Document:

NO
: 1
8

    

    Natural
Gas Purchase Agreement

    

    
      	
              Seller:

            	
              Shaanxi
      Natural Gas Co., Ltd.

            

    

    
      
        	 	 
	
                Purchaser:

              	
                Xi'an
      Xilan Natural Gas Co.,
Ltd.

              

      

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Natural
Gas Purchase Agreement

    
      Contract
No.: 18

    

    
      Signed
at: Xi’an,
Shaanxi

    

    Seller                (Party
A): Shaanxi Natural Gas Co., Ltd.

    Purchaser        (Party
B): Xi’an Xilan Natural Gas Co., Ltd.

    

    According
to the CONTRACT LAW OF THE PEOPLE’S REPUBLIC OF CHINA, the MUNICIPAL GAS
MANAGEMENT REGULATION, as well as the MUNICIPAL GAS SECURITY MANAGEMENT
REGULATION, to confirm the rights and obligations of both parties, after
negotiation, Party A and Party B reached the following agreement (‘the
Agreement’).

    

    Article
1           Duration and
Supply

    
      	
              1.

            	
              Duration:
      From 8 am on December 31, 2007 to 8 am on December 31,
    2008.

            

    

     

    
      	
              2.

            	
              Supply:
      According to the annual plan of the China Natural Petroleum Corporation
      (‘CNPC’) Changqing Natural Gas Company and the distribution plan of the
      Shaanxi Development and Reform Commission, the volume of gas in
      this contract for the year 2008 will be 25.58 million cubic
      meters.

            

    

     

    Unit: Million cubic
meters

    
      
        	
                Jan.

              	
                Feb.

              	
                Mar.

              	
                Apr.

              	
                May

              	
                Jun.

              	
                Jul.

              	
                Aug.

              	
                Sep.

              	
                Oct.

              	
                Nov.

              	
                Dec.

              
	
                1.94

              	
                2.18

              	
                2.53

              	
                1.94

              	
                1.64

              	
                1.83

              	
                1.76

              	
                2.05

              	
                1.99

              	
                2.49

              	
                2.52

              	
                2.71

              

      

    

    
      
        	
                3.

              	
                In
      order to ensure continuing operation, Party B shall provide the annual gas
      usage plan for next year before July 20 2008 and the monthly gas usage
      plan before the 20th of each month to Party A in
  writing.

              

      

    

    
      	
              4.

            	
              Party
      B shall provide timely and accurate market information regarding gas usage
      and market development for the efficient and timely communication between
      both parties.

            

    

    
      	
              5.

            	
              Party
      B shall inform Party A of its new users one year in advance. Party B must
      obtain approval under Notification No. [2005] 387 by Shaanxi Development
      and Reform Commission for natural gas quota. Otherwise, Party A will not
      consider the natural gas demand for Party B’s new industrial
      users.

            

    

    
      	
              6.

            	
              Shaanxi
      Natural Gas Supply Contingency Plan No. [2005] 387 shall govern in cases
      of gas supply shortage or other emergency, and is attached as exhibit for
      this Agreement.

            

    

    

    Article
2           Price
Setting

    
      	
              1.

            	
              Selling
      price is set according to the relevant documents of Shaanxi Price
      Bureau.

            

    

    According
to Shaanxi Natural Gas Price Adjustment 31 [2006], the price for natural gas
supplied by Party to Party B is RMB 1.26 per cubic meter at city gate stations,
which includes RMB 0.77 per cubic meter as base cost and RMB 0.49 per cubic
meter as long-distance pipeline transmission cost.

    
      	
              2.

            	
              During
      the term of this contract, in cases of any price adjustments by regulatory
      authorities, the new price shall substitute the price currently agreed by
      both parties.

            

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Article
3           Supply
Handover

    The
handover place is designated at Party A's Lintong transmission station, whereby
the natural gas ownership as well as corresponding risks shall be transferred
from Party A to Party B.

    

    Article
4  Gas Quality

    Natural
gas provided is purified and supplied by the Bureau of Changqing Gas
Purification Plant which satisfies the second level of
GB17820-1999 "Gas" Category Standard.

    

    Article
5  Gas Pressure

    The
pressure of sub-transmission station exit is less than 1.0 MPa.

    

    Article
6  Gas Metering and Transition

    
      	
               
      

            	
              1.

