to ensure that personnel of Contractor and their Sub-contractors are fit for employment.

 

24.1.2                     The Contractor is responsible for providing and obtaining appropriate medical and emergency assistance and shall have a sufficient number of certified first aiders on the worksite.

 

24.1.3                     All relevant Contractor’s personnel shall be trained in survival and fire fighting in accordance with good oilfield practice.

 

24.1.4                     Contractor shall work together with Staatsolie in the execution of a Staatsolie contingency plan should the need arise to put it into effect

 

24.2                        Conduct of Operations

 

24.2.1                     Contractor shall conduct Petroleum Operations in an expedient, diligent, safe and efficient manner in accordance good international petroleum industry practice and standards adopted by the Surinamese authorities currently International Finance Corporation’s Environmental, Health, and Safety Guidelines for Offshore Oil and Gas Development and International Finance Corporation’s Policy on Social & Environmental Sustainability and shall take all reasonable actions in accordance with said standards to protect people, environment and property.

 

24.2.2                     Contractor shall comply and be accountable for Sub-Contractor compliance at all times with all Applicable Law requirements, as well as any HSE standards and rules agreed between the Parties.

 

24.2.3                     Contractor shall keep Staatsolie and relevant Government Authorities informed, without delay, of any circumstances which may indicate a dangerous situation and execute the appropriate measures consistent with safety rules and good international petroleum industry practices to correct this situation.  Contractor shall keep Staatsolie informed, without delay, of any serious bodily injury occurring with respect to or in the conduct of Petroleum Operations.

 

24.2.4                     Contractor’s HSE standards will contain but not be limited to:

 

a)             Environmental Baseline Studies

 

b)             Environmental Impact and Social Assessments

 

c)              Ongoing Environmental Monitoring

 

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d)             Environmental Management Plans

 

e)              Contingency Plans

 

24.2.5                     In the event of an emergency or major accident, Staatsolie shall, at its sole discretion and at Contractor’s request, make available to Contractor such equipment and personnel as it has reasonably available to assist Contractor in any emergency situation. Contractor shall reimburse Staatsolie all of its reasonable costs associated with such assistance.

 

24.3                        Disposal of Waste and Completion of Wells

 

Contractor shall provide an effective and safe system for disposal of water, waste oil and other waste, consistent with good international petroleum industry practice and shall provide for the safe completion of all bore holes and wells before they are abandoned in accordance with Article 29.

 

24.4                        Prevention of Damage to Environment and Health

 

Contractor shall, in carrying out its responsibilities under this Contract, use all prudent efforts to:

 

24.4.1                     avoid any actions, which could endanger the health and safety of persons;

 

24.4.2                     minimize Environmental Damage;

 

24.4.3                     control the flow and prevent the avoidable waste of Crude Oil and Natural Gas discovered in or produced from the Contract Area;

 

24.4.4                     prevent damage to Crude Oil, Natural Gas and fresh water bearing strata; and

 

24.4.5                     prevent the entrance of extraneous water through boreholes and wells to Crude Oil, Natural Gas and fresh water-bearing strata, except for the purpose of secondary recovery.

 

24.5                        Clean-up of Pollution

 

If in spite of Contractor’s prudent conduct of Petroleum Operations, damage to environment or health occurs, Contractor shall promptly take all prudent measures to control and clean up the pollution, or to remediate, to the extent reasonably feasible, or to compensate and mitigate any material damage resulting from such circumstances. The cost of such control, clean-up, remediation and/or compensation and mitigation activities shall be borne by Contractor, and shall be subject to Cost Recovery unless due to the Gross Negligence or Willful Misconduct on part of Contractor or failure to adhere to the standards of Sub-article 6.1.

 

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24.6                        Decommissioning and Abandonment

 

Contractor shall be liable and shall bear the cost and expenses for all claims, damages or losses arising out of or related to Environmental Damages resulting from suspended and abandoned wells and other facilities for a period of five (5) Calendar Years following the relinquishment of a portion of the Contract Area or the relinquishment of a Development and Production Area that includes such wells or facilities unless Contractor can demonstrate that the pollution and damages are caused by acts of nature or by actions or omissions of others.

 

24.7                        Clean-up by Staatsolie

 

If Contractor does not act promptly to control, clean up, remediate or compensate and mitigate any Environmental Damage referenced in Sub-article 24.5, Staatsolie may, after reasonable notice to Contractor take any actions and execute any works necessary thereto.  All reasonable direct costs and expenses incurred by Staatsolie, including all penalties and claims, shall be borne by Contractor and shall be subject to Cost Recovery, unless due to Gross Negligence or Willful Misconduct on the part of Contractor.

 

24.8                        Conditions Prior to Effective Date

 

Contractor shall not be responsible and shall bear no cost, expense or liability for claims, damages or losses arising out of or related to any environmental pollution and other damage to the environment, health and safety condition or problems which it did not cause, including but not limited to those in existence prior to the Effective Date of this Contract.

 

24.9                        Water Source Usage

 

Contractor shall have the right to use available water sources in the Contract Area for Petroleum Operations, which usage shall not interfere with the rights of other water users in the Contract Area, and provided that Contractor conducts such Petroleum Operations consistent with the international petroleum industry standards, norms and practices concerning water.

 

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ARTICLE 25       INSURANCE, LIABILITIES AND INDEMNITIES

 

25.1                        Insurance

 

Contractor shall provide all insurance and cause its Sub-Contractors to provide all insurance with respect to Petroleum Operations, of the types and for such amounts customarily used in the international petroleum industry for similar operations. Such insurance cover shall include but not be limited to:

 

25.1.1                     Loss or damage to all installations, equipment and other assets for so long as they are used in the Petroleum Operations.

 

25.1.2                     Sudden and unintentional pollution caused in the course of the Petroleum Operations for which Contractor would be liable;

 

25.1.3                     Property loss, damage or bodily injury suffered by any employee or third party or death of any employee or third party in the course of the Petroleum Operations, for which Contractor would be liable;

 

25.1.4                     If Contractor elects not to maintain, or cause its Sub-Contractors not to maintain, insurance for any particular activity in connection with the Petroleum Operations, then Contractor or the Sub-Contractor, as applicable, shall be deemed to have elected to self-insure.

 

25.2                        Insurance Coverage

 

Contractor has the freedom to select its insurance provider. Contractor shall submit for approval to the Operations Committee copies of certificates of insurance confirming any insurance providing coverage with respect to Petroleum Operations or procured pursuant to Sub-article 25.1, including but not limited to the identity of the insurers, types and amounts of coverage limits.  Contractor shall also provide to the Operations Committee information regarding applicable deductibles, premiums paid and changes to coverage.

 

25.3                        Liability for Damages

 

25.3.1                     Where a Contractor consists of more than one Contractor Party their liability shall be joint and several.

 

25.3.2                     Contractor is liable for any loss or damage resulting from the Gross Negligence or Willful Misconduct of Contractor, of Contractor’s Sub-Contractors or their employees, acting

 

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in the scope of their employment in the performance of Petroleum Operations, or any other persons for whom Contractor is responsible with regard to Petroleum Operations.

 

25.4                        Indemnity for Personnel

 

Notwithstanding the other provisions of this Contract:

 

25.4.1                     Contractor shall release, indemnify and hold harmless: Staatsolie and its Affiliates and their respective consultants, agents, employees and directors against all losses, damages, liabilities, costs and expenses arising under any claim, demand, action or proceeding against Staatsolie or its Affiliates or their respective consultants, agents, employees or directors for the personal injury, industrial illness or death or the loss/damage of personal property of any of Contractor’s employees or for the loss or damage to any personal property of any of Contractor’s employees when such loss, damage or liability arises out of or in connection with Contractor’s performance or nonperformance of this Contract, regardless of the fault or negligence, in whole or in part, of any legal entity, individual or party.

 

25.4.2                     Staatsolie shall release, indemnify and hold harmless Contractor and its Affiliates and their respective consultants, agents, employees and directors against all losses, damages, liabilities, costs and expenses arising under any claim, demand, action or proceeding against Contractor or its Affiliates or their respective consultants, agents, employees or directors for the personal injury, industrial illness or death or the loss/damage of personal property of any of Staatsolie’s employees or for the loss or damage to any personal property of any of Staatsolie’s employees when such loss, damage or liability arises out of or in connection with the performance or nonperformance of this Contract, regardless of the fault or negligence, in whole or in part, of any legal entity, individual or party.

 

25.5                        Indemnity during Petroleum Operations

 

Subject to and expressly limited by Sub-articles 25.3, 25.4 and 25.6, Contractor shall release and indemnify Staatsolie and its Affiliates and their respective consultants, agents, employees and directors from, and hold harmless Staatsolie and its Affiliates against all losses, damages, liabilities, costs and expenses arising under any claim, demand, action or proceeding instituted against Staatsolie or its Affiliates or their respective consultants, agents, employees or directors for any death, expense, injury, liability, loss or damage of any kind incurred or sustained in connection with or arising out of the activities of Contractor or its Sub-Contractors in respect of Petroleum Operations under this Contract.

 

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25.6                        Indemnity for Surrendered Areas and Staatsolie Operations

 

Staatsolie shall release and indemnify Contractor and its Affiliates and their respective consultants, agents, employees and directors from, and hold harmless Contractor and its Affiliates against all losses, damages, liabilities, costs and expenses arising under any claim, demand, action or proceeding instituted against Contractor or its Affiliates or their respective consultants, agents, employees or directors arising out of or in any way connected with any injury, death or damage of any kind sustained in connection with or arising from:

 

25.6.1                     any audit or inspection undertaken by Staatsolie; and

 

25.6.2                     activities related to any portion of the Contract Area surrendered by Contractor and any use of any equipment or assets, and/or the abandonment of any facilities for which Staatsolie has assumed control and responsibility from Contractor pursuant to Articles 27 or 29 when such loss, damage or liability has accrued after the date of such surrender and/or Staatsolie’s assumption of the use of any such equipment or assets and abandonment of any such facilities.

 

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ARTICLE 26       ACCOUNTING AND AUDITING

 

26.1                        Records at Local Office

 

Operator and/or Contractor shall maintain, at its Paramaribo office in Suriname, complete books of accounts, original invoices, sales records and supporting documents, tax returns and other financial documents in accordance with this Contract.

 

26.2                        Accounting Standards

 

Accounts shall be kept in accordance with the requirements of the Accounting Procedure and, where not covered by such requirements, in accordance with good generally accepted international petroleum industry practice and Applicable Law.

 

26.3                        Annual Report and Audit

 

26.3.1                     Contractor shall prepare, for each Calendar Year, financial statements including a balance sheet and profit and loss statement reflecting its operations under the Contract. Accounting methods, rules and practices applied for determining revenue and expense shall be consistent with good generally accepted international petroleum industry practice and the Laws of Suriname. Each financial statement shall be certified by an independent, internationally recognized firm of chartered accountants acceptable to Staatsolie, and shall be submitted, along with the auditors report, to Staatsolie within ninety (90) Days after the end of the Calendar Year to which it pertains.  Audits should be conducted in accordance with the general accepted standards of the industry (Council of Petroleum Accountants Societies “COPAS”).

 

26.3.2                     It is expressly understood and agreed that the audits described in Sub-article 26.3.1 shall have no effect on the process for approval or disapproval of costs incurred by Contractor for Cost Recovery, such process being provided for in Sub-Articles 26.5, 26.6 and 26.7 hereof.

 

26.4                        Currency of Accounts

 

The accounts and underlying documentation required by Sub-article 26.2 shall be kept in the English language and in US Dollars, subject to Sub-Article 2.3.

 

26.5                        Approval of Cost and Revenue Statements

 

Contractor shall submit costs and revenue statements as required in the Accounting Procedure. Staatsolie shall signify its approval or disapproval of items regarding Cost

 

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Recovery and revenue contained in monthly and quarterly statements within thirty (30) Days of receipt of such statements and necessary supporting documentation requested by Staatsolie. If Staatsolie indicates its disapproval of any such item, Parties shall meet within thirty (30) Days of Contractor’s receipt of Staatsolie’s notice of disapproval to review the matter. Failure of Staatsolie to disapprove of any item submitted for Cost Recovery within the allotted time shall be deemed an approval subject to Sub-article 26.8, and its cost shall be reimbursed to Contractor in accordance with Article 13.

 

26.6                        Substantiation Disapproval

 

Should Staatsolie disapprove any item(s) in cost and revenue statements submitted by Contractor, it shall notify Contractor within the period allotted for approval or disapproval in Sub-article 26.5, with supporting reason(s), such as but not limited to:

 

(i)                            the costs and/or revenues recorded in the statements are not correct; and/or

 

(ii)                           the costs of goods or services in the statements are not in line with international market prices for goods and services of similar quality supplied on similar terms prevailing at the time such goods or services were supplied; and/or

 

(iii)                          the condition of the materials furnished by Contractor does not tally with their prices; and/or

 

(iv)                          the costs incurred were not reasonably required for Petroleum Operations.

 

Any disapproval by Staatsolie shall be itemised and shall not apply to an entire cost statement, If Staatsolie and Contractor have not resolved the disputed items within sixty (60) Days of Contractor’s receipt of Staatsolie’s notification of disapproval, either Party may refer the matter to Dispute Resolution pursuant to Article 41.

 

26.7                        Staatsolie’s Right to Audit for Cost Recovery

 

Staatsolie shall have the right to audit with sixty (60) Days advance notice to Contractor, in order to approve or disapprove of costs incurred by Contractor for Cost Recovery, (a “Staatsolie Audit”) the books and accounts of Contractor relating to Petroleum Operations within two (2) years from receipt by Staatsolie of cost recovery documentation.  In carrying out such audit, Staatsolie shall not unreasonably interfere with the conduct of Petroleum Operations. Contractor shall provide all necessary facilities for auditors appointed by Staatsolie, including working space and access to all relevant personnel and information requested by Staatsolie. The costs of any such audits commissioned by Staatsolie shall be

 

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borne by Staatsolie. Such audits shall be undertaken by an independent, internationally recognized auditing firm or Staatsolie, and copies of such audit reports shall be provided to Contractor free of cost.  Subject to any adjustments resulting from such audits, Contractor’s accounts and cost and revenue statements shall be considered to be correct as of two (2) years from the date of their submission including all documentation requested by Staatsolie or after issuance of final Audit report.

 

26.8                        Adjustment as Result of Audit

 

All adjustments resulting from an audit will be recorded in the Petroleum Expenditures Account as soon as possible after agreement is reached between Contractor Parties and Staatsolie. Any unresolved dispute arising in connection with an audit shall first be referred to the Operations Committee for resolution. If agreement is not reached by the Operations Committee, the item(s) in dispute shall be submitted to dispute resolution in accordance with Article 41 of this Contract.

 

26.9                        Financial Year Period

 

The financial year is equal to the Calendar Year.

 

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ARTICLE 27       OWNERSHIP TO AND CONTROL OF GOODS AND EQUIPMENT

 

27.1                        Ownership of Petroleum, Assets and Information

 

Staatsolie shall be the owner of:

 

27.1.1                     Petroleum produced and recovered as a result of Petroleum Operations, subject to Article 13 and Sub-article 20.1;

 

27.1.2                     all data; well logs, all maps, drill samples and other geological and geophysical information obtained by Contractor as a result of Petroleum Operations, and all geological, technical, financial, and economic reports, studies and analyses prepared by or for Contractor relating to Petroleum Operations; and

 

27.1.3                     all assets, other than those to which Sub-article 27.3 applies, which are purchased, installed, constructed and/or used by Contractor in Petroleum Operations, provided that Staatsolie’s ownership of such assets shall only become effective upon the earlier of full Cost Recovery of such assets pursuant to Article 13 or the termination of this Contract.

 

27.2                        Use of Assets

 

Contractor shall have the free and exclusive use and control of the assets referred to in Sub-article 27.1.3 for purposes of its operations under this Contract, subject to the provisions in Sub Article 27.5.

 

27.3                        Rented or Leased Assets

 

Equipment or any other assets rented or leased by Contractor or owned or leased by Sub-Contractors, in connection with Petroleum Operations shall not be deemed to be owned by Staatsolie.

 

27.4                        Transfer of Ownership on Contract Termination

 

On termination of this Contract, Contractor shall (subject to and in accordance with Article 29), leave all assets (such as wells, equipment, plants and machinery purchased, installed or constructed), which are owned and used in Petroleum Operations in good working order, except for wear and tear normal to oil industry use for that type of equipment under the particular conditions in which it was used. Contractor shall at no cost, transfer ownership, if applicable, and control of such assets to Staatsolie.

 

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27.5                        Selling of Assets

 

Contractor shall have the right to sell or dispose of assets utilized in the conduct of Petroleum Operations in the Contract Area. Contractor shall notify Staatsolie three (3) Months prior to any disposals or sales.  Subject to the Accounting Procedure, in all sales, Staatsolie will have first right of refusal, which right must be exercised within thirty (30) Days of such notification. The value of assets will be based on a Arm’s Lengths Transaction and be at least in accordance with depreciation schedules agreed by the Parties. The proceeds of such sales shall be distributed as follows:

 

27.5.1                     The costs of removing, reconditioning and selling the equipment will be cost recoverable.

 

27.5.2                     The net proceeds of the sale shall be credited to the Petroleum Expenditures Account, according to the accounting procedure.

 

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ARTICLE 28       USE OF LAND AND SEA BEDS

 

28.1                        Surface rental

 

Contractor is released, from payment to Staatsolie or any Government Authority of any surface rentals or charges referenced in Article 63 of the Mining Decree.

 

28.2                        Land and Sea Beds

 

Within the limits of its authority, Staatsolie shall use its best lawful endeavors to make available to Contractor the use of land and sea beds necessary to carry out Petroleum Operations. Contractor shall pre-pay Staatsolie for any expenditure payable by Staatsolie to third parties for the right to use such land or seabed.

 

28.3                        Right to Construct Facilities

 

Contractor shall have the right to construct and the duty to maintain, above and below any such lands and sea beds, the facilities necessary to carry out Petroleum Operations, including but not restricted to, roads, pipelines, production and treatment facilities, landing fields, bridges and telecommunication facilities. Location of facilities constructed by Contractor on such land shall be in accordance with Surinamese legislation regarding land use.

 

28.4                        Use of excess capacity by other producers

 

28.4.1                     Where Staatsolie and Contractor agree that a mutual economic benefit can be achieved by constructing and operating common facilities, the Contractor shall use its utmost efforts to reach agreement with other producers on the construction and operation of such common facilities.

 

28.4.2                     Where there exists excess capacity, third parties may only use the facilities of the Contractor on payment of a reasonable compensation, based on an arms length transaction, guaranteeing reasonable return on investment to the Contractor and provided the use does not unreasonably interfere with the Contractor’s Petroleum Operations.

 

28.4.3                     The laying of pipelines, cables and similar lines in the Contract Area by other persons is allowed, but those lines and related work shall not unreasonably interfere with the Petroleum Operations of Contractor.

 

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ARTICLE 29       ABANDONMENT

 

29.1                        Scope of Abandonment Obligation

 

Contractor shall, in accordance with the abandonment plan as referenced in Sub-article 29.9, on termination of the Contract or relinquishment of part of the Contract Area, except for those facilities and assets, which Staatsolie has notified Contractor should not be removed pursuant to the provisions of this Article 29:

 

29.1.1                     remove from the Contract Area or part of the Contract Area or abandon in place, in accordance with good international petroleum industry practice, all wells, facilities and assets used in the conduct of Petroleum Operations, including, without limitation, pipelines, equipment, production and treatment facilities, electrical facilities, landing fields, and telecommunication facilities;

 

29.1.2                     perform all necessary Site Restoration and remediation.

 

29.2                        Abandonment Fund

 

To finance the activities under Sub-article 29.1, Parties shall open an escrow account (the “Abandonment Fund”), at a bank of good international repute to be agreed between Staatsolie and Contractor.  The structure of the Abandonment Fund and the terms for the administration of the Abandonment Fund shall be mutually agreed between Staatsolie and Contractor. All funds allocated to the Abandonment Fund shall be recoverable as Operating Expenditures.

 

29.3                        Contributions to Abandonment Fund

 

29.3.1                     The Parties shall exercise their good faith judgment to set the amounts of contribution(s) for the Abandonment Fund so that it shall be of sufficient size to cover the expenses to be incurred under Sub-article 29.1.

 

29.3.2                   Contractor shall commence making contributions to the Abandonment Fund, based on the formula as established in Sub-article 29.4, from the date of first Production, based on a contribution per Barrel produced and the production level of each Calendar Year.

 

29.4                        Formula

 

On a Calendar Quarter basis, Contractor shall transfer funds to the Abandonment Fund according to the following formula:

 

FTA = ECA x (CPP/PR) - AFB

 

where:

 

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FTA is the amount of funds to be transferred to the escrow account.

 

ECA is the total current estimated cost of abandonment operations to be revised and adapted yearly and in accordance with the abandonment plan pursuant to Sub-article 29.9, when available.

 

CPP is the cumulative production of Crude Oil from the beginning of the Calendar Quarter in which the Abandonment Fund was opened.

 

PR is the Proven Reserves at the beginning of the Calendar Quarter in which the Abandonment Fund was opened and adjusted according to material changes in these reserves.

 

AFB the Abandonment Fund balance at the end of the previous Calendar Quarter.

 

29.5                        Abandonment Prior to Termination of Contract

 

If Contractor recommends abandonment of facilities, assets and wells prior to the termination of this Contract, Staatsolie may elect to continue using such facilities, assets and wells by giving Contractor notice of such decision within four (4) Calendar Months of Staatsolie’s receipt of Contractor’s recommendation to abandon. Upon such notification, Staatsolie shall be responsible for abandoning such facilities, assets and wells and shall be entitled to such funds in the Abandonment Fund accrued at the time of Staatsolie’s election necessary to abandon such facilities, assets or wells, pursuant to Sub-article 29.10.

 

29.6                        Abandonment upon Termination of Contract

 

Concurrent with the notice of termination in accordance with Article 39 of this Contract, Contractor shall notify Staatsolie of all facilities, assets and wells used in Petroleum Operations that Contractor intends to abandon. Staatsolie may elect to continue to use any such facilities, assets or wells by giving Contractor notice of such election within ninety (90) Days of receipt of Contractor’s notice.  Any facilities, assets or wells noted in Contractor’s notice, which Staatsolie has not elected to continue to use, shall be abandoned by Contractor pursuant to Sub-article 29.1 and Contractor shall use the Abandonment Fund for such purpose pursuant to Sub-article 29.10. Staatsolie shall be responsible for abandoning the remaining facilities, assets or wells without further cost to Contractor and shall be entitled to the funds in the Abandonment Fund equal to the estimated abandonment cost for such facilities accrued at the time of termination of the contract.

 

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29.7                        Abandonment Operations

 

Any abandonment under Sub-article 29.1 shall be carried out in accordance with good international petroleum industry practice and Applicable Law and shall be subject to the provisions of Sub-article 44.6. If funds in the Abandonment Fund are insufficient for activities under Sub-article 29.1, additional funds for these abandonment activities shall be provided through Cost Oil or by Contractor.

 

29.8                        Facilities, Assets and Wells that Staatsolie Continues to Use

 

With respect to any facilities, assets or wells which Staatsolie elects to continue to use pursuant to Sub-articles 29.5 and 29.6:

 

29.8.1                     Staatsolie shall conduct such continued use in accordance with good international petroleum industry practice and in such a manner that does not interfere with Contractor’s Petroleum Operations;

 

29.8.2                     Staatsolie will abandon such facilities, assets and wells as and when Staatsolie decides and in such a manner that does not interfere with Contractor’s Petroleum Operations;

 

29.8.3                     Contractor shall be released from all responsibility and liability whatsoever pertaining to such facilities, assets and wells and abandonment thereof; and

 

29.8.4                     Staatsolie shall indemnify Contractor from and against any loss, damage and liability whatsoever, as well as any claim, action or proceeding instituted against Contractor, or any Contractor Parties, by any person or entity, arising from, or in any way connected with:

 

(a)                           the continued use of such facilities, assets and wells and their ultimate abandonment; or

 

(b)                           any failure by Staatsolie to properly abandon or use any such facilities, assets and wells.

 

29.9                        Abandonment Plan

 

No later than one (1) year prior to first production Contractor shall prepare detailed abandonment plan for each Commercial Field, including the estimated time of abandonment, and an estimate of the cost of abandonment for approval by the Operations Committee.  Annually thereafter, Contractor shall examine the estimated costs of abandonment operations and, if appropriate, revise the estimate.

 

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29.10                      Disbursements from Abandonment Fund

 

Subject to Sub-article 29.11, the portion of the Abandonment Fund attributable to the abandonment of a specific facility, asset or well or a part of a facility shall be transferred:

 

a)                            to Contractor at the time Contractor commences abandonment of such facility, asset or well; or

 

b)                            to Staatsolie at the moment of the transfer of such facility, asset or well, if Staatsolie elects to continue to use the facility, asset or well, as provided for in Sub-articles 29.5.1 and 29.6.  The funds transferred to Staatsolie shall be placed in an escrow account and shall only be used for abandonment.

 

29.11                      Excess Amounts in Abandonment Fund

 

If excess funds remain in the Abandonment Fund following completion of all abandonment and such funds have not been subject to full Cost Recovery, such excess funds shall be distributed to Contractor If excess funds remain in the Abandonment Fund following completion of all abandonment and such funds have been subject to full Cost Recovery, then such excess funds shall be transferred to Staatsolie.

 

29.12                      No Taxes on Abandonment Fund

 

No Taxes, levies, duties or fees shall be imposed on the amounts paid into, received or earned by or held in the Abandonment Fund.  Any excess amounts distributed in accordance with Sub-article 29.11 will be included in Parties’ gross revenues.

 

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ARTICLE 30       IMMIGRATION AND EXPATRIATE EMPLOYEES

 

30.1                        Permits and Income Tax Liability for Expatriate Employees

 

Staatsolie shall assist Contractor with all necessary permissions, permits, approvals and licenses related to immigration of personnel for the purposes of Petroleum Operations.  All Expatriate Employees shall be liable to pay Suriname personal income tax pursuant to the Income Tax Act of 1922 (Government Bulletin of 1921 no. 112, as last amended by State Decree of 1995 no. 52), provided such Taxes are of a non-discriminatory nature; otherwise such taxes shall either not be payable or, if payable, shall be reimbursed by Staatsolie.

 

30.2                        Employment of Expatriates

 

Subject to the requirements to hire Surinamese nationals, in accordance with Article 31, Contractor and its Sub-Contractors may employ persons who are not nationals of Suriname, to work in Petroleum Operations, for such periods as Contractor and its Sub-Contractors shall determine.

 

30.3                        Immigration

 

Contractor and its Sub-Contractors shall comply with Applicable Law with respect to the employment and the immigration of Expatriate Employees.

 

30.4                        Applicable Law and Respect of National Heritage and Customs

 

Contractor and its Sub-Contractors are responsible for and shall ensure that their Expatriate Employees comply with Applicable Law and respect the Suriname national heritage and customs.

 

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ARTICLE 31       LOCAL CONTENT

 

31.1                        Preference for Materials Produced in Suriname

 

In the acquisition of plant, equipment, supplies and services for Petroleum Operations, Contractor shall give preference for materials, services and products produced in Suriname if these materials, services and products can be supplied at prices, grades, qualities, delivery dates and other commercial terms equivalent to or more favorable than those at which similar materials, services and products can be supplied from elsewhere. A list of local purchases must be submitted quarterly.

 

31.2                        Purchase of Materials and Services

 

All purchases shall be made in accordance with the relevant provisions of the Accounting Procedures.

 

31.3 Personnel during Contract Period

 

31.3.1                     Where qualified Surinamese nationals are available for employment in the conduct of Petroleum Operations, Contractor and its Sub-contractors shall ensure that in the engagement of personnel it shall as far as reasonably possible provide opportunities for the employment of such personnel.  For this purpose, along with each Work Program & Budget, Contractor and its Sub-Contractors shall submit to Staatsolie a report showing the number of persons and the required professions and technical capabilities Contractor contemplates hiring within the following Calendar Year.

 

31.3.2                     A list of the number of Contractor’s local hires and associated titles must be submitted quarterly to Staatsolie.

 

31.3.3                     Contractor and its Sub-contractors may use appropriate staff or consultants as required to timely fulfill its obligations under this Contract and to ensure efficient operations.

 

31.4                        Contractor and each Sub-Contractor are hereby authorized and shall be free, throughout the term of this Contract, to, in accordance with this Article, select and determine the number of employees to be hired by them in connection with the conduct of Petroleum Operations.

 

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ARTICLE 32       SOCIAL RESPONSIBILITY AND TRAINING

 

32.1                        Training Obligation and Corporate Social Responsibility

 

32.1.1                     During each phase of the Exploration Period, Contractor shall allocate one hundred thousand US Dollars (US$100,000) per Calendar Year to train representatives of Staatsolie or to provide programs of corporate social responsibility.  During each Calendar Year after the Exploration Period, Contractor shall allocate four hundred thousand US Dollars (US$400,000) of the Budget per Calendar Year to train representatives of Staatsolie or to provide programs of corporate social responsibility.  The training programs shall be in any of Staatsolie’s operations. The programs of corporate social responsibility shall support community-based development in areas like environment, health, education, culture and sports. Contractor’s expenditures pursuant to this Sub-article 32.1.1 shall not be subject to Cost Recovery. The Operations Committee shall determine the allocation of Contractor’s expenditures pursuant to this Sub-article 32.1.1.

 

32.1.2                     Contractor shall, if so requested by Staatsolie, provide opportunities for a mutually agreed number of personnel nominated by Staatsolie to be seconded for on-the-job training or attachment in all phases of its Petroleum Operations under a mutually agreed secondment contract.  Such secondment contract shall include continuing education and short industry courses mutually identified as beneficial to the secondee. Cost and other expenses connected with such assignment of Staatsolie personnel shall be borne by the Contractor and considered as Recoverable Costs.

 

32.2                        Contractor shall regularly provide to Staatsolie non-confidential information and data relating to worldwide Petroleum science and technology, Petroleum economics and engineering available to Contractor, and as part of the obligations in 32.1.1, shall reasonably assist Staatsolie personnel to acquire knowledge and skills in all aspects of the Petroleum industry.

 

 

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ARTICLE 33       FORCE MAJEURE

 

33.1                        Excused Non-Performance

 

Failure of a Party to fulfill any of the terms and conditions of this Contract shall not be considered as a default of this Contract if such inability arises from Force Majeure, provided that such Party has taken appropriate precautions and exercised due care, to carry out the terms and conditions of this Contract.  If the Force Majeure restrains the performance of an obligation or the exercise of a right under this Contract only temporarily, but for a period of at least seven (7) Days, then the time given in this Contract for:

 

a)                            the performance of such obligation or the exercise of such right and

 

b)                            the performance or exercise of any right or obligation dependent thereon, shall be suspended until the restoration of the status quo prior to the occurrence of the event(s) constituting Force Majeure, provided that such event is relevant to the performance of such right or obligation. Provided however, there shall be no seven (7) Days requirement, if the Force Majeure event occurs during the last thirty (30) Days of any Exploration Phase or Development and Production Period.