            	
              Volume
      calculation:

            

    

    
      	
            	
              (1)

            	
              Measurement
      standards: the
      amount of gas shall be measured by volume, and
      in compliance with law of the People's Republic of China's oil and gas
      industry standard SY/T6143-2004.

            

    

    
      	
            	
              (2)

            	
              Measurement
      condition: the standard temperature to measure the
      volume of gas is 293.15K (20 degrees Celsius) with pressure 101.325 Pa (1
      standard atmospheric pressure).

            

    

    

    
      	
               
      

            	
              2.

            	
              Gas
      handover

            

    

    
      	
            	
              (1)

            	
              Shall
      be in accordance with the calculation standards of Party A’s Lintong
      distribution station, it will be monitored by Party B,  and
      Party A is responsible for the operation of the measuring
      instruments.

            

    

    
      	
            	
              (2)

            	
              Party
      A shall provide receipt daily in five copies. After recording and signing
      by both parties, these copies will be deemed as proof of
      settlement.

            

    

    
      	
            	
              (3)

            	
              At
      8 o 'clock every morning, Party B will assign staff to record volume of
      gas with Party A’s staff at the Lintong
station.

            

    

    

    
      	
               
      

            	
              3.

            	
              Maintenance
      of measuring instruments

            

    

    According
to the State regulations, both parties agreed to assess the measuring
instruments regularly by the Shaanxi Metrology Institute. Party A shall provide
the copy of tested results to Party B.

    

    
      	
               
      

            	
              4.

            	
              Dispute
      Resolution for Measuring

            

    

    
      	
            	
              (1)

            	
              In
      the process of gas supply, if
      Party B has objection to Party A relating to the volume of metrological
      instrument measuring, it shall inform Party A in written within three
      days, and invite professionals in the Shaanxi Scientific Research
      Institute to perform metrological measurement. Party B shall cooperate
      with Party A. If
      instrument measuring data are incorrect, Party A shall amend the record on
      the day when dispute arises and be liable for the expenses otherwise Party
      B will be liable for the assessment
expenses.

            

    

    
      	
            	
              (2)

            	
              For
      disputes between the parties, settlement will be in accordance with Party
      A's calculation standards. The amended figures after negotiation will be
      used in the settlement calculation, where overpaid/underpaid amount will
      be settled.

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Article
7  Prepayment

    In
accordance with the "Payment made before supply" principle, and in order to
guarantee the overall performance of the contract, within one week of the date
of this Agreement, Party B shall prepay RMB 1.76 million to Party
A.

    

    Article
8  Payment Settlement

    
      	
               
      

            	
              1.

            	
              Settlement
      time

            

    

    On the
30th
of each month, and
within three days (If it falls on a holiday, the payment day will be moved
forward).

    
      	
               
      

            	
              2.

            	
              The
      settlement: According
      to the People's Republic of China’s present interim measures for the
      administration of gas supply:  ‘For the settlement of supply
      settlement, the measurement by the seller shall prevail’. Each day, the
      "Invoice for the supply and purchase of gas" as signed by the designated
      staff of each party will be the proof of settlement for the supply of
      natural gas.

            

    

    
      	
               
      

            	
              3.

            	
              Payment
      option

            

    

    
      
        	
              	
                 

              	
                Party
      B shall adopt bank transfer and check
      transfer methods etc. Party
      B shall send or fax a copy of the receipt to Party A after payment is
      made.

              

      

    

    

    Article
9  Gas Load

    Party A
is only responsible within the scope of this Agreement. Party A is not
responsible for the gas load in situation such as co-operating with Party B to
alter the volume of gas supply in accordance with the condition of pipeline
safety and production capacity.

    

    
      Article
10 Party A’s Responsibility of Breach of Contract

    

    
      	
               
      

            	
              1.

            	
              Under
      normal circumstances, Party A shall be in strict compliance with the plan
      for continuous gas supply. Party A cannot automatically suspend the
      supply.

            

    

    
      	
               
      

            	
              2.

            	
              For
      repair and maintenance of the gas pipelines, it will require a temporary
      suspension of the gas supply. Party A shall inform Party B 24 hours in
      advance; for sudden failure leading to immediate suspension of supply,
      Party A shall inform Party B immediately. After suspension of supply,
      Party A shall fix and provide gas supply as soon as
    possible.

            

    

    
      	
               
      

            	
              3.