 

33.2                        Affected Party

 

A Party affected by Force Majeure shall take reasonable measures to remove such Party’s inability to fulfill the terms and conditions of this Contract with a minimum of delay.  The settlement of strikes or other labor stoppages shall be entirely at the discretion of the affected Party and the above-mentioned requirement that any Force Majeure shall be remedied with reasonable dispatch.

 

33.3                        Notice of Force Majeure

 

A Party affected by an event of Force Majeure shall notify the other Parties of such event as soon as possible and shall similarly give notice of the restoration of normal conditions or remedial situations as soon as possible.

 

33.4                        Measures to Minimize Consequences

 

33.4.1                     Parties shall take reasonable measures to minimize the consequences of any event of Force Majeure.

 

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33.4.2                     When a Force Majeure situation lasts more than sixty (60) Days, the Parties will meet to examine the situation and implication for Petroleum Operations, in order to establish the course of action appropriate for the fulfillment of the provisions of this Contract.

 

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ARTICLE 34       LOCAL OFFICE AND PRESENCE

 

34.1                        Local Office and Legal Representative

 

Pursuant to Article 19 of the Petroleum Law of 1990, Contractor and/or Operator shall have a legal representative in Suriname and maintain an office in Paramaribo for the purpose of carrying out Contractor’s responsibilities under this Contract. Any such office and/or representative(s) shall be registered as required by Applicable Law.

 

34.2                        Contractor’s Right to Establish Local Presence, Conduct Petroleum Operations

 

Each Contractor Party, its Affiliates and Contractor’s Sub-Contractors shall have the right throughout the term of this Contract to establish such branches and permanent establishments, and to conduct any business in Suriname as may be necessary to conduct or participate in Petroleum Operations, including the purchase, lease or acquisition of any property required for Petroleum Operations.

 

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ARTICLE 35       NOTICES

 

35.1                        Delivery of Notice

 

Any notice, application, request, agreement, approval, consent, instruction, delegation or waiver required to be given hereunder shall be in writing, in English, and delivered to the address set out below for each Party:

 

35.1.1                     in person to an authorized representative of the Party to whom such notice is directed;

 

35.1.2                                     by registered mail;

 

35.1.3                                     by courier service;

 

35.1.4                                     by fax; or

 

35.1.5                                     by emailed PDF.

 

35.2                        Notice given under any provision of this Contract shall be deemed delivered when received by the Party to whom such notice is directed, and the time for such Party to respond to such notice shall run from the date the notice is received.  Receipt by a Party of any notice shall be confirmed in case of delivery under Sub-articles 35.1.1, 35.1.2 or 35.1.3, by a delivery receipt from the receiving entity or person, or in the case of delivery under Sub-article 35.1.4, a fax receipt which provides confirmation of complete transmission or in the case of delivery under Sub-article 3.5.1.5, and when a read-receipt has been received by the sender.  Each Party may change its address at any time and/or designate that copies of all notices be directed to another person at another address, with fourteen (14) Days prior notice to the other Party. Oral communication does not constitute notice for purposes of this Contract, and telephone numbers for the Parties are listed below as a matter of convenience only.

 

	
For Staatsolie:
    	
For Contractor:
    
	
 
    	
 
    
	
Staatsolie   Maatschappij Suriname N.V.
    	
Kosmos Energy Suriname
    
	
Dr.Ir. H.S.   Adhinstraat 21
    	
c/o Wilmington Trust
    
	
Paramaribo, Suriname
    	
4th Floor, Century Yard
    
	
Telephone
    	
: 597-499649
    	
Cricket Square, Hutchins Dr.
    
	
FAX
    	
: 597-491105
    	
Elgin Avenue, George Town
    
	
Attention
    	
: Managing Director
    	
Grand Cayman KY1-1209
    

 

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Cayman Islands
    
	
 
    	
Telephone 
    	
: +1-345-814-6703
    
	
 
    	
FAX 
    	
: +1-345-527-2105
    
	
 
    	
Attention 
    	
: Andrew Johnson
    
	
 
    	
Email: 
    
	
 
    	
surinamenotifications@kosmosenergy.com
    
	
 
    	
 
    
	
 
    	
With Copy to:
    
	
 
    	
Kosmos Energy Suriname
    
	
 
    	
c/o Kosmos   Energy, Ltd.
    
	
 
    	
Attention: General Counsel
    
	
 
    	
8176 Park Lane, Suite 500
    
	
 
    	
Dallas, TX 75231
    
	
 
    	
Fax: 
    	
214-445-9705
    
	
 
    	
Email: 
    
	
 
    	
KosmosGeneralCounsel@kosmosenergy.com
    

 

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ARTICLE 36       GOOD FAITH

 

The Parties shall act in good faith with respect to each other’s rights and shall adopt all reasonable measures to ensure the realization of the objectives of this Contract.

 

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ARTICLE 37       EFFECTIVE DATE

 

37.1                        Binding on Parties

 

This Contract shall be binding upon the Parties on and after the Effective Date.

 

37.2                        Conditions Precedent

 

The Effective Date shall be the date when all of the following conditions precedent have been satisfied:

 

37.2.1                     unrestricted approval of this Contract by the Minister of Natural Resources, (in accordance with Article 5 of the Petroleum Law of 1990) and delivery by Staatsolie of such approval to Contractor;

 

37.2.2                     signing of this Contract by Staatsolie and Kosmos Energy Suriname;

 

37.2.3                     receipt by Staatsolie of the Parent Company Performance Guarantee for the fulfillment of the obligations of the Work Program for phase 1 of the Exploration Period, in accordance with Sub-article 5.7.1.

 

37.3                        Pre-Effective Date Petroleum Operations

 

Notwithstanding the provision of Sub-article 37.2, Contractor may, with the prior approval of Staatsolie, conduct Petroleum Operations between the signing date of this Contract and the Effective Date and expenditures related to such Petroleum Operations shall be cost recoverable.  Notwithstanding the provisions of Sub-article 37.2, all Petroleum Operations undertaken by Contractor pursuant to this Sub-article shall be governed by the terms and conditions of this Contract.

 

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ARTICLE 38       REPRESENTATIONS, WARRANTIES, COVENANTS AND UNDERTAKINGS

 

38.1                        Contractor’s Representations and Warranties

 

Contractor hereby represents and warrants to Staatsolie:

 

38.1.1                     that it is a corporate body duly organized and validly existing in accordance with the terms of its foundation documents and has the corporate power and authority to own its property and conduct its business as presently conducted;

 

38.1.2                     that it has the capacity to enter into and perform this Contract and all transactions contemplated herein, and that all corporate and other actions necessary to permit it to enter into and perform this Contract have been properly and validly taken, and all necessary approvals for such purposes have been obtained and remain in effect;

 

38.1.3                     that by entering into or performing its obligations under this Contract, it shall breach neither any other contract or arrangement nor any provisions of its foundation documents, by-laws or administrative resolutions;

 

38.1.4                     that no “asserted claims”, rights or encumbrances of any nature exist, which in any material way may affect Contractor’s ability to perform Petroleum Operations and that to the best of its knowledge, no existing unasserted or potential claims, rights or encumbrances of any nature exist which, in any material way may affect the ability to perform Petroleum Operations by Contractor.  For the purposes of this Article, “asserted claim” means a claim contained in a notice and filed by appropriate procedures with a competent judge or arbitration panel;

 

38.1.5                     that it is authorized, subject to governmental authorizations, to establish and maintain the branches and representative offices in the Republic of Suriname and elsewhere necessary to conduct Petroleum Operations in accordance with the terms and conditions of this Contract;

 

38.1.6                     that this Contract has been duly signed and delivered by it and is valid, binding and enforceable against it in accordance with its terms; and

 

38.1.7                     that, to the best of its knowledge and belief, no material fact or circumstance relevant to this Contract exists which has not been previously disclosed to the Government or Staatsolie, as the case may be, and which should have been disclosed to prevent materially misleading representations from being made in this Contract.

 

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38.2                        Staatsolie’s Representations and Warranties

 

Staatsolie hereby represents and warrants to Contractor:

 

38.2.1                     that it is legally organized and exists in accordance with the laws of the Republic of Suriname and in accordance with the terms of its foundation documents;

 

38.2.2                     that it has the right, power and authority to enter into and perform this Contract, to grant the rights and interests to Contractor as provided under this Contract and to fulfill its obligations under this Contract;

 

38.2.3                     that this Contract has been duly signed and delivered by it and is valid, binding and enforceable against it in accordance with its terms;

 

38.2.4                     that it shall not breach any other contract or arrangement by entering into or performing under this Contract;

 

38.2.5                     that it has exclusively been granted all rights, title and interest to explore, develop and produce Petroleum in and from the Contract Area and that it owns all rights, title and interest in the Contract Area with respect to conducting Petroleum Operations;

 

38.2.6                     that no asserted claims, rights or encumbrances of any nature exist which in any material way may affect Contractor’s ability to perform Petroleum Operations and that, to the best of its knowledge, no unasserted or potential claims, rights or encumbrances of any nature exist which in any material way may affect Petroleum Operations by Contractor; and

 

38.2.7                     that all corporate and other action necessary to permit it to enter into and perform this Contract has been properly and validly taken, and all necessary approvals for such purposes have been obtained and remain in effect.

 

38.3                        General Obligations of Staatsolie

 

38.3.1                     In furtherance of Petroleum Operations and upon Contractor’s timely request, Staatsolie shall, within the limits of its authority, use its best lawful efforts to assist Contractor to obtain:

 

a)                            any necessary approvals from governmental agencies;

 

b)                            customs clearances, the matters described in Article 15, visas, work permits, residence permits, access to communication facilities, licenses to enter land or water, licenses with respect to any and all equipment and materials, the opening of bank accounts, the acquisition of office space and employee accommodation, as may be necessary for efficient implementation of Petroleum Operations; and

 

38.3.2                     Upon its timely request Staatsolie shall provide Contractor with all non confidential geological, geophysical, geochemical and technical data and information, 

 

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including well data, in the possession or control of Staatsolie or its Affiliates of relevance to the Contract Area.  Staatsolie does not warrant the accuracy or completeness of such data or information.

 

38.3.3                     Staatsolie shall use all means at its disposal to prevent activities performed by its sub-contractors within the Contract Area which would unduly or unreasonably interfere with, hinder or delay the conduct of Petroleum Operations.

 

38.3.4                     Staatsolie shall, within the limits of its authority, use its best endeavors to assist Contractor to have access to pipeline and other transportation, export and infrastructure facilities owned or controlled by any Government Authority.

 

38.3.5                     Staatsolie shall, within the limits of its authority, also use its best lawful efforts to assist Contractor in all other relevant matters as may be necessary for the efficient implementation of Petroleum Operations.

 

38.4                        Foreign Investment Incentives under Current Suriname Law

 

Contractor, its Affiliates or its Sub-Contractors shall under no circumstances be entitled to any investment incentives, tax holidays or accelerated depreciation allowances available under Applicable Law, including but not limited to the Investment Act (Official Gazette 2002 no. 42), or under any amendments thereto as of the Effective Date, other than the provisions expressly awarded in this Contract, except as provided in the tax rulings issued by the Tax authorities.

 

38.5                        Cure of a Breach of Representation, Warranty, Covenant or Undertakings

 

The representations, warranties, covenants and undertakings of the Parties set forth in this article shall remain in effect throughout the duration of this Contract and shall be in addition to, and not in substitution for, any other representations, warranties, covenants and undertakings set forth in this Contract.  Each Party shall immediately, upon receipt of notice from the other Party undertake to cure a breach of any representation warranty, covenant or undertaking, and shall indemnify and hold harmless the other Party, its respective employees, agents, representatives, and shareholders, from and against all suits for injury or claims for damages to persons or property resulting from or arising out of such breach.

 

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ARTICLE 39       BREACH, TERMINATION, AND REMEDIES

 

39.1                        Default

 

Any Party may inform the other Party of a breach of this Contract and, specifying the in notice nature of the breach, request the breaching Party to take action to correct the breach.  If the action to correct the default is not substantially completed within ninety (90) Days of such notice, unless a longer period is reasonably necessary and the defaulting Party is diligently and without delay pursuing such correction, the complaining Party may institute proceedings.

 

39.2                        Termination Events

 

This Contract shall, subject to Sub-article 39.4, terminate:

 

39.2.1                     on relinquishment of the entire Contract Area;

 

39.2.2                     if Contractor does not submit a declaration of a Commercial Field pursuant to Sub-article 9.3, at the end of the Exploration Period, unless otherwise agreed to by Staatsolie;

 

39.2.3                     if, at the end of the Exploration Period, Contractor does not submit a Development Plan pursuant to Sub-article 9.5 after the Date of Declaration of the first Commercial Field, unless agreed to by Staatsolie;

 

39.2.4                     if, at the end of the Exploration Period, Contractor does not commence Development Operations related to the first Commercial Field within ninety (90) Days following the Date of Establishment of such first Commercial Field, unless agreed to by Staatsolie;

 

39.2.5                     if, at the end of the Exploration Period, construction and installation activities related to the first Development Operations are suspended for a continuous period in excess of one hundred and eighty (180) Days, except where such interruption is caused by Force Majeure or agreed to by Staatsolie;

 

39.2.6                     sixty (60) Days from receipt by Staatsolie of a notice from Contractor that it has elected to withdraw or from the date of Contractor’s deemed withdrawal from this Contract during any phase of the Exploration Period, and ninety (90) Days as to all other periods, or

 

39.2.7                     on expiration of the term of this Contract pursuant to Article 3.

 

39.3                        Termination by Staatsolie

 

Staatsolie may, subject to Article 33 and Sub-articles 39.4, 39.5 and 39.6, terminate this Contract:

 

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39.3.1                     immediately if Contractor becomes insolvent or bankrupt or enters into any agreements or compositions with its creditors or takes advantage of any law for the benefit of debtors or goes into liquidation or receivership, whether compulsory or voluntary;

 

39.3.2                     upon intentional extraction by Contractor of any minerals other than as authorized by this Contract, except for such extractions as may be unavoidable as a result of Petroleum Operations conducted in accordance with generally accepted international petroleum industry practice and which are approved by Staatsolie as soon as possible;

 

39.3.3                     upon failure of Contractor to pay any undisputed sum due to Staatsolie under this Contract within sixty (60) Days after receiving a notice of arrears from Staatsolie;

 

39.3.4                     upon failure of Contractor to comply with any final decisions from any arbitration proceeding conducted pursuant to Article 41; or

 

39.3.5                     immediately for intentionally incorrect, false or misleading statements by Contractor of the expenditures subject to Cost Recovery in the accounts maintained in accordance with Article 26.

 

39.4                        Right to Cure

 

In the event conditions as described in Sub-articles 39.2.2, 39.2.3, 39.2.4, or 39.3 exist, Staatsolie must, prior to termination of this Contract by Staatsolie based upon such conditions, provide Contractor notice setting forth in detail the existence of such conditions.  Upon the receipt of such notice, Contractor shall have a period of sixty (60) Days, or such longer period as the Parties may agree, to undertake action designed to cure such conditions.

 

39.5                        Failure to Cure

 

If Contractor fails to remedy an event specified in Sub-articles 39.2 or 39.3 as described above within the period provided for in Sub-article 39.4 or within such longer period, as Staatsolie may consider reasonable under the circumstances, Staatsolie may terminate this Contract by notice to Contractor.

 

39.6                        Dispute

 

If Contractor disputes whether an event or condition as specified in Sub-articles 39.2 or 39.3 has occurred or exists, or claims that an event or condition has been remedied in accordance with Sub-article 39.4, Contractor may, within thirty (30) Days following receipt of notice of termination from Staatsolie, institute proceedings pursuant to Article 41, and Staatsolie shall not terminate this Contract except in accordance with the terms of any arbitration decision.  