            	
              Party
      A shall provide written notice to Party B five days in advance when gas
      supply is suspended for overhaul
maintenance.

            

    

    
      	
               
      

            	
              4.

            	
              If
      Party B reasonably requests to suspend gas supply, Party A shall
      immediately contact the upstream units for volume adjustment and prepare
      for the termination of the gas supply, and
      accordingly inform Party B.

            

    

    

    
      Article
11  Party B's Responsibility of Breach of Contract

    

    
      	
               
      

            	
              1.

            	
              If
      Party B is unable to perform the contract in the following circumstances,
      it will be deemed as a breach of the contract and Party B will be liable to compensate the losses caused to the
      other
      party:

            

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    
      	
            	
              (1)

            	
              Under
      normal circumstances, Party B shall be in strict compliance with the
      target for continuous gas usage.

            

    

    
      	
            	
              (2)

            	
              When
      Party B intends to terminate gas usage, Party B shall inform Party A 24
      hours in advance so that Party A can perform all the necessary preparation
      works for the suspension of gas supply. Party B can only shut down the
      valves after receiving replied from Party A. For sudden failure causing
      suspension of gas supply, Party B shall inform Party A immediately. Party
      B shall fix and ensure gas usage as soon as
  possible.

            

    

    
      	
            	
              (3)

            	
              Party
      B shall provide written notice to Party A five days in advance when gas
      supply is suspended for overhaul
maintenance.

            

    

    
      	
            	
              (4)

            	
              If
      Party A reasonably requests to suspend supply, Party B shall cooperate
      with and reply Party B immediately.

            

    

    

    
      	
               
      

            	
              2.

            	
              If
      Party B fails to settle the payments on time, besides paying money
      according to the daily amount, from the second day of the deferred
      payment, Party B shall pay 0.3% of accounts payable per day as the
      penalty. If Party B delays the payment for more than 5 days, Party A may
      reduce the quantity of daily gas supply, and may not guarantee minimum
      supplies, all of the consequential losses shall be borne by Party
      B.

            

    

    

    
      Article
12  Dispute Resolution

    

    
      	
               
      

            	
              1.

            	
              For
      disputes arising between the parties, both parties shall make their best
      effort to negotiate. If the dispute cannot be resolved, either party can
      pursue the first resolution set forth as
follow:

            

    

    
      	
               
      

            	
              (1)

            	
              Apply
      to the Xi'an arbitration
commission;

            

    

    
      	
               
      

            	
              (2)

            	
              Proceed
      with legal proceedings at the People's Court at Party A's
      locality.

            

    

    
      	
               
      

            	
              2.

            	
              During
      the mediation period, both parties are strictly bound by this
      Agreement.

            

    

    

    
      Article
13  Other terms

    

    
      	
               
      

            	
              1.

            	
              Unless
      terminated under contract law, either
      party shall not unilaterally modify or terminate this Agreement. Either
      party, requesting to change or terminate this Agreement in accordance with
      the law, shall promptly notify the other party in writing and to reach a
      written agreement between the
parties.

            

    

    
      	
               
      

            	
              2.

            	
              If
      this Agreement could not be performed due to force majeure, both parties,
      in accordance with relevant laws and regulations, shall negotiate and
      settle the matter promptly.

            

    

    
      	
               
      

            	
              3.

            	
              As
      for any outstanding issues, the two parties can make further negotiation
      and enter into a supplemental agreement. The supplemental agreement has
      the same legal effect as this
Agreement.

            

    

    

    
      Article
14  Supplementary Provisions

    

    
      	
               
      

            	
              1.

            	
              This
      Agreement will be valid from 8:00 am on December 31, 2007 until 8:00 am on
      December 31, 2008.

            

    

    
      	
               
      

            	
              2.

            	
              This
      Agreement is executed in four copies, two original and two copies, all of
      which have equal legal effectiveness. Each
      of Party A and Party B holds one original copy
    respectively.

            

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    
      Party
A:Shaanxi Natural Gas Co.,
Ltd  

    

    
      Company
Seal

    

    

    
      Party B:Xi’an Xilan Natural Gas Co.,
Lt

    

    
      Company
Seal

    

    
      
         

      

      
        6Independent
Director Agreement

    

    This
INDEPENDENT DIRECTOR AGREEMENT is made and entered into as of January 1, 2008,
by and between China Natural Gas (“company”) and Zhiqiang Wang.