 

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Petroleum Operations and the activities which are the subject of the arbitration proceeding shall continue during such proceedings.

 

39.7                        Damages for Breach

 

39.7.1                     For the purposes of this Contract, a Party shall be deemed to institute or to have instituted proceedings or contested proceedings under this Sub-article 39.7, upon serving notice to the other Party under the provisions of Article 41, and by continuing to avail itself to such provisions.

 

39.7.2                     A Party hereto shall be entitled to damages if the other Party is found to be in breach of this Contract under the procedures of the provisions of Article 41.

 

39.8                        Staatsolie’s Right to Terminate

 

Staatsolie may terminate this Contract only under the circumstances and in the manner described in this Article.

 

39.9                        Contractor’s Termination

 

Contractor may terminate this Contract only as provided in Sub-articles 39.2.1 or 39.2.6. Upon termination of this Contract under any circumstance or in any manner described in this Article, Contractor shall:

 

39.9.1                     pay any fees due hereunder up to the time the termination becomes effective; and

 

39.9.2                     submit all reports and evaluations, maps, assays, samples, drilling, well tests and other files in accordance with Article 21.

 

39.10                      Rights and Obligations of the Parties on Termination

 

All rights and obligations of Parties shall, subject to Sub-article 44.6, cease upon termination of this Contract, except for any obligation or liability imposed or incurred under this Contract prior to the date of termination.

 

39.11                      Other Remedies

 

If either Contractor or Staatsolie terminates this Contract pursuant to this Article, the rights of Parties to pursue damages or other actions one against the other shall, in addition to other limitations which may be contained here, be limited to the dispute resolution provisions of Article 41.

 

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ARTICLE 40       APPLICABLE LAW AND OFFICIAL LANGUAGE

 

40.1                        Applicable Law

 

This Contract shall be governed by and construed in accordance with the laws of the Republic of Suriname and where the laws of the Republic of Suriname are silent or no principles of law exist in relation to any matter, in accordance with Dutch law (without regard to conflict of laws provisions) or as otherwise agreed by the Parties.  This Contract shall be subject to the international legal principle of pacta sunt servanda (agreements must be observed).

 

40.2                        Official Language

 

This Contract will be executed in the English and Dutch languages, and both will have equal force and effect.  In case of a dispute and arbitration between the Parties, except for a manifest error or misprint, the Dutch version shall prevail.

 

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ARTICLE 41       DISPUTE RESOLUTION

 

41.1                        Consultation

 

41.1.1                     Agreement to Consult

 

Parties shall use their best efforts to amicably resolve any Dispute by consultation in accordance with this Article.

 

41.1.2                     Notice of Consultation

 

To initiate consultation, a Party shall deliver to the other Party a notice (“notice of consultation”) which:

 

(a)                           describes the Dispute; and

 

(b)                           designates a person with authority to represent such Party in negotiations relating to the Dispute.

 

41.1.3                     Within fifteen ( 15) Days of receipt of the notice of consultation, the other Party shall give notice to the sender of the notice of consultation informing who will represent such other Party in these negotiations.

 

41.1.4                     Consultation Process

 

The designated representatives shall immediately attempt to resolve the Dispute by consultation. During thirty ( 30) Days after receipt of the notice referenced in Sub-article 41.1.2, Parties may not resort to any other means of dispute resolution.

 

41.2                        Arbitration

 

41.2.1                     Agreement to Arbitrate

 

Any Dispute which cannot be resolved by mediation under Sub-article 20.6 or consultation pursuant to Sub-article 41.1 shall be resolved fully and finally and exclusively by arbitration.  Arbitration conducted pursuant to this Sub-article 41.2 may not be consolidated with any other arbitration proceeding involving any third party.

 

41.2.2                     Taking the Initiative to Arbitrate

 

A Party seeking arbitration shall deliver to the other Party a notice of its arbitral claim (“Arbitration Notice”).

 

41.2.3                     Place of Arbitration

 

The venue of any arbitration under this Contract shall be The Hague, the Netherlands.

 

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41.2.4                     Applicable Rules

 

41.2.4.1                 The Parties consent to submit any Dispute to the Permanent Court of Arbitration in The Hague, Netherlands for arbitration conducted pursuant to the Rules of Arbitration of the United Nations Commission on International Trade Law (the “UNCITRAL Rules”) in effect on the date of the Arbitration Notice; provided that, if the UNCITRAL Rules conflict with the provisions of this Contract, this Contract shall govern.

 

41.2.4.2                 Alternative Arbitration Rules Only in the event that (i) Suriname is not on the list of parties to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 as published by the United Nations at the time a Party delivers an Arbitration Notice and (ii) the Republic of Suriname and the state of which Contractor is a national are Contracting Parties to the Convention at the time when any proceeding hereunder is instituted, the following shall apply to any Dispute:

 

The Parties consent to submit any Dispute to the International Centre for Settlement of Investment Disputes (ICSID) for arbitration conducted pursuant to the Arbitration Rules of the Convention of the Settlement of Investment Disputes between States and Nationals of Other States (the “Convention”).  The Parties agree that, for purposes of ICSID arbitration, all activities contemplated by this Contract will constitute an investment, any Dispute among the Parties will be considered a legal dispute arising directly out of an investment, and Kosmos is nation of another Contracting State.

 

41.2.4.3                 In the event neither Sub-Article 41.2.4.1 or 41.2.4.2 apply, the Parties consent to submit any Dispute to the International Centre for Settlement of Investment Disputes (ICSID) for arbitration conducted pursuant to its Arbitration (Additional Facility) Rules.

 

41.2.4.4                 The arbitrators shall apply the IBA Rules on the Taking of Evidence in International Commercial Arbitration (1999) together with the applicable arbitration rules.  Where there is inconsistence, the IBA Rules shall prevail.

 

41.2.5                     Appointment of Arbitrators

 

41.2.5.1                 The number of arbitrators shall be three (3). All arbitrators shall be impartial and have at least then (10) years of experience in international oil and gas transactions of similar nature to this Contract.  Within thirty (30) Days of delivery of the Arbitration Notice, 

 

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each Party shall appoint one (1) arbitrator and shall notify each other of such appointment.  If a Party does not appoint its arbitrator within this period, the appointing Party must request the appointment of such arbitrator by the Secretary General of the Permanent Court of Arbitration in The Hague for an arbitration under Sub-Article 41.2.4.1, or the Chairman of the Administrative Council for an arbitration under Sub-Article 41.2.4.2 or Sub-Article 41.2.4.3.

 

41.2.5.2.                Within thirty (30) Days of the appointment of the two (2) arbitrators pursuant to Sub-Article 41.2.5.1, such arbitrators shall appoint the third arbitrator, who shall be the presiding arbitrator of the panel. If the arbitrators do not appoint the third arbitrator within this period of time, then either arbitrator or either Party to the Dispute may request the appointment of such arbitrator by the Secretary General of the Permanent Court of Arbitration in The Hague for an arbitration under Sub-Article 41.2.4.1, or the Chairman of the Administrative Council for an arbitration under Sub-Article 41.2.4.2 or Sub-Article 41.2.4.3.  Such appointing authority shall use its best efforts to appoint the presiding arbitrator within thirty (30) Days of a request for such appointment.

 

41.2.5.3.                If an arbitrator is unable to perform his duties due to death, resignation, refusal or unavailability, the vacancy shall be filled by the procedure as described in Sub-Article 41.2.5.

 

41.2.6                     Language of Arbitration

 

The language used in the arbitration, including the proceedings and the award, shall be English.  Supporting documents must be transmitted and/or submitted to the arbitration panel in English.

 

41.2.7                     Award Final

 

The award of the panel:

 

(a)                           shall be final and binding upon the Parties;

 

(b)                           may be entered and enforced by any court of competent jurisdiction

 

(c)                           shall be the sole and exclusive remedy between the Parties to the Dispute regarding any and all claims or counterclaims; and

 

(d)                           shall be rendered within the time period mutually agreed between the Parties.

 

41.2.8                     Scope of Award

 

Any monies awarded shall be stated and paid in US Dollars, without any tax or other deductions being withheld from the award. The award may include money damages, interest thereon (compounded quarterly from the date of the breach for which such damages were awarded).  All costs and expenses of the arbitrators and the arbitral institution shall be borne 

 

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by the parties equally, each party shall bear the costs and expenses, including attorneys’ fees, of its own counsel, experts, witnesses for the preparation and presentation of its case.  The panel shall set the rate of interest to be the maximum rate permitted by Applicable Law. Parties hereby waive any damages in excess of compensatory damages, including punitive, exemplary or consequential damages.

 

41.3                        Obligation to Perform

 

Unless the Contract expires or is terminated, each Party shall continue to perform its obligations under this Contract pending final resolution of any Dispute.

 

41.4                        Survival

 

The Parties’ obligation to resolve Disputes under this Article 41 shall survive the expiration or termination of this Contract.

 

41.5                        Expert Determination

 

41.5.1 For a Dispute on any decision referred to an expert the Parties hereby agree that such decision shall be conducted expeditiously by an expert selected unanimously by the Parties to the Dispute.  The expert is not an arbitrator and shall not be deemed to be acting in an arbitral capacity.  The independent expert shall have an established reputation in the international petroleum industry as an expert on the matter in dispute and shall not at the time of the Dispute be engaged by any Party for work other than as the expert.  The Party desiring an expert determination shall give the other Party written notice of the request for such determination.  If the Parties to the Dispute are unable to agree upon an expert within twenty (20) Days after receipt of the notice of request for an expert determination, then, upon the request of any of the parties to the Dispute, the International Centre for Expertise of the International Chamber of Commerce (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 to the Dispute concerning the expert determination or the underlying Dispute.  Any hearing with an expert determination shall take place in The Hague, the Netherlands, unless the parties agree otherwise.  All Parties agree to cooperate fully in the expeditious conduct of 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. Each Party shall prepare and exchange a written position paper setting 

 

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out its positions with respect to the Dispute. Each Party shall also prepare and exchange a written response to the other Party’s position paper.  The position papers and responses may be accompanied by data and information in the submitting Party’s discretion.  Before issuing his final decision, the expert shall issue a draft report and allow the Parties to the Dispute ten (10) Days to comment on it.  The expert shall endeavor to resolve the Dispute within sixty (60) Days (but no later than ninety (90) Days) after receipt of each Party’s written response to the other Parties’ position paper 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 to the Dispute unless challenged in an arbitration pursuant to Sub-Article 41.2 within sixty (60) Days of the date the expert’s final decision is received by the Parties to the Dispute and until replaced by such subsequent arbitral award.  In such arbitration (i) the expert determination on the specific matter shall be entitled to a rebuttable presumption of correctness; and (ii) the expert shall not (without the written consent of the parties to the Dispute) be appointed to act as an arbitrator or as adviser to the Parties to the Dispute.

 

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ARTICLE 42       WAIVER OF IMMUNITY

 

42.1                        Waiver of Immunity

 

The Parties agree that the activities contemplated in this Contract are commercial in nature. Each Party irrevocably waives to the fullest extent permitted by the laws of any applicable jurisdiction any right of immunity as to it or its property in respect of the enforcement and execution of any arbitration award rendered under this Contract and expressly consents to any legal action or proceeding (including pre-judgment attachment) in relation to the enforcement and execution of such arbitration award.

 

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ARTICLE 43       ASSIGNMENT

 

43.1                        Assignment of Participating Interest

 

43.1.1                     Contractor shall not directly or indirectly sell, assign, transfer, convey or otherwise dispose of its rights or interests related to this Contract to third parties prior to the Effective Date.

 

43.1.2                                                              A Contractor Party shall not sell, assign, transfer, convey or otherwise dispose of its rights or interests or obligations under this Contract to any third party, directly or indirectly, without the prior written consent of Staatsolie, which consent shall not be unreasonably withheld.

 

43.1.3                                                              Notwithstanding the foregoing, a Contractor Party may assign all or a portion of its rights under this Contract to an Affiliate or to another Contractor Party without the prior consent of Staatsolie. The Contractor Party shall promptly notify Staatsolie of any assignment to an Affiliate or another Contractor Party.

 

43.1.4                                                              When assigning to any third party, such third party shall:

 

(a)                           be financially and technically competent; and

 

(b)                           have adequate expertise and experience, or access to same, in petroleum operations similar to the Petroleum Operations.

 

43.1.5                                                              Sub-articles 43.1.1 and 43.1.2 shall not apply in the event of 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 or more transferors to one or more transferees.

 

43.1.6                                                              Notwithstanding the foregoing, no Contractor Party shall make an assignment which creates a Participating Interest which is less than 10%, whether such interest is in the assignee or in the assignor.  This limitation does not apply to transfers to Staatsolie pursuant to its right of participation under Article 11.1.

 

43.2                        Binding Effect

 

Any assignment of this Contract shall bind the assignee to all the terms and conditions hereof.  Such requirement shall be included in any contract of assignment.

 

43.3                        Legal Successor to Staatsolie

 

If Staatsolie Maatschappij Suriname N.V., as the Government’s representative, is replaced in the future by another entity with respect to this Contract and such entity is granted by the 

 

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Government the exclusive rights currently held by Staatsolie to Explore for, Develop and Produce Petroleum in Block, any and all references to “Staatsolie” in this Contract shall refer to such legal successor.

 

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ARTICLE 44       MISCELLANEOUS

 

44.1                        Headings and Language

 

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

 

44.2                        Entire Contract

 

This Contract constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all previous contracts and understandings, oral or written, relating thereto.

 

44.3                        Severability

 

If any part of this Contract is held to be invalid, the remainder of this Contract shall remain in effect and the Parties agree that the part so held to be invalid shall be deemed to have been stricken here from and the remainder shall have the same force and effect as if such part had never been included herein.

 

44.4                        Amendment

 

This Contract may not be altered, amended, or modified except by a written instrument signed by the duly authorized representatives of each of the Parties.

 

44.5                        Waiver

 

A Party shall not be deemed to have waived any provision hereof unless, and then only to the extent that, such waiver is in writing.  A Party’s waiver of any breach of any provision of this Contract shall not be construed as a waiver of any subsequent breach, nor will a Party’s delay or non-success to exercise any right such Party has hereunder operate as a waiver of such right.

 

44.6                        Survival

 

All rights and obligations hereunder that expressly or by their nature extend beyond the term of this Contract shall survive and continue to bind the Parties, their legal representatives, legal successors and legal assigns after any termination or expiration of this Contract until such rights and obligations are satisfied in full or expire.

 

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44.7                        Remedies Cumulative

 

The rights and remedies of Parties to this Contract are limited and exclusive to the rights granted herein. In the event of a Dispute between Parties, its resolution shall be limited to the provision of the dispute resolution provisions of Article 41.

 

44.8                        Conflict of Interest

 

44.8.1                     Each Party agrees that no director, employee or agent of such Party shall give or receive any commission, fee, rebate, gift or entertainment of significant cost or value in connection with this Contract or enter into any business arrangement with any director, employee or agent of either of the Parties or any Affiliate.

 

44.8.2                     Neither Party nor their employees, agents or subcontractors shall make any payment or give anything of significant value to an official of any government (including any officer or employee of any government department, agency or instrumentality or the employee, officer, director or agent of a government owned entity) to influence his, her or its decision, or to gain any other advantage for the Parties in connection with the performance of this Contract, which would be in violation of the Foreign Corrupt Practices Act of the United States of America or the OECD Anti-Bribery Convention of 1997, or the substance thereof, or any similar applicable Suriname anti-corruption statute or regulation.