    

    Whereas,
the Company desires to engage the Independent Director, and the Independent
Director desires to serve,as a non-employee direcor of the Company,subject
to the terms and conditions contained in this Agreement.

    

    NOW,
THEREFORE, the Company and Independent Director, intending to be legally bound,
hereby agree as follows:

     

    1、The Governance and
Appointment Committee is responsible for, among other things:

    Supervising,
reviewing and making recommendations on Corporate Governance Policies, and
recommending candidates to the company's Board of Directors.

    

    2、SERVICES OF
INDEPENDENT DIRECTOR

         While
this Agreement is in effect, the Independent Director shall perform duties as an
Independent Director and chairman of Governance and Appointment Committee of the
Company, and will be compensated and reimbursed in accordance with Schedule A
attached hereto, subject to the following:

    
      	
              (1)

            	
              Select
      and recommend directors to the Board of
  Directors

            

    

    
      	
              (2)

            	
              Evaluate
      regularly the Board members' work capacity, including the decentralization
      of professional experience, as well as technology, finance, marketing,
      business, financial reporting skills, and other specialties that are
      important to the Board.

            

    

    
      	
              (3)

            	
              Assess
      and provide appropriate amendments related to the company's governance
      policies to the Board of Directors
  regularly.

            

    

    
      	
              (4)

            	
              Have the right to terminate the
      company's management directly for the successful completion of
      duties.

            

    

    
      	
              (5)

            	
              Carry
      out other related duties identified by the Board of Directors that in line
      with the Commission Charter, the Articles of Associations, and other
      relevant laws.

            

    

    
      	
              (6)

            	
              Assess
      the adequacy of the Commission Charter and make recommendations to the
      Board of Directors regularly.

            

    

    
      	
              (7)

            	
              Report
      the major issues in the Committee meeting to the Board of
      Directors

            

    

    
      	
              (8)

            	
              Review
      and re-assess the adequacy of the Statute of Governance and
      Nomination Committee annually.

            

    

    
      	
              (9)

            	
              Carry
      out other matters appointed to the Governance and Nomination Committee by
      the Board of Directors.

            

    

    
      	
              (10)

            	
              Report
      to the entire Board of Directors
periodically

            

    

    
      	
              (11)

            	
              The
      Independent Director will perform services as are consistent with the
      Independent Director’s position with the Company, as required and
      authorized by the By-Law and Certificate of Incorporation of the Company,
      and in accordance with high professional and ethical standards and all
      applicable laws and rules and regulations pertaining to the Independent
      Director’s performance hereunder, including, but not limited to, laws,
      rules and regulations relation to a public
  company.

            

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

    
      	
              (12)

            	
              The
      Independent Director is responsible for tax issues relating to the
      compensation paid by the Company to the Independent Director under this
      agreement.

            

    

    
      	
              (13)

            	
              Any
      money owed by the Independent Director to the Company will be deducted
      from the director’s salary.

            

    

    

    3、COMMITTEE
MEETINGS

    

    The
Committee will hold meetings regularly in order to fulfill its duties. All
members of the meeting in the majority will constitute the adoption of any
resolution. All committee meetings shall comply with Delaware laws (including
the requirements on the minimum number of committee members,
vote / resolution). Meeting records shall be kept for every committee
meeting.

    

    4、REQUIREMENTS OF
INDEPENDENT DIRECTOR

    During
the term of Independent Director’s service to the Company hereunder, Independent
Director shall observe all applicable law and regulations relating to
independent director of a public listed company as promulgated from time to time
and shall not:

    
      	
              (1)

            	
              Become
      an employee of the Company or its
Subsidiary;

            

    

    
      
        	
                (2)

              	
                Accept,
      directly or indirectly, any consulting, advisory, or
      other   compensatory fee from the company other than the
      Director salary.

              

      

    

    
      
        	
                (3) 

              	
                Become
      an "affiliated person" of the company or its
  Subsidiary.

              

      

    

    
      
        	
                (4) 

              	
                Have
      any interest in any business activities with the Company or its
      Subsidiary, for which disclosure would be
  required.

              

      

    

    
      
        	
                (5)

              	
                Be
      engaged in a business relationship with the Company or its Subsidiary, for
      which disclosure would be
required.