 

IN WITNESS WHEREOF, the Parties have signed this Contract on the day and year written above by their duly authorized representatives.

 

 

	
For and on behalf of:
    	
 
    	
For and on behalf of:
    
	
 
    	
 
    	
 
    
	
Staatsolie   Maatschappij Suriname N.V.
    	
 
    	
Kosmos Energy Suriname
    
	
 
    	
 
    	
 
    
	
By: 
    	
/s/ M.C.H. Waaldijk
    	
 
    	
By: 
    	
/s/ Brian F. Maxted
    
	
 
    	
 
    	
 
    
	
Name:   M.C.H. Waaldijk
    	
 
    	
Name: Brian F. Maxted
    
	
Title: Managing Director
    	
 
    	
Title: President
    
					

 

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ANNEX 1             MAP OFFSHORE BLOCK 42

 

 

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ANNEX 2             COORDINATES OFFSHORE BLOCK 42

 

The boundary of Block 42 offshore Suriname is defined by the following geographical co-ordinates in terms of the WGS 84 geodetic datum, WGS 84 spheroid.

 

The boundary follows lines of equal latitude or longitude.

 

The Contract Area, to an accuracy of 1km2, is 6176 km2 calculated on the WGS 84 spheroid.

 

 

	
Block 42
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
A
    	
7°55’00’’N
    	
56°12'00'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
B
    	
8°30’00’’N
    	
56°0.5.05'00'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
C
    	
8°30’00’’N
    	
55°20'00'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
D
    	
8°20’00’’N
    	
55°20'00'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
E
    	
8°20’00’’N
    	
55°15'00'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
F
    	
8°00’00’’N
    	
55°15'00'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
G
    	
8°00’00’’N
    	
55°14'35'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
H
    	
7°55’00’’N
    	
55°14'35'' W
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Datum WGS -84
    	
 
    	
 
    
	
 
    	
 
    	
 
    

 

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ANNEX 3             ACCOUNTING PROCEDURE

 

1.                                             Definitions

 

The terms defined in this Accounting Procedure may be used both in singular and plural, according to the context, applying in all cases the definitions established herein. Words and phrases used in this Annex but not defined below shall have the same meaning in this Annex as is given to them in the Contract.  The following terms shall have the following meanings:

 

i.                              “Accounting Procedure” means the accounting principles, practices and procedures set forth in this Annex.

 

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

 

iii.                            “Controllable Material” means Material and Equipment which Contractor subjects to record control and inventory as so classified in the material classification manual as most recently recommended by the Council of Petroleum Accountants Societies (COPAS).

 

iv.                            “Material and Equipment” means goods, including, without limitation, all Exploration, Appraisal, Development and Production facilities together with supplies and equipment, acquired and held for use in Petroleum Operations.

 

v.                             “Petroleum Expenditures Account” shall mean the account showing the charges and credits accrued as Petroleum Expenditures.

 

vi.                            “Joint Property, Material and Equipment” means all tangible assets that are acquired and held by the group of Contractor Parties for use in Petroleum Operations.

 

2. General Provisions

 

The purpose of this Accounting Procedure is to establish a fair and equitable method for determining charges and credits with respect to the Petroleum Operations under the Contract and to provide a method for controlling expenditure within the budgets approved by the Operations Committee. The Parties shall, in good faith, endeavor to agree on such changes as are necessary to correct any unfairness or inequity if such method proves to be unfair or inequitable to any of the Parties.  In the event of any inconsistency or conflict between the provisions of this Accounting Procedure and the provisions of the Contract, then the provisions of the Contract shall prevail.

 

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Where the term Contractor is used in this Accounting Procedure, if there is more than one Contractor Party, then the term shall, where appropriate to the context, mean the Operator who will be acting on behalf of the Contractor Parties.

 

3                              Accounting Manual, Procedures and Reports

 

Contractor shall, within one hundred and twenty (120) Days after the Effective Date of this Contract, present to Staatsolie a chart of accounts, procedures, and outline of reports. Staatsolie will have the opportunity to give a documented reaction within ninety (90) Days after receipt of these documents. The Parties must agree on mutually acceptable documents within one hundred and fifty (150) Days after receipt of the documentation by Staatsolie. The documentation, including reports, may be revised by mutual agreement of the Parties.

 

4.                             Petroleum Expenditures per Commercial Field

 

If there is more than one Commercial Field, Contractor shall separately identify and charge Petroleum Expenditures to the specific Commercial Field. Contractor shall specify the method of allocation of shared Petroleum Expenditures in accordance with the Contract.

 

4.1                          Petroleum Expenditures Account and Currency Exchange

 

Operator shall provide the Parties with the accounting data and information necessary for such Party to fulfill any statutory obligation in regard to Petroleum Operations, to which it may be subjected, to the extent that such data and information could reasonably be expected to be available from the accounting records maintained by the Operator. The cost thereof shall be for the Petroleum Expenditures Account.

 

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

 

4.3                          Operator shall open and maintain separately identifiable accounting records to record all expenditures incurred and all receipts obtained by the Operator in connection with the Petroleum Operations.

 

4.4                          Operator shall maintain accounting records on an Accrual Basis in accordance with the accounting requirements of the Contract and any applicable statutory obligation of the Government, and in accordance with generally accepted accounting practices used in the 

 

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United States, provided however that Petroleum Expenditures due for Cost Recovery will be based on invoices paid.

 

The Petroleum Expenditures Account records shall be maintained in US Dollars.  Costs incurred in currencies other than US Dollars shall be converted into US Dollars in accordance with the applicable buying rates of the prior business day published by the Central Bank of Suriname.

 

5                              Audit

 

5.1                          A Contractor Party or Staatsolie, with at least sixty (60) Days advance notice to Operator and all other Contractor Parties, shall have the right at its sole cost to audit the Petroleum Expenditures Account and records of Operator relating to any Calendar Year within a twenty-four (24) month period from the date of the submission of such Petroleum Expenditures Account.

 

5.2                          The right of audit includes the right of access, during normal business hours at Operator’s Paramaribo office in Suriname, to all accounts and records pertaining to the Petroleum Expenditures and revenues Account maintained by the Operator.

 

5.3                          Operator shall produce information from Contractor’s Affiliates reasonably necessary to support charges from those Affiliates to the Petroleum Expenditures Account.

 

5.4                          If an Affiliate considers such information confidential or proprietary or if such Affiliate will not allow the Contractor Party to audit its accounts, the auditor prescribed by the statutes of the Affiliate shall be used to confirm the details and facts as required, provided such auditor prescribed by the statutes is an internationally recognized firm of public accountants. Should the auditor prescribed by the statutes of the Affiliate decline to act in such capacity, or not be an internationally recognized independent firm of public accountants, the auditing Party shall select an internationally recognized independent firm of public accountants to carry out such confirmation. The cost of such audit by the register auditor or the independent firm of public accountants, as the case may be, shall be borne by the Party who requested such audit; and

 

5.5                          At the conclusion of each audit, the Parties shall endeavor to settle all outstanding matters.  If Staatsolie or the Contractor Party conducting said audit, as applicable, desires to object to any of the Petroleum Expenditures Accounts or any other files audited, it shall submit, within ninety (90) Days following the completion of the audit, a written report to the Operator that identifies all objections arising from such audit.  If Operator has not received an audit report within said period, it will be deemed that the auditing Party(ies) have not identified any items to which to make objection.

 

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5.6                          The Operator shall reply in writing to the report as soon as possible and not later than ninety (90) Days following the receipt of the report.  Thereafter, subsequent communications between the Parties shall be on a thirty (30) days from receipt basis.  However, any Party involved in the Audit, may at any time refer any remaining unresolved dispute arising in connection with an audit to the Operations Committee for resolution. If a Party does not refer an unresolved item to the Operations Committee within sixty (60) days after receiving the most recent communication on the unresolved item from the other Party, then the item shall be deemed to have been accepted by said Party in accord with such last or most recent communication.  If unanimous agreement is not reached at the Operations Committee within thirty (30) Days of the receipt of such matter by the chairman of that committee, the item or items in dispute shall be submitted to arbitration in accordance with Article 41 of the Contract.

 

5.7                          All adjustments resulting from an audit will be recorded in the Petroleum Expenditures Account as soon as possible after agreement is reached between Operator and Parties, the matter is decided by the Operations Committee or the dispute is resolved by arbitration, as applicable.

 

5.8                          All accounting records, tax returns, books and accounts relating to Petroleum Operations shall be maintained by Contractor for a minimum of ten (10) years following the end of the Calendar Year to which they relate.

 

5.9                          Without limiting any other obligations of confidentiality arising under the Contract, any information obtained by a Contractor Party under the provisions of this Section 5 which does not relate directly to the Petroleum Operations shall be kept confidential and shall not be disclosed to any third party other than as permitted by Article 22.

 

5.10                        In the event that the Operator is required by law or by the provisions of the Contract to employ a public accounting firm to audit the Petroleum Expenditures Account and records of the Operator relating to the accounting hereunder, the cost thereof shall be charged against the Petroleum Expenditures Account, and a copy of the audit report shall be furnished to each Party.

 

6                              Allocations

 

If it becomes necessary to allocate any costs or expenditures to or between Petroleum Operations and any other operations, such allocation shall be made on an equitable basis. Operator shall furnish to the other Contractor Parties hereto a description of the allocation procedures and allocation methods pertaining to these costs and expenditures.

 

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7.                             Charges and Expenditures

 

Contractor shall charge the Petroleum Expenditures Account for all costs incurred after the Effective Date in compliance with the terms of this Contract and expenses accrued between the Signing Date and the Effective Date in accordance with Sub-article 37.3 of this Contract. Petroleum Expenditures eligible for cost recovery are limited to the following:

 

7.1                          Labor and Related Costs

 

(a)                           Gross salaries and wages, including amounts imposed by engaged government, in respect of all employees of Contractor who are directly engaged in the conduct of Petroleum Operations, whether temporarily or permanently assigned within Suriname or located in Contractor’s offices elsewhere; as well as personal expenses incurred in connection therewith. For Contractor’s personnel located outside of Suriname, time sheets which record the man-hours dedicated to the Petroleum Operations and the a detailed, auditable, internal rate assigned to each of such personnel according to its category shall be used.

 

(b)                           Costs of all holiday, vacation, sickness, disability, disability benefits, living and housing allowances, travel time, bonuses,  dependent schooling, language courses, company cars, hardship allowances and other customary allowances applicable to the salaries and wages chargeable hereunder, as well as the costs to Operator for employee benefits, including but not limited to employee group life insurance, group medical insurance, hospitalization, retirement, and severance payments required by the laws or regulations of Suriname in accordance with Contractor’s usual practice.

 

(c)                           Reasonable expenses (including related travel costs) of those employees whose salaries and wages are chargeable under 7.1(a) and for which expenses the employees are reimbursed under the usual practice of Operator.

 

(d)                           Expenses or contributions imposed under Applicable Laws to Contractor’s cost of salaries and wages chargeable under Section 7.1(a) or other costs chargeable under this Section 7.1.

 

(e)                           Costs incurred by Operator for training which are of direct benefit to the Petroleum Operations pursuant to its training policy or as required by Suriname regulations for employees permanently assigned to Petroleum Operations.

 

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

 

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7.2                          Material and Equipment

 

Material and Equipment purchased or furnished by Contractor, Operator or Sub-Contractor for use in Petroleum Operations as provided under Section 10 of this Accounting Procedure. To the extent reasonable, practical and consistent with efficient economical operation, only such Material and Equipment shall be purchased or transferred for use in Petroleum Operations as may be required for immediate use or prudent contingent stock.  The accumulation of surplus stocks shall be avoided.

 

7.3                          Transportation and Employee Relocation Costs

 

(a)                           Costs for transportation of Material and Equipment and other related costs such as expediting, crating, dock charges, air and ocean freight.

 

(b)                           Costs incurred for transportation of personnel as required in the conduct of Petroleum Operations.

 

(c)                           Costs for relocation of employees permanently or temporarily assigned to Petroleum Operations at the beginning of their assignment to Petroleum Operations in accordance with Contractor’s usual practice.

 

7.4                          Services

 

(a)                           The actual price paid for contract services, professional consultants and other services procured from outside sources other than services covered by Section 7.13.

 

(b)                           Costs for use of equipment and facilities furnished by Contractor, Operator, or Sub-Contractors at rates commensurate with the cost of ownership and operation if such use is economically justifiable. Rates shall include costs of maintenance, repairs, other operating expenses, insurance and taxes.  Such costs shall be computed in line with Contractor’s usual accounting policy such that no gain or loss accrues to Contractor, and provided that such costs are competitive with comparable third party services.

 

(c)                           The cost of services provided or performed by the technical and professional staff of the Contractor, Contractor’s Affiliates, Operator and/or Operator’s Affiliates, Examples of such services include, but are not limited to the following:

 

Geological Studies and Interpretation;

 

Seismic Data Processing;

 

Well Log Analysis, Correlation and Interpretation;

 

Well Site Geology;

 

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Laboratory Services;

 

Ecological and Environmental Engineering;

 

Abandonment Studies;

 

Project Engineering;

 

Source Rock Analysis;

 

Petrophysical Analysis;

 

Geochemical Analysis;

 

Drilling Supervision;

 

Development Evaluation;

 

and, if provided in-country in Suriname:

 

Executive and Administrative

 

Communications and Data Processing;

 

Human Resources

 

Professional Services, including accounting and legal services; and

 

Safety and Security.

 

Such services pursuant to Section 7.4 (a), (b) and (c), shall be charged at cost plus any income or withholding tax, excluding profit, provided that these services result in accurate and complete reports, presented to Parties and supported by time records and any other relevant information. The records thereof shall be made available for audit by the Parties in accordance with Section 5.

 

7.5                          Damages and Losses to Property

 

(a)                           All costs or expenses necessary for repair or replacement of property resulting from damages or losses incurred by fire, flood, storm, theft, accident, or any other cause, provided that these expenses are not due to Gross Negligence or Willful Misconduct on the part of Contractor or recoverable from insurance.

 

(b)                           Contractor shall furnish Staatsolie with written notice of such damages or losses in excess of two hundred thousand US Dollars ($200,000) per incident as soon as reasonably practicable.

 

7.6                          Insurance

 

(a)                           All premiums paid for insurance carried for the Petroleum Operations.

 

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(b)                           All expenditures incurred and paid in the settlement of any and all losses, claims, damages, judgments and any other expenses, not recovered from insurance, provided that these expenses are within the provisions of Article 25 of the Contract and not due to Gross Negligence or Willful Misconduct on the part of Contractor.

 

7.7                          Legal Expenses

 

Costs necessary for handling, investigating and settling litigation or claims arising from Petroleum Operations or necessary to protect or recover property, including, but not limited to, lawyers’ fees, court costs, cost of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims, except if such legal expenses are due to Gross Negligence or Willful Misconduct on the part of Contractor.

 

7.8                          Duties and Taxes

 

Taxes, except for income taxes as described in Sub-article 18.2 of the Contract, charges, levies, duties, fines, payments and penalties imposed by the Government or any other governmental entity against Contractor in connection with Petroleum Operations, except if the imposition of such tax, levy, duty, fine, payment or penalty is due to Gross Negligence or Willful Misconduct on the part of Contractor.

 

7.9                          Offices, Camps, and Miscellaneous Facilities

 

The cost of maintaining and operating any offices, sub-offices, camps, warehouses, housing and other facilities directly serving the Petroleum Operations.

 

7.10                        Energy Expenses and water

 

Costs of fuel, electricity or other energy and water used for the Petroleum Operations.

 

7.11                        Communication Charges

 

Costs of acquiring, leasing, installing, using, repairing and maintaining communication systems, used for the Petroleum Operations

 

7.12                        Environmental Charges

 

Costs of environmental programs undertaken with respect to Petroleum Operations, including, but not limited to Environmental and Social Impact Assessment Environmental 

 

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Impact Assessments, Environmental Baseline Study, Environmental Management Plan, ongoing monitoring programs, remediation, and mitigating activities.

 

7.13                        Administrative Overhead Costs

 

7.13.1                     Contractor’s administrative overhead outside Suriname applicable to Petroleum Operations under the Contract prior to the Date of the Declaration of Commercial Field in the Contract Area shall be charged in accordance with the following rates with respect to all expenditures allowable for Cost Recovery other than administrative overhead, Royalties and other taxes imposed by the government:

 

i)                              Three percent (3%) of the first five million (5,000,000) US Dollars of such expenditures paid during the Calendar Year; and

 

ii)                             Two percent (2%) of the next three million (3,000,000) US Dollars of such expenditures paid during the Calendar Year; and

 

iii)                            One percent (1%) of the amounts exceeding eight million (8,000,000) US Dollars of such expenditures paid during the Calendar Year.

 

7.13.2                     Contractor’s administrative overhead outside Suriname applicable to Petroleum Operations under the Contract after the Date of the Declaration of Commercial Field in the Contract Area shall be charged in accordance with the following rates with respect to all expenditures allowable for Cost Recovery other than administrative overhead:

 

i)                              Five-tenths of one percent (0.5%) of the first twenty million (20,000,000) US Dollars of such expenditures paid during the Calendar Year; and

 

ii)                             Four-tenths of one percent (0.4%) of amounts of the next thirty million (30,000,000) US Dollars of such expenditures paid during the Calendar Year; and

 

iii)                            One-tenths of one percent (0.1%) of the amounts exceeding fifty million (50,000,000) US Dollars of such expenditures paid during the Calendar Year.

 

7.13.3                     Contractor shall make provisional quarterly charges to the accounts based on the above rates.

 

7.13.4                     Such overhead charges shall be considered full compensation to Contractor for work carried out by Contractor and Affiliates wherever located for the following types of assistance provided:

 

(A)                          Executive - Time of executive officers from the rank of regional exploration manager upward.

 

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(B)                          Exploration, Production and Engineering - Direction, Managing, advising and controlling the entire project.

 

(C)                          Services - provided by other departments such as legal, employee relations, personnel recruiting, purchasing and procuring administrative, accounting and audit, treasury, financial and exchange advice and payment of invoices, which contribute time, knowledge and experience to the operation.

 

7.14                        Abandonment Fund

 

All contributions made by Contractor to the Abandonment Fund.

 

7.15                        Licenses, Permits, etc.

 

All costs attributable to the acquisition, maintenance, renewal or relinquishment of licenses and permits acquired for Petroleum Operations and bonuses paid in accordance with the Contract when paid by Contractor in accordance with the provisions of the Contract.

 

7.16                        Other Expenditures

 

Any other expenditures not covered or dealt with in the foregoing provisions which are incurred by Contractor for the necessary and proper conduct of the Petroleum Operations.

 

8.                             Cost and expenses not qualifying for Cost Recovery

 

The following costs and expenses do not qualify for Cost Recovery:

 

(a)                           any payments made to Staatsolie for failure to fulfill the Minimum Work Obligations in accordance with Sub-article 5.8.1 of the Contract;

 

(b)                           costs incurred before the Signing Date;

 

(c)                           costs of marketing or transportation of Crude Oil beyond the Delivery Point;

 

(d)                          attorney’s fees and other costs of proceedings in connection with dispute resolution under Article 41 of the Contract or expert determination as provided in the Contract or this Accounting Procedure;

 

(e)                           fines and penalties imposed under Applicable Law of Suriname or under this Contract to the extent that the imposition of such fines or penalty is due to Gross Negligence or Willful Misconduct on the part of Contractor; and

 

expenditures made in accordance with Sub-article 32.1.1 of the Contract concerning training to Staatsolie personnel and financing of community based programs.

 

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Any costs and expenses attributable to the financing of Petroleum Expenditures incurred under the Contract

 

(h)                           any other expenditures not covered or dealt with in the foregoing provisions which are incurred by Contractor, which are not necessary for the proper conduct of the Petroleum Operations.

 

9.                             Credits

 

Credits in favor of the Contractor as a result of the Petroleum Operations shall be credited to the respective accounts and be included in the statement of expenditures.  Such credits shall include, but not be limited to, the following transactions:

 

(a)                           The net proceeds of any successful damage claim and any type of discount with an insurance in connection with Petroleum Operations for claims with respect to operations or assets that were insured and where the insurance premium with respect thereto has been charged to the Petroleum Expenditures Account.

 

(b)                           Any adjustments received by Contractor from suppliers/manufacturers, or their agents, in connection with defective Material and Equipment, or services deemed unsatisfactory, the cost of which was previously charged by Contractor to the Petroleum Expenditures Account.

 

(c)                           The net proceeds of sale for disposal of assets used in or acquired for the Petroleum Operations.

 

The net proceeds received from third parties and/or Staatsolie in relation to the use of Contractor’s facilities.

 

Net proceeds arising from the sale of (part of) the participating interest under this Contract.

 

10.                          Material and Equipment

 

10.1                        Acquisitions

 

Materials purchased for the Joint Account shall be charged at net cost paid by the Operator.  The price of Materials purchased shall include, but shall not be limited to export broker’s fees, portion of storage fees directly related to the Joint Operations, all taxes, insurance, transportation charges, loading and unloading fees, import duties, license fees and demurrage (retention charges) associated with the procurement of Materials and applicable taxes, less all discounts taken. Operator shall make its best endeavors to timely dispose of idle and/or surplus Joint Property, Material and Equipment, such disposal being made through sale to a third party or by transfer from Petroleum Operations pursuant to section 10.5 below.

 

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10.2                        Pricing of acquired Material and Equipment

 

Pricing of acquired Material and Equipment shall be as follows:

 

(a)                           Material and Equipment which is purchased from a third party shall be charged at the net cost incurred by Contractor. Cost shall include, but shall not be limited to, such items as procurement cost, transportation, duties, license fees and applicable taxes.

 

(b)                           New, unused, Material and Equipment which is owned by Contractor and transferred to Petroleum Operations under this Contract, shall be classified as Condition “A” and priced at an invoice price determined in accordance with (a) above.

 

(c)                           Material and Equipment which is owned by Contractor and transferred to Petroleum Operation under this Contract and is in sound and useful condition and suitable for re-use without reconditioning, shall be classified as Condition “B” and priced at a fair market price not exceeding seventy-five percent (75%) of that of new Material and Equipment as specified in (b).

 

(d)                           Material and Equipment which is owned by Contractor and transferred to Petroleum Operation under this Contract and is not in sound and useful condition but which is suitable for re-use after reconditioning, shall be classified as Condition “C” and priced at a fair market price with a maximum of fifty percent (50%) of new Material and Equipment as specified in (b).

 

(e)                           The cost of reconditioning shall also be charged to the Petroleum Expenditures Account provided that the Condition C price, plus the cost of reconditioning, does not exceed the Condition B price and provided that Material and Equipment as classified meets the requirements for Condition B Material and Equipment upon being repaired and reconditioned.

 

(f)                            Material and Equipment which is owned by Contractor and transferred to Petroleum Operation under this Contract and is no longer suitable for its original use, excluding junk, but usable for some other purpose which cannot be classified as Condition “B” or Condition “C” shall be priced at a fair value commensurate with its use.

 

(g)                           Material and Equipment which is owned by Contractor and transferred to Petroleum Operation under this Contract and is junk shall be priced at prevailing prices.

 

10.3                        Premium Prices

 

Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes or other unusual causes over which the Contractor and/or Operator has 

 

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no control, the Contractor may charge the Petroleum Expenditures for the required Material and Equipment at the Contractor’s actual cost incurred in providing such Material and Equipment, in making it suitable for use, and in moving it to the Joint Property; provided notice in writing is furnished to Contractor Parties of the proposed charge prior to billing Contractor Parties for such Material and Equipment. Provided however, that if the premium exceeds 200.000 (two hundred thousand) US$ Dollar or 20 % of the cost under normal circumstances, Operations Committee approval is required for such acquisition.

 

10.4                        Warranty of Material and Equipment furnished by Operator

 

The Operator does not give a warranty for the Material and Equipment charged to the Petroleum Expenditures Account beyond the manufacturer’s or supplier’s guarantee, express or implied.  In case such Material and Equipment is defective, a credit shall not pass to the Petroleum Expenditures Account before an adjustment has been received by the Operator from the manufacturer or supplier.

 

10.5                        Disposal of Material and Equipment

 

10.5.1                     To the extent permitted under the terms of the Contract, the Operator shall have the right to dispose of surplus Material and Equipment but shall advise and secure prior approval of the Operations Committee of all proposed dispositions and method of disposal of surplus Material and Equipment having an original unit cost to the Petroleum Expenditures Account either individually or in the aggregate of more than two hundred thousand US Dollars (US$200,000) (“Major Surplus Items”).

 

10.5.2                     Each Party shall have fifteen (15) Days from receipt of the notice to notify, in writing, to the Operator whether it wishes to acquire any of the Major Surplus Items under the terms and conditions proposed. Failure by any Party to respond within the fifteen (15) Day notice period shall be deemed a notification of no interest.

 

10.5.3                     If more than one Party has indicated its wish to acquire some Major Surplus Item, subject to Sub-Article 27.5, the Operator shall promptly, in respect of each item, notify each such Party in writing of the name of the other Party who wishes to acquire that item. Such Parties shall be allowed fourteen (14) Days from the date of such notification to agree upon a division or allocation of each such item

 

10.5.4                     If the Parties concerned are unable to agree upon a split or allocation of any Major Surplus Item, the Operator shall request a competitive bid from the Parties concerned 

 

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in respect of that item and shall accept the highest bid. Where the Operator bids in competition with other Parties it shall arrange the bidding procedure so that it gains no advantage from acting as the Operator.

 

10.5.5                     If no Party has indicated within said period of fifteen (15) Days its intention to purchase any or all Major Surplus Items, the Operator shall, unless the nature or value of an item makes tendering impracticable or uneconomic, prepare a list of the items for sale and bids shall be requested from the Parties and from third parties. The Operator will ordinarily accept the highest bid but shall reserve the right to accept or refuse any offer. All documentation concerned with such bids and all subsequent sales shall be retained as part of the records available for audit.

 

10.5.6                     Credits for Material and Equipment sold by Operator shall be made to the Petroleum Expenditures Account in the month in which the sale of Material and Equipment is settled or formalized. Any Material and Equipment sold or disposed of under this Section shall be without guarantees or warranties of any kind or nature. Costs and expenditures incurred by Operator in the disposition of Material and Equipment shall be charged to the Petroleum Expenditures Account.

 

10.6                        Inventories

 

The Operator shall maintain detailed records of Controllable Material, subject to the following:

 

(a)                           Periodic inventories shall be taken by Contractor of all Controllable Material: annually with respect to moveable assets and once every three years for immovable assets Contractor shall give thirty (30) Days written notice of intention to Staatsolie and any other Contractor Party prior to taking such inventories to allow them to be represented.  If any such party does not succeed in being represented shall bind it to accept the inventory taken by Contractor.

 

(b)                           Reconciliation of inventory with the Petroleum Expenditures Account shall be made by Contractor based on the inventory report as required by the Parties.

 

(c)                           Adjustments to the Petroleum Expenditures Account resulting from the reconciliation of a physical inventory shall be made within six (6) months following the taking of the inventory. Inventory adjustments shall be made by Operator to the Petroleum Expenditures Account for overages and shortages.

 

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10.7                        Special Inventories

 

Special inventories may be taken whenever there is any sale, change of interest, or change of Operator in the Joint Property. It shall be the duty of the Party selling to notify all other Parties as quickly as possible after the sale of interest takes place. In such cases, both the seller and the purchaser shall be governed by such inventory. In cases involving a change of Operator, all Parties shall be governed by such inventory.

 

10.8                        Expense of Conducting Inventories

 

The expense of conducting special inventories shall be charged to the Parties requesting such inventories, except inventories required due to change of Operator in which cases shall be charged to the Petroleum Expenditures Account.

 

11.                          Statements to be provided by Operator

 

11.1                        Monthly Statements

 

Within fifteen (15) days from the end of the relevant Calendar Month Contractor shall supply Staatsolie with the following informative statements:

 

(a)                           an expenditure statement in accordance with Sections 2, 8 and 10 of this Annex;

 

(b)                           a Joint Venture expenditure statement in accordance with Sections 2, 8 and 10 of this Annex;

 

(c)                           a statement of receipts in accordance with Section 9 and 10 of this Annex;

 

(d)                           a production statement in accordance with Article 14 ;

 

(e)                           a statement of Local Content in accordance with Article 31 and 32

 

11.2                        Quarterly Statements

 

Within thirty (30) days from the end of the relevant Calendar Quarter, Contractor shall supply Staatsolie with the following settlement statements:

 

a)                            a cost recovery statement in accordance with Article 13 and 26.

 

b)                            a production statement in accordance with Article 14 ;

 

c)                             a statement of receipts in accordance with Article 26.4

 

d)                            a Profit Oil and control statement

 

e)                             an inventory statement

 

f)                             details of all equipment disposed and sold

 

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Consolidated annual summaries of each of these statements shall also be provided to Staatsolie within ninety (90) days after the end of the relevant Calendar Year.

 

11.3                        Statement of expenditures

 

The statement of expenditures shall include the following:

 

(a)                           the expenditure (less credits) accrued during the period in question;

 

(b)                           the cumulative expenditure (less credits) to date for the relevant budget year;

 

(c)                           modifications to the budget;

 

(d)                           the expenditure contemplated for the budget year

 

(e)                           the latest forecast of cumulative expenditure for year end; and

 

(f)                            variations between budget (as amended by sub-paragraph (c) hereof, where applicable) and latest forecast and reasonable explanations thereof.

 

11.4                        Statement of receipts

 

The statement of receipts shall include the following:

 

(a)                           The estimated value and volume of Cost Oil lifted by Parties for the period in question.

 

(b)                           The volume and value of Petroleum produced, used in Petroleum Operations, available for lifting and actually lifted by the Parties, as at the end of the preceding period in question;

 

11.5                        Production statement

 

Contractor’s Production Statement shall contain the following information and shall be prepared in accordance with the following principles:

 

(a)                           The production sharing shall be determined on the basis of all Petroleum produced and saved from the Commercial Field and measured at the Delivery Point or Points during the respective Month in accordance with Article 14 and Annex 4 of the Contract.

 

(b)                           The volumes of grades of Crude Oil and Natural Gas produced and sold will be determined separately at the Delivery Point.

 

(c)                           The volumes of Crude Oil shall be corrected for water and sediments, and shall be determined on the basis of standard temperatures and pressures (sixty (60) degrees Fahrenheit and 14.7 p.s.i.a.). The gravity, sulphur content, and other quality indicators of the Crude Oil shall be determined and registered regularly.

 

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(d)                           The volumes of Natural Gas produced and sold shall be determined on the basis of standard temperatures and pressures (sixty (60) degrees Fahrenheit and 14.7 p.s.i.a.).  The energy content, sulphur content and other quality indicators of the Natural Gas shall be determined and registered regularly.

 

11.6                        Quarterly cost recovery statement

 

The Cost Recovery report shall consist of:

 

(a)                           Petroleum Expenditures, based on paid invoices, for the Quarter in question;

 

(b)                           Recoverable Petroleum Expenditures up to the end of the preceding Calendar Quarter.