              

      

    

    

    5、REPORT
OBLIGATION

    While
this Agreement is in effect, the Independent Director shall immediately report
to the Company in the event:

    
      
        	
                (1)

              	
                The
      Independent Director knows or has reasons to know or should have known
      that any of the requirements specified in Section 3 hereof is not
      satisfied or is not going to be satisfied;
and

              

      

    

    
      
        	
                (2)

              	
                The
      Impendent Director simultaneously serves on the Audit Committee of any
      other public company.

              

      

    

    

    6、TERM AND
TERMINATION

    The term
of this Agreement and the Independent Director’s services hereunder shall be two
years from the Effective Day, unless terminated as provided for in the section.
This agreement and the Independent Director’s services hereunder shall terminate
upon the earlier of the following:

    
      	
              (a) 

            	
              The
      expiration of the Independent Director’s term as a director of the
      Company;

            

    

    
      
        	
                (b) 

              	
                The
      removal of the Independent Director as a director of the Company, upon
      proper board action or stockholder action, in accordance with the Articles
      of the Associations and applicable
laws;

              

      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    
      
        	
                (c) 

              	
                The
      resignation of the Independent Director as a director of the Company upon
      written notice to the board of Directors of the Company;
  or

              

      

    

    
      
        	
                (d) 

              	
                The
      termination or this Agreement by the Company, in the event that any of the
      requirements specified in Section 2 hereof is not satisfied, as determined
      by the Company in its sole
discretion.

              

      

    

    

    7、LIMITATION OF
LIABILITY.

    In no
event shall the Independent Director be individually liable to the company or
its stockholders for any damages for breach of fiduciary duty as an independent
director of the Company, unless the Independent Director’s act or failure to act
involves intentional gross misconduct, fraud, criminal acts or a knowing
violation of law.

    

    8、INSURANCE

    The
Company may obtain and maintain a policy or policies of director and officer
liability insurance, of which the Independent Director will be named as an
insured, providing the Independent Director with coverage for indemnifiable
amounts and/or indemnifiable expenses in accordance with said insurance policy
or policies.

    

    The rules
and regulations of the Company notified to the independent director, from time
to time, apply to the Independent Director. Such rules and regulations are
subject to change by the Company in its sole discretion. Notwithstanding the
foregoing, in the event of any conflict or inconsistency between the terms and
conditions of this Agreement and rules and regulations of the Company, the terms
of this Agreement control.

    

    
      
        	
                China
      Natural Gas,Inc.

              	
                Independent
      Director

              
	 
      	 
      
	
                /By/

              	
                /By/

              

      

    

    

    
      
        	
                Name:
      Qinan Ji

              	
                Name:
      Zhiqiang Wang

              
	
                Title:
      CEO & Chairman

              	 
      

      

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    SCHEDULE
A

    

    I.  POSITION:

    
      Chairman
of Governance and Nomination Committee of China Natural Gas
Inc.

    

    

    
      INDEPENDENT
DIRECTOR

    

    

    II.  COMPENSATION:

    FEES. For
all services rendered by the Independent Director pursuant to this Agreement,
both during and outside of normal working hours, including but not limited
to, attending all required meetings of Board of Independent Directors of
the Company or applicable committees thereof, reviewing filing reports and other
corporate documents as requested by the Company, providing comments and opinions
as to business matters as requested by the Company, the Company agrees to pay to
Independent Director a fee in cash of RMB3,000 each month for two years
subsequent to January 1 2008. The fees in cash shall be payable to Independent
Director quarterly in equal installments.

    

    EXPENSES.
During the term of the Independent Director’s services as a director of the
Company, the Company shall promptly reimburse the Independent Director for all
expenses incurred by him/her in connection with attending the annual and
quarterly meeting of the Board of Independent Directors of the Company or
applicable committees thereof, as a director or a member of any board committee,
which are approved by the Company in advance.

    

    NO OTHER
BENEFITS OR COMPENSATION. The Independent Director acknowledges and agrees that
he is not granted and is not entitled to any other benefits or compensation from
the Company for the services provided under this Agreement except expressly
provided for in this Schedule A.

    

    
      
        	
                China
      Natural Gas,Inc.

              	
                Independent
      Director

              
	 
      	 
      
	
                /By/

              	
                /By/

              

      

    

    

    
      
        	
                Name:
      Qinan Ji

              	
                Name:
      Zhiqiang Wang

              
	
                Title:
      CEO & Chairman

              	 
      

      

    

    
      
         

      

      
        4

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