 

(c)                           quantity and value of Crude Oil and/or Natural Gas available for cost recovery during the Calendar Quarter.

 

(d)                           amount of costs recovered from the Crude Oil and/or Natural Gas available for cost recovery for the Calendar Quarter.

 

(e)                           amount of recoverable costs carried into succeeding Calendar Quarter, if any; and

 

(g)                           quantities of Crude Oil allocated to Contractor and Staatsolie, respectively, during the Calendar Quarter as cost recovery Crude Oil and Profit Oil.

 

These expenditures included in such Cost recovery statement will be cost recoverable after approval by Staatsolie in accordance with Article 26.

 

11.7.                       Quarterly Profit oil and Control statement

 

Contractor shall provide each Calendar Quarter a Profit Oil and control statement showing the accumulated accounts of costs and revenues verified by Staatsolie. The statement shall include information in respect of the following:

 

(a)                           The cumulative amount of recoverable costs and Petroleum Expenditures

 

(b)                           The cumulative amount of cost recovered and yet to be recovered

 

(c)                           The cumulative amount Royalties paid

 

(d)                           The cumulative quantity and value of Crude Oil allocated to the Contractor for cost recovery; and

 

(e)                           The cumulative quantity and value of Profit Oil and/or Natural Gas allocated to Staatsolie and Contractor, respectively, under this contract.

 

(f)                                                           The cumulative amount of income tax

 

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(g)                                                          The cumulative gross revenues

 

11.8                                                                        Quarterly Inventory statement

 

11.8.1 Inventory Statement

 

Contractor shall maintain detailed records of property acquired for Petroleum Operations.

 

On a Quarterly basis, Contractor shall provide Staatsolie with an Inventory Statement containing:

 

(a)                                                                                 description and codes of all assets and Controllable Materials;

 

(b)                                                                                 amounts charged to the accounts for each asset;

 

(c)                                                                                  date on which each asset was charged to the account; and

 

(d)                                                                                 whether the costs of such asset has been recovered pursuant to Article 13 of the Contract.

 

(d)                                                                                 The book value of all assets, in accordance with Sub-Article 26.2

 

11.8.2 Identification

 

To the extent practicable, all assets shall be identified for easy inspection with the respective codes specified in manuals.

 

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ANNEX 4     CRUDE OIL AND NATURAL GAS MEASUREMENT PROCEDURE

 

1                                                                                         Crude Oil Measurement

 

(a)                                                                                 Calibrated Title Transfer Meters.

 

Operator shall have (a) calibrated title transfer meter(s) permanently installed at the Delivery Point(s). The custody transfer meter(s) shall be capable of accurately measuring the quantity of Crude Oil at the Delivery Point(s). The title transfer meter(s) shall be comprised of all necessary meters, meter testing devices, instruments and other associated equipment necessary to measure, evaluate and record the quantity of the Crude Oil at the Delivery Point(s).

 

(b)                                                                                 Crude Oil Quality Measurement.

 

Operator shall also provide the necessary equipment, tools and instruments to measure base sediment and water (“BS&W”), American Petroleum Institute (“API”) gravity and any other characteristics the Parties mutually deem appropriate in accordance with industry practices for crude oils similar to the Crude Oil and shall store such tools and instruments in an appropriate laboratory.  Equipment provided by Operator shall include, but not be limited to, an automatic sampler to collect representative samples of each cargo loaded at the Delivery Point(s).  Operator shall test and calibrate (for accuracy) the equipment being used in accordance with generally accepted international petroleum industry practice whenever necessary and in any event at least once per month. Both Staatsolie and each Contractor Party shall have the right to witness all testing and calibration of the meters and shall receive detailed reports thereof.

 

2                                                                                         Frequency of Crude Oil Measurement

 

For accounting purposes, official meter readings shall be read by Operator not less than weekly for purposes of providing production and shipment data of Crude Oil.  Information obtained from these readings shall be reported, promptly, to Staatsolie and each Contractor Party.  The actual times of such meter readings shall be determined by Operator with timely notification to Staatsolie and if, applicable, any other Contractor Party.  Staatsolie and each Contractor Party shall have the right, but not the obligation, to have two representatives present to witness meter readings and sign meter results.

 

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3                                                                                         Natural Gas Measurement

 

In the event of the Development of Natural Gas reserves in the Contract Area, the quantity and quality of Natural Gas delivered under the Contract shall determined from data obtained from orifice or ultrasonic meter runs using API standards and procedures.  The type of Natural Gas metering equipment to be installed shall be determined by Operator.  The Natural Gas measurement and evaluation system shall be consistent with international petroleum industry practice. The Natural Gas meter shall be calibrated at least once every Calendar Year, witnessed by representatives of both Staatsolie and Operator, with the calibration records signed by such representatives.

 

4                                                                                         Petroleum Measurement Procedures

 

Unless Operator and Staatsolie agree otherwise, API standards and procedures shall be used to measure and evaluate Petroleum flowing through the equipment. The API standards and procedures shall be taken from or provided by the API’s standard Method of Sampling and Manual of Petroleum Measurement Standards.  A copy of these standards and procedures (and updates and reviews thereof) shall be provided by Operator and shall be available both to Staatsolie and to Operator at all times.

 

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ANNEX 5      ENVIRONMENTAL STANDARDS AND PRACTICES

 

Conduct of Petroleum Operations

 

Contractor shall conduct the Petroleum Operations in a careful, expedient, safe and efficient manner in accordance with Sub-Article 24.1 of the Contract.

 

Environmental Baseline Study

 

1.                                                                                      General. Contractor shall, in order to determine the state of the environment in the Contract Area at the Effective Date, cause an environmental baseline study to be carried out by an internationally recognized environmental consulting firm selected by Contractor and acceptable to Staatsolie (the “Environmental Baseline Study”).

 

2.                                                                                      Start of Environmental Baseline Study. Contractor shall begin preparation of an Environmental Baseline Study for the Contract Area as soon as practicable after the Effective Date of the Contract. The Operations Committee, taking into consideration the Development Plan, shall agree on the final submission date of the Environmental Baseline Study, which date shall be no later than two (2) Calendar Years after the Date of Establishment of a Commercial Field.

 

3.                                                                                      Outline of Environmental Baseline Study. Contractor shall carry out the Environmental Baseline Study in accordance with the form of outline attached in Annex 5A of the Contract.

 

4.                                                                                      Submission. The Environmental Baseline Study shall be submitted to the relevant Government Authorities, with a copy to Staatsolie.

 

Environmental and Social Impact Assessments

 

1.                                                                                      General. Contractor shall prepare an Environmental and Social Impact Assessment for any Environmental Impact Activity that is reasonably anticipated to occur in the Contract Area during the Petroleum Operations.

 

2.                                                                                      Environmental Impact Activity. An “Environmental Impact Activity” means an activity undertaken by Contractor in connection with Petroleum Operations in the Contract Area which will, or is reasonably foreseeable to, have a significant negative effect on the environment.

 

3.                                                                                      Timing. Contractor shall prepare and submit an Environmental and Social Impact Assessment to the relevant Government Authorities, with a copy to Staatsolie, for any phase of a Work Program before undertaking, directly or indirectly - through a Sub-Contractor, any phase of a Work Program that will include an Environmental Impact 

 

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Activity. An Environmental and Social Impact Assessment may be written in such manner to incorporate multiple Environmental Impact Activities that result from that phase of a Work Program.

 

4.                                                                                      Classification of Environmental and Social Impact Assessment. Contractor shall make each Environmental and Social Impact Assessment in accordance with the form of outline attached hereto as Annex 5B.  Each Environmental and Social Impact Assessment shall include an Environmental Impact Assessment. An “Environmental Impact Assessment” means the assessment of the effects of the relevant Environmental Impact Activity on the environment.

 

5.                                                                                      Environmental Management Plan. Contractor shall, as part of an Environmental and Social Impact Assessment, prepare an environmental management plan based on the results of the Environmental Impact Assessment (“Environmental Management Plan”). The Environmental Management Plan shall provide detailed information about Petroleum Operations that will be utilized to minimize environmental impacts.  An Environmental Management Plan shall include, but not be limited to, a detailed description of atmospheric emission, waste management systems, and oil spill and fire prevention and response.

 

Contingency Plans

 

1.                                                                                      Objective. The objective of the Contingency Plan is:

 

(i)                                                                                     to ensure the safety of personnel and the public; and

 

(ii)                                                                                  to protect both the environment and Contractor’s investment.

 

2.                                                                                      Development of Contingency Plan.  The Contingency Plan will be developed as a logical extension of any relevant present plans used by Contractor in other offshore projects.  The process for developing the Contingency Plan will include:

 

(a)                                                                                 risk analysis;

 

(b)                                                                                 hazard identification and assessment;

 

(c)                                                                                  environmental sensitivities;

 

(d)                                                                                 consultation with Government Authorities;

 

(e)                                                                                  incorporation of petroleum industry codes of practice;

 

(f)                                                                                   consultation with local and other emergency resources; and

 

(g)                                                                                  emergency response plans.

 

136

 

3.                                                                                      Coordination. Contractor’s Contingency Plan will incorporate the appropriate government agencies and other organizations in planning and coordinating exercises and drills (exercises).

 

4.                                                                                      Types of Emergency Response Plans.  Contractor shall develop emergency response plans (“ERPs”) for:

 

(i)                                                                                     oil spill;

 

(ii)                                                                                  incidents such as fire, well management, natural disasters; and

 

(iii)                                                                               medical emergency.

 

Existing ERPs will be reviewed and updated on an “as needed” basis.

 

5.                                                                                      Structure of ERP.  Each ERP will provide information on:

 

(a)                                                                                 levels of alert;

 

(b)                                                                                 notification structure;

 

(c)                                                                                  key duties of the response team;

 

(d)                                                                                 emergency support teams;

 

(e)                                                                                  emergency telephone lists;

 

(f)                                                                                   various forms and checklists; and

 

(g)                                                                                  procedures and accountabilities to update these lists.

 

137

 

ANNEX 5A                               OUTLINE OF ENVIRONMENTAL BASELINE STUDY

 

Reference Data

 

1.                                                                                      Description of the Study Area

 

2.                                                                                      Objectives of the Study

 

3.                                                                                      Literature review

 

4.                                                                                      Identification of relevant regulatory approvals and permits

 

5.                                                                                      International standards overview

 

6.                                                                                      Audit of existing operations and practices

 

7.                                                                                      Environmental data collection

 

·  Atmospheric

 

·  Water Quality

 

·  Flora and Fauna

 

·  Benthic

 

·  Meteorological and Oceanographic

 

·  Sediment

 

·  Background Radiation

 

Contents of Environmental Baseline Study

 

1.                                                                                      Methodology

 

2.                                                                                      Sampling and Analysis Frequency Discussion, provided that it is deemed necessary to conduct environmental monitoring

 

3.                                                                                      Finding

 

4.                                                                                      Program Modifications, provided that it is deemed necessary to conduct environmental monitoring

 

5.                                                                                      Identification of Environmental Impact Activities

 

138

 

ANNEX 5B    FORM OF ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT

 

1.                                                                                      The Project

 

1.1                                                                               Project overview

 

1.2                                                                               Project activities

 

1.3                                                                               Emissions of facilities and waste removal

 

1.4                                                                               Accidental spills

 

1.5                                                                               Accidental loss experiences

 

2.                                                                                      Approach and Methodology

 

2.1                                                                               Approach

 

2.2                                                                               Methodologies

 

2.3                                                                               Identification of relevant regulatory approvals and permits

 

3.                                                                                      Environmental Setting and Data Collection

 

3.1                                                                               Marine physical environment

 

3.2                                                                               Marine biological environment

 

3.3                                                                               Protected areas and special places

 

3.4                                                                               Fisheries and aquaculture

 

3.5                                                                               Atmospheric Environment

 

4.                                                                                      Environmental and Social Impact Assessment

 

4.1                                                                               Introduction

 

4.2                                                                               Approach

 

4.3                                                                               Offshore facilities

 

4.4                                                                               Underwater pipeline

 

4.5                                                                               Cumulative effects

 

4.6                                                                               Environmental evaluation and monitoring plan

 

5.                                                                                      Mitigation Measures and Residual Impacts

 

5.1                                                                               Introduction

 

5.2                                                                               Offshore facilities

 

5.3                                                                               Underwater pipelines

 

5.4                                                                               Cumulative effects

 

5.5                                                                               Environmental Management Plan

 

139

 

ANNEX 5C. OUTLINE OF HEALTH AND SAFETY PLAN

 

At least but not limited to

 

1.                                                                                      Hazard register

 

2.                                                                                      Evaluation and risk assessment of activities

 

3.                                                                                      Hazard management including a description of the means of control of identified hazards

 

4.                                                                                      Emergency response plan, including medical evacuation arrangements

 

140

 

ANNEX 5D. OUTLINE OF CONTRACTOR HSE MANUAL

 

At least but not limited to

 

a. HSE Policy

 

b. HSE System and organization

 

c. Applicable standards and procedures

 

d. Employee HSE training

 

e. HSE communication

 

f. HSE inspection

 

g. HSE auditing

 

h. Reporting of incidents and investigation

 

i. Waste management

 

j. Personal hygiene and sanitation

 

141

 

ANNEX 6. DUTIABLE ITEMS

 

The following items shall not be subject to the exemption described in Article 17 of the Contract:

 

(a)                                                                                 Foodstuffs and alcoholic and non-alcoholic beverages intended for human consumption.

 

(b)                                                                                 Fuels and lubricants.

 

(c)                                                                                  Timber and wood products.

 

(d)                                                                                 Textiles, textile goods, clothing, shoes, with the exception of those which are used /commonly used during the Petroleum Operations.

 

(e)                                                                                  Firearms and ammunition therefore.

 

(f)                                                                                   Office furniture.

 

(g)                                                                                  Unused air conditioners, other than for use in Contractor’s offices.

 

(h)                                                                                 Gunpowder and explosives, with the exception of those which are used to be/commonly used during Petroleum Operations.

 

(i)                                                                                     Sports and pleasure boats and engines for these.

 

(j)                                                                                    Unused furniture and other mechanical or non-mechanical appliances and equipment.

 

142

 

ANNEX 7. FORM OF CONTRACTOR PARENT COMPANY PERFORMANCE GUARANTEE

 

To:      Staatsolie Maatschappij Suriname N.V.

 

P.O. Box 4069

 

Half Flora

 

Paramaribo, Suriname

 

PERFORMANCE GUARANTEE

 

We the undersigned company,                                 (the “Parent”), a legal entity organised and existing under the laws of                                          , being the direct or indirect owner of  (the “Subsidiary”) which on                              has entered into a Production Sharing Contract for the Petroleum Exploration, Development and Production of Offshore Suriname, Block           (the “Contract”), with Staatsolie Maatschappij Suriname N.V. (“Staatsolie”) hereby, as primary obligor, unconditionally and irrevocably guarantees to Staatsolie the due and timely performance by the Subsidiary of its obligations under the Contract.

 

The Parent further guarantees that the Parent will provide the Subsidiary with all technical support and specialist personnel necessary for the Subsidiary to fulfill its Obligations under the Contract.

 

This Guarantee is a continuing Guarantee for the applicable phase of the Exploration Period and shall enter into force on the Effective Date of the Contract and shall remain in force until the Minimum Work Obligation of the Subsidiary under the Contract have been discharged in full or the obligations of the Subsidiary have been terminated.

 

This Guarantee shall be governed by the same law as provided under the Applicable Law provision in Article 40 of the Contract. Any dispute under this Guarantee shall be resolved by dispute resolution Article 41 of the Contract.

 

Dated the            day of                           , 2011, at                                                   .

 

By:

 

143

 

ANNEX 8 EXAMPLE OF R-FACTOR CALCULATION

 

 

Annex 8, Example of the Calculation of the R-factor ( block 42)

 

 

	
 
    	
 
    	
 
    	
TOTAL
    	
2021
    	
2022
    	
2023
    	
2024
    	
2025
    	
2026
    	
2027
    	
2028
    	
2029
    	
2030
    	
2031
    	
2032
    	
2033
    	
2034
    	
2035
    
	
Realized Price
    	
 
    	
 
    	
 
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95
    	
95.00
    
	
Production
    	
MMBBL
    	
 
    	
 
    	
10
    	
29
    	
58
    	
96
    	
135
    	
173
    	
207
    	
233
    	
253
    	
268
    	
279
    	
288
    	
295
    	
300
    	
300.0
    
	
Revenue Stream
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross Revenue
    	
$MM
    	
 
    	
28,498
    	
912
    	
1,829
    	
2,743
    	
3,658
    	
3,658
    	
3,658
    	
3,208
    	
2,453
    	
1,876
    	
1,435
    	
1,097
    	
839
    	
642
    	
491
    	
0.0
    
	
- Royalty
    	
$MM
    	
6.25%
    	
1,781
    	
57
    	
114
    	
171
    	
229
    	
229
    	
229
    	
201
    	
153
    	
117
    	
90
    	
69
    	
52
    	
40
    	
31
    	
0.0
    
	
- Cost Oil
    	
$MM
    	
 
    	
7,699
    	
684
    	
1,372
    	
2,057
    	
951
    	
529
    	
256
    	
257
    	
217
    	
430
    	
170
    	
156
    	
159
    	
328
    	
132
    	
0.0
    
	
Profit Oil
    	
$MM
    	
 
    	
19,018
    	
171
    	
343
    	
514
    	
2,478
    	
2,900
    	
3,173
    	
2,750
    	
2,083
    	
1,329
    	
1,175
    	
873
    	
628
    	
274
    	
328
    	
0.0
    
	
Profit Oil Income Tax
    	
$MM
    	
36.0%
    	
6,846
    	
62
    	
123
    	
185
    	
892
    	
1,044
    	
1,142
    	
990
    	
750
    	
478
    	
423
    	
314
    	
226
    	
98
    	
118
    	
0.0
    
	
Cumulative Gross Revenue
    	
$MM
    	
 
    	
 
    	
912
    	
2,741
    	
5,484
    	
9,141
    	
12,799
    	
16,456
    	
19,664
    	
22,118
    	
23,994
    	
25,429
    	
26,526
    	
27,365
    	
28,007
    	
28,498
    	
28,498
    
	
Cumulative Royalty
    	
$MM
    	
 
    	
 
    	
57
    	
171
    	
343
    	
571
    	
800
    	
1,029
    	
1,229
    	
1,382
    	
1,500
    	
1,589
    	
1,658
    	
1,710
    	
1,750
    	
1,781
    	
1,781
    
	
Cumulative Tax
    	
$MM
    	
 
    	
 
    	
57
    	
171
    	
343
    	
571
    	
800
    	
1,029
    	
1,229
    	
1,382
    	
1,500
    	
1,589
    	
1,658
    	
1,710
    	
1,750
    	
1,781
    	
1,781
    
	
R-Factor Numerator
    	
$MM
    	
 
    	
 
    	
793
    	
2,384
    	
4,771
    	
7,308
    	
9,693
    	
11,980
    	
13,997
    	
15,547
    	
16,828
    	
17,750
    	
18,464
    	
19,025
    	
19,528
    	
19,870
    	
19,870
    
	
Cumulative CapEx + OpEx
    	
$MM
    	
 
    	
 
    	
2,790
    	
3,514
    	
4,278
    	
5,064
    	
5,594
    	
5,849
    	
6,106
    	
6,323
    	
6,754
    	
6,924
    	
7,080
    	
7,239
    	
7,567
    	
7,699
    	
7,817
    
	
Cumulative Tax
    	
$MM
    	
 
    	
 
    	
62
    	
185
    	
370
    	
1,262
    	
2,306
    	
3,448
    	
4,438
    	
5,188
    	
5,667
    	
6,090
    	
6,404
    	
6,630
    	
6,728
    	
6,846
    	
6,846
    
	
R-Factor Denominator
    	
$MM
    	
 
    	
 
    	
2,790
    	
3,514
    	
4,278
    	
5,064
    	
5,594
    	
5,849
    	
6,106
    	
6,323
    	
6,754
    	
6,924
    	
7,080
    	
7,239
    	
7,567
    	
7,699
    	
7,817
    
	
R-Factor
    	
 
    	
 
    	
 
    	
0
    	
0.68
    	
1.12
    	
1.44
    	
1.73
    	
2.05
    	
2.29
    	
2.46
    	
2.49
    	
2.56
    	
2.61
    	
2.63
    	
2.58
    	
2.58
    	
2.54
    
	
Contractor POS*
    	
%
    	
 
    	
 
    	
85%
    	
85%
    	
80%
    	
75%
    	
70%
    	
40%
    	
40%
    	
40%
    	
40%
    	
40%
    	
40%
    	
40%
    	
40%
    	
40%
    	
40%
    
	
Contractor POS*
    	
$MM
    	
51%
    	
9,781
    	
145
    	
291
    	
411
    	
1,858
    	
2,030
    	
1,269
    	
1,100
    	
833
    	
531
    	
470
    	
349
    	
251
    	
109
    	
131
    	
0.0
    
	
Government POS*
    	
$MM
    	
49%
    	
9,237
    	
26
    	
51
    	
103
    	
619
    	
870
    	
1,904
    	
1,650
    	
1,250
    	
797
    	
705
    	
524
    	
377
    	
164
    	
197
    	
0.0
    
	
IOC    part of Contractor POS*
    	
$MM
    	
90%
    	
8,803
    	
131
    	
262
    	
370
    	
1,672
    	
1,827
    	
1,142
    	
990
    	
750
    	
478
    	
423
    	
314
    	
226
    	
98
    	
118
    	
0.0
    
	
NOC part of Contractor POS*
    	
$MM
    	
10%
    	
978
    	
15
    	
29
    	
41
    	
186
    	
203
    	
127
    	
110
    	
83
    	
53
    	
47
    	
35
    	
25
    	
11
    	
13
    	
0.0
    

 

  *POS = Profit Oil Share

 

 

ANNEX 9 TAX RULINGS

 

Form of Ruling 1

 

To:.

 

Paramaribo,

 

Re: Ruling on Turnover Tax

 

Dear         ,

 

On                                                    ., a corporation organized and acting under the laws of the Netherlands (hereinafter: “the contractor”), entered into a “Production Sharing Contract” (hereinafter: “the contract”) with Staatsolie Maatschappij Suriname N.V. for the exploration and exploitation of petroleum reserves in Block 42, as described in Annex 1 and Annex 2 of the contract.

 

For the implementation of the contract it is important, in advance, to be certain with regard to the interpretation of a number of provisions of the Turnover Tax Act 1997, as lastly amended in Official Gazette 2002 no 86.  In this regard, we communicate to you the following.

 

Pursuant to Article 18 of the Turnover Tax Act 1997 the Turnover Tax is zero percent (0%) in case of export of Crude Oil;

 

Article 12 of the Turnover Tax Act 1997 is applicable, if the contractor, with regard to its Petroleum activities in Suriname, produces taxable goods according to this act;

 

Article 16 of the Turnover Tax Act 1997 is also applicable to the contractor, if it meets the conditions as set forth therein.

 

I trust to have provided you with sufficient information.

 

Sincerely,

 

The Inspector of Turnover Tax,

 

145

 

Form of Ruling 2

 

 

To:.

 

Paramaribo,

 

Re: Ruling on Income Tax

 

On                           a corporation organized and acting under the laws of the                      (hereinafter: “the contractor”), entered into a “Production Sharing Contract” (hereinafter: “the contract”) with Staatsolie Maatschappij Suriname N.V. for the exploration and exploitation of petroleum reserves in Block 42, as described in Annex 1 and Annex 2 of the contract.  For the implementation of the contract it is important to establish certain matters as regards the interpretation and application of some provisions of the 1922 Income Tax Act, as lastly amended by Bulletin of Acts and Decrees 2003, no. 3 and in conjunction with the 1990 Petroleum Law, as amended by Bulletin of Acts and Decrees 2001, no. 58.  Within this framework I herewith inform you as follows:

 

The annual assessable profit of the contractor is computed in pursuance of the attached model;

 

By virtue of article 29 of the contract, in pursuance of the attached model, allocation to the Abandonment Fund is deductible upon computing the assessable profit;

 

Conformable to the distribution of the attached model, contractor’s share of surplus in the Abandonment Fund is designated as profit in the year in which the fund is terminated;

 

The other revenues of the contractor connected with the contractor’s business operations in Suriname are determined pursuant to the provisions laid down in the 1922 Income Tax Act;

 

Other revenues are meant to refer to the revenues of the contractor connected with the contractor’s business operations in Suriname that are taxable in Suriname in pursuance of the 1922 Income Tax Act and do not occur upon implementing the contract;

 

All other costs that are considered non-offsettable, including but not limited to the costs as indicated in paragraph  8 of the Accounting Procedure of the contract, shall be deductible in pursuance of the 1922 Income Tax Act;

 

Contractor is allowed to do its accounting in American currency, more in particular US Dollars;

 

146

 

Contractor is obligated to draw up its annual income tax return in US Dollars and to pay the tax due in US Dollars;

 

Contractor is obligated with the income tax returns to add a detailed statement to show how its assessable profit has been composed and this in such manner that it is sufficiently clear which revenues ensue from the implementation of the contract and other revenues;

 

By virtue of Article 9, subsection 8 of the 1990 Petroleum Law, the income tax rate for the revenues obtained from the contract amounts to 36%. In the event the tax rate is amended, such amendment shall not apply to the contractor and it shall not  affect its tax liability in pursuance of the 1922 Income Tax Act;

 

No withholding tax shall be levied on profit distributions by the permanent establishment in Suriname of contractor to a parent company or main office domiciled abroad;

 

The rights of contractor under the contract belong to the company capital of the company actually domiciled in Suriname or to the assets of the permanent establishment in Suriname. Upon selling the rights under the contract, the gains shall be taxed as capital gain in connection with the sale of such asset by virtue of the 1922 Income Tax Act;

 

Chapter XIV A, inspection of books and records, of the 1922 Income Tax Act, shall apply unimpaired to contractor;

 

Article 18 of the contract shall constitute part of this ruling.

 

I trust to have provided you with sufficient information.

 

Sincerely,

 

The Inspector of Direct Taxes

 

147

 

Note R = Row number as indicated in the first column

 

	
R
    	
Description
    	
2017
    	
2018
    	
2019
    	
2020
    	
2021
    
	
 
    	
GROSS INCOME
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1
    	
Contractor profit oil   (100% working interest example)
    	
$126,991
    	
$105,499
    	
$89,031
    	
$75,196
    	
$62,971
    
	
2
    	
Contractor cost   recoverable expenses received (100% working interest example)
    	
$37,324
    	
$33,323
    	
$29,909
    	
$27,041
    	
$24,507
    
	
3
    	
Contractor share of   surplus in Abandonment Fund (at end of Contract)
    	
0
    	
0
    	
0
    	
0
    	
0
    
	
4
    	
All other income of   Contractor properly included in gross income under Suriname law (if any, different   from R1, R2 or R3)
    	
0
    	
0
    	
0
    	
0
    	
0
    
	
5
    	
Contractor gross income   (R1+R2+R3+R4)
    	
$164,315
    	
$138,822
    	
$118,940
    	
$102,237
    	
$87,478
    
	
 
    	
DEDUCTIONS
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
6
    	
Contractor cost   recoverable expenses received (100% working interest example)
    	
$37,324
    	
$33,323
    	
$29,909
    	
$27,041
    	
$24,507
    
	
7
    	
Available for deduction   of non cost recoverable expenses (R5-R6)
    	
$126,991
    	
$105,499
    	
$89,031
    	
$75,196
    	
$62,971
    
	
 
    	
NON COST   RECOVERABLE EXPENSES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
8
    	
Contractor non-cost   recoverable exploration opex/capex (OCX)
    	
0
    	
0
    	
0
    	
0
    	
0
    
	
9
    	
All other Contractor   non-cost recoverable expenses (e.g., finance charges not included in cost   oil) (OCR)
    	
$100
    	
$100
    	
$100
    	
$100
    	
$100
    
	
10
    	
Carry forward for OCX   and OCR (previous year R13)
    	
0
    	
0
    	
0
    	
0
    	
0
    
	
11
    	
Total (R8 + R9 + R10)
    	
$100
    	
$100
    	
$100
    	
$100
    	
$100
    
	
12
    	
Deduction in this year   for OCX and OCR (if R7=0, then 0; if R11>R7, then R7; otherwise R11)
    	
$100
    	
$100
    	
$100
    	
$100
    	
$100
    
	
13
    	
Carry forward for OCX   and OCR (R11 – R12)
    	
0
    	
0
    	
0
    	
0
    	
0
    
	
 
    	
TAXABLE   INCOME & TAX
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
14
    	
Contractor taxable   income (R7-R12)
    	
$126,891
    	
$105,399
    	
$88,931
    	
$75,096
    	
$62,871
    
	
15
    	
Income tax rate 36%
    	
36%
    	
36%
    	
36%
    	
36%
    	
36%
    
	
16
    	
Income tax @ 36%
    	
$45,681
    	
$37,944
    	
$32,015
    	
$27,035
    	
$22,634
    
	
17
    	
Contractor net income   after tax (R14-R16-R13)
    	
$81,210
    	
$67,455
    	
$56,916
    	
$48,061
    	
$40,237
    

 

148

 

Form of Ruling 3

 

 

To:

 

Paramaribo,

 

Re:                                                                             Ruling on the implementation of the

                                                                                                provisions of the Petroleum Act 1990

 

On                       ,                  ., a corporation organized and acting under the laws of the Netherlands (hereinafter “the contractor”), entered into a “Production Sharing Contract” (hereinafter: “the contract”) with Staatsolie Maatschappij Suriname N.V. (“Staatsolie”) for the exploration and exploitation of petroleum reserves in the Block 42, as described in Annex 1 and Annex 2 of the contract. For the implementation of the contract it is important, in advance, to be certain with regard to the interpretation of a number of provisions of the Petroleum Act 1990, as lastly amended by Official Gazette 2001 no 58. In this regard, we communicate to you the following.

 

The contractor will be exempt from import and export duties on imported and exported industrial means, materials, goods or equipment of whatever nature, which are used for petroleum activities. If these goods are imported by contractor, the exemption shall only be applicable if goods that are not the property of Staatsolie, either become the property of Staatsolie or are exported from Suriname, after termination of the petroleum activities.

 

The household goods belonging to the personnel of a contractor shall be exempt from import duties on their import into Suriname, provided that these articles have been used previously to their import and have been imported within six months after arrival of the person concerned.  Items imported under this paragraph 2 and exempt from import duties may be exported without the payment of export duties.

 

Without prejudice to paragraphs 1 and 2 of this ruling, the contractor shall be bound by the provisions of the Appendix to the State Resolution of 4 August 1993.

 

The contractor shall be subject to the legal regulations concerning the statistics and consent duties for the import and export of goods on the proviso that the statistics and consent duties due in any calendar year shall not exceed an amount referenced in Article 4 of the State Resolution of 4 May 2005 (SB 2005, No. 52).

 

149

 

With the exception of statistics and consent duties, no further export duties, stamp duty or other provision, fee or tax will be levied or due in relation to the export of petroleum.

 

Sincerely,

 

The Director of Taxes,

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